Advanced Accounting

In the newly revised eighth edition of Advanced Accounting, a decorated team of accounting professionals delivers authoritative and comprehensive coverage of all three methods of consolidated financial reporting: cost, partial equity, and complete equity. This invaluable work compares and contrasts United States and international principles, drawing reader attention to enduring differences between the two frameworks. The authors draw on their extensive experience with US and international accounting to connect advanced accounting methods to practical applications with challenging exercises that feature the financial statements of real-world companies. With a consistent focus on clarity and accessibility, the authors highlight current business news stories and their relevance to core concepts. Ideal for accounting majors seeking an insightful and robust exploration of complex accounting methods, Advanced Accounting also includes: The latest changes by the Financial Accounting Standards Board and the Governmental Accounting Standards Board Discussions of the tax consequences of a variety of business combinations New end-of-chapter materials with additional problems, exercises, and questions New "In the News" boxes with updated stories Updated tutorial videos and international comparisons Revised test bank questions

Table of Contents:
1 Introduction to Business Combinations and the Conceptual Framework 1 Learning Objectives 1 1.1 Growth Through Mergers 1 1.2 Nature of The Combination 4 1.3 Business Combinations: Why? Why Not? 5 1.4 Business Combinations: Historical Perspective 8 1.5 Terminology and Types of Combinations 11 1.6 Takeover Premiums 13 1.7 Avoiding the Pitfalls Before (and After) the Deal 15 1.8 Determining Price and Method of Payment in Business Combinations 17 1.9 Alternative Concepts of Consolidated Financial Statements 21 1.10 FASB’S Conceptual Framework 26 Summary 32 Questions 33 Analyzing Financial Statements 33 Exercises 36 ASC Exercises 38 2 Accounting for Business Combinations 39 Learning Objectives 39 2.1 Accounting Standards on Business Combinations: Current Status and Background 39 2.2 Illustration of Acquisition Accounting 45 2.3 Bargain Purchase Accounting Illustration (Purchase Price Below Fair Value of Identifiable Net Assets) 49 2.4 Measurement Period and Measurement Period Adjustments 50 2.5 Goodwill Impairment Test 51 2.6 Contingent Consideration (Earnouts) 56 2.7 Pro Forma Statements and Disclosure Requirement 61 2.8 Leveraged Buyouts 63 Summary 63 Questions 65 Analyzing Financial Statements 65 Exercises 70 Problems 77 3 Consolidated Financial Statements—Date of Acquisition 82 Learning Objectives 82 3.1 Definitions of Subsidiary and Control 84 3.2 Requirements for the Inclusion of Subsidiaries in the Consolidated Financial Statements 87 3.3 Reasons for Subsidiary Companies 88 3.4 Consolidated Financial Statements 89 3.5 Investments at the Date of Acquisition 90 3.6 Consolidated Balance Sheets: The Use of Workpapers 92 3.7 A Comprehensive Illustration—More ThanOne Subsidiary Company 109 3.8 Limitations of Consolidated Statements 112 Summary 113 Questions 114 Analyzing Financial Statements 115 Exercises 116 Problems 121 4 Consolidated Financial Statements After Acquisition 127 Learning Objectives 127 4.1 Accounting for Investments by the Cost, Partial Equity, and Complete Equity Methods 128 4.2 Consolidated Statements After Acquisition—Cost Method 137 4.3 Recording Investments in Subsidiaries—Equity Method (Partial or Complete) 149 4.4 Elimination of Intercompany Revenue and Expense Items 160 4.5 Interim Acquisitions of Subsidiary Stock 161 4.6 Consolidated Statement of Cash Flows 167 4.7 Illustration of Preparation of a Consolidated Statement of Cash Flows—Year of Acquisition 171 Summary 174 Questions 175 Analyzing Financial Statements 176 Exercises 178 Problems 184 5 Allocation and Depreciation of Differences Between Implied And Book Values 198 Learning Objectives 198 5.1 Computation and Allocation of the Difference Between Implied and Book Values to Assets and Liabilities of Subsidiary—Acquisition Date 201 5.2 Effect of Differences Between Implied and Book Values on Consolidated Net Income—Year Subsequent to Acquisition 207 5.3 Consolidated Statements Workpaper—Using the Cost Method 209 5.4 Controlling and Noncontrolling Interests in Consolidated Net Income and Retained Earnings—Using the Cost Method 221 5.5 Consolidated Statements Workpaper—Using Partial Equity Method 223 5.6 Controlling and Noncontrolling Interests in Consolidated Net Income and Retained Earnings—Using Partial Equity Method 230 5.7 Consolidated Statements Workpaper—Using Complete Equity Method 232 5.8 Controlling Interest in Consolidated Net Income and Retained Earnings—Using Complete Equity Method 240 5.9 Additional Considerations Relating to Treatment of Difference Between Implied and Book Values 241 5.10 Push Down Accounting 250 Summary 255 Questions 256 Analyzing Financial Statements 257 Exercises 259 Problems 265 6 Elimination of Unrealized Profit on Intercompany Sales of Inventory 286 Learning Objectives 286 6.1 Effects of Intercompany Sales of Merchandise on the Determination of Consolidated Balances 287 6.2 Cost Method: Consolidated Statements Workpaper—Upstream Sales 297 6.3 Cost Method—Analysis of Consolidated Net Income and Consolidated Retained Earnings 302 6.4 Consolidated Statements Workpaper—Partial Equity Method 305 6.5 Partial Equity Method—Analysis of Consolidated Net Income and Consolidated Retained Earnings 310 6.6 Consolidated Statements Workpaper—Complete Equity Method 311 6.7 Complete Equity Method—Analysis of Consolidated Net Income and Consolidated Retained Earnings 316 6.8 Summary of Workpaper Entries Relating to Intercompany Sales of Inventory 317 6.9 Intercompany Profit Prior to Parent-Subsidiary Affiliation 317 Summary 318 Questions 319 Analyzing Financial Statements 319 Exercises 321 Problems 324 7 Elimination of Unrealized Gains Or Losses on Intercompany Sales of Property and Equipment 337 Learning Objectives 337 7.1 Intercompany Sales of Land (Nondepreciable Property) 338 7.2 Intercompany Sales of Depreciable Property (Machinery, Equipment, and Buildings) 341 7.3 Consolidated Statements Workpaper—Cost and Partial Equity Methods 348 7.4 Calculation of Consolidated Net Income and Consolidated Retained Earnings 358 7.5 Consolidated Statements Workpaper—Complete Equity Method 361 7.6 Calculation and Allocation of Consolidated Net Income; Consolidated Retained Earnings: Complete Equity Method 367 7.7 Summary of Workpaper Entries Relating to Intercompany Sales of Equipment 368 7.8 Intercompany Interest, Rents, and Service Fees 368 Summary 371 Questions 372 Analyzing Financial Statements 373 Exercises 373 Problems 376 8 Changes in Ownership Interest 388 Learning Objectives 388 8.1 Changes in Ownership 388 8.2 Parent Acquires Subsidiary Stock Through Several Open-Market Purchases—Cost Method 391 8.3 Parent Sells Subsidiary Stock Investment on the Open Market—Cost Method 394 8.4 Equity Method—Purchases and Sales of Subsidiary Stock by the Parent 398 8.5 Parent Sells Subsidiary Stock Investment on the Open Market 403 8.6 Subsidiary Issues Stock 405 Summary 411 Questions 412 Analyzing Financial Statements 412 Exercises 413 Problems 416 9 Insolvency—Liquidation And Reorganization 426 Learning Objectives 426 9.1 Contractual Agreements 428 9.2 Bankruptcy 430 9.3 Liquidation (Chapter 7) 434 9.4 Reorganization Under the Reform Act (chapter 11) 435 9.5 Trustee Accounting and Reporting 447 9.6 Bankruptcy Prediction Models 453 Summary 456 Questions 457 Analyzing Financial Statements 458 Exercises 460 Problems 466 10 International Financial Reporting Standards 473 Learning Objectives 473 10.1 The Increasing Importance of International Accounting Standards 473 10.2 Historical Perspective 475 10.3 GAAP Hierarchy—U.S. Versus IFRS 477 10.4 Similarities and Differences Between U.S. GAAP and IFRS 478 10.5 Business Combination and Consolidation—U.S. GAAP Versus IFRS 488 10.6 International Convergence Issues 507 Summary 512 Questions 512 Analyzing Financial Statements 513 Exercises 516 Problems 519 11 Accounting for Foreign Currency Transactions and Hedging Foreign Exchange Risk 525 Learning Objectives 525 11.1 Exchange Rates—Means of Translation 526 11.2 Measured Versus Denominated 529 11.3 Foreign Currency Transactions 530 11.4 Using Forward Contracts as a Hedge 539 Summary 560 Questions 561 Analyzing Financial Statements 561 Exercises 562 Problems 570 12 Translation of Financial Statements of Foreign Affiliates 577 Learning Objectives 577 12.1 Accounting for Operations in Foreign Countries 578 12.2 Translating Financial Statements of Foreign Affiliates 579 12.3 Objectives of Translation 580 12.4 Translation Methods 583 12.5 Identifying the Functional Currency 583 12.6 Translation of Foreign Currency Financial Statements 584 12.7 Translation of Foreign Financial Statements Illustrated 589 12.8 Financial Statement Disclosure 598 12.9 Constant Currency Non-GAAP Adjustments 600 Summary 602 Appendix 12A: Accounting for a Foreign Affiliate and Preparation of Consolidated Statements Workpaper Illustrated 603 Appendix 12B: Preparing the Consolidated Statement of Cash Flows When the Consolidated Entity Includes a Foreign Subsidiary 610 Questions 616 Analyzing Financial Statements 617 Exercises 619 Problems 627 13 Reporting for Segments and for Interim Financial Periods 636 Learning Objectives 636 13.1 Need for Disaggregated Financial Data 637 13.2 Standards of Financial Accounting and Reporting 637 13.3 Interim Financial Reporting 652 Summary 661 Appendix: The Difference Between Reportable Segments and Reporting Units 662 Questions 663 Analyzing Financial Statements 664 Exercises 667 Problems 671 14 Partnerships: Formation, Operation, And Ownership Changes 675 Learning Objectives 675 14.1 Partnership Defined 677 14.2 Reasons for Forming a Partnership 677 14.3 Characteristics of a Partnership 678 14.4 Partnership Agreement 680 14.5 Accounting for a Partnership 682 14.6 Special Problems in Allocation of Income and Loss 690 14.7 Financial Statement Presentation 692 14.8 Changes in the Ownership of the Partnership 693 14.9 Section A: Admission of a New Partner (Not a Business Combination) 695 14.10 Section B: Admission of a New Partner that Qualifies as a Business Combination: GAAP Requires Goodwill Method 703 14.11 Section C: Withdrawal of a Partner 706 Summary 709 Questions 711 Exercises 711 Problems 718 15 Partnership Liquidation 725 Learning Objectives 725 15.1 Steps in the Liquidation Process 726 15.2 Priorities of Partnership and Personal Creditors 727 15.3 Simple Liquidation Illustrated 730 15.4 Installment Liquidation 732 15.5 Incorporation of a Partnership 740 Summary 742 Questions 743 Exercises 743 Problems 749 16 Introduction to Fund Accounting 755 Learning Objectives 755 16.1 Classifications of Nonbusiness Organizations 756 16.2 Distinctions Between Nonbusiness Organizations and Profit-Oriented Enterprises 757 16.3 Financial Accounting and Reporting Standards for Nonbusiness Organizations 758 16.4 Fund Accounting 762 16.5 Comprehensive Illustration—General Fund 780 16.6 Reporting Inventory and Prepayments in the Financial Statements 789 16.7 Recent Proposal by the GASB 791 Summary 792 Appendix 16A: City of Atlanta Partial Financial Statements 793 Questions 795 Analyzing Financial Statements 795 Exercises 796 Problems 801 17 Introduction to Accounting For State and Local Governmental Units 809 Learning Objectives 809 17.1 The History of Generally Accepted Governmental Accounting Standards 812 17.2 The Structure of Governmental Accounting 814 17.3 Governmental Fund Entities 816 17.4 Proprietary Funds 835 17.5 Fiduciary Funds 840 17.6 Capital Assets and Long-Term Debt 841 17.7 External Reporting Requirements (GASB Statement No. 34) 846 17.8 Government Fund-Based Reporting 847 17.9 Government-Wide Reporting 850 Summary 855 Appendix 17A: Government-Wide Financial Statements—City of Atlanta 857 Questions 861 Analyzing Financial Statements 861 Exercises 863 Problems 870 18 Accounting for Nongovernment Nonbusiness Organizations: Colleges And Universities, Hospitals and other Health Care Organizations 883 Learning Objectives 883 18.1 Sources of Generally Accepted Accounting Standards for Nongovernment Nonbusiness Organizations 885 18.2 Financial Reporting for Not-For-Profit Entities 887 18.3 Fund Accounting and Accrual Accounting 891 18.4 Contributions 894 18.5 Accounting for Current Funds 899 18.6 Accounting for Plant Funds 902 18.7 Accounting for Endowment Funds 907 18.8 Accounting for Investments 908 18.9 Accounting for Loan Funds 910 18.10 Accounting for Agency (Custodial) Funds 911 18.11 Accounting for Annuity and Life Income Funds 911 18.12 Issues Relating to Colleges and Universities 912 Summary 913 Appendix 18A 914 Questions 917 Analyzing Financial Statements 917 Exercises 918 Problems 926 Glossary G-1 Appendix PV: Tables of Present Values A-1 Index I-1 Appendix 2A: Deferred Taxes in Business Combinations (Available Online) Appendix 3A: Deferred Taxes on the Date of Acquisition (Available Online) Appendix 3B: Consolidation of Variable Interest Entities (Available Online) Appendix 4A: Deferred Tax Consequences When Affiliates File Separate Income Tax Returns— Undistributed Income (Available Online) Appendix 6A: Deferred Taxes and Intercompany Sales of Inventory (Available Online) Appendix 7A: Deferred Taxes Consequences Related to Intercompany Sales of Equipment (Available Online) Chapter 19: Intercompany Bond Holdings and Miscellaneous Topics—Consolidated Financial Statements (Available Online)