A finished ACC-656 Topic 7 consolidated statement preparation example, building three consolidated statements from separate parent and subsidiary records and removing intercompany inventory profit, an equipment gain and a loan. Searches like "acc 656 topic 7 assignment example", "acc656 topic 7 sample" and "acc-656 topic 7 example" land here.
What a finished ACC-656 Topic 7 consolidated statement preparation looks like
Two sets of books go in and one set of statements comes out, with every figure illustrative. The parent reports $420,000 of income from its own operations and the wholly owned subsidiary $180,000, but four adjustments stand between that $600,000 and the group's figure. Inventory the subsidiary still holds from the parent carries $9,000 of unrealized profit, which is deferred, while $7,000 deferred last year is now realized because those goods were sold. A $30,000 gain the subsidiary booked when it sold equipment to the parent in year two is unwound at $6,000 a year through depreciation. Amortization of the acquisition-date fair value adjustments takes $15,000. Consolidated net income is $589,000. The $500,000 loan from parent to subsidiary, and the $30,000 of interest on it, disappear from both statements, since the group borrowed nothing from anyone.
How an ACC-656 Topic 7 example is structured
The example is arranged as a preparer would work, from the two sets of books to three finished statements. It opens with a schedule of intercompany items, listing each one, its amount and which statement lines it touches, so nothing is discovered halfway through. The worksheet follows, with eliminations grouped by item: the investment and acquisition-date adjustments, the loan and its interest, the inventory profit at both ends of the year and the equipment gain. A third part presents the consolidated income statement, with intercompany sales and interest removed. The retained earnings statement comes fourth, its opening balance adjusted for last year's deferrals. The balance sheet follows, equipment restated to the group's original cost. A sixth part reconciles consolidated net income to the two separate incomes in five lines. It ends by naming the eliminations that recur each year until the goods are sold and the equipment is retired.
Intercompany items scheduled before the worksheet
Every transaction between the two companies is listed with its amount and affected lines first, which keeps an item from being found only after the statements are drafted.
Inventory profit handled at both ends
This year's $9,000 in ending inventory is deferred and last year's $7,000 is released, because those earlier goods have now been sold to outside customers.
An equipment gain unwound through depreciation
The subsidiary's $30,000 gain is removed and the equipment returned to its original basis, and the group then records $6,000 less depreciation each year than the parent's books.
The loan removed from both statements
The $500,000 note and the $30,000 of interest leave the balance sheet and income statement together, since money moved within the group creates neither debt nor income.
Net income reconciled in five lines
Separate incomes of $600,000, less $9,000, plus $7,000, plus $6,000 and less $15,000 give $589,000, a proof any reviewer can redo without the worksheet.
Where marks go in ACC-656 Topic 7
A full statement set gives markers many places to find errors, and the costliest are omissions. Leaving last year's inventory deferral unreleased understates this year's income by $7,000 and leaves opening retained earnings misstated. Removing the equipment gain in the year of sale and forgetting it afterward treats a multi-year correction as a single entry, so every later year's depreciation is wrong. Papers that eliminate the loan but leave the interest in revenue and expense, or the reverse, produce statements that disagree with each other. A consolidated balance sheet assembled by adding the two companies' figures line by line, with eliminations shown nowhere, cannot be reviewed, and in most sections it is treated as incomplete. Statements presented without a reconciliation of consolidated net income give the reader no quick way to see that the adjustments are all there.
Get an ACC-656 Topic 7 example written to your instructions
Send your ACC-656 Topic 7 instructions, the rubric and both companies' trial balances with the intercompany details your case supplies. We write a custom example to them, with every intercompany item scheduled, eliminations grouped by item, all three consolidated statements prepared and net income reconciled to the separate books, returned in 24 to 48 hours. The first one is free.
ACC-656 Topic 7 questions, answered
Why does last year's inventory profit affect this year?
Because the deferral moved it rather than removing it. Last year the group held goods containing $7,000 of profit that no outsider had paid for, so consolidation took it out. This year those goods were sold to customers, so the profit is now earned and appears in this year's consolidated income. The worksheet reduces opening retained earnings by the old deferral and recognizes it through cost of sales.
Why is an intercompany equipment gain recognized over several years?
From the group's point of view the equipment never left, so it should be carried at its original cost less the depreciation the group would have taken. The buyer depreciates the higher transfer price instead. Each year the worksheet reduces depreciation to the group's figure, and that difference, $6,000 here, is how the gain becomes earned, gradually, as the equipment is used up.
Do the eliminations appear in either company's own books?
No. They exist only on the consolidation worksheet, which is why the worksheet has to be rebuilt every year from the separate records. Neither company's general ledger ever records the elimination of its intercompany balances. The example states this at the start, since coursework sometimes asks for eliminations as journal entries and a marker will check which set of books they were meant for.