The purpose of this Key Assignment is to get familiar with annual reports and to understand the financial implications of the following:
- Equity method of accounting versus consolidation
- Reporting of investments based on cost/equity
- Goodwill reporting
- Intercompany and intracompany transactions
Access the company’s Web page on the Internet to read its most recent annual report. The annual report is typically found in an “Investor Relations” or “Company Information” section within the company’s Web site. If the company does not provide a full annual report, select another company for your project. Verify that the full annual report includes the following:
- A letter or report to shareholders from the president of the company
- A section providing management’s discussion and analysis of the business
- A report from the auditor
- The company’s financial statements
- Supplemental notes to the financial statements
Once you have found a full annual report, complete each part of the assignment.
Please cover all of the items listed in the questions below. You can select more than 1 company if your chosen company does not have all the items listed below.
Using the financial statements of your company (or companies), write a 1,000–1,500 word paper that addresses the following questions:
- What GAAP principles govern the consolidation of financial statements?
- How are consolidated and equity methods of accounting different?
- What investments has the company made in affiliated companies? Examine its footnotes.
- Comment on the accounting for investments in affiliated companies after looking at the footnotes.
- List the investments it has.
- Does it use cost basis or equity method of accounting, or both?
- When do you use the equity method of accounting?
- Goodwill is the difference between the acquired assets and acquired liabilities.
- (Find a company that has goodwill). Examine the balance sheet and the footnotes. What is the goodwill related to?
- What FASB covers the reporting and accounting of goodwill?
- What is the difference between old goodwill reporting and new goodwill reporting?