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HSB Pro Rata Consolidation of Joint Venture Accounting Questions


  • Construct journal entries and consolidation procedures when acquisitions exceed book value.
  • Formulate journal entries under various complex differential scenarios for consolidations of a wholly owned subsidiary.
  • Assess push-down accounting.
  • Create consolidation entries for partially owned subsidiaries under various scenarios.
  • Differentiate what happens when a parent company ceases to consolidate a subsidiary.

In addition to the Assignment in Connect, please answer the following questions and submit your answers in a Word document:

W ith regards to your Assignment performed in Connect, and what you read and learned about in this module, answer the following questions.

You should refer to the FASB Accounting Standards Codification (FASB ASC), specifically, when answering some of the questions below:

Rose Corporation and Krome Company established a joint venture to manufacture components for both companies on January 1, 20X1, and have operated it quite successfully for the past four years. Rose and Krome both contributed 50% of the equity when the joint venture was created. Rose purchases approximately 70% of the output of the joint venture and Krome purchases 30%. Rose and Krome have equal numbers of members on the board of directors of the joint venture and participate equally in the management of the joint venture. Joint venture profits are distributed at year-end on the basis of total purchases by each company.

  • Rose has been using the equity method to report its investment in the joint venture. However, Rose’s financial vice president believes that each company should use pro-rata consolidation. As the controller, you have been asked to prepare a memo discussing those situations in which pro-rata consolidation may be appropriate and to offer your recommendation as to whether Rose should continue to use the equity method or switch to pro-rata consolidation. Include in your memo citations of and quotations from the ASC to support your arguments.


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