Giáo trình advanced FInancial accouting 11e by christensen

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Advanced Financial Accounting Advanced Financial Accounting Eleventh Edition Theodore E Christensen Brigham Young University David M Cottrell Brigham Young University Cassy JH Budd Brigham Young University ADVANCED FINANCIAL ACCOUNTING, ELEVENTH EDITION Published by McGraw-Hill Education, Penn Plaza, New York, NY 10121 Copyright © 2016 by McGraw-Hill Education All rights reserved Printed in the United States of America Previous editions © 2014, 2011, and 2009 No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning Some ancillaries, including electronic and print components, may not be available to customers outside the United States This book is printed on acid-free paper DOW/DOW ISBN 978-0-07-802587-7 MHID 0-07-802587-7 Senior Vice President, Products & Markets: Kurt L Strand Vice President, General Manager, Products & Markets: Marty Lange Vice President, Content Design & Delivery: Kimberly Meriwether David Managing Director: Tim Vertovec Marketing Director: Brad Parkins Executive Brand Manager: James Heine Director, Product Development: Rose Koos Director of Digital Content: Patricia Plumb Lead Product Developer: Ann Torbert Product Developer: Danielle Andries Marketing Manager: Kathleen Klehr Digital Product Developer: Kevin Moran Digital Product Analyst: Xin Lin Director, Content Design & Delivery: Linda Avenarius Program Manager: Daryl Horrocks Content Project Managers: Dana M Pauley/Brian Nacik Buyer: Debra R Sylvester Design: Matt Diamond Cover Image: © Krzysztof Baranowski/Getty Images Compositor: Laserwords Private Limited Printer: R R Donnelley All credits appearing on page or at the end of the book are considered to be an extension of the copyright page Library of Congress Cataloging-in-Publication Data Christensen, Theodore E Advanced financial accounting.—Eleventh edition / Theodore E Christensen, David M Cottrell, Cassy Budd pages cm ISBN 978-0-07-802587-7 (alk paper) Accounting I Cottrell, David M II Budd, Cassy III Title HF5636.B348 2016 657'.046—dc23 2014026757 The Internet addresses listed in the text were accurate at the time of publication The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites www.mhhe.com About the Authors Theodore E Christensen Ted Christensen has been a faculty member at Brigham Young University since 2000 Prior to coming to BYU, he was on the faculty at Case Western Reserve University for five years He received a BS degree in accounting at San Jose State University, a MAcc degree in tax at Brigham Young University, and a PhD in accounting from the University of Georgia Professor Christensen has authored and coauthored articles published in many journals including The Accounting Review, Journal of Accounting Research, Journal of Accounting and Economics, Review of Accounting Studies, Contemporary Accounting Research, Accounting Organizations and Society, Journal of Business Finance & Accounting, Accounting Horizons, and Issues in Accounting Education Professor Christensen has taught financial accounting at all levels, financial statement analysis, both introductory and intermediate managerial accounting, and corporate taxation He is the recipient of numerous awards for both teaching and research He has been active in serving on various committees of the American Accounting Association and is a CPA David M Cottrell Professor Cottrell joined the faculty at Brigham Young University in 1991 He currently serves as the Associate Director of the School of Accountancy Prior to coming to BYU he spent five years at The Ohio State University, where he earned his PhD Before pursuing a career in academics he worked as an auditor and consultant for the firm of Ernst & Young in its San Francisco office At BYU, Professor Cottrell has developed and taught courses in the School of Accountancy, the MBA program, and the Finance program He has won numerous awards from the alumni and faculty for his teaching and curriculum development He has received the Outstanding Professor Award in the college of business as selected by the students in the Finance Society; he has received the Outstanding Teaching Award as selected by the Marriott School of Management; and he is a four-time winner of the collegewide Teaching Excellence Award for Management Skills, which is selected by the Alumni Board of the Marriott School of Management at BYU Professor Cottrell also has authored many articles about accounting and auditing issues His articles have been published in Issues in Accounting Education, Journal of Accounting Case Research, Quarterly Review of Distance Education, Journal of Accountancy, The CPA Journal, Internal Auditor, The Tax Executive, and Journal of International Taxation, among others Cassy JH Budd Professor Budd has been a faculty member at Brigham Young University since 2005 Prior to coming to BYU, she was on the faculty at Utah State University for three years She received a BS degree in accounting at Brigham Young University and a MAcc degree in tax at Utah State University Before pursuing a career in academics she worked as an auditor for the firm of PricewaterhouseCoopers LLP in its Salt Lake, San Jose, and Phoenix offices and continues to maintain her CPA license Professor Budd has taught financial accounting at all levels, introductory managerial accounting, undergraduate and graduate auditing, and partnership taxation She is the recipient of numerous awards for teaching and student advisement, including the Dean Fairbanks Teaching and Learning Faculty Fellowship, Brigham Young University; School of Accountancy Advisor of the v vi About the Authors Year, Utah State University; State of Utah Campus Compact Service-Learning Engaged Scholar Award, and the Joe Whitesides Scholar–Athlete Recognition Award from Utah State University She has been active in serving on various committees of the American Accounting Association, including chairing the annual Conference on Teaching and Learning in Accounting Preface The Eleventh Edition of Advanced Financial Accounting is an up-to-date, comprehensive, and highly illustrated presentation of the accounting and reporting principles and procedures used in a variety of business entities Every day, the business press carries stories about the merger and acquisition mania, the complexities of modern business entities, new organizational structures for conducting business, accounting scandals related to complex business transactions, the foreign activities of multinational firms, the operations of governmental and not-for-profit entities, and bankruptcies of major firms Accountants must understand and know how to deal with the accounting and reporting ramifications of these issues OVERVIEW This edition continues to provide strong coverage of advanced accounting topics with clarity of presentation and integrated coverage based on continuous case examples The text is complete with presentations of worksheets, schedules, and financial statements so students can see the development of each topic Inclusion of all recent FASB and GASB pronouncements and the continuing deliberations of the authoritative bodies provide a current and contemporary text for students preparing for the CPA examination and current practice This emphasis has become especially important given the recent rapid pace of the authoritative bodies in dealing with major issues having far-reaching implications The Eleventh Edition covers the following topics: Multicorporate Entities Business Combinations Intercorporate Acquisitions and Investments in Other Entities Consolidation Concepts and Procedures Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with No Differential The Reporting Entity and the Consolidation of Less-than-Wholly-Owned Subsidiaries with No Differential Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value Intercompany Transfers Intercompany Inventory Transactions Intercompany Transfers of Services and Noncurrent Assets Intercompany Indebtedness Additional Consolidation Issues 10 Consolidation Ownership Issues Additional Consolidation Reporting Issues Multinational Entities Foreign Currency Transactions 11 Multinational Accounting: Foreign Currency Transactions and Financial Instruments Translation of Foreign Statements 12 Multinational Accounting: Issues in Financial Reporting and Translation of Foreign Entity Statements Reporting Requirements Segment and Interim Reporting 13 Segment and Interim Reporting SEC Reporting 14 SEC Reporting vii viii Preface Partnerships Formation, Operation, Changes 15 Partnerships: Formation, Operation, and Changes in Membership Liquidation 16 Partnerships: Liquidation Governmental and Not-for-Profit Entities Governmental Entities 17 Governmental Entities: Introduction and General Fund Accounting Special Funds 18 Governmental Entities: Special Funds and Governmentwide Financial Statements Not-for-Profit 19 Not-for-Profit Entities Corporations in Financial Difficulty 20 Corporations in Financial Difficulty NEW FEATURES ADDED IN THE ELEVENTH EDITION • Deferred tax coverage We have made extensive revisions to Chapter 10 to add more coverage of the deferred tax implications associated with business combinations, including the allocation of deferred taxes related to the book-tax basis differences of acquired assets • New shading of consolidation worksheet entries Based on the new two-color shading introduced in the Eleventh Edition, we have revised the shading of consolidation worksheet entries to clearly distinguish between the various types of entries We have extended this shading not only to the worksheets but also to supporting schedules and calculation boxes so that numbers appearing in consolidation worksheet entries are uniformly shaded in all locations • Presentation of intercompany transactions We have significantly revised the three chapters related to intercompany transactions Based on feedback from instructors, we have revised Chapters 6, 7, and by adding illustrations to better simplify adjustments to the basic consolidation entry KEY FEATURES MAINTAINED IN THE ELEVENTH EDITION The key strengths of this text are the clear and readable discussions of concepts and their detailed demonstrations through illustrations and explanations The many favorable responses to prior editions from both students and instructors confirm our belief that clear presentation and comprehensive illustrations are essential to learning the sophisticated topics in an advanced accounting course Key features maintained in the Eleventh Edition include: • Callout boxes We have updated the “callout boxes” that appear in the left-hand margin to draw attention to important points throughout the chapters The most common callout boxes are the “FYI” boxes, which often illustrate how real-world companies or entities apply the principles discussed in the various chapters The “Caution” boxes draw students’ attention to common mistakes and explain how to avoid them The “Stop & Think” boxes help students take a step back and think through the logic of difficult concepts • FASB codification All authoritative citations to U.S GAAP are now exclusively cited based on the FASB codification • Introductory vignettes Each chapter begins with a brief story of a well-known company to illustrate why topics covered in that chapter are relevant in current practice Preface • • • • ix Short descriptions of the vignettes and the featured companies are included in the Chapter-by-Chapter Changes section on page xvii A building-block approach to consolidation Virtually all advanced financial accounting classes cover consolidation topics Although this topic is perhaps the most important to instructors, students frequently struggle to gain a firm grasp of consolidation principles The Eleventh Edition provides students a learning-friendly framework to consolidations by introducing consolidation concepts and procedures more gradually This is accomplished by a building-block approach that introduces consolidations in Chapters and and continues through chapter IFRS comparisons As the FASB and IASB work toward convergence to a single set of global accounting standards, the SEC is debating the wholesale introduction of international financial reporting standards (IFRS) The Eleventh Edition summarizes key differences between current U.S GAAP and IFRS to make students aware of changes that will likely occur if the SEC adopts IFRS in the near future AdvancedStudyGuide.com See page xv for details The use of a continuous case for each major subject-matter area This textbook presents the complete story of a company, Peerless Products Corporation, from its beginning through its growth to a multinational consolidated entity and finally to its end At each stage of the entity’s development, including the acquisition of a subsidiary, Special Foods Inc., the text presents comprehensive examples and discussions of the accounting and financial reporting issues that accountants face The discussions tied to the Peerless Products continuous case are easily identified by the company logos in the margin: We use the comprehensive case of Peerless Products Corporation and its subsidiary, Special Foods Inc., throughout the for-profit chapters For the governmental chapters, the Sol City case facilitates the development of governmental accounting and reporting concepts and procedures Using a continuous case provides several benefits First, students need become familiar with only one set of data and can then move more quickly through the subsequent discussion and illustrations without having to absorb a new set of data Second, the case adds realism to the study of advanced accounting and permits students to see the effects of each successive step on an entity’s financial reports Finally, comparing and contrasting alternative methods using a continuous case allows students to evaluate different methods and outcomes more readily • Extensive illustrations of key concepts The book is heavily illustrated with complete, not partial, workpapers, financial statements, and other computations and comparisons useful for demonstrating each topic The illustrations are cross-referenced to the relevant text discussion In the consolidations portion of the text, the focus is on the fully adjusted equity method of accounting for an investment in a subsidiary, but two other methods—the cost method and the modified equity method—are also discussed and illustrated in chapter appendixes • Comprehensive coverage with significant flexibility The subject matter of advanced accounting is expanding at an unprecedented rate New topics are being added, and traditional topics require more extensive coverage Flexibility is therefore essential in an advanced accounting text Most one-term courses are unable to cover all topics included in this text In recognition of time constraints, this text is structured to provide the most efficient use of the time available The self-contained units of subject matter allow for substantial flexibility in sequencing the course materials In addition, individual chapters are organized to allow for going into more depth on some topics www.downloadslide.net 1090 Index LEXIS-NEXIS, 751 Liabilities appraisal of, 12 exposed foreign currency position in, 565–571 of voluntary health and welfare organizations, 1007 LIFO inventory costing, 215, 245n, 252n, 261, 697–698 Limited liability limited partnerships (LLLPs), 761–762 Limited liability partnerships (LLPs), 761–762 Limited partnerships (LPs), 761 Liquidating dividends, 51–52 Liquidations, 10, 650, 1048, 1059 Liquid forward contracts, 586 Loan accounts, in partnerships, 765, 813, 822 Local currency, 556 Local currency units (LCUs), 549 Long-term debt of government entities, 874–875, 917–920 of not-for-profit entities, 988 value of, 13 Loss absorption potential (LAP), in partnership liquidation, 824–826 Losses carrybacks and carryforwards, 704–706 on constructive retirement of debt, 380–381, 391–392 deferring unrealized, 249–251 foreign currency, 581 inventory transfers at, 245 partnership allocation of, 766–771 unrealized, 245–248 Lower of cost or market valuation of inventory for interim reporting, 697–700 under remeasurement, 652 in transactions, 268–269 Lucas, George, 148 Lucasfilm, 142, 148–149 Lump-sum partnership liquidation, 814–819 M Majority-owned subsidiaries balance sheet with, 196–199 consolidated financial statements with initial year of ownership, 199–203 second year of ownership, 203–206 Majority ownership, 7n Management discussion and analysis (MD&A) section, 745–747, 944 March of Dimes, 1002 Market write-down and recovery, 698–700 Markup on cost, 247 Markup on sales, 247 Marvel Entertainment, 142 Maryland, accounting in, 907–908, 910, 917, 926 Mattfield v Kramer Brothers (2005), 833 McDonald, Dick and Mac, 619 McDonald’s Corporation, 619–620, 659 McDonnell Douglas, Inc., MCI WorldCom, Inc., 26 McKesson-Robbins scandal, 750 Measurement focus and basis of accounting (MFBA), in government accounting, 859–864 Measurement period, ASC 805 allowance for, 21 Mergers See also Acquisitions definition of, examples of, in 1990s, 25 of not-for-profit entities, 978 reverse, 731 statutory, 10–11 types of, MFBA (measurement focus and basis of accounting), in government accounting, 859–864 MFOA (Mutual Finance Officers Association), 851 Micron Technology, Inc., 302 Microsoft Corporation, 546 Minke-Girard, Jenifer, 622 Minority interest, 12, 106 See also Noncontrolling interest MNEs (multinational enterprises), 547 Mobil Corp, 12n See also ExxonMobil, Inc Modified equity method arguments for, 244n consolidation entries in, 270–274 cost method versus, 274–277 for debt transfer, 408–412 first year entries in, 270 for intercompany noncurrent asset transactions, 340–345 second year entries in, 272 Mondeleˉz International, Monsanto Company, 217–218 Montana State Supreme Court, 833 www.downloadslide.net Index Motorola, Inc., 501 Multilevel ownership structures, 472–476 Multinational accounting—financial reporting and translation, 619–681 convergence of accounting principles, 621–623 currency and exchange rate differences, 623 disclosure requirements, 651–654 foreign investments and unconsolidated subsidiaries, 648–650 functional currency determination of, 623–626 remeasurement of books of record into, 641–648 hedge of net investment in foreign subsidiary, 650–651 at McDonald’s, 619–620 translation of functional currency statements into reporting currency, 628–641 illustration of, 630–640 noncontrolling interest of foreign subsidiary, 640–641 overview, 628–629 translation adjustment in financial statements, 629–630 translation versus remeasurement of foreign financial statements, 626–628 Multinational accounting—foreign currency transactions, 546–618 currency decisions, 547 derivative financial instruments in description of, 585–588 interest-rate swaps as cash flow hedge, 595–596 options as cash flow hedge, 588–591 options as fair value hedge, 591–594 reporting and disclosure requirements for, 596–597 exchange rates changes in, 551–554 direct versus indirect, 549–551 forward, 554 spot rates versus current, 554 foreign currency forward exchange financial instruments as cash flow hedge, 575–578 derivatives designated as hedges, 561–563 as fair value hedge, 571–575 forward exchange contracts, 563–565, 582–585 1091 for managing exposed foreign currency net asset or liability position, 565–571 for market speculation, 578–580 overview, 560 foreign currency transactions, 555–559 foreign exchange matrix, 580–581 hedge effectiveness measurement, 581 hedges for net investment in foreign entity, 581 interperiod tax allocation for foreign currency gains and losses, 581 at Microsoft Corporation, 546 reporting transactions, 548–549 Multinational enterprises (MNEs), 547 Mutual Finance Officers Association (MFOA), 851 Mutual ownership structures, 472–473, 476–480 N Nabisco Holdings, Nadella, Satya, 546 NAFTA (North American Free Trade Agreement), 548, 659 NASDAQ, 372 National Assembly of National Voluntary Health and Social Welfare Organizations, 1002 National Association of College and University Business Officers (NACUBO), 979–980 National Bankruptcy Review Commission, 1047 National Center for Education Statistics, 947n National Conference of Commissioners on Uniform State Laws (NCCUSL), 758 National Council of Governmental Accountants (NCGA), 851 National Football League (NFL), 974 National Health Council, 1002 NationsBank Corp., 12n NCI (noncontrolling interests) See Noncontrolling interests (NCI) Negative retained earnings, 214 Net assets See also Assets; Noncurrent assets and services, intercompany transfers of acquisitions of, 15–20 excess of fair value over book value in, 152–153 www.downloadslide.net 1092 Index Net assets—Cont exposed foreign currency position in, 565–571 fair value of partnership, 775 of hospitals, 990, 994 of not-for-profit entities, 975–978, 988 of voluntary health and welfare organizations, 1007 Net income See also Consolidated financial statements in comprehensive income, 209 consolidated, 68–69, 116n from depreciable asset transfer, 337 in depreciable asset transfers, 328 in land transfers, 318–319 of less-than-wholly owned subsidiaries, acquired at more than book value, 202–203 in multilevel ownership structures, 474 noncontrolling interest effect on, 107–108 preferred shareholders assignment of, 451–452 of upstream inventory sales, 267–268 of wholly owned subsidiaries, 77 New Deal legislation of 1930s, 729 New York Stock Exchange, 563, 729 NFL (National Football League), 974 Nike, Inc., 556 NOARK Pipeline System, 486 Nokia, Inc., 546 Nonaffiliates parent’s purchase of additional shares from, 459–461 sale of subsidiary shares to, 461–463 subsidiary’s purchase of shares from, 468–470 subsidiary’s sale of additional shares to, 463–466 Noncontrolling equity help prior to acquisitions, 23 Noncontrolling interest (NCI) shareholders with, 195 Noncontrolling interests (NCI) depreciable asset transfer income to, 328–329, 338 of foreign subsidiary, 640–641 gain on constructive bond retirement and, 384, 389, 401, 406 land transfer income to, 308–309, 313, 319 in less-than-wholly owned subsidiaries with no differential, 105–110 overview, 12 in real estate joint ventures, 795 in reciprocal relationships, 476–477, 479–480 shareholders with, 195, 209 total income assigned to, 454–455 Noncontrolling ownership, Noncumulative dividend provision in preferred stock, 456 Noncurrent assets and services, intercompany transfers of, 302–371 amortizable assets, 340 cost method for, 346–349 depreciable assets change in estimated life of asset, 329 downstream sale, 320–329 transfer before year-end, 338–339 upstream sale, 329–338 illustrations of, 304–305 land transfers assignment of unrealized profit consolidation, 307–309 downstream sale of land, 309–313, 309–315 profit consolidation process, 305–307 upstream sale of land, 315–320 at Micron Technology, Inc., 302 modified equity method for, 340–345 overview, 303 North American Free Trade Agreement (NAFTA), 548, 659 Notational amount, in financial instruments, 560 Notes and warrants, of governmental entities, 917 Not-for-profit entities, 974–1043 college and universities, 979–981 financial reporting for, 975–979 hospital accounting financial statements for, 987–990 fund structure, 984–987 illustration of, 991–998 overview, 981–983 summary of, 1002 temporarily restricted funds, 998–1001 other not-for-profit entities (ONPOs), 1013–1016 United Way, 974 voluntary health and welfare organizations (VHWOs), 1002–1012 accounting for, 1002–1003 financial statements for, 1003–1011 summary of, 1011–1012 Nuova Systems, 195 www.downloadslide.net Index O Occident Petroleum Corporation, 485 OCI (other comprehensive income) See Other comprehensive income (OCI) “Off-balance sheet financing,” 105 Office of Management and Budget (OMB), 948–949 100 percent ownership acquired at book value consolidated financial statements for consolidated net income and retained earnings, 77 initial year of ownership, 71–74 overview, 70–71 second and subsequent years of ownership, 74–76 reporting on, 63–67 One-line consolidation, 59, 65 ONPOs (other not-for-profit entities), 1013–1016 Operating loss carrybacks and carryforwards, 704–706 Operating segment information comprehensive disclosure test, 690–691 defining reportable segments, 684–690 reporting segment information, 691–692 Option pricing model, 148 Options as cash flow hedge, 588–591 description of, 586–587 as fair value hedge, 591–594 Order of relief, in bankruptcies, 1048 Organizational structure, 5–8 Other comprehensive income (OCI), 209–213, 562–563, 575, 629 Other not-for-profit entities (ONPOs), 1013–1016 Outstanding preferred stock, of subsidiary, 451–454 Ownership issues in consolidation, 450–500 at Berkshire Hathaway, 450 complex ownership structures multilevel, 472–476 reciprocal or mutual, 476–480 parent company ownership changes, 458–472 purchase of additional shares from nonaffiliate, 459–461 sale of subsidiary shares to nonaffiliate, 461–463 subsidiary’s purchase of shares from nonaffiliate, 468–470 1093 subsidiary’s purchase of shares from parent, 470–472 subsidiary’s sale of additional shares to nonaffiliate, 463–466 subsidiary’s sale of additional shares to parent, 466–468 subsidiary preferred stock held by parent, 454–455 outstanding, 451–454 with special provisions, 456–458 subsidiary stock dividends, 480–483 Oxley, Michael, 741 P Pacific Stock Exchange (PSE), 586 Pacific Telesis, Page, Larry, 501 Parent companies adjusting books for inventory transactions, 252 ASC 810 definition of, 60 consolidated financial statements and, 49–50 description of, legal liabilities and, ownership changes in, 458–472 purchase of additional shares from nonaffiliate, 459–461 sale of subsidiary shares to nonaffiliate, 461–463 subsidiary’s purchase of shares from nonaffiliate, 468–470 subsidiary’s purchase of shares from parent, 470–472 subsidiary’s sale of additional shares to nonaffiliate, 463–466 subsidiary’s sale of additional shares to parent, 466–468 in stock acquisitions, 10 subsidiary preferred stock held by, 454–455 Participation features, in preferred stock, 456 Partners’ accounts, 765 Partnerships, 757–810 accounting in financial reporting requirements and, 762–763 for formation of, 763–764 for operations of, 764–765 characteristics of, 759–762 definition of, 759 financial statements of, 771 www.downloadslide.net 1094 Index Partnerships—Cont formation of, 759 joint ventures, 793–795 membership changes in as entity separate from individual partners and GAAP, 772–773 new partner invests in partnership, 776–788 new partner purchases interest from existing partner, 773–775 new partner’s investment cost, 788–789 overview, 771–772 partner disassociation, 789–791 PricewaterhouseCoopers, 757 profit and loss allocation in, 766–771 regulation of, 758–759 tax aspects of, 792–793 Partnerships, liquidation of, 811–848 disassociation, dissolution, winding up and liquidation, 812–814 incorporation of, 826–828 installment cash distribution plan, 824–826 illustration of, 820–824 overview, 819–820 Laventhol & Horwath, 811 lump-sum, 814–819 personal financial statements and, 828–831 Par value transfer of debt, 374 Patents, allocating basis of, 512 Payables, intercompany, 168 PCAOB (Public Company Accounting Oversight Board), 2, 732, 742 Peat Marwick Mitchell, 757 PepsiCo, 127 Performance indicators, of hospitals, 988 Permanent funds, in governmental entities, 920–921 Permanently restricted net assets, of hospitals, 988 Pfizer, Inc., 12n Philadelphia Stock Exchange (PHLX), 586 Philip Morris, Inc., Pixar Animation Studios, 142, 147–148 Plan of reorganization, in Chapter 11 bankruptcy reorganizations, 1048, 1051 Plant replacement and expansion fund, of hospitals, 1000–1001 Pledges receivable, 1003 Pooling-of-interests accounting, 8, 25 Positive differential, 152–153 Post Cereal, Potential earnings, value of, 13 Preferred stock of subsidiary held by parent, 454–455 outstanding, 451–454 with special provisions, 456–458 Premium, 375–377, 393–395 Preselected ratios, in partnership profit distribution plans, 766–767 Present value calculations, 13 Price, Samuel, 757 Price, transfer, 247 PricewaterhouseCoopers, 127, 656, 757 Primary beneficiaries, 8, 122 Private Company Financial Reporting Committee, of FASB, 762 Private equity money, for acquisitions, Private-purpose trust funds, in governmental accounting, 932–934 Procter & Gamble Co., Inc., 4, 104 Profit distribution plans, 766 Profits assignment of unrealized, 307–309 consolidation process in land transfers, 305–307 deferring unrealized, 249–251 inventory transfers at, 245 partnership allocation of, 766–771 partnerships formed for, 759 unrealized, 245–248 unrealized intercompany, 244, 476, 517–521 Profit-seeking educational institutions, 980–981 Pro forma disclosures, in annual reports, 747 Property taxes, 861–862, 880–881 Proprietary funds, in government accounting, 854–855, 909, 927–930 See also Governmental entities— special funds and financial statements Prospective application of accounting principle, 707 Prospectus, preliminary, 737 Proxy statements, 740 PSE (Pacific Stock Exchange), 586 Public Company Accounting Oversight Board (PCAOB), 2, 732, 742 Public offerings accountants’ legal liability in, 737 international harmonization of accounting standards for, 730–731 registration of, 736 SEC review of, 736–737 Public school systems, 947–948 www.downloadslide.net Index Purchase method of accounting for business combinations, Purchase method of inventory accounting, 872 Push-down accounting, 153, 168–171 Pyramiding, 104 Q Quarterly financial report, 694–695 R Ralcorp Holdings, Real estate development, joint venture in, 795 Receivables, intercompany, 168 Receivership, in bankruptcy, 1062 Recipient organizations, of asset transfers, 978 Reciprocal ownership structures, 476–480 Recognition of income by equity method, 54–55 Reconciliation schedules, in government reporting model, 924, 942–943 Recording currency, 623 Red Cross, 974, 1002 Red herring prospectus, 737 Reform Act of 1994, 1047 Registration process for issuing securities, 735–737 Regulation A, of SEC, 735 Regulation D, of SEC, 735–736 Regulations S-X and S-K, of SEC, 733–734 Related-party transactions, 242, 244n Remeasurement of books of record into functional currency, 641–648 FASB examples of, 642 illustration of, 643–645 lower of cost or market inventory valuation under, 652 proof of remeasurement exchange gain, 645–646 statement presentation of gains and losses, 642–643 subsequent consolidation worksheet, 646–648 translation versus, 648 Reorganization value of assets, 1050 Reportable operating segments, 684 Reporting, segment and interim, 682–728 accounting changes, 706–708 accounting issues in, 683–684 1095 accounting pronouncements on, 695 enterprisewide disclosures, 692–694 for government entities, 945 interim financial, 694 International Financial Reporting Standards for, 695–696 operating segment information, 684–692 comprehensive disclosure test, 690–691 defining reportable segments, 684–690 reporting segment information, 691–692 quarterly, 694–695 reporting standards for, 696 on cost of goods sold and inventory, 697–700 disposal or extraordinary, unusual, infrequently occurring, and contingent items, 706 on income taxes, 702–706 on other costs and expenses, 700–702 on revenue, 696–697 at Walmart, 682 Reporting currency, 556, 623 Reporting entity, 855, 935–936 Reporting issues in consolidation, 501–545 after interim acquisition, 505–510 consolidated cash flow statement, 502–505 earnings per share, 521–524 at Google, Inc., 501 income tax issues allocating basis of assets, 510–514 allocation of expense for consolidated tax returns, 515–517 allocation of expense for separate tax returns, 514–515 of unrealized intercompany profit eliminations, 517–521 Reporting requirements See also Governmental entities—special funds and financial statements; Notfor-profit entities; Securities and Exchange Commission (SEC) of bankruptcy trustees, 1062–1067 for derivative financial instruments, 596–597 of partnerships, 762–763 of public school systems, 948 Required supplementary information (RSI), in governmentwide financial statements, 944 www.downloadslide.net 1096 Index Resale of inventory in intercorporate transfer period, 253–254 in period following intercorporate transfer, 254–261 Research and development, in-process, 5, 22–23 Restricted funds, at not-for-profits, 986 Retained earnings consolidated, 69–70 in depreciable asset transfers, 328 of less-than-wholly owned subsidiaries, acquired at more than book value, 202–203 noncontrolling interest effect on, 108–109 of wholly owned subsidiaries, 77 Retirement of debt, 374 See also Constructive retirement of debt Retrospective application of accounting principle, 706–708 Revaluation method, to record admission of new partner, 773 Revenue from nonexchange transactions, 860–863 SEC on recognition procedures, 734–735 segment and interim reporting of, 696–697 shared, 863 Reverse merger, 731 Revised Uniform Partnership Act (RUPA) of 1994, 758 Risk Assessment Statements of Auditing Standards (SAS), 946 Risk sharing, SPEs for, 120 Roosevelt, Franklin D., 729 RSI (required supplementary information), in governmentwide financial statements, 944 S SABs (Staff Accounting Bulletins), of SEC, 734 SAFTA (South Asian Free Trade Area), 548 Salaries, in partnership profit distribution plans, 766, 768–769 Sale price, book value of subsidiary shares versus, 463–464 Sales, markup on, 247 Sales taxes, governmental accounting of, 862 Salvation Army, 1002 Sam’s Club stores, 682, 684 Samsung Display, 242 Samsung Electronics, 242 Samsung Electronics Digital Printing, 242 Samsung Semiconductor, 242 Samsung Telecommunications America, 242 San Diego, CA, 849, 854, 864, 872 Sarbanes, Paul, 741 Sarbanes-Oxley Act of 2002, 732, 741–744 SAS (Statements of Auditing Standards) on Risk Assessment, 946 SBC Communications, Inc., 6, 12n Schapiro, Mary, 622 Schedule of safe payments to partners, 819 Schedule 13-D, of SEC, 739–740 School systems, public, 947–948 Sears Holdings Corporation, 127, 172 Seaworthy Insurance Company, 472 SEC Office of Credit Ratings, 745 Secured creditors, in bankruptcies, 1059 Securities Act of 1933, 729, 733, 735, 737, 740 Securities Act Release No 33-8831, 731 Securities Act Release No 33-8879, 730 Securities and Exchange Commission (SEC), 729–756 changing business environment and, disclosure requirements, 745–747 Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, 744–745 EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system, 740–741 establishment of, 729–730 on fiscal period differences, 105 Foreign Corrupt Practices Act of 1977, 741 Form 10-Q, 694 Form 8-K, 738–739 Forms S-1, S-2, and S-3, for registration, 736 Form 10-K, 25–26 Form 10-Q, 738 International Financial Reporting Standards and, 621–623 international harmonization of accounting standards for public offerings, 730–731 Jumpstart Our Business Startups (JOBS) Act of 2012, 745 www.downloadslide.net Index laws administered, 732 organizational structure, 731–732 periodic reporting requirements, 737–740 registration process for issuing securities, 735–737 regulatory structure, 732–735 Sarbanes-Oxley Act of 2002, 741–744 on segment reporting, 683 Securities Exchange Act of 1934, 729, 733, 735, 737, 740–741, 744 Securities Investor Protection Act of 1970, 732 See’s Candies, 47 Segment and interim reporting See Reporting, segment and interim Serials bonds, of governmental entities, 917 Services See Noncurrent assets and services, intercompany transfers of 75 percent consolidated revenue test, 690 Severe inflation, 625–626 Shared revenue, 863 Shelf registration rule, of SEC, 737 Shell company, 739n Significant influence ASC 323 on, 78 cost method and, 51 equity method and, 49 20 percent rule to determine, 53–54 Single Audit Act of 1984, 946 Siris, Peter, 731 Small and medium-size enterprises (SMEs), 762–763 South Asian Free Trade Area (SAFTA), 548 S&P 500, 372 Special assessment bonds, of governmental entities, 917 Special-purpose entities (SPEs), 4, 100, 120–123 Special-purpose governmental entities, 946–947 Special revenue funds, in governmental entities, 909–913 Specific operating purpose funds, at notfor-profits, 986, 998–999 Speculation in foreign currency markets, 578–580 Spin-off, 1, Split-off, Splitting of corporations, Spot foreign exchange rates, 554 Sprint, Inc., 1097 Staff Accounting Bulletins (SABs), of SEC, 734 Standards of Accounting and Financial Reporting for Voluntary Health and Welfare Organizations, 1002 Stanford University, 501 State and Local Governments—Audit and Accounting Guide (American Institute of Certified Public Accountants), 946 State income tax returns, 516 Statement of activities in government reporting, 940–942 of other not-for-profit entities, 1014–1015 of voluntary health and welfare organizations, 1007–1010 Statement of affairs, in bankruptcies, 1061 Statement of cash flows See Cash flow statement Statement of functional expenses of voluntary health and welfare organizations, 1010–1012 Statement of net position, in government reporting, 938–940 Statement of partners’ capital, 771 Statement of Partnership Authority, 760 Statement of realization and liquidation, 813–814, 1063 Statements of Auditing Standards (SAS) on Risk Assessment, 946 Statutory consolidation, 10–11 Statutory merger, 10–11 STECO, 242 Stock acquisition of, 10–12, 20 callable preferred, 456 changes in number of shares held, 53 exchanges of, 25 outstanding preferred, 451–454 preferred, with special provisions, 456–458 subsidiary dividends as, 480–483 as variable interest, 121 in wholly owned subsidiaries, 48–50 Straight-line amortization bonds of affiliate purchased from nonaffiliate and, 395–408 in bond transfers at discount or premium, 393–395 Subordinated debt, as variable interest, 122 Subsidiaries, 3, 5, 10, 60 www.downloadslide.net 1098 Index Subsidiaries, less-than-wholly owned, acquired at more than book value, 195–241 balance sheet with majority-owned subsidiary, 196–199 Cisco’s controlling interest in Nuova, 195 consolidated financial statements with majority-owned subsidiary initial year of ownership, 199–203 second year of ownership, 203–206 continuance of consolidation, 206–208 controlling interest with differential, 196 disposal of differential-related assets, 214–215 negative retained earnings of, 214 other comprehensive income, 209–213 other stockholders’ equity accounts, 214 Subsidiaries, less-than-wholly owned with no differential, 100–141 combined financial statements, 119–120 consolidated financial statements ability to exercise control, 104 balance sheet, 110–113 fiscal period differences, 105 indirect control, 104 limitations of, 102–103 reporting entity, changing concept of, 105 subsidiary, 103 traditional view of control, 103–104 usefulness of, 102 consolidation subsequent to acquisition of 80 percent ownership, 114–119 Enron, Inc., 100–101 noncontrolling interest, 105–110 special-purpose and variable interest entities, 120–123 Subsidiaries, wholly owned, 47–99 Berkshire Hathaway and, 47–48 book value creation or purchase of, 60 common stock investments, 48–50 consolidated financial statements for balance sheet, 63–67 in initial year of ownership, 71–74 net income and retained earnings, 77 in second and subsequent years of ownership, 74–76 consolidation process overview, 60 consolidation worksheets, 61–62 cost method of reporting on, 50–53, 58–59 equity method of reporting on, 53–58 fair value option, 59–60 subsequent to acquisition, 68–70 Subsidiaries, wholly owned, acquired at more than book value, 142–194 consolidated financial statements for initial year of ownership, 159–164 second year of ownership, 164–167 consolidation procedures for, 149–158 acquisition at less than fair value of assets, 157 for bargain-purchase, 157–158 with complex differential, 153–156 overview, 149–152 with positive differential, 152–153 differential in, 143–147 Disney acquisitions, 142–143, 147–149 intercompany receivables and payables, 168 push-down accounting, 168–171 Survey of Current Business (US Department of Commerce), 850n Swaps, 587–588, 595–596 Syndicates, 795 T Taxes See also Income taxes interperiod tax allocation for foreign currency gains and losses, 581 inventory transfer to reduce, 245 investment decisions influenced by, 12 partnerships and, 792–793 property, 861–862, 880–881 SPEs and, 120 Temporal method, 626 Temporarily restricted funds, of hospitals, 998–1001 Temporarily restricted net assets, of hospitals, 988, 998–1001 Temporary LIFO liquidation, 697–698 10-K filings See Securities and Exchange Commission (SEC) 10 percent criterion for major fund status, in governmental accounting, 921–923 10 percent significance rules, 684–690 Tender offers, 11 Tentative Outline—Principles of Municipal Accounting, A (Mutual Finance Officers Association), 851 Term bonds, of governmental entities, 917 www.downloadslide.net Index 3M Corporation, 25 Time value of money for derivatives, 581 for forward contracts, 566 for forward exchange contract value with recognition of, 582–585 Time Warner, Inc., 12n Toshiba Corporation, 302 Touche Ross, 757 Transferable interests, in partnerships, 761 Transfer price, 247 Transfers as profit or loss, 245 Transfers at cost, 245 Translation (restating foreign currency transactions) adjustments for, 623, 629 description of, 548 of functional currency statements into reporting currency financial statement adjustments for, 629–630 illustration of, 630–640 noncontrolling interest of foreign subsidiary, 640–641 overview, 628–629 remeasurement of books of record into functional currency versus, 648 remeasurement of foreign financial statements versus, 626–628 third currency as functional currency, 654 Travelers Group, Inc., 12n Treasury stock method in reciprocal relationships, 476–478 “Triggering events,” on Form 8-K, of SEC, 738–739 Troubled debt restructurings, 1046 Trust funds, in governmental entities, 932–934 Trust Indenture Act of 1939, 732 20 percent rule, 53–54 Two-transaction approach, for import and export, 557 U ULPA (Uniform Limited Partnership Act of 2001), 761–762 Unconsolidated affiliates, transactions with, 244n Unconsolidated subsidiaries, 49–50 Underlyings, in financial instruments, 560 1099 Underwriters, 736 Underwriting agreement, 736 Undistributed subsidiary earnings, 102 Uniform Limited Partnership Act of 2001 (ULPA), 761–762 Uniform Partnership Act of 1914, 758 Uniform Partnership Act of 1997 (UPA 1997), 758–760, 811 Union Pacific, 128 Unisys Corporation, 659 United Airlines, 1044 United Auto Workers, 1049 United Way, 974, 978, 1002, 1018 Universities and colleges, 979–983 University of Notre Dame, 1020–1021 University of Phoenix, 980 University of Washington, 979 Unrealized profit or loss deferring, 249–251 intercompany, 244 in inventory transactions, 245–248 Unrecognized foreign currency firm commitments, hedging, 571–575 Unrestricted net assets, of hospitals, 988 UPA (Uniform Partnership Act of 1997), 758–760, 811 Upstream sales of depreciable assets, 329–338 of inventory consolidated net income, 265, 267–268 consolidation worksheet, 263–267 description of, 249 equity-method entries, 262–263, 265 of land, 315–320 U.S Census Bureau, 757 U.S Department of Commerce, 850n U.S Department of the Treasury, 948–949 U.S GAAP goodwill assigned to reporting units by, 18n IFRS-prepared financial statements and, 730 IFRS versus, 127 partnership membership changes and, 772–773 in partnership operations, 764 Private Company Financial Reporting Committee and, 762 on third-party buyers, 242 on VIEs and SPEs, 122–123 U.S GAAP-IFRS convergence, 622 U.S LIBOR (London Interbank Offered Rate), 560, 595 www.downloadslide.net 1100 Index V Value, 12–13 Variable interest entities (VIEs) ASC 810 on, 794 consolidation of, 124–125, 707 IFRS difference in control determination of, 122–123 overview, 120–122 Verizon Communications, 4, 351 Viacom, Inc., 126 Vodafone Group PLC, 12n Voluntary health and welfare organizations (VHWOs), 1002–1012 accounting for, 1002–1003 financial statements for, 1003–1011 summary of, 1011–1012 W Wall Street Journal, 549, 751 Walmart Stores, Inc., 47, 682, 684 Walton, Sam, 682 Warner-Lambert Co., 12n Washington Post Company, 47 Washington State University, 546 Weighted-average cost flow assumption, 53 Wesco Financial, 47 “When-due” recognition, of interest payable, 917 Whirlpool, Inc., White, Mary Jo, 622 White-collar crime penalties, 744 Wholly owned subsidiaries See Subsidiaries, wholly owned Winding up of partnerships, 812–814 Woolco, 682 WorldCom, Inc., 4–5, 734, 1044, 1069 World Cyber Games, 242 Wrigley, Inc., 450 Write-off of differential, 144–145 Wyeth Corp., 12n X Xerox Corporation, 280, 485 Y Yahoo! Finance, 549 YouTube, Inc., 501 Yum! Brands, Inc., 127 Z Zimbabwe, hyperinflation in, 625 Zynga, Inc., 7n www.downloadslide.net www.downloadslide.net www.downloadslide.net www.downloadslide.net .. .Advanced Financial Accounting Advanced Financial Accounting Eleventh Edition Theodore E Christensen Brigham Young University David M Cottrell... Advanced Financial Accounting introduces the most cutting-edge technology supplement ever delivered in the advanced accounting market AdvancedStudyGuide.com is a product created exclusively by. .. page Library of Congress Cataloging-in-Publication Data Christensen, Theodore E Advanced financial accounting.—Eleventh edition / Theodore E Christensen, David M Cottrell, Cassy Budd pages cm ISBN

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  • Cover

  • Advanced Financial Accounting

  • About the Authors

  • Preface

  • Acknowledgments

  • Brief Table of Contents

  • Table of Contents

  • Chapter 1 Intercorporate Acquisitions and Investments in Other Entities

    • Kraft’s Acquisition of Cadbury

    • An Introduction to Complex Business Structures

      • Enterprise Expansion

      • Business Objectives

      • Frequency of Business Combinations

      • Ethical Considerations

    • Business Expansion and Forms of Organizational Structure

      • Internal Expansion: Creating a Business Entity

      • External Expansion: Business Combinations

      • Organizational Structure and Financial Reporting

    • The Development of Accounting for Business Combinations

    • Accounting for Internal Expansion: Creating Business Entities

    • Accounting for External Expansion: Business Combinations

      • Legal Forms of Business Combinations

      • Methods of Effecting Business Combinations

      • Valuation of Business Entities

    • Acquisition Accounting

      • Fair Value Measurements

      • Applying the Acquisition Method

      • Goodwill

      • Combination Effected through the Acquisition of Net Assets

      • Combination Effected through Acquisition of Stock

      • Financial Reporting Subsequent to a Business Combination

    • Additional Considerations in Accounting for Business Combinations

      • Uncertainty in Business Combinations

      • In-Process Research and Development

      • Noncontrolling Equity Held Prior to Combination

    • Summary of Key Concepts

    • Key Terms

    • Questions

    • Cases

    • Exercises

    • Problems

  • Chapter 2 Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with No Differential

    • Berkshire Hathaway’s Many Investments

    • Accounting for Investments in Common Stock

    • The Cost Method

      • Accounting Procedures under the Cost Method

      • Declaration of Dividends in Excess of Earnings since Acquisition

      • Acquisition at Interim Date

      • Changes in the Number of Shares Held

    • The Equity Method

      • Use of the Equity Method

      • Investor’s Equity in the Investee

      • Recognition of Income

      • Recognition of Dividends

      • Differences in the Carrying Amount of the Investment and Investment Income under the Cost and Equity Methods

      • Acquisition at Interim Date

      • Changes in the Number of Shares Held

    • Comparison of the Cost and Equity Methods

    • The Fair Value Option

    • Overview of the Consolidation Process

    • Consolidation Procedures for Wholly Owned Subsidiaries That Are Created or Purchased at Book Value

    • Consolidation Worksheets

      • Worksheet Format

      • Nature of Consolidation Entries

    • Consolidated Balance Sheet with Wholly Owned Subsidiary

      • 100 Percent Ownership Acquired at Book Value

    • Consolidation Subsequent to Acquisition

      • Consolidated Net Income

      • Consolidated Retained Earnings

    • Consolidated Financial Statements—100 Percent Ownership, Created or Acquired at Book Value

      • Initial Year of Ownership

      • Second and Subsequent Years of Ownership

      • Consolidated Net Income and Retained Earnings

    • Summary of Key Concepts

    • Key Terms

  • APPENDIX 2A Additional Considerations Relating to the Equity Method

  • APPENDIX 2B Consolidation and the Cost Method

    • Questions

    • Cases

    • Exercises

    • Problems

    • Kaplan CPA Review

  • Chapter 3 The Reporting Entity and the Consolidation of Less-than-Wholly-Owned Subsidiaries with No Differential

    • The Collapse of Enron and the Birth of a New Paradigm

    • The Usefulness of Consolidated Financial Statements

    • Limitations of Consolidated Financial Statements

    • Subsidiary Financial Statements

    • Consolidated Financial Statements: Concepts and Standards

      • Traditional View of Control

      • Indirect Control

      • Ability to Exercise Control

      • Differences in Fiscal Periods

      • Changing Concept of the Reporting Entity

    • Noncontrolling Interest

      • Computation and Presentation of Noncontrolling Interest

    • The Effect of a Noncontrolling Interest

      • Consolidated Net Income

      • Consolidated Retained Earnings

      • Worksheet Format

    • Consolidated Balance Sheet with a Less-Than-Wholly-Owned Subsidiary

      • 80 Percent Ownership Acquired at Book Value

    • Consolidation Subsequent to Acquisition—80 Percent Ownership Acquired at Book Value

      • Initial Year of Ownership

      • Second and Subsequent Years of Ownership

    • Combined Financial Statements

    • Special-Purpose and Variable Interest Entities

      • Variable Interest Entities

      • IFRS Differences in Determining Control of VIEs and SPEs

    • Summary of Key Concepts

    • Key Terms

  • APPENDIX 3A Consolidation of Variable Interest Entities

    • Questions

    • Cases

    • Exercises

    • Problems

  • Chapter 4 Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value

    • How Much Work Does It Really Take to Consolidate? Ask the People Who Do It at Disney

    • Dealing with the Differential

      • The Difference between Acquisition Price and Underlying Book Value

    • Additional Considerations

      • Disney’s 2006 Pixar Acquisition

      • Disney’s 2012 Lucasfilm Acquisition

    • Consolidation Procedures for Wholly Owned Subsidiaries Acquired at More than Book Value

      • Treatment of a Positive Differential

      • Illustration of Treatment of a Complex Differential

      • 100 Percent Ownership Acquired at Less than Fair Value of Net Assets

      • Illustration of Treatment of Bargain-Purchase

    • Consolidated Financial Statements—100 Percent Ownership Acquired at More than Book Value

      • Initial Year of Ownership

      • Second Year of Ownership

    • Intercompany Receivables and Payables

    • Push-Down Accounting

    • Summary of Key Concepts

    • Key Terms

  • APPENDIX 4A Push-Down Accounting Illustrated

    • Questions

    • Cases

    • Exercises

    • Problems

  • Chapter 5 Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value

    • Cisco Acquires a Controlling Interest in Nuova

    • A Noncontrolling Interest in Conjunction with a Differential

    • Consolidated Balance Sheet with Majority-Owned Subsidiary

    • Consolidated Financial Statements with a Majority-Owned Subsidiary

      • Initial Year of Ownership

      • Second Year of Ownership

    • Discontinuance of Consolidation

    • Treatment of Other Comprehensive Income

      • Modification of the Consolidation Worksheet

      • Adjusting Entry Recorded by Subsidiary

      • Adjusting Entry Recorded by Parent Company

      • Consolidation Worksheet—Second Year Following Combination

      • Consolidation Procedures

      • Consolidation Worksheet—Comprehensive Income in Subsequent Years

    • Summary of Key Concepts

    • Key Terms

  • Appendix 5A Additional Consolidations Details

    • Questions

    • Cases

    • Exercises

    • Problems

  • Chapter 6 Intercompany Inventory Transactions

    • Inventory Transfers at Samsung Electronics

    • Overview of the Consolidated Entity and Intercompany Transactions

      • Elimination of Intercompany Transfers

      • Elimination of Unrealized Profits and Losses

    • Inventory Transactions

      • Worksheet Consolidation Entries

      • Transfers at Cost

      • Transfers at a Profit or Loss

      • Calculating Unrealized Profit or Loss

      • Deferring Unrealized Profit or Loss on the Parent’s Books

      • Deferring Unrealized Profit or Loss in the Consolidation

      • Why Adjust the Parent’s Books and Make Worksheet Entries?

    • Downstream Sale of Inventory

      • Resale in Period of Intercorporate Transfer

      • Resale in Period Following Intercorporate Transfer

      • Inventory Held for Two or More Periods

    • Upstream Sale of Inventory

      • Equity-Method Entries—20X1

      • Consolidation Worksheet—20X1

      • Consolidated Net Income—20X1

      • Equity-Method Entries—20X2

      • Consolidation Worksheet—20X2

      • Consolidated Net Income—20X2

    • Additional Considerations

      • Sale from One Subsidiary to Another

      • Lower of Cost or Market

      • Sales and Purchases before Affiliation

    • Summary of Key Concepts

    • Key Terms

  • APPENDIX 6A Intercompany Inventory Transactions—Modified Equity Method and Cost Method

    • Questions

    • Cases

    • Exercises

    • Problems

  • Chapter 7 Intercompany Transfers of Services and Noncurrent Assets

    • Micron’s Intercompany Fixed Asset Sale

    • Intercompany Transfers of Services

    • Intercompany Long-Term Asset Transfers

    • Intercompany Land Transfers

      • Overview of the Profit Consolidation Process

      • Assignment of Unrealized Profit Consolidation

      • Downstream Sale of Land (Year of Sale)

      • Downstream Sale of Land

      • Upstream Sale of Land (Year of Sale)

    • Intercompany Transfers of Depreciable Assets

      • Downstream Sale

      • Change in Estimated Life of Asset upon Transfer

      • Upstream Sale

      • Asset Transfers before Year-End

    • Intercompany Transfers of Amortizable Assets

    • Summary of Key Concepts

    • Key Terms

  • APPENDIX 7A Intercompany Noncurrent Asset Transactions—Modified Equity Method and Cost Method

    • Questions

    • Cases

    • Exercises

    • Problems

  • Chapter 8 Intercompany Indebtedness

    • Ford’s Debt Transfers

    • Consolidation Overview

    • Bond Sale Directly to an Affiliate

      • Transfer at Par Value

      • Transfer at a Discount or Premium

    • Bonds of Affiliate Purchased from a Nonaffiliate

      • Purchase at Book Value

      • Purchase at an Amount Less than Book Value

      • Purchase at an Amount Higher than Book Value

    • Summary of Key Concepts

    • Key Terms

  • APPPENDIX 8A Intercompany Indebtedness—Fully Adjusted Equity Method Using Straight-Line Interest Amortization

  • APPPENDIX 8B Intercompany Indebtedness—Modified Equity Method and Cost Method

    • Questions

    • Cases

    • Exercises

    • Problems

  • Chapter 9 Consolidation Ownership Issues

    • Berkshire Hathaway’s Varied Investments

    • Subsidiary Preferred Stock Outstanding

      • Consolidation with Subsidiary Preferred Stock Outstanding

      • Subsidiary Preferred Stock Held by Parent

      • Subsidiary Preferred Stock with Special Provisions

      • Illustration of Subsidiary Preferred Stock with Special Features

    • Changes in Parent Company Ownership

      • Parent’s Purchase of Additional Shares from Nonaffiliate

      • Parent’s Sale of Subsidiary Shares to Nonaffiliate

      • Subsidiary’s Sale of Additional Shares to Nonaffiliate

      • Subsidiary’s Sale of Additional Shares to Parent

      • Subsidiary’s Purchase of Shares from Nonaffiliate

      • Subsidiary’s Purchase of Shares from Parent

    • Complex Ownership Structures

      • Multilevel Ownership and Control

      • Reciprocal or Mutual Ownership

    • Subsidiary Stock Dividends

      • Illustration of Subsidiary Stock Dividends

      • Impact on Subsequent Periods

    • Summary of Key Concepts

    • Key Terms

    • Questions

    • Cases

    • Exercises

    • Problems

  • Chapter 10 Additional Consolidation Reporting Issues

    • Advanced Consolidation Issues at Google

    • Consolidated Statement of Cash Flows

      • Preparation of a Consolidated Cash Flow Statement

      • Consolidated Cash Flow Statement Illustrated

      • Consolidated Cash Flow Statement—Direct Method

    • Consolidation Following an Interim Acquisition

      • Parent Company Entries

      • Consolidation Worksheet

    • Consolidation Income Tax Issues

      • Allocating the Basis of Assets Acquired in a Business Combination

      • Tax Allocation Procedures When Separate Tax Returns Are Filed

      • Allocation of Tax Expense When a Consolidated Return Is Filed

      • Tax Effects of Unrealized Intercompany Profit Eliminations

    • Consolidated Earnings per Share

      • Computation of Diluted Consolidated Earnings per Share

      • Computation of Consolidated Earnings per Share Illustrated

    • Summary of Key Concepts

    • Key Terms

    • Questions

    • Cases

    • Exercises

    • Problems

  • Chapter 11 Multinational Accounting: Foreign Currency Transactions and Financial Instruments

    • Microsoft’s Multinational Business

    • Doing Business in a Global Market

    • The Accounting Issues

    • Foreign Currency Exchange Rates

      • The Determination of Exchange Rates

      • Direct versus Indirect Exchange Rates

      • Changes in Exchange Rates

      • Spot Rates versus Current Rates

      • Forward Exchange Rates

    • Foreign Currency Transactions

      • Foreign Currency Import and Export Transactions

    • Managing International Currency Risk with Foreign Currency Forward Exchange Financial Instruments

      • Derivatives Designated as Hedges

      • Forward Exchange Contracts

      • Case 1: Managing an Exposed Foreign Currency Net Asset or Liability Position: Not a Designated Hedging Instrument

      • Case 2: Hedging an Unrecognized Foreign Currency Firm Commitment: A Foreign Currency Fair Value Hedge

      • Case 3: Hedging a Forecasted Foreign Currency Transaction: A Foreign Currency Cash Flow Hedge

      • Case 4: Speculation in Foreign Currency Markets

      • Foreign Exchange Matrix

    • Additional Considerations

      • A Note on Measuring Hedge Effectiveness

      • Interperiod Tax Allocation for Foreign Currency Gains (Losses)

      • Hedges of a Net Investment in a Foreign Entity

    • Summary of Key Concepts

    • Key Terms

  • Appendix 11A Illustration of Valuing Forward Exchange Contracts with Recognition for the Time Value of Money

  • Appendix 11B Use of Other Financial Instruments by Multinational Companies

    • Questions

    • Cases

    • Exercises

    • Problems

    • Kaplan CPA Review

  • Chapter 12 Multinational Accounting: Issues in Financial Reporting and Translation of Foreign Entity Statements

    • McDonald’s—The World’s Fast Food Favorite

    • Convergence of Accounting Principles

    • Accounting for Differences in Currencies and Exchange Rates

      • Currency Definitions

    • Determination of the Functional Currency

      • Functional Currency Designation in Highly Inflationary Economies

    • Translation versus Remeasurement of Foreign Financial Statements

    • Translation of Functional Currency Statements into the Reporting Currency of the U.S. Company

      • Financial Statement Presentation of Translation Adjustment

      • Illustration of Translation and Consolidation of a Foreign Subsidiary

      • Noncontrolling Interest of a Foreign Subsidiary

    • Remeasurement of the Books of Record into the Functional Currency

      • Statement Presentation of Remeasurement Gain or Loss

      • Illustration of Remeasurement of a Foreign Subsidiary

      • Proof of Remeasurement Exchange Gain

      • Remeasurement Case: Subsequent Consolidation Worksheet

      • Summary of Translation versus Remeasurement

    • Additional Considerations in Accounting for Foreign Operations and Entities

    • Foreign Investments and Unconsolidated Subsidiaries

      • Liquidation of a Foreign Investment

    • Hedge of a Net Investment in a Foreign Subsidiary

    • Disclosure Requirements

      • Statement of Cash Flows

      • Lower-of-Cost-or-Market Inventory Valuation under Remeasurement

      • Intercompany Transactions

      • Income Taxes

      • Translation When a Third Currency Is the Functional Currency

    • Summary of Key Concepts

    • Key Terms

    • Questions

    • Cases

    • Exercises

    • Problems

    • Kaplan CPA Review

  • Chapter 13 Segment and Interim Reporting

    • Segment Reporting at Walmart

    • Reporting for Segments

    • Segment Reporting Accounting Issues

      • International Financial Reporting Standards for Operating Segments

    • Information about Operating Segments

      • Defining Reportable Segments

      • Comprehensive Disclosure Test

      • Reporting Segment Information

    • Enterprisewide Disclosures

      • Information about Products and Services

      • Information about Geographic Areas

      • Information about Major Customers

    • Interim Financial Reporting

    • The Format of the Quarterly Financial Report

    • Accounting Issues

      • Accounting Pronouncements on Interim Reporting

      • International Financial Reporting Standards for Interim Reporting

    • Reporting Standards for Interim Income Statements

      • Revenue

      • Cost of Goods Sold and Inventory

      • All Other Costs and Expenses

      • Accounting for Income Taxes in Interim Periods

      • Disposal of a Component of the Entity or Extraordinary, Unusual, Infrequently Occurring, and Contingent Items

    • Accounting Changes in Interim Periods

      • Change in an Accounting Principle (Retrospective Application)

      • Change in an Accounting Estimate (Current and Prospective Application)

      • Change in a Reporting Entity (Retrospective Application)

      • International Financial Reporting Standards for Accounting Changes

    • Summary of Key Concepts

    • Key Terms

    • Questions

    • Cases

    • Exercises

    • Problems

  • Chapter 14 SEC Reporting

    • The Genesis of Securities Regulation

    • International Harmonization of Accounting Standards for Public Offerings

    • Securities and Exchange Commission

      • Organizational Structure of the Commission

      • Laws Administered by the SEC

      • The Regulatory Structure

    • Issuing Securities: The Registration Process

      • The Registration Statement

      • SEC Review and Public Offering

      • Accountants’ Legal Liability in the Registration Process

    • Periodic Reporting Requirements

      • Accountants’ Legal Liability in Periodic Reporting

    • Electronic Data Gathering, Analysis, and Retrieval (EDGAR) System

    • Foreign Corrupt Practices Act of 1977

    • Sarbanes-Oxley Act of 2002

      • Title I: Public Company Accounting Oversight Board

      • Title II: Auditor Independence

      • Title III: Corporate Responsibility

      • Title IV: Enhanced Financial Disclosures

      • Title V: Analyst Conflicts of Interest

      • Title VI: Commission Resources and Authority

      • Title VII: Studies and Reports

      • Title VIII: Corporate and Criminal Fraud Accountability

      • Title IX: White-Collar Crime Penalty Enhancements

      • Title X: Sense of Congress Regarding Corporate Tax Returns

      • Title XI: Corporate Fraud and Accountability

    • Dodd-Frank Wall Street Reform and Consumer Protection Act

    • Jumpstart Our Business Startups (JOBS) Act

    • Disclosure Requirements

      • Management Discussion and Analysis

      • Pro Forma Disclosures

    • Summary of Key Concepts

    • Key Terms

    • Questions

    • Cases

    • Exercises

  • Chapter 15 Partnerships: Formation, Operation, and Changes in Membership

    • The Evolution of PricewaterhouseCoopers (PwC)

    • The Nature of the Partnership Entity

      • Legal Regulation of Partnerships

      • Definition of a Partnership

      • Formation of a Partnership

      • Other Major Characteristics of Partnerships

      • Accounting and Financial Reporting Requirements for Partnerships

      • International Financial Reporting Standards for Small and Medium-Size Entities and Joint Ventures

    • Accounting for the Formation of a Partnership

      • Illustration of Accounting for Partnership Formation

    • Accounting for the Operations of a Partnership

      • Partners’ Accounts

    • Allocating Profit or Loss to Partners

      • Illustrations of Profit Allocation

      • Multiple Profit Allocation Bases

      • Special Profit Allocation Methods

    • Partnership Financial Statements

    • Changes in Membership

      • General Concepts to Account for a Change in Membership in the Partnership

      • New Partner Purchases Partnership Interest Directly from an Existing Partner

      • New Partner Invests in Partnership

      • Determining a New Partner’s Investment Cost

      • Disassociation of a Partner from the Partnership

    • Summary of Key Concepts

    • Key Terms

  • Appendix 15A Tax Aspects of a Partnership

  • Appendix 15B Joint Ventures

    • Questions

    • Cases

    • Exercises

    • Problems

  • Chapter 16 Partnerships: Liquidation

    • The Demise of Laventhol & Horwath

    • Overview of Partnership Liquidations

      • Disassociation, Dissolution, Winding-Up, and Liquidation of a Partnership

    • Lump-Sum Liquidations

      • Realization of Assets

      • Liquidation Expenses

      • Illustration of a Lump-Sum Liquidation

    • Installment Liquidations

      • Illustration of Installment Liquidation

      • Cash Distribution Plan

    • Additional Considerations

      • Incorporation of a Partnership

    • Summary of Key Concepts

    • Key Terms

  • Appendix 16A Partners’ Personal Financial Statements

    • Questions

    • Cases

    • Exercises

    • Problems

  • Chapter 17 Governmental Entities: Introduction and General Fund Accounting

    • Accounting for the Bustling City of San Diego

    • Differences between Governmental and Private Sector Accounting

    • History of Governmental Accounting

    • Major Concepts of Governmental Accounting

      • Elements of Financial Statements

      • Expendability of Resources versus Capital Maintenance Objectives

      • Definitions and Types of Funds

    • Financial Reporting of Governmental Entities

      • Fund-Based Financial Statements: Governmental Funds

    • Measurement Focus and Basis of Accounting (MFBA)

      • Basis of Accounting—Governmental Funds

      • Basis of Accounting—Proprietary Funds

      • Basis of Accounting—Fiduciary Funds

    • Budgetary Aspects of Governmental Operations

      • Recording the Operating Budget

    • Accounting for Expenditures

      • The Expenditure Process

      • Classification of Expenditure Transactions and Accounts

      • Outstanding Encumbrances at the End of the Fiscal Period

      • Expenditures for Inventory

      • Accounting for Fixed Assets

      • Long-Term Debt and Capital Leases

      • Investments

    • Interfund Activities

      • (1) Interfund Loans

      • (2) Interfund Services Provided and Used

      • (3) Interfund Transfers

      • (4) Interfund Reimbursements

    • Overview of Accounting and Financial Reporting for the General Fund

    • Comprehensive Illustration of Accounting for the General Fund

      • Adoption of the Budget

      • Property Tax Levy and Collection

      • Other Revenue

      • Expenditures

      • Acquisition of Capital Asset

      • Interfund Activities

      • Adjusting Entries

      • Closing Entries

      • General Fund Financial Statement Information

    • Summary of Key Concepts

    • Key Terms

    • Questions

    • Cases

    • Exercises

    • Problems

  • Chapter 18 Governmental Entities: Special Funds and Governmentwide Financial Statements

    • Governmental Accounting in Maryland

    • Summary of Governmental Fund Types

    • Governmental Funds Worksheets

    • Special Revenue Funds

    • Capital Projects Funds

      • Illustration of Transactions

      • Financial Statement Information for the Capital Projects Fund

    • Debt Service Funds

      • Illustration of Transactions

      • Financial Statement Information for the Debt Service Fund

    • Permanent Funds

      • Illustration of Transactions

    • Governmental Funds Financial Statements

    • Enterprise Funds

      • Illustration of Transactions

      • Financial Statements for the Proprietary Funds

    • Internal Service Funds

      • Illustration of Transactions

      • Financial Statements for Internal Service Funds

    • Trust Funds

      • Illustration of Private-Purpose Trust Fund

    • Agency Funds

      • Illustration of Transactions in an Agency Fund

    • The Government Reporting Model

      • Four Major Issues

      • Government Financial Reports

      • Governmentwide Financial Statements

      • Reconciliation Schedules

      • Budgetary Comparison Schedule

      • Management’s Discussion and Analysis

      • Notes to the Governmentwide Financial Statements

      • Other Financial Report Items

      • Interim Reporting

      • Auditing Governmental Entities

    • Additional Considerations

      • Special-Purpose Governmental Entities

    • Summary of Key Concepts

    • Key Terms

  • Appendix 18A Other Governmental Entities—Public School Systems and the Federal Government

    • Questions

    • Cases

    • Exercises

    • Problems

  • Chapter 19 Not-for-Profit Entities

    • United Way Worldwide

    • Financial Reporting for Private, Not-for-Profit Entities

      • Additional Standards for Not-for-Profit Entities

    • Colleges and Universities

      • Special Conventions of Revenue and Expenditure Recognition

      • Board-Designated Funds

      • Public Colleges and Universities

      • Private Colleges and Universities

    • Health Care Providers

      • Hospital Accounting

      • Financial Statements for a Not-for-Profit Hospital

      • Comprehensive Illustration of Hospital Accounting and Financial Reporting

      • Temporarily Restricted Funds

      • Summary of Hospital Accounting and Financial Reporting

    • Voluntary Health and Welfare Organizations

      • Accounting for a VHWO

      • Financial Statements for a VHWO

      • Summary of Accounting and Financial Reporting for VHWOs

    • Other Not-for-Profit Entities

      • Accounting for an ONPO

      • Financial Statements of an ONPO

      • Summary of Accounting and Financial Reporting for an ONPO

    • Summary of Key Concepts

    • Key Terms

    • Questions

    • Cases

    • Exercises

    • Problems

  • Chapter 20 Corporations in Financial Difficulty

    • GM in Financial Distress

    • Courses of Action

      • Nonjudicial Actions

      • Judicial Actions

    • Chapter 11 Reorganizations

      • Fresh Start Accounting

      • Plan of Reorganization

      • Illustration of a Reorganization

    • Chapter 7 Liquidations

    • Classes of Creditors

      • Secured Creditors

      • Creditors with Priority

      • General Unsecured Creditors

      • Statement of Affairs

    • Additional Considerations

      • Trustee Accounting and Reporting

    • Summary of Key Concepts

    • Key Terms

    • Questions

    • Cases

    • Exercises

    • Problems

  • Index

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