Advanced Accounting 12e Paul Marcus Fischer, PhD, CPA Jerry Leer Professor of Accounting University of Wisconsin, Milwaukee William James Taylor, PhD, CPA, CVA Professor Emeritus of Accounting University of Wisconsin, Milwaukee Rita Hartung Cheng, PhD, CPA Professor of Accounting Northern Arizona University australia • brazil • japan • korea • mexico • singapore • spain • united kingdom • united states Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it This is an electronic version of the print textbook Due to electronic rights restrictions, some third party content may be suppressed Editorial review has deemed that any suppressed content does not materially affect the overall learning experience The publisher reserves the right to remove content from this title at any time if subsequent rights restrictions require it For valuable information on pricing, previous editions, changes to current editions, and alternate formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for materials in your areas of interest Important Notice: Media content referenced within the product description or the product text may not be available in the eBook version Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Advanced Accounting, 12th Edition Paul M Fischer, William J Taylor, and Rita H Cheng Vice President, General Manager, Social Science & Qualitative Business: Erin Joyner Product Director: Michael Schenk Product Manager: Sharon Oblinger Content Developer: Jeff Hahn, JL Hahn Consulting Marketing Manager: Charisse Darrin ª 2016, 2012 Cengage Learning WCN: 02-200-203 ALL RIGHTS RESERVED No part of this work covered by the copyright herein may be reproduced, transmitted, stored, or used in any form or by any means graphic, electronic, or mechanical, including but not limited to photocopying, recording, scanning, digitizing, taping, Web distribution, information networks, or information storage and retrieval systems, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the publisher For product information and technology assistance, contact us at Cengage Learning Customer & Sales Support, 1-800-354-9706 Content Project Manager: Jana Lewis Media Developer: Lysa Kosins Manufacturing Planner: Doug Wilke Production Service: Cenveo Publisher Services For permission to use material from this text or product, submit all requests online at www.cengage.com/permissions Further permissions questions can be emailed to permissionrequest@cengage.com Sr Art Director: Stacy Shirley Internal Designer: Mike Stratton Unless otherwise noted, all items ª Cengage Learningâ Cover Designer: Itzhack Shelomi Library of Congress Control Number: 2014958903 Cover Image: ª lowball-jack/iStock Photo ISBN: 978-1-305-08485-8 Intellectual Property: Analyst: Christina Ciaramella Project Manager: Betsy Hathaway Cengage Learning 20 Channel Center Street Boston, MA 02210 USA Cengage Learning is a leading provider of customized learning solutions with office locations around the globe, including Singapore, the United Kingdom, Australia, Mexico, Brazil, and Japan Locate your local office at: www.cengage.com/global Cengage Learning products are represented in Canada by Nelson Education, Ltd To learn more about Cengage Learning Solutions, visit www.cengage.com Purchase any of our products at your local college store or at our preferred online store www.cengagebrain.com Printed in the United States of America Print Number: 01 Print Year: 2015 Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Advanced Leadership PREFACE INNOVATION The twelfth edition of Advanced Accounting raises the standard in accounting education Providing the most innovative, up-to-date, and comprehensive coverage of advanced financial accounting topics on the market today, this edition incorporates pedagogically strong elements throughout The end result is a valuable and useful resource for both the present and the future Fischer/Taylor/Cheng’s Advanced Accounting offers the learner the ability to understand, and then to apply, new knowledge like no other advanced accounting text available Leading the way are these unique, innovative, and helpful features: ^ Understanding and applying the new Financial Accounting Standards Board codification terms: ^ ^ ^ ^ ^ ^ ^ Excelling with ease—easy-to-follow Excel® tutorials and convenient electronic working papers available on the text’s Web site (www.cengagebrain.com): ^ ^ ^ ^ Coverage of International Financial Reporting Standards (IFRS) References throughout have been updated to reflect codification terms All subsidiary accounts are adjusted to full fair value whenever control is achieved The noncontrolling interest is adjusted to fair value Instead of allocating the available amount to fixed assets in a bargain purchase, all accounts are recorded at full fair value and the bargain results in a gain Changes in the parent’s ownership interest are treated as equity transactions with no impact on income Changes in the subsidiary’s equity are treated as equity transactions with no impact on income This unique tutorial teaches a step-by-step process for completing consolidations worksheets in an Excel-based environment The tutorial makes it possible to master consolidations worksheets more quickly The tutorial guides the student through the creation of Excel worksheets Each chapter of the tutorial adds the consolidations processes to parallel those presented in Chapters 1–6 of the text The electronic working papers in Excel format provide students with the basic worksheet structure for selected assignments throughout the text These assignments are identified in the text by the icon shown here Comprehending through consistency—common coding for the worksheets: ^ ^ All consolidations worksheets use a common coding for the eliminations and adjustments A complete listing of the codes is presented on the inside of the front cover Students are now able to quickly recall worksheet adjustments as they move from one chapter to the next Within the chapter narrative, the worksheet eliminations and adjustments are shown in journal entry form and are referenced using the same coding This provides consistent Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it iv PREFACE reinforcement of the consolidations process and aids students in their understanding of the worksheet procedures An example follows: (CY1) (EL) (IS) ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ 80,000 56,000 136,000 100,000 100,000 The same codes are continued in the Excel tutorial and the worksheet solutions A comprehensive module deals with derivative instruments and related accounting issues This module, located just before Chapter 10, sets forth the basic characteristics of derivative financial instruments and explains the features of common types of derivatives Accounting for derivatives held as an investment and as a part of a hedging strategy is discussed Although covering the derivatives module prior to Chapter 10 is recommended, Chapter 10 can be taught without coverage of the derivatives module Fair value and cash flow hedges are clearly defined, and the special accounting given such hedges is set forth in a clear and concise manner Options, futures, and interest rate swaps are used to demonstrate accounting for fair value hedges and cash flow hedges New explanations, examples, and end-of-chapter problems have been added to help simplify this complex topic The more complex issues that are associated with the use of forward contracts are introduced in the module and then fully addressed in Chapter 10 Thus, Chapter 10’s discussion of hedging foreign currency transactions is more streamlined and less cumbersome Most of the chapter’s discussion of hedging foreign currency transactions involves the use of forward contracts The focus is on the use of such contracts to hedge foreign currency transactions, commitments, and forecasted transactions Comprehensive coverage of governmental standards through GASB Statement No 71, including the historic changes to the reporting model Government and not-for-profit chapters include material for CPA Exam preparation Chapters are designed for use in advanced accounting courses or in standalone governmental and not-for-profit courses Measuring student mastery—Learning Objectives: ^ Explain why transactions between members of a consolidated firm should not be reflected in the consolidated financial statements Eliminate intercompany merchandise sales: Sales Cost of Goods Sold 60,000 Accounting for change—coverage of government reporting model and estate tax planning: ^ O B J E C TI VE Eliminate 80% of subsidiary equity against investment in subsidiary account: Common Stock ($10 par)—Company S Retained Earnings, January 1, 2011—Company S Investment in Company S 60,000 Taming a tough topic—coverage of derivatives and related accounting issues in a module: ^ ^ Eliminate current-year equity income: Subsidiary Income Investment in Company S Each chapter begins with a list of measurable learning objectives, which are repeated in the margin near the related coverage The exercises and problems at the end of the chapter indicate the specific learning objectives that they reinforce This helpful indicator, along with the assignment titles, provides a quick reference for both student and instructor Staying up to date—IASB Perspectives: ^ ^ Within relevant chapters, a new box feature provides information and commentary regarding how standards differ between U.S GAAP and IFRS This feature provides students with a clear understanding as to how IASB proposals may differ and what questions to consider moving forward with their studies Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it PREFACE ^ v Communicating the core content—Reflection: ^ ^ Concluding every main section is a reflection on the core information contained in that section These reflections provide students with a clear picture of the key points they should grasp and give them a helpful tool for quick review R E F L E C T I O N  The combining of the statements of a parent and its subsidiaries into consolidated statements is required when parent ownership exceeds 50% of the controlled firm’s shares  Consolidation is required for any company that is controlled, even in cases where less than 51% of the company’s shares is owned by the parent ^ Thinking it through—Understanding the Issues: ^ These questions at the end of the chapter emphasize and reinforce the core issues of the chapter UNDERSTANDING THE ISSUES A parent company paid $500,000 for a 100% interest in a subsidiary At the end of the first year, the subsidiary reported net income of $40,000 and paid $5,000 in dividends The price paid reflected understated equipment of $70,000, which will be amortized over 10 years What would be the subsidiary income reported on the parent’s unconsolidated income statement, and what would the parent’s investment balance be at the end of the first year under each of these methods? a The simple equity method b The sophisticated equity method c The cost method What is meant by date alignment? Does it exist on the consolidated worksheet under the following methods, and if not, how is it created prior to elimination of the investment account under each of these methods? a The simple equity method b The sophisticated equity method c The cost method Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it vi PREFACE ^ They encourage students to think in greater depth about the topics and expand their reasoning skills Discussion skills are also developed through use of the questions as springboards for class interaction THEORY BLENDED WITH APPLICATION With a strong tradition of combining sound theoretical foundations with a hands-on, learn-byexample approach, the twelfth edition continues its prominent leadership position in advanced accounting classrooms across the country The authors build upon Advanced Accounting’s clear writing style, comprehensive coverage, and focus on conceptual understanding Realizing that students reap the greatest benefits when they can visualize the application of theories, Advanced Accounting closely links theory and practice by providing examples through relevant exhibits and tables that are common to real-world accounting When students can visualize the concept being discussed and apply it directly to an example, their understanding greatly improves This focus on conceptual understanding makes even the most complex topics approachable Assignments are clearly defined End-of-chapter questions are used to reinforce theory, and exercises are short, focused applications of specific topics in the chapter These exercises are very helpful when students use them as preparation for possible class presentations The book’s problems, which are designed to be more comprehensive than the exercises, often combine topics and are designed to work well as after-class assignments For group projects, the cases found in the business combinations chapters provide an innovative way to blend theoretical and numerical analysis ENHANCED COVERAGE Advanced Accounting reflects changes in accounting procedures and standards while improving on those features that aid in student comprehension ^ Chapter New material on Goodwill including ability of non-public companies to amortize goodwill and new impairment procedures for goodwill ^ Expanded coverage of contingent consideration in the purchase of a business ^ ^ Chapter New, simplified procedure for valuation schedule that covers all potential situations ^ Introduction of Variable Interest Entities (VIE) as another application of consolidation procedures ^ Expanded and updated coverage of reverse acquisitions ^ ^ Chapter New information on disclosure for an intraperiod purchase ^ ^ Chapter Updated end-of-chapter material ^ ^ Chapter Updated end-of-chapter material ^ ^ Chapter Improved coverage of amortizations of excess cost as they impact cash flow statement ^ Section on nonconsolidated investments has been moved to an appendix ^ Updated consolidated statement of cash flows example ^ Revised coverage of consolidated earnings per share ^ Revised coverage of taxation of consolidated companies including foreign subsidiaries ^ Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it PREFACE ^ Chapter Updated coverage on sale of parent interest in a subsidiary ^ ^ Chapter Revised discussion of subsidiary stock dividends ^ New section called ‘‘Parent Company Shares Purchased by Subsidiary.’’ ^ Section on stick swap has been removed ^ The reciprocal method of consolidating ownership of parent shares by the subsidiary has been eliminated ^ ^ Special Appendix 1: Accounting for Influential Investments Revised content to reflect current FASB Codification updates ^ Updated section called ‘‘Fair Value Option.’’ ^ Updated end-of-appendix material ^ ^ Special Appendix 2: Variable Interest Entities Defining a VIE ^ Application of the consolidations model to a VIE ^ ^ Chapter Updated discussion of the scale of international activity and how it relates to foreign currency transactions, foreign currency translation, and international standard setting ^ Added coverage of the current positions of the Financial Accounting Standards Board (FASB), the International Accounting Standards Board (IASB), and the Securities and Exchange Commission (SEC) regarding convergence to IFRS ^ ^ Chapter 10 Simplified entries necessary to account for derivatives ^ Revised end-of-chapter materials place a greater focus on the impact of hedging on both financial position and operating results ^ Updated coverage of highlights of the IASB’s proposed standard on hedging are set forth in the ‘‘IASB Perspectives’’ feature ^ ^ Chapter 11 New illustration of the consolidation of a U.S parent and a foreign subsidiary ^ Incorporated new standards as they relate to consolidations ^ ^ Chapter 12 End-of-chapter materials have been updated and revised ^ All footnotes have been changed to reference relevant sections of the Accounting Standards Codification (ASC) ^ ^ Chapter 13 End-of-chapter materials have been updated and revised ^ All footnotes have been changed to reference relevant sections of the Accounting Standards Codification ^ ^ Chapter 14 End-of-chapter materials have been updated and revised ^ All footnotes have been changed to reference relevant sections of the Accounting Standards Codification ^ ^ Chapter 15 Include a discussion of deferred inflows of resources and deferred outflows of resources ^ Updated entries for examples ^ Updated end-of-chapter material ^ Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it vii viii PREFACE ^ Chapter 16 Updated entries for examples ^ Updated end-of-chapter material ^ ^ Chapter 17 Updated entries for examples ^ Updated end-of-chapter material ^ ^ Chapter 18 Updated entries for examples ^ Updated end-of-chapter material ^ ^ Chapter 19 Updated entries for examples ^ Updated end-of-chapter material ^ ^ Chapter 20 Revised exclusions and rates are employed and an explanation for this logic is set forth at the beginning of the chapter ^ Updated pedagogical aspects of accounting for estates and trusts are firmly set forth ^ Updated website material is conveyed regarding Congressional actions concerning estate taxation (www.cengagebrain.com) ^ ^ Chapter 21 End-of-chapter materials have been updated and revised ^ All footnotes have been changed to reference relevant sections of the Accounting Standards Codification ^ ^ Appendix Applies the equity method to nonconsolidated (influential) investments ^ Updated coverage includes the fair value option ^ FLEXIBILITY The book’s flexible coverage of topics allows for professors to teach the course at their own pace and in their preferred order There are no dependencies between major sections of the text except that coverage of consolidations should precede multinational accounting if one is to understand accounting for foreign subsidiaries It is also advisable that students master the module on derivatives before advancing to the chapter on foreign currency transactions The book contains enough coverage to fill two advanced courses, but when only one semester is available, many professors find it ideal to cover the first four to six chapters in business combinations The text is divided into the following major topics: Business Combinations—Basic Topics (Chapters 1–6) Chapter demonstrates the FASB rules for assigning the cost of an acquired company to its assets and liabilities Goodwill impairment replaces amortization and is fully explained Chapters through cover the basics of preparing a consolidated income statement and balance sheet In 1977, we introduced two schedules that have been much appreciated by students and faculty alike—the determination and distribution of excess schedule and income distribution schedule The determination and distribution schedule (quickly termed the D&D schedule by students) analyzes the difference between the fair value of the acquired company and the underlying equity of the subsidiary The D&D schedule has been reconfigured to revalue the entire company, including the noncontrolling interest It provides a check figure for all subsequent years’ worksheets, details all information for the distribution of differences Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it 1128 INDEX Operating activities, cash flows, 329 Operating budget, preparation, 831 Operating cash flows, 903 Operating debt, 776–777 Operating entries, 779 Operating information, 921 Operating leases, 273 existence, 279 Operating losses, offsetting (absence), 668–669 Operating segment, 680 definition, 680–682 identification, 680 revenues, 683 Option concepts, 517 contracts, 514–517 current value, intrinsic value (difference), 560 intrinsic value, 515 change, 559 period, 559 strike price, 514–515 time value, 515 change, 534 usage, 532–534 Order for relief, 1070 Organization for Economic Cooperation and Development (OECD), corporate tax rate information, 337 Original book value, 733 Original cost, 132 Original loan, new loan difference (determination), 1064 Original partners bonus, 728–729 goodwill, tracing, 731–732 profit/loss ratios, 728 Original partnerships, overvaluation, 729–730 Other comprehensive bases of accounting (OCBOA), 704 Other comprehensive income (OCI), 82, 530–531, 562 component, 614 classification, 532 cumulative amount, 576 cumulative balance, 534 owner equity component, 618 transfer, 535–536 Other financing sources, 766–767 closure, 782 estimation, 783–784 refunding bonds, proceeds, 838 Other postemployment benefits (OPEBs), 775 provision, 856 Out-of-the-money call option, purchase, 577 Out-of-the-money option, 515, 516 Outside party goods, sale, 211 sale, realization, 207 Outstanding stock, fair market value, 337 Outstanding subsidiary shares, parent ownership (assumption), 335 Ownership changes, 726–739 level, 56–57 Ownership interest, 132 increase/decrease, 444 parent maintenance, 445 stability, 444 P Paid-in capital, 378 contingent share agreement, 22 excess, 88 par, excess (comparison), 445 Paid-in capital in excess of par, 705 Par capital, excess, 88 Parent (acquirer), 7, 55 accounts receivable, dollar values, 617 acquisition date, 624 amortization, absence, 342 common stock investment periodic equity adjustment, 390 sale, 381–389 company controlling interest, 448 impairment loss share, recording, 142 subsidiary purchase, 454–457 controlling interest, 452 cost method, usage, 387, 392 currency foreign subsidiary function, 600 functional currency, comparison, 623–627 functional currency, remeasurement/translation, 627–630 usage, 622 foreign subsidiary functions, 601 identification, 9–10 income distribution schedule, adjustments, 334–335 interest, sale, 382–383 OCI, component, 618–619 ownership percentage, 221 paid-in capital, 378 purchase, level two holding, 452 separate income statements, 343 subsidiary account investment adjustment, 442 Parent (lessor), income distribution schedule, 278 Parent (acquirer) investment account, elimination, 69 sophisticated equity method, usage, 223–224 balance, presence, 438 subsidiary preferred stock, 393–395 Partial interest intraperiod sale, 387–388 sale, impact, 387 Partners See Original partners admission, 726–737 assets, loan, 706 bonuses, 710 See also New partners capital investment, 708–710 dissociation, 704–705 interest, sale, 737–738 invested capital, interest (imputation), 709 maximum loss absorbable (MLA), 747–748 relationship, 702 services, 710 withdrawals, 705–706, 737–739 Partnerships accounting development, 703–704 principles, 704 activities, accounting, 705–714 examples, 707 Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it INDEX Partnerships (continued ) agreements, 737 allocation, multiple bases, 711 articles, 703 assets contribution, 726–727, 736–737 partner loan, 706 bonus method, 727–728 book value, 727 capital, investment, 706 characteristics, 702–705 continuation, 699 default rules, 704 dissolution, 704–705 formation/agreements, 703 general partnership, 702 incoming partner, interest, 726–727 interest, sale, 738–739 legal liability, 702 limited partnership, 702 liquidation, 740–748 net income, percentage, 710 profits/losses agreement, 713 allocation/division, 707–713 recorded net assets, unrecognized appreciation/goodwill, 726 tax considerations, 705 total capital, 727 value, adjustment, 733 Passive interest, 57 Passive investment, 82 Patent amortization expense, maintenance, 122 Pay fixed party, 518 Pay floating party, 518 Pension expenses (recording), GASB standards (usage), 775 Pension trust funds, 805, 854–857 resources, increases, 855 Periodic equity adjustment, 390 Periodic inventories, eliminations, 213 Permanent balance sheet accounts, 779 Permanent funds, 772, 805, 830–831 transactions, recording (examples), 831 Perpetual inventory system, usage, 208 Personal representative (executor), 1032 Pfizer, Inc., consolidated statements of income/balance sheets, 124–126 Plan net position, statement (example), 857 Plant assets intercompany sale, loss, 219 sales, 396 Plant funds (public/private colleges/universities), 986–988 Pledges, types, 938, 978 Poison pill, Pooling-of-interests method, Portability (exclusion amount), 1046 Post-closure cost estimates, adjustment, 850 Preexisting goodwill, 79–81 Preferred shareholder claim, determination, 389–390 Preferred stock cumulative/participating characteristic, 390 investment account, existence, 394 1129 liquidation value, 390 retained earnings, allocation, 392 subsidiary preferred stock, 389–395 Premium (discount), 511, 514, 559 quoting, 551 Prepaid insurance, representation, 623 Prepaid tax asset, 342 Present value analysis, 1063 Pretax income restatement, 675 tax, 662–663 Pretax loss, restatement, 675 Pretax ordinary income, estimation, 669 Principal, payment, 799 Pringles, acquisition (goodwill/intangible assets), 28–29 Prior fiscal years income, YTD/annual operating losses (offsetting), 666–667 Prior interim periods, adjustments, 661–662 Prior noncontrolling interest (NCI), ownership, 81–82 Prior-period adjustments, treatment, 661 Prior period, encumbrances, 789–790 Prior periods reduction, 346 unrealized profits, 221–224 worksheets, 128 Prior years’ errors, corrections, 790 Private colleges/universities See Public/private colleges/ universities Private company, balance sheet (example), 84 Private health care provider, financial statements, 1005–1006 Private not-for-profit organizations accounting, 937–942 accuracy, 939 donor-imposed restrictions/reclassifications, 938–940 expenses, accounting, 940 external financial statements, requirement, 941 financial statements, 940–942 investments, 939–940 revenues/gains/contributions, accounting, 937–940 Private-purpose endowment principal trust funds, 853 Private-purpose trust funds, 805, 852–854 accounting, 854–855 Probate court, will (presentation), 1032 exempt property, 1033 principal, identification, 1032–1034 special allowances, 1033 Probate estate, 1032 claims, identification, 1034–1035 inventory, accounting, 1033–1034 settling, 1032–1040 Procter and Gamble Company, annual report, 634 Product costs, costs/expenses, 660 Product extension merger, Profit allocation, 707–713 bases, 711 deficiency, 712 procedures, 713 calculation, care, 207 deficiencies/losses, allocation, 711–713 division, 707–713 Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it 1130 INDEX Profit (continued ) information, 683–686 ratios, 707–708 deficiency, 712 Profit and loss agreement, 710 Program revenues, classification, 910 Program services costs (voluntary health/welfare organizations), 945 Program-specific operating grants/contributions, 909 Property disposition (Chapter bankruptcy), 1074 distributions, 1036–1039 exemption, 1033 Property, plan, and equipment, 14 Property taxes, 773 collection, 782 impact, 786 levy, authorization, 836 receivables recording, 780 uncollected property taxes, appearance, 783 Proprietary funds, 772, 805, 843–851, 896 examples, 900–904 Proprietary, term (usage), 843 Proprietary theory, 703, 726 Provisional values, 19 Public company, balance sheet (example), 84 Public/private colleges/universities accounting, 976–994 agency funds, 988 agency transactions, 979 annuity/life income funds, 985–986 conditional pledges, 978 contributions, accounting, 978 donor-imposed restrictions/reclassifications, 978–979 educational/general expenses group, 977 endowment funds, 983–985 expenses, accounting, 977 financial statements, 988–994 funds, 976–977 structure, university accounting/financial reporting, 979–988 loan funds, 982–983 plant funds, 986–988 quasi-endowments, 984 regular/pure endowments, 983 restricted fund, 981–982 revenues, accounting, 977 statement of activities, 988 example, 993 statement of cash flows, 988 examples, 991, 994 statement of financial position, 988 example, 992 statement of net position, 988 example, 989 statement of revenues/expenses, 988 example, 990 term endowments, 983 unrestricted fund, 979–981 Public-purpose trust fund, special revenue funds (usage), 828 Purchases analysis, 62–63 disclosure, 327 method, 9, 775–776 Purchasing company beginning/ending inventories, intercompany goods (impact), 211–212 ending inventory, intercompany goods (usage), 209–211 inventories, intercompany goods (absence), 207–209 Pure endowments, 983 Push-down accounting, 83–84 Put option, 514, 559 Q Qualified terminable interest property (QTIP) trust, 1049 Qualitative impairment test, 33 Qualitative testing, 32 Quantitative impairment test, 33 Quasi-endowments, 984 R Ralph Lauren Corporation, consolidated statements of income, 11–13 Receivables, recording, 780 Receive fixed party, 518 Receive floating party, 518 Regular endowments, 983 Related debt, net, 902 Relief procedures court action, nonrequirement, 1062–1069 debt extinguishments/modifications restructurings, 1062–1066 present value analysis, 1063 Remainderman, 1035 Remaining time, 550–551 Remeasurement flowchart, 633 gain/loss, 631 methodologies, 632 summary, 631–634 method/process, 610, 624 rule, necessity, 624 Reorganization, Chapter 11 bankruptcy, 1070 accounting, 1072 Replacement cost, 659 Reportable segment, 681 criteria, demonstration, 681–682 measurements, differences, 685 profits/losses, measurements, 684 Reporting capabilities, 805 Reporting entity currency, measurement, 553 statements, automatic production, 59 Reporting model, highlights/examples, 892–913 Reporting units assumptions, 31 fair value, measurement, 31 goodwill allocation, 30 liabilities, 30–31 net assets, carrying value, 33 valuation procedures, 30–32 Required disclosure, 27–29 Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it INDEX 1131 Required supplementary information (RSI), 889, 890 Research and development (R&D) assets, 16 venture, 1061 Residuary legacy, 1037 Restricted assets, recording, 845 Restructured debt, requirements, 1065–1066 Retained earnings, 60, 705 adjustments, 346 allocation, 389–392 amounts, calculation, 126–127 apportionment, 390–393 balance, 382 claim, 394 Controlling Retained Earnings, 123 example, 439 increase, 139 preferred shareholder claim, determination, 389–390 translation, 611 Retirement loss, 266–267 plan contributions, 854–855 net position, change (example), 856 theory, application, 377 Return profile, 515 Revaluations, 548 Revenues, 807 accounting, 772–773 private not-for-profit organizations, 937–940 bonds, issuance, 846 capacity information, 921 control, 785 accounts, usage, 845 elimination, 275 program revenues, classification, 910 raising, 766–767 recording, 780 subsidiary ledge account, 779 voluntary health/welfare organizations, 944–945 Revenue statements combining, 829 examples, 830, 835 example, 848 preparation, 915–917 Reverse acquisition, 9, 83–88 noncontrolling interest, usage, 87–88 Reverse repurchase agreements, 791 Revised Uniform Partnership Act (RUPA), 703–704 Revised Uniform Principal and Income Act, 1035 Risk management techniques, 586–587 S Sales-type leases, consolidation procedures, 276–278 Secondary tax, application, 344 Securities and Exchange Commission (SEC) consolidation requirements, 58 initiatives, 505–506 Staff Accounting Bulletin (SAB) No 78, 1068 Securities lending transactions, 791 Segmental data, utility, 679 Segmental disclosure, content, 683 Segmental information comparability, 683 external reporting, alignment, 679 Segmental reporting requirement, 684 standards, 679–687 Segmental values, presentation, 685–686 Segment profit/loss, measurement, 684 Seller, income distribution schedule, 210 Selling company schedule, intercompany inventory profits (adjustments), 212 Separate tax returns, 341–346 usage, 342 Serial bonds, issuance, 836 Service efforts and accomplishments (SEA) projects, 921 Services charges, 909 revenue, 773 purchase, 788 Service-type special assessments, 839 Settlement date hedging instrument expiration, 569 impact, 571 Short position, 511, 557 Short-term bond anticipation notes, government issue, 832 Short-term debt issuance, purpose, 890 recording, 776 Short-term operating debt, 776–777 Simple-equity conversion, 439, 451 Simple equity method parent usage, 436–437 past usage, 385 usage, 138–140 assumption, 382 Simplified summary entry, analysis, 209 Single Audit Act, 920–921 Small and medium-sized entities (SMEs), 142 Smithsonian Agreement, 548 Sophisticated equity method, 220–224 adjustment, 387 effect, 130–131 investment account adjustment, 385–386 parent usage, 438–439 requirement, 118 retroactive application, 488 usage, 383, 481 Special assessment bonds, issuance, 846 Special assessment debt, recording, 843 Special assessment projects, 839–843 accounting, example, 842 completion, recording, 841 Special assessment receivable/revenue, divisions, 841 Special items, 777 reporting, 905 Special revenue fund, 772, 805, 827–830 accounting, design, 829 nonmajor special revenue funds, example, 830 usage, 828 Specific legacy, 1036–1037 Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it 1132 INDEX Spot-forward difference, 524 Spot price, 515 Spot rate, 511, 550 changes, 570 currency, 558 example, 564 Standard & Poor’s (S&P) Corporation, 922 State governments, audits, 920–921 Statement of activities, 909–910, 941 examples, 911–912, 953–954 public/private colleges/universities, 988 Statement of affairs, 1073 accounting statement of affairs, 1075 asset portion, 1075 example, 1077 liability/owner equity portion, 1075 preparation, 1075–1078 sections, 1075 Statement of cash flows, 941 calculation, indirect method (usage), 331 components, translation, 611–612 example, 849 public/private colleges/universities, 988 requirement, 902–903 voluntary health/welfare organizations, 955 Statement of expenses (public/private colleges/ universities), 988 Statement of financial position, 941 example, 948 voluntary health/welfare organizations, 954 Statement of functional expenses, 941 Statement of net position (public/private colleges/ universities), 988 Statement of realization and liquidation, 1078 example, 1079 Statement of revenues preparation, 915–917 public/private colleges/universities, 988 State of domicile, 1037 Statistical analysis, 522 Statutory consolidation, 6–7 Statutory merger, Stock parent acquisition, 375–377 voting power, 337 Stock acquisition, consolidation, 60 legal entity, separation, 59 Stock dividends, 435–440 cost method, parent usage, 439–440 simple equity method, parent usage, 436–437 sophisticated equity method, parent usage, 438–439 subsidiary declaration, 439 Stockholder equity, appearance, 436 Strike price, 514, 515, 532, 559 Subsidiary, 7, 55 accounts adjustment, 61–63, 69 investment, parent adjustment, 442 additional shares, purchase, 328 assets/liabilities, increase, 72 basic earnings per share, calculation, 333 bonds interest, ownership, 270–271 parent purchase, 266 book values, comparison, 76 common stock before and after analysis, 447 sale, 440–446 self-purchase, 446–447 DEPS, calculation, 335 dividends, 328 equity elimination, 62 increase, 83 level, 121 method, 118–120 exposure, absence, 608 fair value, 71 comparison, 76 financial statements, U.S dollar translation, 605–606 foreign currency transactions, exchange rates (impact), 599 foreign subsidiary, investment, 556 functional currency, usage, 621 investment accounting, 118–120 example, 60, 61 parent sale, recording, 384 sale, 381 ledger accounts, examples, 781 ledger entries, 778–779 example, 780 loss account, 130 parent company shares acquisition, 455–457 parent controlling interest, 448 parent/investor currency, usage, 622 parent share, 334–335 partial worksheet, example, 131 preferred stock, 389–395 example, 393 parent investment, 393–395 parent purchase, 393 purchase, gain, 76–77 reported net income, 132 retained earnings allocation, 390 claim, 394 revenue ledger, property taxes (impact), 786 separate income statements, 343 shares, parent purchase, 377–381 total equity, 376 total stockholders’ equity, 71 Treasury shares, resale, 447 Treasury stock purchase, 446 undistributed income, parent share (recording), 344 Subsidiary income, 128 account, removal, 122 distribution schedule, 147 parent share calculation, 387 recording, 384 sophisticated equity amount, example, 439 Subsidiary stock dividends, 435–440 Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it INDEX 1133 Subsidiary stock (continued ) declaration, 439 newly issued subsidiary stock, parent purchase, 444–446 noncontrolling shareholder acquisition, 440–444 parent acquisition, 375–377 Supporting services costs (voluntary health/welfare organizations), 945 Swap, 517–519 fair value, 530 hedge, contrast, 535 interest rate swap, 518 maturity date, 530 notional amount, 530 value, change, 530 Symmetric return profile, 512, 558 methodologies, 632 summary, 631–634 objectives, accomplishment, 614 process, 610–620 objectives, 602–609 Transnational companies, 500 Treasury stock method, 455 Trial balances, recopying, 141 Trust funds, 852–859 Trusts accounting issues, 1048–1050 financial accounting, 1049–1050 income accounts, usage, 1049 principal, usage, 1049 Two-transactions method, 553 Tyco International, T Tax (taxes) accrual, basis, 343 adjustments, carriage, 147 consolidated company taxation, 337–347 derived taxes, 773 expense, year-to-date amount, 663 federal estate taxation, 1044–1045 computation, 1044 imposed tax revenues, 773 issues, 23 legislation, changes, 662 loss carryovers, 23–25 planning alternatives, 675 provision, 342–343 calculation, 485 equity income basis, 484–485 returns, separation, 341–346 tax anticipation notes, 776–777 tax-basis accounting, 704 tax-free exchange, 144 occurrence, 145 tax-related adjustments, 144–148 unified transfer tax rate, 1041 Taxpayers taxpayer-assessed taxes, 773 Taxpayers, right to know, 770 Tax Reform Act (1976), 1044 Temporal method, 610 Tenancy in partnership, 702 Tender offer, Term bonds, rarity, 836 Term endowments, 983 Time value, 551 Total goodwill, 71 Total Nonmajor Funds, 897 Total pretax income, 669 Total projected income, 784 Transaction amount, notional amount (contrast), 569 Translation adjustment, 608, 613 recognition, 614 flowchart, 633 method, 610 U Unadjusted quoted market value, 11 Uncollected property taxes, appearance, 783 Unconditional pledges, 938 Unconsolidated investments cost/equity method, translation, 619–620 sophisticated equity method, requirement, 118 Unconsolidated subsidiaries, 482 Underlying, 510 assets/liabilities, contrast, 557 Undistributed investment income, deferred tax liability (creation), 484–485 Unearned interest, amortization, 279–280 Unguaranteed residual value, 279–283 Unified credit, 1043 Unified tax base, tax rates (application), 1045 Unified transfer tax rate, 1041 schedule, example, 1042 Uniform Partnership Act, 699, 725 Uniform Probate Code, design, 1032 Unit valuation procedures, reporting, 30–32 Universities See Public/private colleges/universities Unpurchased shares, fair value adjustment (absence), 482 Unrealized intercompany gains, investment account (adjustment), 383 Unrealized intercompany profit, subtraction, 210 Unrealized profits, 221 Unrecognized foreign currency commitment, 586 Unrecorded appreciation, objective measures, 731 Unrecorded intangibles, existence, 729 Unsecured claims, priorities, 1074 Unsettled foreign currency transactions, 554–555 U.S dollar, functional currency, 624 U.S generally accepted accounting principles (GAAP), usage, 497–498, 727 U.S generally accepted accounting principles (GAAP), 1, 58, 704 Codification of Governmental Accounting and Financial Reporting, 848 standards, 844 Utility facilities, expansion (special assessment bond/revenue bond issuance), 846 Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it 1134 INDEX V Valuation methods, 587–588 schedule strategy, 77–79 Value analysis, 21 examples, 18–19 schedule, 63 change, absence, 80 examples, 66, 68 preparation, 326–327 usage, 18 Value change investment, 510 recording, measurement period, 19–20 Variable interest entities (VIEs), 58, SA2-2 consolidation procedures, SA2-2, SA2-3 date of acquiring control, SA2-2 defining, SA2-1 primary beneficiary, SA2-1 subsequent periods, SA2-3 Variable interest notes payable hedge, interest rate swap (usage), 535–537 Variable rate, increase (example), 518–519 Vertically integrated activities, 679 Vertical worksheet, 143–144 intercompany profit eliminations, 224–225 Volatility factor, 516 impact, 560 Voluntary case, 1070 Voluntary health/welfare organizations (VHWOs) accounting, 942–956 principles/procedures, 942 agency (custodian) fund, 958 budget, 956 closing entries, 946 contributions, 943–944 endowment fund, 958 federated/nonfederated campaign contributions, 944 financial statements, 946–947 funds, 957–958 funds-based financial statements, example, 959–961 investments, pooling, 958 land, building, and equipment fund (plant fund), 957–958 legacies/bequests, 944 materials, donations, 943 optional fund accounting, 957–960 personal services, range, 944 program/supporting services costs, 945 public support, 943–944 restricted fund, 957 revenues, 944 special events support, 944 statement of activities, 953 examples, 953–954 statement of cash flows, 955 statement of financial position, example, 954 transactions, example, 947–956 unrestricted fund, 957 Voluntary nonexchange transactions, 773 Voting rights, 10 Vouchers, payment, 782 W Weighted-average capital, 708 Weighted-average exchange rate, 621 usage, 613 White knight, Will, communication, 1032 Work-in-process inventory, 11 Worksheet elimination, 120 D&D schedule guidance, 64–65, 72 simplification, 145 entries, stability, 339 examples, 222–223 procedures, 344 impact, 207 technique, 141 Write-downs, 731 recognition, 733 absence, 727 Writer, 511, 557 Y Year-to-date (YTD) annual loss, 668 carryback, availability, 669 Year-to-date (YTD) loss offsetting, 666–667 tax benefit, uncertainty, 666 Year-to-date (YTD) operating losses, 663–665 offsetting, 665–666 Year-to-date (YTD) pretax income, tax, 662–663 Year-to-date (YTD) projections, usage, 675 Year-to-date (YTD) withdrawals, 708 Z Zero investment balance, 486–487 Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Copyright 2016 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it ... remove additional content at any time if subsequent rights restrictions require it Advanced Accounting, 12th Edition Paul M Fischer, William J Taylor, and Rita H Cheng Vice President, General... content at any time if subsequent rights restrictions require it Advanced Leadership PREFACE INNOVATION The twelfth edition of Advanced Accounting raises the standard in accounting education Providing... learn-byexample approach, the twelfth edition continues its prominent leadership position in advanced accounting classrooms across the country The authors build upon Advanced Accounting’s clear writing