Advanced financial accounting

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We can help! • Access end-of-chapter assignments for limitless practice and immediate feedback that reports directly to your instructor’s grade book • Quickly access lectures, an eBook, study tools, and more With McGraw-Hill’s Connect® Plus Accounting, you also will receive access to a searchable, integrated online version of the textbook to help you successfully complete your work whenever and wherever you choose If your instructor chooses to use McGrawHill Connect Accounting with your course, you can purchase access from the Online Learning Center at www.mhhe.com/christensen10e CourseSmart • Select and arrange the content in a way that makes the most sense for your course • Combine materials from different sources and even upload your own content • Choose the best format for your students–print or eBook • Edit and update your course materials as often as you’d like Learning Management System Integration McGraw-Hill Education and Blackboard have teamed up Now you can access McGraw-Hill Connect and Create right from within your Blackboard course–all with one single sign-on Say goodbye to the days of logging in to multiple applications You also get deep integration of McGraw-Hill content and tools right in Blackboard, and when your students complete an integrated Connect assignment, the grade automatically (and instantly) feeds your instructor’s Blackboard grade center Visit www.domorenow.com to learn more Advanced Financial Accounting Tenth Edition MD DALIM 1223219 01/19/13 CYAN MAG YELO BLACK CourseSmart is a new way to fnd and buy eTextbooks At CourseSmart, you can save up to 55% of the cost of your printed textbook, reduce your impact on the environment, and gain access to powerful web tools for learning You can search, highlight, take notes, and share with friends, as well as print the pages you need Try a free chapter to see if it’s right for you Visit www.CourseSmart.com and search by title, author, or ISBN McGraw-Hill Create™ is a self-service website that allows instructors to quickly and easily create custom course materials by drawing upon McGraw-Hill’s comprehensive, cross-disciplinary content and other third-party resources Advanced Financial Accounting The next evolution in online homework management, McGraw-Hill’s Connect Accounting is an online assignment and assessment solution that connects you with the tools and resources you’ll need to achive success: Flexibility and Convenience for Instructors Tenth Edition McGraw-Hill Connect® Accounting Christensen Cottrell Baker Visit the Online Learning Center to access the textbook supplements: ISBN 978-0-07-802562-4 MHID 0-07-802562-1 EAN Tai ngay!!! Ban co the xoa dong chu nay!!! www.mhhe.com/christensen10e www.mhhe.com Christensen Cottrell Baker ® Get Connected accounting The integrated solutions for Christensen’s Advanced Financial Accounting, 10e, have been proven to help you achieve your course goals of improving student readiness, enhancing student engagement, and increasing their comprehension of content Known for its engaging style, the Christensen solution employs the use of current companies and instant feedback on practice problems to help students engage with course materials, comprehend the content, and achieve higher outcomes in the course FEATURES Connect Accounting’s algorithmic problems provide students with an individualized problem and customized explanations of each calculation Algorithmic problems allow instructors flexibility in creating homework assignments as the numbers automatically generate, causing a variety of different sets to choose from Christensen’s Advanced Financial Accounting, 10e, now includes algorithmic problems in Connect! Algorithmically generated numbers for selected problems are available with each chapter within Connect In addition, our new Intelligent Response Technology-based content offers students an intelligent homework experience that helps them stay focused on learning instead of navigating the technology PROVEN EFFECTIVE Intelligent Response Technology Intelligent Response Technology (IRT) is Connect Accounting’s new student interface for end-of-chapter assessment content Intelligent Response Technology provides a general journal application that looks and feels more like what you would find in a general ledger software package, improves answer acceptance to reduce student frustration with formatting issues (such as rounding), and, for select questions, provides an expanded table that guides students through the process of solving the problem ISBN: 9780078025624/0078025621 Author: Christensen Title: Advanced Financial Accounting 10e Front endsheets Color: 4c Pages: 2, 2,33 ® Get Connected accounting The integrated solutions for Christensen’s Advanced Financial Accounting, 10e, have been proven to help you achieve your course goals of improving student readiness, enhancing student engagement, and increasing their comprehension of content Known for its engaging style, the Christensen solution employs the use of current companies and instant feedback on practice problems to help students engage with course materials, comprehend the content, and achieve higher outcomes in the course FEATURES Connect Accounting’s algorithmic problems provide students with an individualized problem and customized explanations of each calculation Algorithmic problems allow instructors flexibility in creating homework assignments as the numbers automatically generate, causing a variety of different sets to choose from Christensen’s Advanced Financial Accounting, 10e, now includes algorithmic problems in Connect! Algorithmically generated numbers for selected problems are available with each chapter within Connect In addition, our new Intelligent Response Technology-based content offers students an intelligent homework experience that helps them stay focused on learning instead of navigating the technology PROVEN EFFECTIVE Intelligent Response Technology Intelligent Response Technology (IRT) is Connect Accounting’s new student interface for end-of-chapter assessment content Intelligent Response Technology provides a general journal application that looks and feels more like what you would find in a general ledger software package, improves answer acceptance to reduce student frustration with formatting issues (such as rounding), and, for select questions, provides an expanded table that guides students through the process of solving the problem ISBN: 9780078025624/0078025621 Author: Christensen Title: Advanced Financial Accounting 10e Front endsheets Color: 4c Pages: 2, 2,33 Get Engaged eBooks Connect Plus includes a media-rich eBook that allows you to share your notes with your students Your students can insert and review their own notes, highlight the text, search for specific information, and interact with media resources Using an eBook with Connect Plus gives your students a complete digital solution that allows them to access their materials from any computer Lecture Capture Make your classes available anytime, anywhere With simple, one-click recording, students can search for a word or phrase and be taken to the exact place in your lecture that they need to review ISBN: 9780078025624/0078025621 Author: Christensen Title: Advanced Financial Accounting 10e Front endsheets Color: 4c Pages: 42,3 Get Engaged eBooks Connect Plus includes a media-rich eBook that allows you to share your notes with your students Your students can insert and review their own notes, highlight the text, search for specific information, and interact with media resources Using an eBook with Connect Plus gives your students a complete digital solution that allows them to access their materials from any computer Lecture Capture Make your classes available anytime, anywhere With simple, one-click recording, students can search for a word or phrase and be taken to the exact place in your lecture that they need to review ISBN: 9780078025624/0078025621 Author: Christensen Title: Advanced Financial Accounting 10e Front endsheets Color: 4c Pages: 42,3 Confirming Pages Advanced Financial Accounting chr25621_fm_i-xxxii.indd i 31/01/13 9:31 AM Confirming Pages chr25621_fm_i-xxxii.indd ii 31/01/13 9:31 AM Confirming Pages Advanced Financial Accounting Tenth Edition Theodore E Christensen Brigham Young University David M Cottrell Brigham Young University Richard E Baker Northern Illinois University With contributions from: Valdean C Lembke Professor Emeritus University of Iowa Thomas E King Professor Emeritus Southern Illinois University, Edwardsville Cynthia G Jeffrey Iowa State University chr25621_fm_i-xxxii.indd iii 31/01/13 9:31 AM Rev Confirming Pages ADVANCED FINANCIAL ACCOUNTING, TENTH EDITION Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020 Copyright © 2014 by The McGraw-Hill Companies, Inc All rights reserved Printed in the United States of America Previous editions © 2011, 2009, and 2008 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 The McGraw-Hill Companies, Inc., 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 QVS/QVS ISBN 978-0-07-802562-4 MHID 0-07-802562-1 Senior Vice President, Products & Markets: Kurt L Strand Vice President, Content Production & Technology Services: Kimberly Meriwether David Director: Tim Vertovec Executive Brand Manager: James Heine Executive Director of Development: Ann Torbert Development Editor: Danielle Andries Director of Digital Content: Patricia Plumb Digital Development Editor: Julie Hankins Marketing Manager: Dean Karampelas Senior Project Manager: Diane L Nowaczyk Buyer II: Debra R Sylvester Lead Designer: Matthew Baldwin Cover/Interior Designer: Matthew Baldwin Cover Image: Enzo Figueres/Getty Images Lead Media Project Manager: Brian Nacik Media Project Manager: Alpana Jolly Typeface: 10.5/12 Times Roman Lt Std Compositor: Laserwords Private Limited Printer: Quad/Graphics 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 / Theodore E Christensen, Brigham Young University, David M Cottrell, Brigham Young University, Richard E Baker, Northern Illinois University; with contributions from: Valdean C Lembke, Professor Emeritus, University of Iowa, Thomas E King, Professor Emeritus, Southern Illinois University, Edwardsville, Cynthia G Jeffrey, Iowa State University.—Tenth edition pages cm Includes index ISBN 978-0-07-802562-4 (alk paper)—ISBN 0-07-802562-1 (alk paper) Accounting I Cottrell, David M II Baker, Richard E III Title HF5636.B348 2014 657'.046—dc23 2012050314 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, and McGraw-Hill does not guarantee the accuracy of the information presented at these sites www.mhhe.com chr25621_fm_i-xxxii.indd iv 08/02/13 11:46 AM Rev Confirming Pages 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, the Journal of Accounting Research, the Journal of Accounting and Economics, Review of Accounting Studies, Contemporary Accounting Research, Accounting Organizations and Society, the 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, The Journal of Accounting Case Research, The Quarterly Review of Distance Education, Journal of Accountancy, The CPA Journal, Internal Auditor, The Tax Executive, and The Journal of International Taxation, among others Richard E Baker Richard E Baker was a member of the faculty of Northern Illinois University for 26 years His academic recognitions include having been named the Ernst & Young Distinguished Professor of Accountancy at Northern Illinois University In addition, he has been recognized as an inaugural University Presidential Teaching Professor, the highest teaching recognition of his university He received his BS degree from the University of Wisconsin at River Falls and his MBA and PhD from the University of Wisconsin at Madison His activities in the American Accounting Association have been continuous over many years and include service on the AAA’s Executive Committee as the Director of Education of the AAA; as a member of the AAA’s Council; as the Chair of the Teaching and Curriculum Section; and as the President of the Midwest Region His lengthy service to the Federation of Schools of Accountancy (FSA) includes the offices of the President, the Vice President, and the Secretary Many of his extensive professional and academic organization committee service efforts have involved research in assessing teaching and learning outcomes, designing innovative curriculum models, developing meaningful measurement criteria for evaluating accounting programs, and continually v chr25621_fm_i-xxxii.indd v 08/02/13 11:46 AM Rev Confirming Pages Index Boat America Corporation, 475 Boeing, Bonds, intercompany indebtedness and See Intercompany indebtedness Bonus method for allocating profits and loss to partners, 759, 762, 765, 771–772 change of partnership members by, 771–772, 778 Book value bonds of affiliate purchased from nonaffiliate at, 380, 398 bonds of affiliate purchased from nonaffiliate at less than, 380–392, 398–409 bonds of affiliate purchased from nonaffiliate at more than, 393–394, 409–410 consolidation of wholly owned subsidiaries acquired at more than See Consolidation of wholly owned subsidiaries, acquired at more than book value difference between acquisition price and underlying book value and, 151–154 difference between sale price of subsidiary shares and, 466 net, of partnership, new partner’s proportion of, 769–780 100 percent ownership acquired at, consolidated financial statements and See Consolidated financial statements of partnership, 766 subsidiary’s sale of stock at less than, 468 wholly owned subsidiaries created or purchased at, consolidation procedures for, 60 Brin, Sergey, 503 British Petroleum, Bubble Acts, 722 Budget(s) adoption of, general fund and, 872–873 governmental, 857–858 in governmental accounting, 857–858 operating, recording, 857–858 Budgetary comparison schedule, 936–937 “Budgetary Comparison Schedules—Perspective Differences” (GASB 41), 931 Buffett, Warren, 47, 451 Buildings of other not-for-profit organizations, 1008 of voluntary health and welfare organizations, 1001 Business combinations, 6, 10–13 development of accounting for, financial reporting subsequent to, 20–21 forms of, 10, 11 frequency of, 3–4 in-process research and development and, 22 methods of effecting, 10–12 noncontrolling equity held prior to, 23 uncertainty in, 21–23 valuation of entities and, 12–13 Business entities, new, creating, 5–6 Business expansion, external See External expansion financial reporting and, internal See Internal expansion Business structures, complex, 2–5 business objectives and, enterprise expansion and, ethical considerations and, 4–5 frequency of business combinations and, 3–4 Buyout price, partner’s dissociation from partnership and, 764, 781–783 Cabot, John, 901 Cadbury PLC, 1, 2, 14 CAFR (comprehensive annual financial report), 902, 931 Capital accounts, of partners, 757 deficits in, 806, 809–812 Capital assets, acquisition of, general fund and, 875–876 Capital budgets, 857 Capital leases, 911 governmental accounting for, 867 chr25621_idx_1073-1088.indd 1075 1075 Capital maintenance, resource expendability versus, governmental accounting and, 846 Capital projects funds, 848, 908–911 Capital ratios, interest on, for allocating profits and loss to partners, 759, 760–761 Capital resources, in management discussion and analysis, 738 Carrybacks and carryforwards, of losses and carryback losses, 696–698 Carrying amount of investment, under cost and equity methods, 55 Cash distribution plan, installment partnership liquidation and, 812, 817–819 Cash flow hedges, 557, 581–584 foreign currency, 557–558, 568–570, 571 Cash flow statement See Statement of cash flows CBOT (Chicago Board of Trade), 579 “Certain Financial Statement Note Disclosures” (GASB 38), 931, 938 Chapter 11 reorganizations, 1043–1053 fresh start accounting and, 1045–1046 plan of reorganization and, 1043, 1046 Chapter liquidations, 1043, 1054 Charles I, King of England, 901 Chicago Board of Trade (CBOT), 579 Chicago Mercantile Exchange (CME), 558, 579 China Yingxia, 724 Chrysler, Cincinnati Bengals, 867 Cincinnati Reds, 867 Circuit City, 1054 Cisco Systems Inc., 202 Citibank, 550 Citicorp, 12 Citigroup, City of San Diego, California, 842, 847, 857, 863, 865 Clearing houses, 579 Closing entries, general fund and, 877–878 Closing transactions, 579 CME (Chicago Mercantile Exchange), 558, 579 The Coca-Cola Company, 48 Codification of Governmental Accounting and Financial Reporting Standards, 844 Collateral, secured creditors and, 1054 College(s), 973–975, 976–979 board-designated funds and, 974 private, 974–975, 976–979 public, 974 special conventions of revenue and expenditure recognition for, 973–974 College and University Audit Guide (AICPA), 973, 974 Combined financial statements, 119–120 Comcast Corp., 12 Comdisco Holdings Company, 47, 48 Comfort letters, 729 Comment letters, 729 Common stock investments, 48–50 See also Cost method, for common stock investments; Equity method, for common stock acquisitions Complex business structures, 2–5 business objectives and, enterprise expansion and, ethical considerations and, 4–5 frequency of business combinations and, 3–4 Component(s), disposal of, interim reporting and, 698 Component units, governmental financial statements and, 930 Composition agreements, 1041 Comprehensive annual financial report (CAFR), 902, 931 Comprehensive income, 216, 623 consolidations and, in subsequent years, 220 other, 216–220, 623 accumulated, 623 CON (“Elements of Financial Statements”), 845 CON (“Elements of Financial Statements”), 845 06/02/13 11:47 AM Confirming Pages 1076 Index “Concept Release on Allowing U.S Issuers to Prepare Financial Statements in Accordance with International Financial Reporting Standards” (Securities Act Release No 33-8831), 724 ConocoPhillips, 4, 48 Consideration exchanges, valuation of, 13 Consolidated balance sheet consolidation of less-than-wholly-owned subsidiaries acquired at more than book value, majority-owned, 203–206 with less-than-wholly-owned subsidiaries, 80 percent ownership acquired at book value and, 110–113 Consolidated earnings per share, 519–522 computation of, illustration of, 520–522 diluted, 519–520 Consolidated financial statements, See also specific statements concepts and standards and, 103–106 limitations of, consolidation of less-than-wholly-owned subsidiaries and, 102–103 with majority-owned subsidiaries, 206–213 in initial year of ownership, 206–210 in second year of ownership, 210–213 100 percent ownership, created or acquired at book value, 63–67, 70–77 consolidated net income and retained earnings and, 76–77 in initial year of ownership, 70–74 in second and subsequent years of ownership, 74–76 unrealized profits and losses and, 258 usefulness of, consolidation of less-than-wholly-owned subsidiaries and, 100–125 Consolidated income tax return, allocation of tax expense and, 513–515 Consolidated net income consolidations created or acquired at book value and, 76–77 consolidations subsequent to acquisition and, 68–69 intercompany inventory transactions and by downstream sales, 265, 268 by upstream sales, 271 noncontrolling interest and, 108 Consolidated retained earnings consolidations created or acquired at book value and, 76–77 consolidations subsequent to acquisition and, 69–70 noncontrolling interest and, 109 Consolidated statement of cash flows, 504–507, 508 direct method for, 506–507, 508 illustration of, 504–506 preparation of, 504 Consolidation(s) See also Business combinations; Parent companies; Subsidiaries common stock investments and, 49–50 discontinuation of, less-than-wholly-owned subsidiaries acquired at more than book value and, 213, 215 income tax issues with, 512–518 unrealized intercompany profit eliminations and, 515–518 when consolidated return is filed, 513–515 when separate tax returns are filed, 512–513 following interim acquisitions, 507–512 of less-than-wholly-owned subsidiaries See Consolidation of less-thanwholly-owned subsidiaries one-line, 59, 66, 79, 112 overview of, 60 ownership of See Consolidation ownership statutory, 10 stockholders’ equity and, 221–222 subsequent to acquisition, 68–70 consolidated net income and, 68–69 consolidated retained earnings and, 69–70 theories of, 126–129 of variable interest entities, 125–126 of wholly owned subsidiaries See Consolidation of wholly owned subsidiaries Consolidation of less-than-wholly-owned subsidiaries acquired at more than book value, 202–223 consolidated balance sheet with majority-owned subsidiary and, 203–206 discontinuation of consolidation and, 213, 215 with majority-owned subsidiaries, 206–213 chr25621_idx_1073-1088.indd 1076 noncontrolling interest in conjunction with a differential and, 203 other comprehensive income and, 216–220 with no differential, 100–125 combined financial statements and, 119–120 consolidated balance sheet and, 110–113 consolidated financial statement concepts and standards and, 103–106 consolidation subsequent to acquisition—80 percent ownership acquired at book value and, 113–119 limitations of consolidated financial statements and, 102–103 noncontrolling interest and, 106–110 special-purpose entities and, 120–121, 123–124 subsidiary financial statements and, 103 usefulness of consolidated financial statements and, 100–125 variable interest entities and, 121–124 worksheet format for, 110 Consolidation of wholly owned subsidiaries acquired at more than book value, 149–176 consolidation procedures for, 156–166 differential and, 150–154 intercompany receivables and payables and, 175 100 percent ownership acquired and, 166–174 push-down accounting and, 175–178 100 percent ownership acquired at less than book value and, 164–166 Consolidation ownership, 451–486 changes in parent company ownership and, 460–474 parent’s purchase of additional shares from nonaffiliate and, 460–463 parent’s sale of subsidiary shares to nonaffiliate and, 463–465 subsidiary’s purchase of shares from nonaffiliate and, 470–472 subsidiary’s purchase of shares from parent and, 472–474 subsidiary’s sale of additional shares to nonaffiliate and, 465–468 subsidiary’s sale of additional shares to parent and, 468–470 multilevel, 475–480 reciprocal (mutual), 475, 480–483 with subsidiary preferred stock outstanding, 452–460 stock held by parent and, 454–457 stock with special provisions and, 457–460 subsidiary stock dividends and, 483–486 impact on subsequent periods, 485–486 Consolidation worksheets, 61–62 elimination entries and, 62 accumulation, 66–67 with wholly owned subsidiaries, 64–67 format of, 61–62 intercompany inventory transactions and by downstream sales, 263–267 by upstream sales, 269–271, 272–273 other comprehensive income and, 216–217 Constructive retirement, 380–394, 397–410 bonds of affiliate purchased at book value and, 380, 398 bonds of affiliate purchased at less than book value and, 380–392, 398–409 bonds of affiliate purchased at more than book value and, 393–394, 409–410 Consumption method, for inventories, 865–866 Contingencies, acquiree, uncertainty in business combinations regarding, 22 Contingent consideration, uncertainty in business combinations regarding, 22 Contingent items, disposal of, interim reporting and, 698 Contingent-share agreements, 22 Contractual adjustments, of not-for-profit hospitals, 983 Contractual obligations, tabular disclosure of, in management discussion and analysis, 738 Contribution(s), 871 Contribution revenue, of not-for-profit hospitals, 990 Control ability to exercise, 104–105 business combinations and, common stock investments and, 49 direct, 104 effective, 105 indirect, 104 multilevel, 475–480 traditional view of, 103–104 31/01/13 9:37 AM Confirming Pages Index Controlling ownership, financial reporting and, Cooper, William, 749 Coopers & Lybrand, 749 Corporate joint ventures, 53 Cost(s) advertising, deferral and allocation of, interim income statement and, 693 of informational materials, of voluntary health and welfare organizations, 1004 intercompany inventory transfers and, 274 markup on, 254 Costco, 48 Cost method, 81–83 for common stock investments, 49, 50–53 accounting procedures under, 51 acquisition at interim date and, 52–53 carrying amount and investment income under, 55 changes in number of shares held and, 53 equity method compared with, 55, 58–59 liquidating dividends and, 51–52 consolidation in second year of ownership and, 83 consolidation in year of combination and, 81–83 for intercompany indebtedness, 414–417 intercompany inventory transactions and, 279–282 intercompany noncurrent asset transactions and, 348–350 tax expense when consolidated return is filed and, 513 Cost of goods sold, on interim income statement, 689–692 Court of Aldermen, 722 Creditors classes of, 1054–1057 with priority, 1054, 1056 secured, 1054, 1055 statement of affairs and, 1055, 1056–1057 unsecured, general, 1056 Creditors’ committee management, 1041–1042 Currencies See Foreign currencies; Foreign exchange entries Current financial resources measurement focus, 850 Current rate, 549, 617 Current rate method, for financial statements translation, 620 Customers, major, enterprisewide disclosures about, 686 Daimler, Dairy Queen, 48 Debt intercompany See Intercompany indebtedness long-term, governmental accounting for, 867 Debt restructuring arrangements, 1041 Debt service funds, 848, 911–914 Deferred income taxes, 515–516 Delinquent tax revenues, 855 Deloitte Haskins & Sells, 749 Delta Airlines, 1039 Depletion, changes in, interim reporting and, 699 “Deposit and Investment Risk Disclosures” (GASB 40), 868 Depreciable assets, intercompany transfers of, 324–342 change in estimated life of asset upon transfer and, 332 by downstream sale, 324–332 by upstream sale, 332, 334–342 Depreciation changes in, interim reporting and, 699 not-for-profit entities and, 871 DER (direct exchange rate), 545–546 Derivatives, 555, 579–589 See also specific instruments designated as hedges, 556–558 foreign exchange See Foreign currency forward exchange financial instruments intrinsic value of, 574 time value of, 574 Derived tax revenues, 853 “Determining Whether Certain Organizations Are Competent Units” (GASB 39), 930 chr25621_idx_1073-1088.indd 1077 1077 Diagnosis-related groups (DRGs), 983 Differentials, 16 bargain-purchase, 164–166 complex, 160–163 consolidation of wholly owned subsidiaries and, 150–154 amortization versus write-off of, 151–152 difference between acquisition price and underlying book value and, 151–154 disposal of differential-related assets and, 153–154 noncontrolling interest in conjunction with, 203 positive, 159–160 subsidiary disposal of assets related to, 222–223 Diluted consolidated earnings per share, 519–520 Direct control, 104 Direct effects, retrospective application and, interim reporting and, 699 Direct exchange rate (DER), 545–546 Direct intercompany debt transfer, 375 Direct method, for consolidated statement of cash flows, 506–507, 508 Disbursements, 860 Disclosures enterprisewide, 684–686 about geographic areas, 685 about major customers, 686 about products and services, 684–685 about financial instruments, requirements for, 589–590 footnote, in partners’ personal financial statements, 824 pro forma, 738–739 requirements for financial instruments, 589–590 requirements for foreign currency transaction gains/losses, 644–647 Disclosure statements, chapter 11 reorganizations and, 1043–1044 Discounts bond transfer at, intercompany indebtedness and, 377, 395–397 on foreign exchange contracts, 558 Discrete presentation, 930 Disposal, of differential-related assets, 153–154 Dissociation of partners, 753, 781–783 wrongful, 764 partnership liquidation by, 805 Dissolution, partnership liquidation by, 805 Dividends liquidating cost method and, 51–52 following switch from equity method, 52 paid to unsecured creditors, 1056 recognition of, equity method and, 55 stock, of subsidiaries, consolidation ownership and, 483–486 Donated materials and services, of voluntary health and welfare organizations, 1002–1003 Donations, to not-for-profit hospitals, 984 Donor(s), 972 pledges to voluntary health and welfare organizations from, 998–1000 Donor-restricted funds, of hospitals, 980–981 Downstream sale intercompany inventory transactions by See Intercompany inventory transactions, by downstream sale intercompany transfers of depreciable assets by, 324–332 intercompany transfers of land by, 312, 314–318 Drawing accounts, of partners, 757 DRGs (diagnosis-related groups), 983 Duties, of partners, 753 Earnings per share, consolidated, 519–522 computation of, illustration of, 520–522 diluted, 519–520 Ebbers, Bernard, “Economic Condition Reporting: The Statistical Section—An Amendment of NCGA Statement 1” (GASB 44), 931 Economic resources measurement focus, 853 EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system, 733 31/01/13 9:37 AM Confirming Pages 1078 Index Edward I, King of England, 722 Effective control, 105 EITF 04-1 (Accounting for Pre-Existing Relationships between the Parties to a Business Combination), 155, 156 “Elements of Financial Statements” (CON 4), 845 “Elements of Financial Statements” (CON 6), 845 “Elements of Financial Statements” (FAC 6), 969, 997 Elimination of intercompany transfers, 251 of unrealized profits and losses, 251 Elimination entries consolidation worksheets and, 62 accumulation, 66–67 with wholly owned subsidiaries, 64–67 for intercompany inventory transactions, 252, 276–279, 280–282 Encumbrances, 858–859 outstanding, at end of fiscal period, 861–864 Endowment funds of hospitals, 981 of not-for-profit hospitals, 995–996 Enron Corp., 4, 5, 100–101, 120, 749, 1039 Enterprise funds, 848, 918–923 Enterprisewide disclosures, 684–686 about geographic areas, 685 about major customers, 686 about products and services, 684–685 Entitlements, 856 Entity concept, partnerships and, 752, 764–766 Entity theory, 127 Equipment of other not-for-profit organizations, 1008 of voluntary health and welfare organizations, 1001 Equity interperiod, 844 noncontrolling, held prior to combination, 23 Equity method ASC 323-10 requirements and, 80 for common stock acquisitions, 49, 53–58 acquisition at interim date and, 56 carrying amount and investment income under, 55 changes in number of shares held and, 56–58 cost method compared with, 55, 58–59 investor’s equity in investee and, 54 recognition of dividends and, 55 recognition of income and, 54–55 use of, 53–54 fully adjusted, 79 intercompany inventory transactions and by downstream sales, 262, 265 by upstream sales, 269, 271–272 investor’s share of other comprehensive income and, 80–81 modified, 78, 251n significant influence determination and, 78 tax expense when consolidated return is filed and, 513 unrealized intercompany profits and, 79–80 Equity-method goodwill, 151 Ernst & Lybrand, 749 Ernst & Young LLP, 730 Errors, in subsidiary’s books, 159 ESPN, 149 Estimated life, of asset upon transfer, change in, intercompany transfers of depreciable assets and, 332 Ethics, acquisitions and, 4–5 Euro, 543 European terms, 547 European Union (EU), 543–544, 615 Exchange rates See Foreign currency exchange rates Expenditure(s), 847 general fund and, 875 governmental accounting for, 858–868 chr25621_idx_1073-1088.indd 1078 classification of expenditure transactions and accounts and, 860–861 expenditure process and, 858–860 fixed assets and, 866–867 inventory expenditures and, 864–866 investments and, 868 long-term debt and capital leases and, 867 outstanding encumbrances at end of fiscal period and, 861–864 recognition of, 856 colleges and universities and, 973–975, 976–979 Expenses general fund, of not-for-profit hospitals, 984 of voluntary health and welfare organizations, 1003–1004 Expiration date, of futures contracts, 579 Exports, foreign currency transactions and, 552–555 External expansion, 10–13 See also Business combinations organizational structures and, Extraordinary items, disposal of, interim reporting and, 698 ExxonMobil, Exxon Corp., 12 FAC (“Elements of Financial Statements”), 969, 997 Factors, sale of partnership assets to, 807 Fair value acquisition method and, 14 excess over book value of subsidiary’s net identifiable assets, 159–160 of partnership’s net assets, increases in, recognizing, 767–768 valuation at, 59–60 Fair value hedges, 556–557, 584–587 FASAB (Federal Accounting Standards Advisory Board), 942 FASB See Financial Accounting Standards Board (FASB) FCPA (Foreign Corrupt Practices Act of 1977), 725, 734 FCUs (foreign currency units), 545 Federal Accounting Standards Advisory Board (FASAB), 942 Federal Bankruptcy Acts, 725 Federal government accounting, 942 FEI (Financial Executives Institute), 675 Fiduciary funds, 847, 848 basis of accounting and, 856–857 50 percent-owned ventures, 786 Financial Accounting Foundation, 844 Financial Accounting Standards Board (FASB), 2, 675 Accounting Standards Codification and See ASC entries effort to converge standards with IASB, 615 functional currency and, 618 international harmonization of accounting standards and, 723 not-for-profit organizations and, 969, 970–973 Financial display requirements, for not-for-profit entities, 871 Financial distress, 1039–1063 chapter 11 reorganizations and, 1043–1053 fresh start accounting and, 1045–1046 plan of reorganization and, 1043, 1046 chapter liquidations and, 1043, 1054 classes of creditors and, 1054–1057 courses of action for, 1041–1043 judicial, 1042–1043 nonjudicial, 1041–1042 trustee accounting and reporting and, 1057–1062 Financial Executives Institute (FEI), 675 Financial instruments, 555 foreign exchange See Foreign currency forward exchange financial instruments notional amount and, 556 reporting and disclosure requirements for, 589–590 underlyings and, 555 “The Financial Reporting Entity” (GASB 14), 849, 929, 930 “Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans” (GASB 25), 931 “Financial Reporting for Postemployment Benefit Plans Other than Pension Plans” (GASB 43), 931 31/01/13 9:37 AM Confirming Pages Index Financial reporting requirements international, for small and medium-size entities and joint ventures, 755 for partnerships, 754–755 Financial statement(s) See also specific statements consolidated See Consolidated financial statements; specific consolidated statements governmental, 848–852 capital projects fund and, 911 debt service fund and, 914 elements of, 845–846 fund-based, 849–852 general fund and, 878–880 governmental funds and, 915–918 government-wide, 849, 932–934, 935 for proprietary funds, 921–923 of not-for-profit hospitals, 981–983 of other not-for-profit organizations, 1007–1010 of partnerships, 763–764 personal, of partners, 821–824 of voluntary health and welfare organizations, 997–1006 Financial statement remeasurement, 619, 620–621, 634–641, 642 gain or loss on, 635 proof of remeasurement exchange gain and, 638–639 statement presentation of, 636 proof of remeasurement exchange gain and, 638–639 statement presentation of remeasurement gain or loss and, 636 translation versus, 641, 642 Financial statement translation, 544, 619–620, 634 noncontrolling interest of foreign subsidiary and, 634 remeasurement versus, 641, 642 translation adjustment and, 622–623 when third currency is functional currency, 647 Fiscal periods differences in, 105 encumbrances outstanding at end of, 861–864 percent criterion for governmental funds, 915, 916, 917–918 Fixed assets, governmental accounting for, 866–867 Ford Holdings LLC, 374 Ford Motor Company, 374 Ford Motor Credit, 374 Foreign Corrupt Practices Act of 1977 (FCPA), 725, 734 Foreign currencies, 616–619 base, 547 functional, 551 determination of, 617–619 in highly inflationary economies, 619 third currency as, financial statement translation and, 647 local, 552 recording, 617 reporting, 551, 552, 617 terminology for, 616–617 terms, 547 Foreign currency exchange rates, 545–550 average, 617 changes in, 547–549 current, 549, 617 determination of, 545, 546 direct, 545–546 forward, 550 historical, 617 indirect, 546–547 spot, 549 Foreign currency firm commitments, unrecognized, hedging, 565–567 Foreign currency forward exchange financial instruments, 555–574 foreign exchange matrix and, 573–574 formal balance sheets reporting net amounts for, 564–565 forward exchange contracts, 550, 558–559, 579–580, 581 option, 579–580, 581 speculation with, 571–573 valuation of, with recognition for time value of money, 575–578 chr25621_idx_1073-1088.indd 1079 1079 hedges, 556–558 cash flow, 568–570, 571 hedging unrecognized foreign currency firm commitments and, 565–568 managing exposed foreign currency net asset or liability position and, 560–565 speculation in foreign currency markets and, 570–573 time value of future cash flows from, 560 Foreign currency transactions, 544, 550–555 gains/losses on, 550–551 disclosure requirements for, 644–647 interperiod tax allocation for, 574 import and export, 552–555 Foreign currency units (FCUs), 545 Foreign exchange hedges cash flow, 557–558, 568–570, 571 derivatives designated as, 556–558 effectiveness of, measuring, 574 hedging unrecognized foreign currency firm commitments and, 565–568 of net investment in foreign entities, 574–575 Foreign subsidiaries hedge of net investment in, 643–644 liquidation of, 643 noncontrolling interest of, financial statement translation and, 634 unconsolidated, 641–643 Form 8-K, 731–732 Form S-1, 729 Form S-2, 729 Form S-3, 729 Form 10-K, 730–731 Form 10-Q, 686, 731 Fortune magazine, 100 Forward exchange contracts See Foreign currency forward exchange financial instruments Fraud, corporate and criminal, Sarbanes-Oxley Act of 2002 and, 736–737 Freddie Mac, 699 Fresh start accounting, 1045–1046 Fruit of the Loom, 48 Fully adjusted equity method, 79 Functional currency, 551 determination of, 617–619 in highly inflationary economies, 619 third currency as, financial statement translation and, 647 Fund(s), of hospitals, 978, 980–981 Fund accounting, 845 Fund balance(s) nonspendable, 850 spendable, 850–851 “Fund Balance Reporting and Governmental Fund Type Definitions” (GASB 54), 850–851, 864, 879, 880, 904 Fund-based financial statements, 849–852, 904 Futures contracts, 579–580, 581 GAAFR (Governmental Accounting, Auditing, and Financial Reporting), 844, 857 GAAP (generally accepted accounting principles), 615 partnerships and, 765–766 GAFTA (Greater Arab Free Trade Area), 544 Gains foreign currency transaction, 550–551 disclosure requirements for, 644–647 interperiod tax allocation for, 574 remeasurement, 635 proof of remeasurement exchange gain and, 638–639 statement presentation of, 636 unrealized, eliminating after first year, intercompany transfers of land and, 322 of voluntary health and welfare organizations, 1002 GAO (Government Accountability Office), 736, 942 GASB See Governmental Accounting Standards Board (GASB) Gates, Bill, 542 31/01/13 9:37 AM Confirming Pages 1080 Index GEICO, 47, 48 General Electric (GE), 48, 105, 451, 458, 681 General Foods Corporation, General fund, 848, 871–880 adjusting entries and, 876–877 budget adoption and, 872–873 capital asset acquisition and, 875–876 closing entries and, 877–878 expenditures and, 875 financial statement information and, 878–880 of hospitals, 980 interfund activities and, 876 of not-for-profit hospitals, 986, 988–993 property tax levy and collection and, 873–874 General fund expenses, of not-for-profit hospitals, 984 Generally accepted accounting principles (GAAP), 615 partnerships and, 765–766 General Motors Corporation (GM), 13, 1039–1040, 1044 General unsecured creditors, 1056 Genergy, Inc., 120–121 Generic swaps, 581 Geographic areas, enterprisewide disclosures about, 685 Gillette, 4, 104 Global markets, 543–544 See also Multinational enterprises (MNEs) GM (General Motors Corporation), 13, 1039–1040, 1044 Goldman Sachs, 451 Goodwill acquisition method and, 14–15 consolidation of wholly owned subsidiaries and, 160 equity-method (implicit), 151 Goodwill recognition method, change of partnership members by, 765–766, 773–775, 777–778 Google Inc., 503, 520 Government Accountability Office (GAO), 736, 942 Governmental accounting, 842–881, 901–940 budgets and, 857–858 operating, recording, 857–858 expendability of resources versus capital maintenance objectives and, 846 for expenditures, 858–868 classification of expenditure transactions and accounts and, 860–861 expenditure process and, 858–860 fixed assets and, 866–867 inventory expenditures and, 864–866 investments and, 868 long-term debt and capital leases and, 867 outstanding encumbrances at end of fiscal period and, 861–864 federal, 942 financial statements and, 848–852 elements of, 845–846 fund-based, 849–852 general fund and, 878–880 fund types in, 846–848, 903–904, 905 See also Governmental funds for general fund, 871–880 adjusting entries and, 876–877 budget adoption and, 872–873 capital asset acquisition and, 875–876 closing entries and, 877–878 expenditures and, 875 financial statement information and, 878–880 interfund activities and, 876 property tax levy and collection and, 873–874 history of, 844–845 interfund activities and, 868–870 measurement focus and basis of accounting and, 852–857 private sector accounting compared with, 843–844 reporting model for, 929–940 auditing governmental entities and, 939–940 budgetary comparison schedule and, 936–937 financial reports and, 931 chr25621_idx_1073-1088.indd 1080 government-wide financial statements and, 932–934, 935 interim reporting and, 939 major issues and, 929–930 management’s discussion and analysis and, 938 notes to the government-wide financial statements and, 938–939 reconciliation schedules and, 934, 936, 937 Governmental Accounting, Auditing, and Financial Reporting (GAAFR), 844, 857 “Governmental Accounting and Financial Reporting Principles” (NCGA 1), 844, 864 Governmental Accounting Standards Board (GASB), 844, 969 GASB (“Authoritative Status of NCGA Pronouncements and AICPA Industry Audit Guide”), 844 GASB (“Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities that Use Proprietary Fund Accounting”), 922–923 GASB 14 (“The Financial Reporting Entity”), 849, 929, 930 GASB 25 (“Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans”), 931 GASB 27 (“Accounting for Pensions by State and Local Governmental Employers”), 931 GASB 31 (“Accounting and Financial Reporting for Certain Investments and for External Investment Pools”), 868, 982 GASB 33 (“Accounting and Financial Reporting for Nonexchange Transactions”), 853 GASB 34 (“Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments”), 844–845, 849, 858, 867, 868–870, 878, 904, 915, 918, 919, 921, 923, 929, 931, 932, 933, 934, 936, 938, 940, 941 GASB 35 (“Basic Financial Statements—and Management’s Discussion and Analysis—for Public Colleges and Universities”), 974 GASB 36 (“Recipient Reporting for Certain Shared Nonexchange Revenues”), 854 GASB 37 (“Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments: Omnibus”), 933, 938 GASB 38 (“Certain Financial Statement Note Disclosures”), 931, 938 GASB 39 (“Determining Whether Certain Organizations Are Competent Units”), 930 GASB 40 (“Deposit and Investment Risk Disclosures”), 868 GASB 41 (“Budgetary Comparison Schedules—Perspective Differences”), 931 GASB 43 (“Financial Reporting for Postemployment Benefit Plans Other than Pension Plans”), 931 GASB 44 (“Economic Condition Reporting: The Statistical Section— An Amendment of NCGA Statement 1”), 931 GASB 45 (“Accounting and Financial Reporting by Employees for Postemployment Benefits Other than Pensions”), 931 GASB 46 (“Net Assets Restricted by Enabling Legislation”), 921 GASB 50 (“Pension Disclosures—an amendment of GASB Statement No 25 and No 27”), 931 GASB 52 (“Land and Other Real Estate Held as Investments by Endowments”), 868 GASB 54 (“Fund Balance Reporting and Governmental Fund Type Definitions”), 850–851, 864, 879, 880, 904 Governmental financial reporting model, 849 Governmental funds basis of accounting and, 853–856 financial statements and, 915–918 types of, 846–848, 903–904, 905 worksheets for, 904, 906, 907 Government-mandated nonexchange transactions, 854 Government-wide financial statements, 849, 932–934, 935 Grants, 856 Great Depression, beginning of, 722 Greater Arab Free Trade Area (GAFTA), 544 Guerrilla Capital Management, 724 Hamilton County, Ohio, 867 Harley-Davidson, 105 31/01/13 9:37 AM Confirming Pages Index Health care providers, 975, 977–978, 980–996 hospital accounting and, 977–978, 980–981 hospital financial statements and, 981–993 temporarily restricted funds and, 993–996 Hedges of available-for-sale securities using option contracts, 584–587 cash flow, 557–558, 581–584 foreign currency, 557–558, 568–570, 571 fair value, 556–557, 584–587 foreign currency, 557–558 of net investment in foreign subsidiary, 643–644 of variable-rate debt using interest-rate swaps, 588–589 HFMA (Hospital Financial Management Association), 978 Historical rate, 617 Historical treasures, 867 Hospital accounting, 977–978, 980–981 Hospital Financial Management Association (HFMA), 978 Hospital financial statements, 981–993 “Hostile takeovers,” 11 Houston Natural Gas, 100 Hua Mei 21st Century, 724 Hyperinflation, functional currency and, 619 IAS(s) See International Accounting Standards (IASs) IASB See International Accounting Standards Board (IASB) IBM, 542 IER (Indirect exchange rate), 546–547 IFRSs See International Financial Reporting Standards (IFRSs) IMA (Institute of Management Accountants), 675 IM Flash Technologies, LLC, 307 Impairment losses, 1052–1053 Implicit goodwill, 151 Imports, foreign currency transactions and, 552–555 Income comprehensive, 216, 623 consolidations and, in subsequent years, 220 other, 216–220, 623 investment, under cost and equity methods, 55 net See Net income recognition of, equity method and, 54–55 Income statements, interim, reporting standards for, 688–698 cost of goods sold and inventory and, 689–692 disposal of component or extraordinary, unusual, infrequently occurring, and contingent items and, 698 income taxes and, 694–698 Income taxes, 855 consolidations and, 512–518 unrealized intercompany profit eliminations and, 515–518 when consolidated return is filed, 513–515 when separate tax returns are filed, 512–513 deferred, 515–516 foreign financial statement translation and, 647 interim, 694–698 interperiod tax allocation for foreign currency gains/losses and, 574 Income tax returns, consolidated, allocation of tax expense and, 513–515 Incorporation, of partnerships, 820 Indirect control, 104 by parent, with multilevel ownership, 475 Indirect effects, retrospective application and, interim reporting and, 699 Indirect exchange rate (IER), 546–547 Indirect intercompany debt transfer, 375 Inexhaustible collections, of other not-for-profit organizations, 1008 Inflation, severe, functional currency and, 619 Informational materials, costs of, of voluntary health and welfare organizations, 1004 Infrequently occurring items, disposal of, interim reporting and, 698 Insolvency, 1040 Installment partnership liquidation, 812–819 cash distribution plan and, 812, 817–819 chr25621_idx_1073-1088.indd 1081 1081 Institute of Management Accountants (IMA), 675 Intel Corporation, 307 Intercompany indebtedness, 374–395 bond sale directly to affiliate and, 376–379 debtor’s entries and, 377–379 at discount or premium, 377 at par value, 376 bonds of affiliate purchased from nonaffiliate and, 379–394 at amount higher than book value, 393–394 at book value, 380 at less than book value, 380–392 consolidation overview and, 375–376 cost method for, 414–417 direct and indirect debt transfer and, 375 fully adjusted equity method using straight-line interest amortization for, 395–410 bonds of affiliate purchased from nonaffiliate and, 397–410 transfer at discount or premium and, 395–397 modified equity method for, 410–413 Intercompany inventory transactions, 249–282 before affiliation, 275 consolidated financial statements and, 258 consolidation worksheet elimination entries for, 252 cost method for, 279–282 costs associated with, 274 by downstream sale, 259–268 deferring unrealized profit or loss and, 256 inventory held for two or more periods and, 268 resale in period following transfer and, 261–268 resale in period of transfer and, 260–261 elimination of unrealized profits and losses and, 251 lower of cost or market and, 271–275 modified equity method for, 276–279 from one subsidiary to another, 274 overview of, 250–251 transfers at cost, 252 transfers at profit or loss, 252 type of inventory system and, 259 unrealized profit or loss and, 253–258 by upstream sale, 268–274 consolidated net income and, 274 consolidation worksheet and, 269–271, 272–273 deferring unrealized profit or loss and, 256 equity-method entries for, 269, 271–272 Intercompany payables, 175 Intercompany profit(s), unrealized, equity method and, 79–80 Intercompany profit eliminations, unrealized, income taxes and, 515–518 Intercompany receivables, 175 Intercompany transactions with foreign affiliates, disclosure requirements for, 645–647 inventory See Intercompany inventory transactions Intercompany transfers, 307–343 of amortizable assets, 342 of depreciable assets, 324–342 change in estimated life of asset upon transfer and, 332 by downstream sale, 324–332 by upstream sale, 332, 334–342 of land, 310–324 assignment of unrealized profit elimination and, 312–314 by downstream sale, 312, 314–318 eliminating unrealized gain after first year and, 322 profit elimination process for, 310–312 subsequent disposition of asset and, 323–324 by upstream sale, 312, 318–321 of long-term assets, 308–309 amortizable, 342 depreciable, 324–342 land, 310–324 of services, 310 31/01/13 9:37 AM Confirming Pages 1082 Index Interest on capital ratios, for allocating profits and loss to partners, 759, 760–761 on investments, 855 transferable, of partners, 753 undivided, 786 Interest-rate swaps, hedging variable-rate debt using, 588–589 “Interests in Joint Ventures” (IAS 31), 755, 787 Interfund activities, 868–870 general fund and, 876 governmental accounting and, 868–870 Interfund transfers, of not-for-profit hospitals, 983–984 Interim acquisitions, consolidations following, 507–512 Interim date acquisitions under cost method, 52–53 under equity method, 56 Interim financial reporting, 686–700 accounting changes in interim periods and, 698–700 accounting pronouncements on, 687 governmental, 939 for income statements, 688–698 international standards for, 687–688 quarterly, format of, 686–687 “Interim Financial Reporting” (IAS 34), 687–688 Interim income taxes, 694–698 Internal control reports, 736 Internal expansion, 8–10 organizational structures and, 5–6 Internal service funds, 848, 923–926 International Accounting Standards (IASs) IAS (“Accounting Policies, Changes in Accounting Estimates and Errors”), 700 IAS 31 (“Interests in Joint Ventures”), 755, 787 IAS 34 (“Interim Financial Reporting”), 687–688 International Accounting Standards Board (IASB), 614, 615 effort to converge standards with FASB, 615 international harmonization of accounting standards and, 723 on reporting for small and medium-size entities and joint ventures, 755 International Business Machines, 48 International Financial Reporting Standards (IFRSs), 614, 615 for accounting changes, 700 determination of control of VIEs and SPEs and, 123–124 IFRS (“Operating Segments”), 675–676 international harmonization of accounting standards and, 723–724 for small and medium-size enterprises, 755 International Organization of Securities Commissions (IOSCO), 614 international harmonization of accounting standards and, 723 InterNorth, 100 Interperiod equity, 844 Interperiod tax allocation, 512 Intrinsic value of derivatives, 574 of options, 580, 583 Inventory(ies) anticipated purchases of, hedging with options, 581–584 consumption method for, 865–866 differential-related, subsidiary’s disposal of, 222 governmental expenditures for, 864–866 intercorporate transactions involving See Intercompany inventory transactions on interim income statement, 689–692 purchase method for, 865 valuation under remeasurement, lower of cost or market and, disclosure requirements for, 645 Inventory systems, Intercompany inventory transactions and, 259 Investment(s) on balance sheet of not-for-profit hospitals, 981–982 governmental accounting for, 868 interest on, 855 net, in foreign entities, hedges of, 574–575, 643–644 chr25621_idx_1073-1088.indd 1082 not-for-profit entities and, 871 in partnerships by new partner, 768–781 tax basis of, 784–785 of voluntary health and welfare organizations, 1000–1001 Investment Advisors Act of 1940, 725 Investment Company Act of 1940, 725 Investment income, under cost and equity methods, 55 Investment trust fund, 848 Investors accredited, 728 unaccredited, 728–729 Involuntary petitions, 1043 IOSCO (International Organization of Securities Commissions), 614 international harmonization of accounting standards and, 723 J C Penney Company, 250 Johnson & Johnson, 48, 676 Jointly controlled assets, 787 Jointly controlled entities, 787 Jointly controlled operations, 787 Joint ventures, 786–787 corporate, 53 IFRSs for, 755 types of, 787 JP Morgan Chase, 550 Karmin, Craig, 616n Kmart, 1039 Kraft, James L., Kraft & Bros Company, Kraft Foods Inc., 1, 2, 48, 614 Kraft General Foods Inc., Kroc, Ray, 612 Land intercompany transfers of, 310–324 assignment of unrealized profit elimination and, 312–314 by downstream sale, 312, 314–318 eliminating unrealized gain after first year and, 322 profit elimination process for, 310–312 subsequent disposition of asset and, 323–324 by upstream sale, 312, 318–321 of other not-for-profit organizations, 1008 of voluntary health and welfare organizations, 1001 “Land and Other Real Estate Held as Investments by Endowments” (GASB 52), 868 LAP (loss absorption potential), 817 Laventhol & Horwath, 804 Lay, Kenneth, 100 Lazarus, Charles, 249 LCUs (local currency units), 545, 616 Leases, capital, governmental accounting for, 867 Legal liability of accountants periodic reporting requirements and, 733 in registration process, 730 of partners, 752–753 Lehman Brothers, 730, 1043 Levi Strauss & Co., 216 Levitt, Arthur, 5, 614 Liabilities valuation of, at fair value, 59–60 valuation of business entities and, 12–13 of voluntary health and welfare organizations, 1001 Liability legal, of accountants, periodic reporting requirements and, 733 of partners, 752–753 LIBOR (London Interbank Offered Rate), 588 31/01/13 9:37 AM Confirming Pages Index LIFO temporary liquidations, interim income statement and, 689–690 Limited liability companies (LLCs), 786 Limited liability limited partnerships (LLLPs), 754 Limited liability partnerships (LLPs), 749–750, 754 Limited partnerships (LPs), 753 Lipton, Martin, 4n Liquidating dividends cost method and, 51–52 following switch from equity method, 52 Liquidation, 10 of foreign investment, 643 of partnerships See Partnership liquidations Liquidation expenses, lump-sum partnership liquidation and, 807 Liquid forward contracts, 579 Liquidity, in management discussion and analysis, 737 Litigation Release No 17588 (“SEC Charges WorldCom with $3.8 Billion Fraud Commission Action Seeks Injunction, Money Penalties, Prohibitions on Destroying Documents and Making Extraordinary Payments to WorldCom Affiliates, and the Appointment of a Corporate Monitor”), 727 LLCs (limited liability companies), 786 LLLPs (limited liability limited partnerships), 754 LLPs (limited liability partnerships), 749–750, 754 Loan(s), to or from partners, liquidation and, 806 Loan accounts, of partners, 758 Local currency, 552 Local currency units (LCUs), 545, 616 London Interbank Offered Rate (LIBOR), 588 Long-term assets, intercompany transfers of amortizable, 342 depreciable, 324–342 land, 310–324 Long-term debt, governmental accounting for, 867 debt service funds and, 911–914 Loss(es) allocating to partners See Partnerships, allocating profit or loss to partners and carrybacks and carryforwards of, 696–698 foreign currency transaction disclosure requirements for, 644–647 interperiod tax allocation for, 574 foreign currency transactions and, 550–551 impairment, 1052–1053 intercompany, unrealized, 251, 252–258 intercompany inventory transactions at, 252–258 operating, carrybacks and carryforwards of, 696–698 remeasurement, 635 proof of remeasurement exchange gain and, 638–639 statement presentation of, 636 Loss absorption potential (LAP), 817 Loss-sharing ratio, 816, 818 Lower of cost or market intercompany inventory transfers and, 274–275 inventory valuation under remeasurement and, disclosure requirements for, 645 LPs (limited partnerships), 753 Luccheti, Aaron, 616n Lump-sum partnership liquidation, 807–812 liquidation expenses and, 807 realization of assets and, 807 Majority-owned subsidiaries, less-than-wholly-owned consolidated balance sheet and, 203–206 consolidation of, 206–213 Management’s discussion and analysis (MD&A), 737–738 for government-wide financial statements, 938 March of Dimes, 996 Market write-down and recovery, interim income statement and, 690–692 Markup(s), 254 chr25621_idx_1073-1088.indd 1083 1083 Markup on cost, 254 Markup on sales, 254 Marvel Entertainment, 149–150 McDonald, Dick, 612 McDonald, Mac, 612 McDonald’s, 612–613 McDonnell Douglas, MD&A (management’s discussion and analysis), 737–738 for government-wide financial statements, 938 Measurement focus, 852–857 in governmental accounting, 852–857 Measurement period, uncertainty in business combinations regarding, 21–22 Medicare, 983 Mergers financial reporting and, of not-for-profit organizations, 972–973 private equity money fueling, reverse, 724 statutory, 10 waves of, MFOA (Municipal Finance Officers Association), 844 Micron Technology Inc., 307 Microsoft, 542–543 Minority interest, 12 MNEs See Multinational enterprises (MNEs) Mobil Corp., 12 Modified accrual basis, 852 Modified equity method, 78 for intercompany indebtedness, 410–413 intercompany inventory transactions and, 251n, 276–279 intercompany noncurrent asset transactions and, 343–347 Moody’s, 48, 58, 757 Motorola, 503 Multi-corporate entities See Business combinations; Consolidation entries; Intercompany transfers Multilevel ownership, 475–480 Multimixer, 612 Multinational enterprises (MNEs), 542–575 See also Financial statement remeasurement; Financial statement translation; Foreign currencies; Foreign currency entries; Foreign subsidiaries accounting issues involving, 544–545 convergence of accounting principles and, 614–616 financial instruments used by, 578–590 Municipal Finance Officers Association (MFOA), 844 Mutual ownership, 475, 480–483 Nabisco Holdings, NACUBO (National Association of College and University Business Officers), 973–974 NAFTA (North American Free Trade Agreement), 544 National Association of College and University Business Officers (NACUBO), 973–974 National Bankruptcy Review Commission, 1042 National Committee on Governmental Accounting, 844 National Conference of Commissioners on Uniform State Laws (NCCUSL), 751 National Council on Governmental Accounting (NCGA) NCGA (“Governmental Accounting and Financial Reporting Principles”), 844, 864 NCGA (“Revenue Recognition-Property Taxes”), 855 National Council on Governmental Accounting (NCGA), Statement No, 1, 844 National Dairy Products, National Football League, 968 NationsBank Corp., 12 NCCUSL (National Conference of Commissioners on Uniform State Laws), 751 NCGA See National Council on Governmental Accounting (NCGA) NCI (noncontrolling interest) shareholders, 106 31/01/13 9:37 AM Confirming Pages 1084 Index Net assets on balance sheet of not-for-profit hospitals, 982 combination effected through acquisition of, 15–20 bargain purchase and, 19–20 entries recorded by acquired company and, 17–18 subsequent accounting for good will by acquirer and, 18–19 identifiable, of subsidiary, excess of fair value over book value of, 159–160 released from restriction, of not-for-profit hospitals, 990–991 restricted, on balance sheet of not-for-profit hospitals, 982 unrestricted, on balance sheet of not-for-profit hospitals, 982 of voluntary health and welfare organizations, 1001–1002 “Net Assets Restricted by Enabling Legislation” (GASB 46), 921 Net income, consolidated consolidations created or acquired at book value and, 76–77 consolidations subsequent to acquisition and, 68–69 intercompany inventory transactions and by downstream sales, 265, 268 by upstream sales, 271 noncontrolling interest and, 108 New York Stock Exchange (NYSE), 722 Nike, 551 Noncontrolling interest, 12 computation and presentation of, 106–107 consolidation of less-than-wholly-owned subsidiaries and, 106–110 in conjunction with a differential, 203 effect of, 107–110 of foreign subsidiary, financial statement translation and, 634 income to, intercompany transfers of noncurrent assets and, 313–314 Noncontrolling interest (NCI) shareholders, 106 Noncontrolling ownership, financial reporting and, Nonexchange revenues, imposed, 854 Nonexchange transactions government-mandated, 854 voluntary, 854 Nonspendable fund balances, 850 North American Free Trade Agreement (NAFTA), 544 Notes (debt), 911 Notes to government-wide financial statements, 938–939 Not-for-profit entities, 968–1011 colleges and universities, 973–975, 976–979 board-designated funds and, 974 private, 974–975, 976–979 public, 974 special conventions of revenue and expenditure recognition for, 973–974 financial reporting for, 969–973 FASB standards for, 970–973 health care providers, 975, 977–978, 980–996 hospital accounting and, 977–978, 980–981 hospital financial statements and, 981–993 summary of, 996 temporarily restricted funds and, 993–996 other not-for-profit organizations, 1007–1010 financial statements for, 1007–1010 summary of, 1010 voluntary health and welfare organizations, 996–1007 financial statements for, 997–1006 summary of, 1007 Nuova Systems, 202 NYSE (New York Stock Exchange), 722 OCI (other comprehensive income), 623 accumulated, 623 consolidation of less-than-wholly-owned subsidiaries acquired at more than book value and, 216–220 Off-balance sheet arrangements, in management discussion and analysis, 738 Off-balance sheet financing, 120–121 Omissions, in subsidiary’s books, 159 One-line consolidations, 59, 66, 79, 112 chr25621_idx_1073-1088.indd 1084 ONPOs (other not-for-profit entities), 1007–1010 financial statements for, 1007–1010 Operating budgets, 857–858 Operating expenses, of not-for-profit hospitals, 989–990 Operating losses, carrybacks and carryforwards of, 696–698 “Operating Segments” (IFRS 8), 675–676 Operations jointly controlled, 787 results of, in management discussion and analysis, 738 Option contracts, 579–580, 581 hedging anticipated purchase of inventory using, 581–584 hedging available-for-sale securities using, 584–587 intrinsic value of, 580, 583 strike price of, 580 Orders of relief, 1043 Organizational structures, 5–7 external expansion and, financial reporting and, internal expansion and, 5–6 Oscar Mayer & Co., Other comprehensive income (OCI), 623 accumulated, 623 consolidation of less-than-wholly-owned subsidiaries acquired at more than book value and, 216–220 Other not-for-profit entities (ONPOs), 1007–1010 financial statements for, 1007–1010 Ownership controlling, financial reporting and, noncontrolling, financial reporting and, of parent company, changes in See Consolidation ownership, changes in parent company ownership and Oxley, Michael, 734 Pacific Stock Exchange (PSE), 579 Pacific Telesis, Page, Larry, 503 The Pampered Chef, 48 Parent companies, 3, 10 changes in parent company ownership and See Consolidation ownership, changes in parent company ownership and common stock investments and, 49 defined, 60 Parent company theory, 126–127 Parent-subsidiary relationships, 10 Partners’ accounts, 757–758 capital, 757 drawing, 757 loan, 758 Partner’s dissociation, 753, 781–783 partnership liquidation by, 805 wrongful, 764 Partnership agreement, 752 Partnership liquidations, 804–819 by dissociation, 805 by dissolution, 805 installment, 812–819 cash distribution plan and, 812, 817–819 schedule of safe payments to partners and, 812–817 lump-sum, 807–812 liquidation expenses and, 807 realization of assets and, 807 statement of partnership realization and liquidation and, 806–807 winding-up and, 805–806 Partnerships, 749–784 accounting and financial reporting requirements for, 754–755 allocating profit or loss to partners and, 758–763 arbitrary profit-sharing ratio for, 759–760 bonuses and, 759, 762, 765 interest on capital balances and, 759, 760–761 31/01/13 9:37 AM Rev Confirming Pages Index multiple profit allocation bases for, 762–763 salaries and, 759, 761 special profit allocation methods for, 763 at-will, 805 book value of, 766 definition of, 751 financial statements of, 763–764 formation of, 751, 755–756 incorporation of, 820 international financial reporting standards for, 755 legal regulation of, 750–755 limited, types of, 753–754 liquidation of See Partnership liquidations major characteristics of, 752–754 membership changes and, 764–783 determination of new partner’s investment cost and, 781 by dissociation of partner, 753, 764, 781–783, 805 by new partner investment, 768–780 by new partner purchase of interest, 766–768 partners’ accounts and, 757–758 partners’ personal financial statements and, 821–824 tax basis of asset investments in, 784–785 Par value, bond transfer at, intercompany indebtedness and, 376 Patient care revenue, net, of not-for-profit hospitals, 983, 988–989 PCAOB (Public Company Accounting Oversight Board), 2, 725, 734–735 Peat Marwick Mitchell, 749 “Pension Disclosures—an amendment of GASB Statement No 25 and No 27” (GASB 50), 931 Pension trust fund, 848 Performance indicators, of hospital operating activities, 982 Perkins Products, Permanent funds, 848, 914–915 Permanently restricted funds, 980 Permanently restricted net assets, on balance sheet of not-for-profit hospitals, 982 Pfizer Inc., 12 Philadelphia Stock Exchange (PHLX), 579 Philip Morris, PHLX (Philadelphia Stock Exchange), 579 Pixar Animation Studios, 149–150, 154–156 Plain vanilla swaps, 581 Plans of settlement, 1042 Plans or reorganization, 1046 Plant assets, on balance sheet of not-for-profit hospitals, 982 Plant replacement and expansion funds, of not-for-profit hospitals, 994–995 restricted, 981 Pledges, to voluntary health and welfare organizations, 998–1000 Pooling-of-interests method, Post, C W., Postum Cereal Company, Ltd., Potential earnings, valuing, 13 Preference payments, paid to unsecured creditors, 1056 Preferred stock, changes in parent company ownership and See Consolidation ownership, changes in parent company ownership and Preliminary prospectus, 730 Premium bond transfer at, intercompany indebtedness and, 377, 395–397 on foreign exchange contracts, 558 Preselected ratios, for allocating profits and loss to partners, 758–759 Price(s), transfer, 254 Price, Samuel, 749 Price Waterhouse, 749 Price, Waterhouse & Company, 749 PricewaterhouseCoopers (PwC), 615, 749 Primary beneficiary, of variable interest entities, 123 Priority, creditors with, 1054, 1056 Private colleges and universities, 974–975, 976–979 Private Company Financial Reporting Committee, 754 chr25621_idx_1073-1088.indd 1085 1085 Private equity money, mergers fueled by, Private-purpose trust fund, 848 Private sector accounting, governmental accounting compared with, 843–844 Procter & Gamble, 4, 48, 104 Products, enterprisewide disclosures about, 684–685 Profit(s) allocating to partners See Partnerships, allocating profit or loss to partners and intercompany, unrealized, 251, 252–258 intercompany inventory transactions at, 252–258 Profit distribution plans, 758 Profit eliminations intercompany, unrealized, income taxes and, 515–518 for intercompany transfers of land, 310–312 unrealized, assignment of, for intercompany transfers of land, 312–314 Pro forma disclosures, 738–739 Property taxes, 854–855 levy and collection of, 873–874 Proprietary funds, 847, 848 basis of accounting and, 856 financial statements for, 921–923 Proprietary theory, 126 Pro rata consolidation, 126 Prospectus, 729 preliminary (red herring), 730 Proxy statements, 733 PSE (Pacific Stock Exchange), 579 Public colleges and universities, 974 Public Company Accounting Oversight Board (PCAOB), 2, 725, 734–735 Public school systems, 941–942 Public Utility Holding Company Act of 1935, 725 Purchase(s) of additional shares cost method and, 53 equity method and, 56–58 bargain, 19–20, 164–166 of inventory, anticipated, hedging with options, 581–584 by parent, of additional shares from nonaffiliate, 460–463 of partnership interest by new partner, 766 by subsidiary of shares from nonaffiliate, 470–472 of shares from parent, 472–474 Purchase method, for inventories, 865 Purpose restriction, 969 Push-down accounting, 160, 175–178 PwC (PricewaterhouseCoopers), 615, 749 Pyramiding, 104 Ralcorp Holdings, Realized changes, statement of changes in net worth and, 823 Receivables, on balance sheet of not-for-profit hospitals, 981 Receiverships, 1057 Recipient organizations, 972 “Recipient Reporting for Certain Shared Nonexchange Revenues” (GASB 36), 854 Reciprocal ownership, 475, 480–483 Reconciliation schedules, 934, 936, 937 Recording currency, 617 Red Cross, 968, 996 Red herring prospectus, 730 Regents, of colleges and universities, 974 Registration process, 728–730 accountants’ legal liability in, 730 registration statement and, 729 SEC review and public offering and, 729–730 Registration statement, 729 Regulation, of partnerships, 750–751 Regulation A, 728 06/02/13 11:47 AM Confirming Pages 1086 Index Regulation D, 728–729 Regulation FD, 732 Regulation S-K, 726–727 Regulation S-X, 726–727 Remeasurement See Financial statement remeasurement Remeasurement gain or loss, 635 proof of remeasurement exchange gain and, 638–639 statement presentation of, 636 Reportable operating segments, defining, 10 percent quantitative thresholds and, 676–682 Reporting, of financial instruments, requirements for, 589–590 “Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities that Use Proprietary Fund Accounting” (GASB 9), 922–923 Reporting currency, 617 Reporting entities changes in, interim reporting and, 699–700 changing concept of, 105–106 governmental, 848–852 financial statements and, 929 Required supplementary information (RSI), for government-wide financial statements, 938 Research and development, in-process, business combinations and, 22 Reservation of budgetary fund balance, 859 Resources, expendability of, capital maintenance versus, governmental accounting and, 846 Restricted funds, of hospitals, 980–981 Restricted net assets, on balance sheet of not-for-profit hospitals, 982 Restriction of budgetary fund balance, 859 Retained earnings consolidated consolidations created or acquired at book value and, 76–77 consolidations subsequent to acquisition and, 69–70 noncontrolling interest and, 109 negative, of subsidiary at acquisition, 221 Retirement, constructive, 380, 397–410 bonds of affiliate purchased at book value and, 380, 398 bonds of affiliate purchased at less than book value and, 380–392, 398–409 bonds of affiliate purchased at more than book value and, 393–394, 409–410 Retrospective application, 698–700 Revaluation method, change of partnership members by, 765–766, 771, 772–773, 776–777 Revenue(s) from ancillary programs, of not-for-profit hospitals, 989, 993 miscellaneous, 855 nonexchange, imposed, 854 recognition of colleges and universities and, 973–975, 976–979 in governmental accounting, 853–856 shared, 856 tax delinquent, 855 derived, 853 of voluntary health and welfare organizations, 1002 “Revenue Recognition in Financial Statements” (SAB No 101), 727–728 “Revenue Recognition-Property Taxes” (NCGA 3), 855 Reverse mergers, 724 Revised Uniform Partnership Act (RUPA), 751 Rights, of partners, 753 RSI (required supplementary information), for government-wide financial statements, 938 Rule 14-8, 733 RUPA (Revised Uniform Partnership Act), 751 SABs See Staff Accounting Bulletins (SABs) SAFTA (South Asian Free Trade Area), 544 Salaries, for allocating profits and loss to partners, 759, 761 chr25621_idx_1073-1088.indd 1086 Sales intercompany inventory transfers and before affiliation, 275 between subsidiaries, 274 markup on, 254 by parent, of subsidiary shares to nonaffiliate and, 463–465 of shares cost method and, 53 equity method and, 58 by subsidiary of additional shares to nonaffiliate, 465–468 of additional shares to parent, 468–470 upstream, intercompany inventory transactions by See Intercompany inventory transactions, by upstream sale Sales taxes, 855 Salvation Army, 996 Sam’s Club, 674, 676 Sarbanes, Paul, 734 Sarbanes-Oxley Act of 2002 (SOX), 725, 734–737 analyst conflicts of interest and, 736 auditor independence and, 735 commission resources and authority and, 736 corporate and criminal fraud accountability and, 736–737 corporate fraud and accountability and, 737 corporate responsibility and, 735 enhanced financial disclosures and, 736 Public Company Accounting Oversight Board and, 2, 725, 734–735 sense of Congress regarding corporate tax returns and, 737 studies and reports and, 736 white-collar crime penalty enhancements and, 737 SBC Communications Inc., 6, 12 Schedule 13D, 732 Schedule of safe payments to partners, installment liquidations and, 812–817 S corporations, 785 Seaworthy Insurance Company, 475 “SEC Charges WorldCom with $3.8 Billion Fraud Commission Action Seeks Injunction, Money Penalties, Prohibitions on Destroying Documents and Making Extraordinary Payments to WorldCom Affiliates, and the Appointment of a Corporate Monitor” (Litigation Release No 17588 or Accounting and Auditing Release No 1585), 727 Secured creditors, 1054, 1055 Securities, available-for-sale, hedging using option contracts, 584–587 Securities Act of 1933, 722, 726, 728–730 Securities Act Release No 33-8831 (“Concept Release on Allowing U.S Issuers to Prepare Financial Statements in Accordance with International Financial Reporting Standards”), 724 Securities Act Release No 33-8879 (“Acceptance from Foreign Private Issuers of Financial Statements Prepared in Accordance with International Financial Reporting Standards without Reconciliation to U.S GAAP”), 723 Securities and Exchange Commission (SEC), 2, 614, 675, 724–739 creation of, 722 disclosure requirements of, 737–739 management discussion and analysis and, 737–738 pro forma disclosures and, 738–739 EDGAR system of, 733 Foreign Corrupt Practices Act of 1977 and, 734 international accounting and, 615, 616 laws administered by, 725 organizational structure of, 724–725 periodic reporting requirements of, 730–733 accountants’ legal liability in, 733 registration process and, 728–730 accountants’ legal liability in, 730 registration statement and, 729 SEC review and public offering and, 729–730 regulatory structure and, 725–728 role of, 722–723 Sarbanes-Oxley Act of 2002 and See Sarbanes-Oxley Act of 2002 (SOX) 31/01/13 9:37 AM Confirming Pages Index Securities Exchange Act of 1934, 722, 726, 728, 730–733 Securities Investor Protection Act of 1970, 725 See’s Candies, 47, 48 Segment reporting, 674–684 comprehensive disclosure test and, 682–683 defining reportable segments and, 676–682 IFRSs for, 674–675 reporting segment information and, 683–684 Serial bonds, 911 Services enterprisewide disclosures about, 684–685 intercompany transfers of, 310 75 percent consolidated revenue test, 682–683 Shared revenue, 856 Shareholders, noncontrolling interest, 106 Shelf registration, 730 Significant influence, 49 determination of, 78 Singer, Jason, 3n, 4n Single Audit Act of 1984, 939–940 Siris, Peter, 724 Small and medium-size entities (SMEs), IFRSs for, 755 South Asian Free Trade Area (SAFTA), 544 SOX See Sarbanes-Oxley Act of 2002 (SOX) Special assessment bonds, 911 Special-purpose entities (SPEs), 4–5, 100 consolidation of less-than-wholly-owned subsidiaries and, 120–121, 123–124 determination of, IFRS rules and, 123–124 off-balance sheet financing and, 120–121 Special-purpose governmental entities, 940 Special revenue funds, 848, 904, 906–908 Specific operating purposes, 981 Specific-purpose funds of hospitals, 981 of not-for-profit hospitals, 993–994 Speculation, in foreign currency markets, 570–573 Spendable fund balances, 850–851 SPEs (special-purpose entities), 4–5, 100 consolidation of less-than-wholly-owned subsidiaries and, 120–121, 123–124 determination of, IFRS rules and, 123–124 off-balance sheet financing and, 120–121 Spin-offs, Split-offs, Spot rate, 549 Spread, 550 Sprint, Staff Accounting Bulletins (SABs), 726, 727–728 SAB No 101 (“Revenue Recognition in Financial Statements”), 727–728 Standards of Accounting and Financial Reporting for Voluntary Health and Welfare Organizations, 996–997 “State and Local Governments—Audit and Accounting Guide” (AICPA), 939 Statement of activities for other not-for-profit organizations, 1009–1010 of voluntary health and welfare organizations, 1002–1004 Statement of affairs, 1055, 1056–1057 Statement of cash flows consolidated, 504–507, 508 direct method for, 506–507, 508 illustration of, 504–506 preparation of, 504 disclosure requirements for, 645 for not-for-profit hospitals, 985, 988 for other not-for-profit organizations, 1010 of voluntary health and welfare organizations, 1005 Statement of changes in net assets, for not-for-profit hospitals, 983, 985, 987 Statement of changes in net worth, personal, of partners, 823–824 chr25621_idx_1073-1088.indd 1087 1087 Statement of Financial Accounting Concepts No (“Elements of Financial Statements” (CON 6)), 845 Statement of financial condition, personal, of partners, 822–823 Statement of financial position for other not-for-profit organizations, 1008 for voluntary health and welfare organizations, 997–1002 Statement of functional expenses, of voluntary health and welfare organizations, 1005–1006 Statement of net assets, 932–934 Statement of operations, for not-for-profit hospitals, 982–984, 987 Statement of partners’ capital, 763–764 Statement of Partnership Authority, 752 Statement of partnership realization and liquidation, 806–807 Statement of realization and liquidation, 1058 Statement of revenues, expenditures, and changes i n fund balance general fund and, 879–880 for governmental funds, 851–852 State of Maryland, 901–902, 908, 911, 920 Statutory consolidations, 10 Statutory mergers, 10 Stock acquisition of, 10, 12 combination effected through acquisition of, 20 investment in, 48–50 See also Cost method, for common stock investments; Equity method, for common stock acquisitions preferred, changes in parent company ownership and See Consolidation ownership, changes in parent company ownership and Stock dividends, of subsidiaries, consolidation ownership and, 483–486 impact on subsequent periods, 485–486 Stockholders’ equity, consolidations and, 221–222 Strike price, of options, 580 Subsidiaries, 3, 10 accounts of, valuation at acquisition, 221 changes in parent company ownership and See Consolidation ownership, changes in parent company ownership and common stock investments and, 49–50 defined, 60 disposal of differential-related assets and, 222–223 errors and omissions in books of, consolidation of wholly owned subsidiaries and, 159 foreign hedge of net investment in, 643–644 liquidation of, 643 noncontrolling interest of, financial statement translation and, 634 unconsolidated, 641–643 less-than-wholly-owned See Consolidation of less-than-wholly-owned subsidiaries negative retained earnings of, at acquisition, 221 stock dividends of, consolidation ownership and, 483–486 impact on subsequent periods, 485–486 unconsolidated, 50 wholly owned See Wholly owned subsidiaries Subsidiary financial statements, consolidation of less-than-wholly-owned subsidiaries and, 103 Surgical partners, Inc., 514 Swaps, 580–581, 582 Syndicates, 787 Taxes See Income taxes; Property taxes; Sales taxes Tax revenues delinquent, 855 derived, 853 Temporal method, for financial statement remeasurement, 620 Temporarily restricted funds, 980 health care providers and, 993–996 of not-for-profit hospitals, 993–996 Temporary differences, tax allocation procedures with separate tax returns and, 512 10 percent criterion for governmental funds, 915, 916–917 31/01/13 9:37 AM Rev Confirming Pages 1088 Index 10 percent significance rules, 676–682 10 percent assets test and, 681–682 10 percent profit (loss) test and, 680–681 10 percent revenue test and, 680 A Tentative Outline—Principles of Municipal Accounting, 844 Term bonds, 911 Term endowments, 969 Terms currency, 547 Thomas, A., 675n Time-restricted funds of hospitals, 981 of not-for-profit hospitals, 994 Time restriction, 969 Time value, of derivatives, 574 Time Warner, 12 Toshiba, 307 Touche Ross, 749 Toys “R” Us, 249 Transferable interest, of partners, 753 Transfer price, 254 Translation See Financial statement translation Translation adjustment, 617, 622–623 Travelers Group Inc., 12 Treasury stock method, reciprocal (mutual) ownership and, 480–483 Troubled debt restructurings, 1041 Trustee(s), of colleges and universities, 974 Trustee accounting and reporting, bankruptcy and, 1057–1062 Trust funds, 848, 926–928 Trust Indenture Act of 1939, 725 Two-transaction approach, 552 Tyco, ULPA 2001 (Uniform Limited Partnership Act of 2001), 753 Unaccredited investors, 728–729 Unconsolidated subsidiaries, 50 Underwriters, 729 Underwriting agreements, 729 Undivided interest, 786 Uniform Limited Partnership Act of 2001 (ULPA 2001), 753 Uniform Partnership Act of 1914, 751 Uniform Partnership Act of 1997 (UPA 1997), 751, 752, 758, 761, 764, 804 liquidation and, 805, 806 United Airlines, 1039 United Parcel Service Inc (UPS), 48 United Way, 968, 972, 996 Universities, 973–975, 976–979 board-designated funds and, 974 private, 974–975, 976–979 public, 974 special conventions of revenue and expenditure recognition for, 973–974 University of Phoenix, 974 University of Washington, 973 Unrealized changes, statement of changes in net worth and, 823 Unrealized gain, eliminating after first year, intercompany transfers of land and, 322 Unrealized intercompany profit (loss), 251 intercompany inventory transactions at, 252–258 Unrealized intercompany profit eliminations, income taxes and, 515–518 Unrestricted net assets, on balance sheet of not-for-profit hospitals, 982 Unsecured creditors, general, 1056 Unusual items, disposal of, interim reporting and, 698 chr25621_idx_1073-1088.indd 1088 UPA 1997 (Uniform Partnership Act of 1997), 751, 752, 758, 761, 764, 804 liquidation and, 805, 806 Upstream sale intercompany inventory transactions by See Intercompany inventory transactions, by upstream sale intercompany transfers of depreciable assets by, 332, 334–342 intercompany transfers of land by, 312, 318–321 US Bancorp, 48 Valuation of business entities, 12–13 at fair value, 59–60 of inventory, under remeasurement, lower of cost or market and, disclosure requirements for, 645 of subsidiary accounts, at acquisition, 221 Variable interest entities (VIEs), 699 consolidation of, 125–126 consolidation of less-than-wholly-owned subsidiaries and, 121–124 determination of, IFRS rules and, 123–124 primary beneficiary of, 123 Verizon, VHWOs (voluntary health and welfare organizations), 996–1007 financial statements for, 997–1006 VIEs (variable interest entities), 699 consolidation of, 125–126 consolidation of less-than-wholly-owned subsidiaries and, 121–124 determination of, IFRS rules and, 123–124 primary beneficiary of, 123 Vodafone Group PLC, 12 Voluntary health and welfare organizations (VHWOs), 996–1007 financial statements for, 997–1006 Voluntary nonexchange transactions, 854 Voluntary petitions, 1043 The Wall Street Journal, exchange rates in, 545 Walmart, 47, 48, 674 Walmart International, 674, 676 Walmart U.S., 674, 676 Walt Disney Company, 123, 149–150, 154–156 Walton, Sam, 674 Warner-Lambert Co., 12 Warrants, 911 The Washington Post Company, 47, 48 Wells Fargo, 48 Wesco Financial Corporation, 47, 48 Whirlpool, White-collar crime, Sarbanes-Oxley Act of 2002 and, 737 Wholly owned subsidiaries consolidated balance sheet with, 63–67 elimination entries and, 64–67 created or purchased at book value, consolidation procedures for, 60 100 percent ownership acquired at book value and, consolidated financial statements and See Consolidated financial statements Winding-up, partnership liquidation and, 805–806 Works of art, 867 WorldCom, 4, 5, 1039 Wrigley, 451 Wrongful dissociation, 764 Wyeth, 12 Yahoo! Finance, exchange rates in, 545 YouTube Inc., 503 06/02/13 11:47 AM Want studying to be as simple and interactive as keeping up with your friends online? We can help! • Access end-of-chapter assignments for limitless practice and immediate feedback that reports directly to your instructor’s grade book • Quickly access lectures, an eBook, study tools, and more With McGraw-Hill’s Connect® Plus Accounting, you also will receive access to a searchable, integrated online version of the textbook to help you successfully complete your work whenever and wherever you choose If your instructor chooses to use McGrawHill Connect Accounting with your course, you can purchase access from the Online Learning Center at www.mhhe.com/christensen10e CourseSmart • Select and arrange the content in a way that makes the most sense for your course • Combine materials from different sources and even upload your own content • Choose the best format for your students–print or eBook • Edit and update your course materials as often as you’d like Learning Management System Integration McGraw-Hill Education and Blackboard have teamed up Now you can access McGraw-Hill Connect and Create right from within your Blackboard course–all with one single sign-on Say goodbye to the days of logging in to multiple applications You also get deep integration of McGraw-Hill content and tools right in Blackboard, and when your students complete an integrated Connect assignment, the grade automatically (and instantly) feeds your instructor’s Blackboard grade center Visit www.domorenow.com to learn more Advanced Financial Accounting Tenth Edition MD DALIM 1223219 01/19/13 CYAN MAG YELO BLACK CourseSmart is a new way to fnd and buy eTextbooks At CourseSmart, you can save up to 55% of the cost of your printed textbook, reduce your impact on the environment, and gain access to powerful web tools for learning You can search, highlight, take notes, and share with friends, as well as print the pages you need Try a free chapter to see if it’s right for you Visit www.CourseSmart.com and search by title, author, or ISBN McGraw-Hill Create™ is a self-service website that allows instructors to quickly and easily create custom course materials by drawing upon McGraw-Hill’s comprehensive, cross-disciplinary content and other third-party resources Advanced Financial Accounting The next evolution in online homework management, McGraw-Hill’s Connect Accounting is an online assignment and assessment solution that connects you with the tools and resources you’ll need to achive success: Flexibility and Convenience for Instructors Tenth Edition McGraw-Hill Connect® Accounting Christensen Cottrell Baker Visit the Online Learning Center to access the textbook supplements: www.mhhe.com/christensen10e ISBN 978-0-07-802562-4 MHID 0-07-802562-1 EAN www.mhhe.com Uploaded by [StormRG] Christensen Cottrell Baker