| Course | ACC 545 Financial Reporting (ACC/545) |
|---|---|
| Week | 4 |
| Paper type | Consolidation paper |
| Length | about 1,169 words, 4 double-spaced pages plus title page and references |
| Format | APA 7 student paper |
| School | University of Phoenix |
| Program | MS in Accounting |
| Updated | September 2026 |
Free sample paper for ACC 545 Week 4
Buying 80% of a Brass Foundry: Goodwill With a Noncontrolling Interest at Fair Value, First-Year Consolidation Adjustments and Unrealized Profit on Castings at a Composite Plumbing Fixture Maker
[Student Name]
University of Phoenix
ACC/545: Financial Reporting
Week 4 Assignment
[Instructor Name]
[Date]
The companies and all figures are composites written for a model paper; standards and research findings come from the sources listed.
A composite company makes faucets, valves and shower systems sold through plumbing wholesalers and home centers. On January 1, it bought 80% of the voting shares of the regional brass foundry that casts most of its faucet bodies, securing supply after two years of delays. The founding family kept 20%. The parent now controls the foundry and must consolidate it. Consolidation is not adding two sets of books together; it is removing everything that happened only between the two companies and restating the subsidiary at what the parent paid for it. This paper prepares the first-year adjustments.
Goodwill at Acquisition
The parent paid $48.0 million in cash for 80%. Under US GAAP, the acquirer measures the noncontrolling interest at its acquisition-date fair value; based on the foundry's share price in a recent private transaction adjusted for the absence of control, the family's 20% was valued at $11.5 million (Financial Accounting Standards Board, 2007a). The foundry's identifiable net assets had a book value of $44.0 million and a fair value of $52.0 million, the difference arising from inventory worth $1.0 million more than book, equipment worth $5.0 million more and customer relationships with other fixture makers valued at $2.0 million that the foundry had never recorded.
Goodwill equals $48.0 million plus $11.5 million, less $52.0 million, or $7.5 million. Because the noncontrolling interest is at fair value, goodwill represents the whole foundry, not just the parent's share.
Year-One Adjustments to the Foundry's Income
The foundry reported net income of $6.0 million for the year on its own books. Consolidated statements must reflect the fair value adjustments recorded at acquisition. The inventory step-up of $1.0 million flows into cost of sales in the first year, since that inventory was sold. The equipment step-up of $5.0 million is depreciated over a remaining life of ten years, $500,000 a year. The customer relationships of $2.0 million are amortized over five years, $400,000 a year. Adjusted foundry income for consolidation is $6.0 million less $1.9 million, or $4.1 million.
Intercompany Sales
During the year, the foundry sold castings to the parent for $9.0 million at its normal gross margin of 25%. From the group's point of view, these sales are internal transfers. The consolidation entry eliminates $9.0 million of sales and $9.0 million of cost of sales so that consolidated revenue includes only sales to outside customers.
At year end, $2.0 million of castings bought from the foundry were still in the parent's inventory, either unused or in unfinished faucets. The foundry's 25% margin on those castings, $500,000, has not been earned by the group, since the goods have not been sold outside. The entry reduces inventory by $500,000 and increases cost of sales by the same amount.
Upstream Sales and the Noncontrolling Interest
Because the foundry sold to the parent, the sales were upstream, from subsidiary to parent. The unrealized profit sits in the foundry's reported income, part of which belongs to the family. The noncontrolling interest's share of income is therefore calculated on the foundry's income after removing the unrealized profit: 20% of $4.1 million less $0.5 million, or $720,000. Had the sales been downstream, from parent to foundry, the elimination would have affected only the parent's share.
A Note on Taxes
The parent bought shares, so the foundry's tax bases did not change. The step-ups to fair value therefore create deferred tax liabilities, which in practice would be recognized in the acquisition accounting and would increase goodwill by the same amount. At a 25% rate, the deferred tax liability on the $8.0 million of step-ups would be about $2.0 million, raising goodwill to about $9.5 million, and the liability would reverse as the step-ups are amortized. The figures in this paper omit that effect for clarity, but the parent's actual statements include it.
The Investment on the Parent's Own Books
In its separate records, the parent carries the foundry at cost or under the equity method; either way, the consolidation worksheet eliminates the investment. Many parents use the equity method internally because it makes the consolidation entries simpler: the parent's income already includes its share of the foundry's adjusted income, so consolidated net income attributable to the parent equals the parent's own net income.
Dividends
The foundry paid $1.5 million in dividends. The parent's $1.2 million is intercompany and is eliminated against the parent's dividend income or its investment account, depending on how it records the investment internally. The family's $300,000 reduces the noncontrolling interest.
The Noncontrolling Interest Balance
The noncontrolling interest begins at its acquisition-date fair value of $11.5 million, increases by its $720,000 share of income and decreases by $300,000 of dividends, ending at about $11.92 million. It is presented in consolidated equity, separately from the parent's stockholders' equity, and its share of net income is shown separately below consolidated net income (Financial Accounting Standards Board, 2007b).
Other Eliminations
The parent owed the foundry $1.1 million for castings at year end. The intercompany receivable and payable are eliminated so that consolidated statements show only amounts owed to and by outsiders. The parent's investment account is eliminated against the foundry's equity and the fair value adjustments, leaving goodwill and the noncontrolling interest.
Segment and Management Reporting
Management will continue to review the foundry's results separately, since its general manager reports on its performance and it sells to outside customers as well. The consolidated foundry results, including the step-up amortization, will likely be reported as a separate operating segment or combined with the parent's components business if the chief operating decision maker reviews them together.
What the Consolidated Statements Show
Consolidated revenue rises only by the foundry's sales to outside customers, about $11 million, not its total sales of $20 million. Consolidated gross margin improves slightly because the group now keeps the foundry's margin on castings used in faucets sold to outsiders. Goodwill of $7.5 million and customer relationships appear on the balance sheet. Shalev (2009) found that the level of detail in business combination disclosures was related to how investors responded to acquisitions, which supports the parent's decision to explain the purchase price allocation and the strategic reason for the deal fully.
Disclosure
The parent discloses the acquisition date, consideration, the fair value of the noncontrolling interest and how it was measured, the amounts assigned to receivables, inventory, equipment, intangibles and liabilities, the goodwill and the reasons for it and the revenue and earnings of the foundry included since acquisition.
Conclusion
With the noncontrolling interest at fair value, goodwill on the foundry is $7.5 million. First-year consolidation reduced the foundry's income for fair value adjustments, eliminated $9.0 million of intercompany sales and $500,000 of unrealized profit on castings, shared that elimination with the family because the sales were upstream and allocated $720,000 of income and $300,000 of dividends to the noncontrolling interest, which ends the year at about $11.9 million within equity.
References
Financial Accounting Standards Board. (2007a). Business combinations (Statement of Financial Accounting Standards No. 141 [revised 2007]).
Financial Accounting Standards Board. (2007b). Noncontrolling interests in consolidated financial statements: An amendment of ARB No. 51 (Statement of Financial Accounting Standards No. 160).
Shalev, R. (2009). The information content of business combination disclosure level. The Accounting Review, 84(1), 239-270. https://doi.org/10.2308/accr.2009.84.1.239
What the ACC 545 Week 4 instructions ask
ACC 545 Week 4 usually asks graduate students to prepare or explain consolidated financial statements. Typical requirements include applying the acquisition method, measuring goodwill and the noncontrolling interest, allocating the excess of fair value over book value to identifiable assets and liabilities, amortizing or depreciating those differences after acquisition, eliminating intercompany balances, sales and unrealized profits, distinguishing upstream and downstream transactions, allocating net income and dividends to the noncontrolling interest and presenting it within equity. Many prompts provide separate trial balances and ask for worksheet entries and consolidated amounts. Each adjustment should come with a sentence on why it is needed, and the Codification, the consolidation standards and relevant research should be referenced in APA form.
How this ACC 545 Week 4 example is built
A manufacturer buying a controlling but not total interest in its supplier creates every major consolidation issue: a noncontrolling interest, fair value adjustments that must be amortized and a steady flow of intercompany sales. The paper starts at the acquisition date, computing goodwill, then moves to year one, showing each adjustment and the income it affects. The intercompany section explains why sales between the companies are eliminated and why unrealized profit on castings still held must be removed, with the upstream direction affecting the noncontrolling interest. The noncontrolling interest's share of income and dividends is computed, and the paper closes with presentation and what the consolidated statements reveal.
ACC 545 Week 4 grading rubric: where the points go
Graduate grading for consolidation typically rewards correct goodwill measurement with the noncontrolling interest at fair value, correct allocation and amortization of fair value differences, complete elimination of intercompany transactions and unrealized profits and correct allocation of income and equity to the noncontrolling interest. Faculty check that upstream unrealized profit is shared with the noncontrolling interest, that intercompany dividends are eliminated and that the noncontrolling interest appears in equity, separate from the parent's equity. Clear explanation of each entry's purpose, figures that tie and cited guidance complete the grade, with credit for discussing what consolidated figures reveal and for noting simplifications such as omitted tax effects.
ACC 545 Week 4 help: mistakes to avoid
The most common ACC 545 Week 4 error is computing goodwill only on the parent's 80% share. When the noncontrolling interest is measured at fair value, goodwill reflects the whole subsidiary. Another is forgetting to amortize fair value adjustments, which reduces consolidated income in the years after acquisition. Students also eliminate intercompany sales but leave unrealized profit in ending inventory. Remove it, and in upstream sales allocate part of the effect to the noncontrolling interest. Eliminate intercompany dividends against the investment and the noncontrolling interest. Present the noncontrolling interest within equity. Finally, reconcile the noncontrolling interest balance from the acquisition date to year end, and note that IFRS offers a different option.
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ACC 545 Week 4 questions, answered
What does ACC/545 Week 4 usually cover?
It usually covers consolidated financial statements: the acquisition method, goodwill, noncontrolling interest, fair value adjustments and their amortization and elimination of intercompany transactions and unrealized profit.
Where can I find a free ACC 545 Week 4 sample paper?
The plumbing fixture maker's consolidation of an 80% owned foundry, with every adjustment explained in margin notes, can be read on this page free. Send your own consolidation problem for an opening graduate draft at no cost.
How is goodwill measured when a parent buys less than 100%?
Goodwill equals the consideration transferred plus the fair value of the noncontrolling interest, less the fair value of the identifiable net assets acquired.
What is unrealized intercompany profit?
Profit on sales between consolidated companies for goods still held within the group at year end; it is eliminated because the group has not yet sold the goods to outsiders.
Where is the noncontrolling interest presented?
In equity, separately from the parent's stockholders' equity, and its share of net income is shown separately on the income statement.
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