Consolidation Worksheet Entry
In consolidation worksheet entry *C, we adjust the parent’s beginning of the year
retained earnings to a full accrual basis. Why don’t we adjust to the parent’s end of the year
retained earnings balance on the consolidated worksheet?
Clearly, in a consolidated balance sheet, we wish to report the parent’s end-of-period
consolidated retained earnings at its full accrual GAAP basis. To accomplish this goal, we
utilize the following separate individual components of end-of-period retained earnings
available on the worksheet:
Beginning of the year balance (after *C adjustment if parent does not employ equity
method)
+ Net income (parent’s share of consolidated net income adjusted to full accrual by combining revenues and expenses—including excess acquisition-date fair value
amortizations)
− Dividends (parent’s dividends)
= End of the year balance
The worksheet provides for the computation of current year full accrual consolidated
net income via the income statement section. Dividends are already provided in the retained
earnings section of the consolidated worksheet. The only component of the ending balance of
retained earnings that requires a special adjustment (*C) is the beginning balance.
Questions:
• How does the consolidation worksheet entry *C differ when the parent uses the initial
value method versus the partial equity method?
• Explain why is no *C adjustment needed when consolidated statements are prepared for the first fiscal year-end after the business combination?
