Advanced Accounting Thirteenth Edition Joe B Hoyle Associate Professor of Accounting Robins School of Business University of Richmond Thomas F Schaefer KPMG Professor of Accountancy Mendoza College of Business University of Notre Dame Timothy S Doupnik Associate Professor of Accounting School of Business College of Charleston ADVANCED ACCOUNTING, THIRTEENTH EDITION Published by McGraw-Hill Education, Penn Plaza, New York, NY 10121 Copyright © 2017 by McGraw-Hill Education All rights reserved Printed in the United States of America Previous editions © 2015, 2013, and 2011 No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning Some ancillaries, including electronic and print components, may not be available to customers outside the United States This book is printed on acid-free paper LWI 21 20 19 18 17 16 ISBN 978-1-259-44495-1 MHID 1-259-44495-3 Chief Product Officer, SVP Products & Markets: G Scott Virkler Vice President, General Manager, Products & Markets: Marty Lange Managing Director: Tim Vertovec Marketing Director: Natalie King Brand Manager: Becky Olson Director, Product Development: Rose Koos Director of Digital Content: Peggy Hussey Associate Director of Digital Content: Kevin Moran Lead Product Developer: Kris Tibbetts Product Developer: Kevin Moran Marketing Manager: Zach Rudin Market Development Manager: Erin Chomat Digital Product Analyst: Xin Lin Director, Content Design & Delivery: Linda Avenarius Program Manager: Daryl Horrocks Content Project Managers: Dana M Pauley / Brian Nacik Buyer: Jennifer Pickel Design: Egzon Shaqiri Content Licensing Specialists: Shawntel Schmitt/DeAnna Dausener Cover Image: © Westend61 Premium/Shutterstock Compositor: SPi Global Printer: LSC Communications 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 Names: Hoyle, Joe Ben, author | Schaefer, Thomas F., author | Doupnik, Timothy S., author Title: Advanced accounting / Joe B Hoyle, Associate Professor of Accounting, Robins School of Business, University of Richmond, Thomas F Schaefer, KPMG Professor of Accountancy, Mendoza College of Business, University of Notre Dame, Timothy S Doupnik, Associate Professor of Accounting, School of Business, College of Charleston Description: Thirteenth Edition | New York, NY : McGraw-Hill Education, 2016 | Revised edition of the authors’ Advanced accounting, 2015 Identifiers: LCCN 2016040833 | ISBN 9781259444951 (hardback) Subjects: LCSH: Accounting | BISAC: BUSINESS & ECONOMICS / Accounting / General Classification: LCC HF5636 H69 2016 | DDC 657/.046—dc23 LC record available at https://lccn.loc.gov/2016040833 The Internet addresses listed in the text were accurate at the time of publication The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites mheducation.com/highered To our families The real purpose of books is to trap the mind into doing its own thinking —Christopher Morley About the Authors Joe B Hoyle, University of Richmond Joe B Hoyle is associate professor of accounting at the Robins School of Business at the University of Richmond, where he teaches intermediate accounting, financial accounting, and advanced accounting In 2015, he was the first recipient of the J Michael and Mary Anne Cook Prize for undergraduate teaching The Cook Prize is awarded by the American Accounting Association and “is the foremost recognition of an individual who consistently demonstrates the attributes of a superior teacher in the discipline of accounting.” Professor Hoyle has also been named (in 2007) as the Virginia Professor of the Year by the Carnegie Foundation for the Advancement of Teaching and the Center for Advancement and Support of Education He has been selected as a Distinguished Educator five times at the University of Richmond and Professor of the Year on two occasions He has authored a book of essays titled Tips and Thoughts on Improving the Teaching Process in College, which is available at http://oncampus.richmond.edu/∼ jhoyle/ His blog, Teaching—Getting the Most from Your Students, at http://joehoyle-teaching.blogspot.com/ was named the Accounting Education Innovation of the Year for 2013 by the American Accounting Association Thomas F Schaefer, University of Notre Dame Thomas F Schaefer is the KPMG Professor of Accounting at the University of Notre Dame He has written a number of articles for scholarly journals such as The Accounting Review, Journal of Accounting Research, Journal of Accounting & Economics, Accounting Horizons, and others His primary teaching and research interests are in financial accounting and reporting Tom is a past president of the American Accounting Association’s Accounting Program Leadership Group He received the 2007 Joseph A Silvoso Faculty Merit Award from the Federation of Schools of Accountancy and the 2013 Notre Dame Master of Science in Accountancy Dincolo Outstanding Professor Award Timothy S Doupnik, College of Charleston Timothy S Doupnik is distinguished professor emeritus of accounting at the University of South Carolina He is a current member of the accounting faculty at the College of Charleston, where he teaches advanced and international accounting Tim has published extensively in the area of international accounting in journals such as The Accounting Review; Accounting, Organizations, and Society; Abacus; International Journal of Accounting; and Journal of International Business Studies Tim is a past president of the American Accounting Association’s International Accounting Section and a recipient of the section’s Outstanding International Accounting Educator Award v Advanced Accounting 13e Stays Current Overall—this edition of the text provides relevant and up-to-date accounting standards references to the Financial Accounting Standards Board (FASB) Accounting Standards Codification® (ASC) Chapter Changes for Advanced Accounting, 13th Edition: Chapter ∙ Updated the chapter to reflect Accounting Standards Update (ASU) No 2016-07 to ASC Topic 323, Investments—Equity Method and Joint Ventures, entitled “Simplifying the Transition to the Equity Method of Accounting.” The ASU is effective for fiscal years beginning after December 15, 2016 The ASU eliminates the requirement to retrospectively apply the equity method to previously held ownership interests in an investee when an increase in ownership results in significant influence and thus qualifies for use of the equity method. ∙ Updated coverage for Accounting Standards Update (ASU) No 2016-01, Financial Instruments—Overall, which requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, unless fair values are not readily determinable Thus, the previously available-forsale category with fair value changes recorded in other comprehensive income will no longer be available The ASU is effective for fiscal years beginning after December 15, 2017, with early adoption permitted ∙ Eliminate coverage of investee extraordinary items to align the text coverage with Accounting Standards Update No 2015-01 which eliminates the concept of extraordinary items ∙ Updated terminology in discussion of intra-entity gross profits to reflect the new revenue recognition standards (ASC 606) ∙ Updated real-world references ∙ Added and revised several end-of-chapter problems vi Chapter ∙ Added new descriptive coverage of three recent realworld business combinations—Facebook and WhatsApp, AT&T and DirecTV, and MeadwestVaco and Rock-Tenn ∙ Revised chapter learning objectives to focus on combinations when the acquired firm is dissolved vs continued existence The chapter also newly recognizes a learning objective on the related costs that typically accompany business combinations ∙ Added an updated appendix on pushdown accounting based on Accounting Standards Update (ASU) No.2014-17, Business Combinations: Pushdown Accounting The ASU allows companies an option to apply pushdown accounting for newly acquired subsidiaries ∙ Updated real-world references ∙ In addition to several new and revised end-of-chapter problems, replaced/added new research cases that provide students with real-world applications of financial reporting for business combinations Chapter ∙ Added coverage of post-acquisition procedures for excess fair value attributable to subsidiary long-term debt Moved coverage of pushdown accounting to Chapter ∙ Added a Discussion Question that addresses worksheet adjustments to the parent’s beginning-of-theyear retained earnings ∙ Updated real-world references ∙ Added an appendix covering Accounting Standards Update (ASU 2014-02) to Topic 350, “Intangibles—Goodwill and Other, on Accounting for Goodwill The ASU provides an external reporting option (i.e., amortization) for private company goodwill accounting The appendix also covers ASU 2014-18, Accounting for Identifiable Intangible Assets in a Business Combination, an amendment of Business Combinations (Topic 805) The new standards allow private companies an option to simplify their accounting by recognizing fewer intangible assets in future business combinations ∙ Added new equity method end-of-chapter problems requiring the preparation of consolidated financial statements subsequent to acquisition In addition, as the Accounting Profession Changes changed the facts and requirements in several endof-chapter problems ∙ Added a new research and analysis case on Microsoft’s 2015 goodwill impairment loss Chapter ∙ Updated real-world references ∙ Added two new equity method end-of-chapter problems ∙ Added new end-of-chapter cases using the financial reports of Starbucks (step-acquisition example) and Costco (various noncontrolling interest figures and interpretations) ∙ Revised the end-of-chapter comprehensive FASB ASC and IFRS research case The new case, entitled Bardeen Electric, continues to focus on valuation issues accompanying a business combination including alternative goodwill measurement under IFRS In addition, several other end-of-chapter problems have been revised Chapter ∙ Updated terminology in discussion of intra-entity gross profits to reflect the new revenue recognition standards (ASC 606) ∙ Revised and expanded coverage of the deferral and subsequent recognition of intra-entity gains on longterm assets transfers across affiliates The revised exposition emphasizes the nature of reallocating intra-entity gains across time increasing consistency with the chapter’s coverage of intra-entity gross profits in inventory ∙ Updated real-world references ∙ Changed the facts and requirements in several endof-chapter problems Chapter ∙ Updated real-world references ∙ Expanded coverage of post-control period reporting for primary beneficiaries and variable interest entities including an example of consolidated statement preparation ∙ Added and revised several end-of-chapter problems Chapter ∙ Updated real-world references ∙ Added coverage of the FASB 2015 Proposed Accounting Standards Update on Income Taxes (Topic 740), entitled Intra-Entity Asset Transfers The proposed accounting would converge the IFRS and U.S GAAP treatment ∙ Updated terminology in discussion of intra-entity gross profits to reflect the new revenue recognition standards (ASC 606) ∙ Changed the facts and requirements in several endof-chapter problems Chapter ∙ Deleted the section within Interim Reporting related to extraordinary items ∙ Added a real-world example of a company with seasonal items. ∙ Added the name of the relevant international standard to the title of sections on IFRS. ∙ Removed reference to IFRS from the learning objectives ∙ Updated references to actual company practices and excerpts from annual reports ∙ Changed the facts in several end-of-chapter problems Chapter ∙ Reduced the size of Exhibit 9.1 containing exchange rates for selected countries ∙ Rewrote the section now titled Forward Contracts that was previously titled Spot and Forward Rates ∙ Moved the section on foreign currency borrowing from the end of the chapter to immediately follow the section on foreign currency transactions ∙ Moved the portion of the IFRS section at the end of the chapter that deals with foreign currency transactions to immediately follow the section on foreign currency borrowing. ∙ Expanded the learning objective related to how forward contracts and foreign currency options can be used to hedge foreign exchange risk to include understanding what types of foreign exchange risk can be hedged. ∙ Added new learning objectives on the accounting guidelines for derivatives and the basics of hedge accounting. ∙ Updated real-world references including examples of company practices, excerpts from annual reports, and foreign exchange rates vii ∙ Added language to more clearly explain the impact that the accounting for a derivative financial instrument used to hedge a foreign exchange risk has on financial statements within the examples demonstrating the accounting for various types of foreign currency hedges ∙ Updated the section at the end of the chapter that summarizes the accounting for derivative financial instruments under IFRS. ∙ Changed the facts in several end-of-chapter problems ∙ Updated the develop your skills assignments based on actual exchange rates ∙ Deleted the section “A Principles-Based Approach to Standard Setting.” ∙ Revised the Comprehensive Illustration to show the process for determining conversion worksheet entries necessary to convert from IFRS to U.S GAAP for nine differences between the two sets of standards. ∙ Added several new questions related to material added to the chapter ∙ Added several new problems focusing on the conversion of IFRS to U.S GAAP ∙ Deleted the end-of-chapter case related to “Voluntary Adoption of IFRS” and added a new case related to “IFRS Website.” Chapter 10 Chapter 12 ∙ Updated references to actual company practice and related excerpts from annual reports ∙ In the section on Exchange Rates Used in Translation, added instruction to first read the related Discussion Question before continuing ∙ Removed reference to the theoretical possibility of translating income statement items at the current exchange rate ∙ Removed reference to a research study published in 1988 that investigated the weighting of functional currency indicators ∙ Moved the section on IFRS from the end of the chapter to immediately after the section describing U.S authoritative literature ∙ Changed facts in several end-of-chapter problems Chapter 11 ∙ Updated real-world references ∙ Removed the discussion of culture as a reason for accounting diversity and the section “A General Model of the Reasons for International Differences in Financial Reporting.” ∙ Expanded discussion of results from the FASBIASB convergence process to include a new exhibit summarizing successful convergence projects ∙ Added a section on “IFRS for SMEs.” ∙ Added a section on the “Relevance of IFRS for U.S Accountants.” ∙ Removed the section “U.S GAAP Reconciliations.” ∙ Added a major new section focusing on the “Conversion of IFRS Financial Statements to U.S GAAP.” viii ∙ Updated SEC data and Registration Statement exemptions ∙ Updated SEC division information ∙ Updated web link references as necessary ∙ Revised end-of-chapter material Chapter 13 ∙ Added discussion of reporting issues that companies face as the possibility of bankruptcy grows, such as the need to test goodwill and other assets for impairment and the possibility that a valuation allowance is required to offset any deferred income tax assets ∙ Presented coverage of new FASB pronouncement: Accounting Standards Update 2014-15 (“Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”) which provides accounting and reporting guidance if the possibility arises that substantial doubt exists as to whether a company will be able to remain a going concern ∙ Included additional discussion about the liquidation basis of accounting, including examples of the necessary financial statements ∙ Revised references to include companies that have recently experienced bankruptcy and liquidation such as RadioShack Chapter 14 ∙ Revised tables showing the allocation of partnership income/loss across partners to provide additional emphasis on the step-by-step nature of the income distribution across partners ∙ Changed the facts and requirements in several endof-chapter problems Chapter 15 ∙ Split an existing end-of-chapter problem with two unrelated parts into two separate problems ∙ Added a new end-of-chapter problem related to learning objectives LO 15-2 and LO 15-5 ∙ Changed the facts and requirements in several endof-chapter problems Chapter 16 ∙ Updated numerous references to the financial statements of a wide variety of state and local governments such as the City of Baltimore, the City of Houston, the City of Charlotte, and the City of Dallas Chapter 17 ∙ Provided coverage of new pronouncement: GASB Statement No 76, “The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments.” ∙ Provided coverage of new pronouncement: GASB Statement No. 77, “Tax Abatement Disclosures.” ∙ Updated references to the financial statements of state and local governments such as the City of Los Angeles, the City of Chicago, the City of Orlando, and the City of Boston Chapter 18 ∙ Discussed the potential implications of FASB’s current projects on the presentation and disclosure of financial statements by not-for-profit entities ∙ Updated numerous references to the financial statements of a wide variety of private not-for-profit entities such as ChildFund International, Girl Scouts of the United States of America, American Heart Association, and Georgetown University Chapter 19 ∙ Updated tax code references, numbers, and statistics ∙ Included coverage of the American Taxpayer Relief Act of 2012 ∙ Revised web links in footnote references as appropriate ∙ Revised end-of-chapter material reflecting changes from the chapter ix www.downloadslide.net 940 Index Incorporation by reference, 601 Independent float, as currency arrangement, 408 Inflation, 484–485, 539 Infrastructure assets and depreciation, 802–803 Inheritance taxes, 900–904 Initial value method for investment recording current year acquisition, 103–107 for deferred intra-entity profits, 227–232 equity method converted from, 174 in intra-entity debt transactions, 278–279 overview, 91–92 subsequent to year of acquisition, 107–113 Insider trading, 592 Insider Trading Sanctions Act of 1984, 593 Insider Trading and Securities Fraud Enforcement Act of 1988, 593 Installment partnership liquidation, 713–718 Insull, Samuel, 589 Intangible assets acquisition-date fair-value allocations of, 60–61 in AT&T acquisition of DirectTV, 42–43 in consolidations, 60–61 in Facebook acquisition of WhatsApp, 42 goodwill, 11–12 impairment of, in consolidations subsequent to acquisition date, 121 private company accounting for, 127–128 Integral accounting periods, 380 Integrated disclosure system, of SEC, 594 Interest rates, financial reporting effects on, 21 Interfund transactions, in state and local government accounting, 766–769 Interim reporting See Segment and interim reporting Internal Revenue Service (IRS), 337–338 See also Income taxes Internal service funds, of governments, 744 International accounting standards (IASs), 5, 541–542 See also Accounting diversity International Accounting Standards Board (IASB) Financial Accounting Standards Board (FASB) convergence with, 550–552 International Accounting Standards Committee (IASC) as precursor to, 533, 540–541 International Financial Reporting Standards (IFRS) and, 541–545 International Financial Reporting Standards (IFRS) See also Accounting diversity adoption of, 546–549 on business combinations (#3R), 184–185 on deferred taxes, 344 on equity method (#28), on financial instruments (#9), 448 for financial statements with outside ownership, 184–185 on foreign currency rate changes, 486–487 on foreign exchange rates (#21), 415 generally accepted accounting principles (GAAP) vs., 554–563 classification, presentation, and disclosure differences, 557–558 conversion from IFRS to GAAP, 558–563 measurement differences, 556–557 recognition differences, 554–556 on goodwill recognition, 120 International Accounting Standards Board (IASB) and, 533, 541–545 language translations of, 564 on leases (16), 550 on operating segments (8), 379 ownership patterns and income taxes on financial statements, 344 on presentation of financial statements (1), 557–558 on revenue recognition (15), 550 Security and Exchange Commission (SEC) recognition of, 552–554 on segment and interim reporting (34), 386 on variable interest entities and intra-entity debt, 271–272 International Flavors and Fragrances (IFF), Inc., 470, 473 International Organization of Securities Commissions (IOSCO), 541 Inter vivos trust, 911 Intestate (dying without will), 896 Intra-entity assets See Inventory Intra-entity asset transactions See Financial statements, intra-entity asset transactions in www.downloadslide.net Index 941 Intra-entity debt See Variable interest entities and intra-entity debt Intra-entity dividends, 334–335 Intra-entity sales, 18–19 See also Inventory Inventory book values affected by costing methods for, 10 in interim reports, 380–381 intra-entity, 19–21 in intra-entity asset transactions alternative investment method effects, 227–232 equity methods to illustrate, 219–227 gross profit effect on noncontrolling interest, 217–218 gross profit in year following transfer, 215–217 gross profit in year of transfer, 213–215 sales and purchase accounts, 212–213 summary of, 218–219 intra-entity gross profit deferral, 18–21 Investment accounting by acquiring company, 90–92 Investment Advisors Act of 1940, 593 Investment Company Act of 1940, 593 Investments See also Equity method of accounting alternative methods in, 174–175 costs reduced to zero, 17 excess of cost over book value, 9–12 Investment trust funds, of governments, 744 Involuntary bankruptcy, 619 Irrevocable life insurance trust, 913 IRS Form 990, Return of Organization Exempt from Income Tax, 868 IRS Form 1023, Application for Recognition of Exemption under Section 501(c)(3) of Internal Revenue Code, 867 J James Madison University, 825–830 Jobs Creation Act of 2010, 903 Johns Manville, Inc., 641 Johnson Controls, Inc., 447 Joint ventures, in Accounting Standards Codification (ASC) Topic 323, “Investments-Equity Method and Joint Ventures” (FASB), 4 Journal of Accountancy, 757 Jumpstart Our Business Startups (JOBS) Act, 604 K Kellogg Co., 473 Kliener Perkins Caufield & Byers, 42 Kmart Holdings, 638–639 L Land transfers, in intra-entity asset transactions, 232–234 Laux, Bob, 158 Laventhol Partners, 733 Laws of descent, 896 Laws of distribution, 896 Lay, Kenneth, 595 Lee, Aileen, 42 Legacies, 898 Legacy methods of business combination accounting, 67–71 Lehman Brothers Holdings, Inc., 616, 621 Liabilities assumed in business combinations, 48–49, 51–53 hedges of foreign currency denominated, 423 in pushdown accounting, 73 unlimited, in partnerships, 665 LIFO liquidations of inventory, 380–381, 383 Limited liability companies (LLCs), 666 Limited liability partnerships (LLPs), 666 Limited partnerships (LPs), 666 Liquidations See Reorganizations and liquidations Little, Patricia A., 158 LJM2 special purpose entity (SPEs), 214 Loans, foreign currency, 416–417 www.downloadslide.net 942 Index Local government, accounting for See State and local government, accounting for Lockheed Martin Corporation, 407 Long-term debt, excess fair value attributable to subsidiary, 113–115 Los Angeles Times, 634 Lower-of-cost-or-net realizable value, for inventory, 380–381, 481 Lowe’s Companies, Inc., 375 M MADD (Mothers Against Drunk Driving), 850 Maker Studios, Inc., 48 Managerial compensation, 21 Market approach to valuation, 48 Marketing-related intangible assets, 61 Market trades, noncontrolling interest fair value from, 159 Marmon Holdings, Inc., 182 Mautz, R K., 757 McDonalds, Inc., 375 MeadWestvaco, 41, 43 Medicare and Medicaid, 874–875 Merck & Co., Inc., 401, 473 Mergers and acquisitions See also Consolidation of financial information in private not-for-profit entities, 868–870 in state and local government accounting, 808–809 Mergers & Acquisitions (journal), 212 MF Global Holdings, Ltd, 616 MGM Grand, Inc., 67 Michigan State University, 825 Microsoft Corporation, 149, 158 Midyear acquisitions, 175–177 Minor’s Section 2503(c) trust, 913 Mirage Resorts, Inc., 67 Monster Beverage Corporation, Mothers Against Drunk Driving (MADD), 850 Multipro (Nigeria), 473 Museum of Modern Art, The, 867 Mutual agency concept, 665 Mutual ownership, 330–333 N NASCAR Hall of Fame, 742 National Conference of Commissioners on Uniform State Laws, 896 Navistar International Corporation, 17 NBC Universal, 44, 182 NCI See Noncontrolling interest (NCI) presence Negative carrying amounts of goodwill, 119–120 Net income, 90, 161 Net operating losses (NOLs), 342–343 New York Stock Exchange (NYSE), 23, 540, 592 Nike, Inc., 375 Noncontrolling interest (NCI) presence, 155–161 accrual-based income with, 327–328 consolidated net income distribution, 161 definition of, 155–156 depreciable asset transfer effect on, 239 inventory in intra-entity asset transactions and, 217–218 subsidiary acquisition-date fair value, 157–161 for variable interest entities (VIEs), 271 Nonexchange transactions, governmentmandated and voluntary, 759, 761–762 Norwalk Agreement of 2002 between FASB and IASB, 550 Not-for-profit entities See Private not-for-profit entities Nuvelo, Inc., 62 O Obama, Barack, 593, 900 OCI (other comprehensive income) and irregular items, 16–17 Off-balance sheet structures, 261 Offtermatt, Tim, 796 Ohio State University, The, 824 Omnicom Group, Inc., 473 Omni Fort Worth (TX), 795 Onassis, Jacqueline Kennedy, 912 Options www.downloadslide.net Index 943 as cash flow hedge of forecasted transaction, 445–446 as fair value hedge of firm commitment, 440–443 foreign currency, 410–411, 432–437 Oracle, Inc., 41 Oral-B Laboratories, 320 Order for relief, in bankruptcies, 620 Oregon University System, 824 Other comprehensive income (OCI) and irregular items, 16–17 Outside ownership See Financial statements, outside ownership and Over-the-counter (OTC) market, 410 Ownership patterns and income taxes See Financial statements, ownership patterns and income taxes on P Parent companies investment accounting choice of, 90 retained earnings converted to full-accrual basis, 106, 111 sale of stock in subsidiaries by, 182–184 Partial equity method for investment recording current year acquisition, 103–107 in intra-entity debt transactions, 278–279 in noncontrolling interest presence, 175 overview, 91–92 subsequent to year of acquisition, 107–113 Partial ownership consolidations with control premiums, 170–174 without control premiums, 162–170 Partnership formation and operation, 663–700 advantages and disadvantages of, 664–665 alternatives to, 665–666 capital accounts for accounting for capital contributions, 668–671 additional capital contributions and withdrawals, 671–672 articles of partnership, 667–668 income allocation, 672–675 overview, 666–667 dissolution of new partner admission, 676–681 overview, 676 partner withdrawal, 681–684 Partnership termination and liquidation, 701–734 deficit capital balance—contribution by partner, 705–706 deficit capital balance—loss to remaining partners, 706–712 installment, 713–718 overview, 702 procedures illustrated, 702–704 statement of liquidation, 701, 705 Passage of time effects in consolidations, 90 Payables, 103 PCAOB (Public Company Accounting Oversight Board), 593, 596–597 PCC (Private Company Council), of FASB, 127–128 Pegged to other currency, as currency arrangement, 408 Pension plans, state and local government accounting for, 798–800 Pension trust funds, of governments, 744–745 PepsiCo, Inc., 3, 39, 211–212, 375, 805 Pepsi-Quaker Oats, 69n Percentage allocation method, 336 Permanent funds, of governments, 743 Pfizer Corporation, 158, 317, 401 Pfizer-Warner Lambert, 69n Philadelphia Stock Exchange, 410 Politics, accounting diversity impact on, 539 Pooling of interests method, of business combination accounting, 67 Preexisting goodwill, 61 Preferred stock of subsidiaries, 279–281 Prepaid items, state and local government accounting for, 757–758 PricewaterhouseCoopers, 158, 663 Primary beneficiary, of VIE, 262, 264–268 Primary government and component units, 804–808 Princeton University, 824, 863 Private company accounting for business combinations, 127–128 www.downloadslide.net 944 Index Private Company Council (PCC), of FASB, 127–128 Private not-for-profit entities, 849–894 contributions, accounting for of artworks and historical treasures, 862–863 exchange transactions, 866–867 holding contributions for others, 863–865 mergers and acquisitions, 868–870 overview, 860–862 services as, 865–866 tax-exempt status, 867–868 financial reporting for financial statements, 851–852 overview, 850–851 statement of activities, 854–858 statement of financial position, 853–854 statement of functional expenses, 858–860 in health care, 872–876 transactions of, 870–872 Private-purpose trust funds, of governments, 744 Procter & Gamble, Inc., 320, 793 Profit or loss test for operating segments (FASB), 367–368 Property, plant, and equipment, depreciation, in foreign currency financial statements, 481 Proprietary funds, 741, 817–823 Proxy statement requirements, of SEC, 594, 606 Public accounting firms, SEC registration of, 597 Public college and university reporting, 824–830 Public Company Accounting Oversight Board (PCAOB), 593, 596–597 Public Utility Holding Company Act of 1935, 593 Purchase method, of business combination accounting, 67–70 Purchases method of cost recognition, 758 Pushdown accounting, 72–74 Put options, 410 Q Qorvo, Inc., 116 Quaker Foods North America, 375 Qualified personal resident trust (QPRT), 913 Qualified terminable interest property (QTIP) trust, 912 Qualitative assessment option of goodwill impairment, 116–118 R RadioShack, Inc., 621 Readily determinable fair values, Regulation S-K, of SEC, 594, 602–603 Regulation S-X, of SEC, 594, 598–599, 602 Reorganizations and liquidations, 615–662 bankruptcy laws, 616–626 Bankruptcy Reform Act of 1978, 618–625 overview, 616–618 statement of financial affairs, 625–626 Chapter 11 bankruptcy emerging from reorganization, 638–639 fresh start accounting, 639–642 reorganization financial reporting, 636–637 reorganization plan acceptance and confirmation, 635 reorganization plan overview, 633–635 Chapter liquidation, 626–633 liquidation basis of accounting, 631–633 overview, 626–628 statement of realization and liquidation, 629–631 trustee role, 628–629 LIFO liquidations of inventory, 380–381 Reportable operating segments See Segment and interim reporting Reporting currency, FASB concept of, 483–484 Reputation, financial reporting impact on, 21 Research and development (R&D) expenditures, 557 Research and development in-process, in consolidations, 62–63, 69 Residual legacies, 898 Retained earnings acquisition-date subsidiary, 73 indirect subsidiary control and, 326–327 of parent company converted to full-accrual basis, 106, 111 in translation of financial statements, 479–480 www.downloadslide.net Index 945 Revaluation model for asset measurement, 557, 570 Revaluation surplus, 570 Revenue and expense reporting for midyear acquisitions, 175–177 Revenues, in interim reports, 380 Revenue test for operating segments (FASB), 365–367 Reverse conformity principle (Germany), 538–539 Revised Uniform Principal and Income Act, 905 Revocable living trust, 911 Rigas, John J., 595 Risk, diversification of, 41 Rock-Tenn, Inc., 41, 43 S SABs (Staff Accounting Bulletins), of SEC, 599 Sales and purchase accounts, 212–213 Sales of equity investments, 17–18 Salvage values, 12n Salvation Army, 850, 861 Sarbanes-Oxley Act of 2002, 592–593, 595–598 Sazaby League of Japan, 208 Scale, competition and, 40–41 Schwengel, Kenny, 808 Seasonal items, 384–385 Securities, registration and issue costs of, 55 Securities Act of 1933, 591, 593 Securities and Exchange Commission (SEC), 589–614 EDGAR system of, 606–608 federal securities laws, 591–593 filings with, 601–606 foreign registrants’ financial statement filing with, 536, 540 full and fair disclosure assurance, 593–595 GAAP and, 598–601 IFRS recognition by, 552–554 in International Organization of Securities Commissions, 541 overview, 589–591 public entity definition, 127 on reporting quarterly financial data, 385 Sarbanes-Oxley Act of 2002, 595–598 Securities Exchange Act of 1934, 589, 591, 593, 601 Securities Investor Protection Act of 1970, 593 Segment and interim reporting, 363–406 on changes in accounting principle, 383–384 entitywide information, 375–379 examples of, 373–375 guidelines for, 368–370 on income taxes, 382–383 information disclosed in, 370–373 International Financial Reporting Standard on, 379 International Financial Reporting Standard 34 on, 386 on inventory and cost of goods sold, 380–381 management approach, 364 minimum disclosures in, 385 on other costs and expenses, 381–382 reportable operating segments, 364–366 on revenues, 380 on seasonal items, 384–385 testing procedures, 366–368 Separate incorporation in acquisitions, 55–60 consolidation requirements with, 45–46 Separate return method, 336–337 Services as contributions to private not-forprofit entities, 865–866 Shares in step acquisitions, accounting for, 184 Shelf registration, with SEC, 603 SIC (standard industrial classification) codes, 608 Significant influence, ownership level to exercise, Single economic entity creation See Business combinations Sirius XM Holdings Corporation, 17 Six Flags Entertainment Corporation, 638 Small and medium-sized entities (SMEs), 545 Smurfit-Stone, Inc., 43 Solid waste landfill, state and local government accounting for, 796–798 Sollers (Russia), Southeast Land Services, Inc., 619 Southwest Airlines Co., 385 www.downloadslide.net 946 Index Special assessments, in state and local government accounting, 765–766 Special purpose entities (SPEs), 3, 214, 261 Special purpose governments, 807–808 Special purpose vehicles, 261 Special revenue funds, of governments, 742 Specific legacies, 898 Spendthrift trust, 913 Spot rate, on foreign currency, 409, 437 Staff Accounting Bulletins (SABs), of SEC, 599 Standard costing, for inventory, 380–381 Standard industrial classification (SIC) codes, 608 Starbucks Coffee Japan, Ltd., 208 Starbucks Corporation, 208–209 State and local government, accounting for, 735–848 acquisitions, mergers, and transfers of operations, 808–809 art and historical treasures example, 800–802 budgets and recording budgetary entries, 751–753 comprehensive annual financial report of, 803–804 defined benefit pension plan example, 798–800 encumbrances, 754–755 expenditure and revenue recognition bond issues, 762–765 derived tax revenues, 759–760 for expenses and capital asset by government fund activity, 756–757 government-mandated and voluntary nonexchange transactions, 761–762 imposed nonexchange revenues, 760–761 interfund transactions, 766–769 overview, 755, 759 special assessments, 765–766 for supplies and prepaid items, 757–758 fund accounting, 740–745 fund financial statements, 815–823 balance sheet, 815–816 overview, 747–751 statement of cash flows of proprietary funds, 821–823 statement of net position of proprietary funds, 817–821 statement of revenues, expenditures, and other changes, 817, 821 GAAP for, 793–796 government-wide financial statements, 745–747, 809–815 infrastructure assets and depreciation example, 802–803 overview, 735–737 primary government and component units, 804–808 public college and university reporting, 824–830 solid waste landfill example, 796–798 two sets of financial statements, 737–740 user needs, 737 State estate tax, 903 Statement of activities for private not-for-profit entities, 852, 854–858 Statement of financial affairs, in liquidations, 625–626 Statement of financial position for private notfor-profit entities, 852–854 Statement of functional expenses for private notfor-profit entities, 852, 858–860 Statement of liquidation, of partnerships, 705 Statement of partners’ capital, 673 Statement of realization and liquidation, 629–631 Step acquisitions, 177–184 accounting for remaining shares, 184 acquisition method for, 177–179 after control obtained, 181–182 cost-flow assumptions, 184 parent company sale of subsidiary stock in, 182–184 worksheet consolidation for, 179–180 Stifel Financial Corp., 796 St Jude Children’s Research Hospital, Inc., 874 Stocks GAAP undervaluation of acquisitions of, 182 of subsidiaries illustrations of, 292–296 overview, 288–289 preferred, 279–281 value changes in, 289–292 Straight-line methods, 12n, 428 Strike price, for exchange rates, 410, 437 Subchapter S Corporation, 665 www.downloadslide.net Index 947 Subsidiaries See also Financial statements, ownership patterns and income taxes on acquisition-date fair value for, 157–161 acquisition-date retained earnings of, 73 bargain purchases of separately incorporated, 60 consolidating postacquisition revenue and expenses of, 175–176 consolidation of foreign, 500–504 definition, 39 example of, 43 excess fair value attributable to long-term debt of, 113–115 parent company sale of stock in, 182–184 preferred stock of, 279–281 stock transactions of, 288–296 illustrations of, 292–296 overview, 288–289 value changes in, 289–292 Sun Microsystems, 41 Supplies and prepaid items, state and local government accounting for, 757–758 Synergies, 41, 43 T Target Corporation, 379 Task Force for Global Health, 850 Tax abatements, 795 Tax anticipation notes, 764 Taxes See also Financial statements, ownership patterns and income taxes on accounting diversity impact on, 538–539 derived revenues from, in state and local government accounting, 759–760 inheritance, 900–904 for partnerships, 664 Tax-exempt status of private not-for-profit entities, 867–868 Technology-based intangible assets, 61 Temporal rate translation method, 478–482 Testamentary trust, 911 Thermo Fischer Scientific, Inc., 447 Thomson Reuters, 40 Ticketmaster Entertainment Corporation, 177 TimeWarner, 42 Tolaram Group (Singapore), 473 Toyota (Japan), 540 Toys ’R’ Us, Inc., 379 Transfers of operations in state and local government accounting, 808–809 Translation of foreign currency in financial statements See Financial statements, foreign currency and Treasury stock approach to mutual ownership, 330–333 Tribune Company, 634, 637 Trivago, Inc., 158–159 Trustee role, in reorganizations and liquidations, 628–629 Trust Indenture Act of 1939, 593 Trusts See Estates and trusts Tyco, Inc., 593 U Unemployment Insurance Reauthorization Act of 2010, 903 Uniform Partnership Act (UPA), 665–666, 702, 706, 713–714 Uniform Probate Code, 896, 898 United Cerebral Palsy, 893 United Way, 849–850, 852, 863, 868 University of Georgia, 824 University of Kansas, 824 University of Notre Dame, 854, 894, 898 University of Tennessee, 825 University of Virginia Medical Center, 873–874 University reporting, public, 824–830 Unrecognized foreign currency firm commitments, 438–443 UPA (Uniform Partnership Act), 665–666 Upstream inventory transfers, 223–227 Upstream sales, 19–21 V Value, maximizing firm, 40 Vanderbilt University, 875, 894 www.downloadslide.net 948 Index Variable interest entities (VIEs) and intra-entity debt, 261–318 accounting for, 273–275 affiliate debt acquisition from outside party, 273 cash flows consolidated statement, 281–286 consolidated earnings per share, 286–288 consolidation affected by, 275–276 consolidation of, 261–271 illustration of, 268–271 overview, 263–267 procedures to, 267–268 VIE definition, 262–263 description of, 44–45 international accounting standards vs., 271–272 overview, 6, 272–273 retirement gain or loss assignment, 276 subsidiary preferred stock, 279–281 subsidiary stock transactions, 288–296 illustrations of, 292–296 overview, 288–289 value changes in, 289–292 years subsequent to effective retirement, 276–279 Vertical integration, in mergers and acquisitions, 41 VIEs See Variable interest entities (VIEs) and intra-entity debt Voting shares, control from, 45–46 W Wall Street Journal, 408, 410, 733 Wall Street Reform and Consumer Protection Act of 2010, 593 Wal-Mart Stores, Inc., 155, 181, 375, 379, 402, 900 Walt Disney Company, 6, 48, 265, 317, 363 Walton, Helen, 900 Walton, Sam, 900 Washington Mutual, Inc., 616 Westamerica Bank, 53 WestRock, Inc., 43, 52 Westwind Co., 23–24 WhatsApp, 41–42 Wills See Estates and trusts Wishgard, LLC, 619 WorldCom, Inc., 593, 595, 616 X Xerox Corporation, 926 Y Yahoo!-Broadcast.com, 69n Yale University, 854 YMCA of the USA, 849, 869 Z Zero, investments reduced to, 17 Zero or negative carrying amounts of goodwill, 119–120 Zuckerberg, Mark, 42 www.downloadslide.net www.downloadslide.net www.downloadslide.net www.downloadslide.net www.downloadslide.net www.downloadslide.net ... as accounting majors and as future CPAs by using Advanced Accounting, 13e Thinking Critically With this text, students gain a well-balanced appreciation of the accounting profession As Hoyle 13e. .. Connect Accounting for Advanced Accounting, 13e The 13th Edition of Advanced Accounting has a full Connect package, with the following features available for instructors and students ∙ (New for 13e! )... the American Accounting Association’s International Accounting Section and a recipient of the section’s Outstanding International Accounting Educator Award v Advanced Accounting 13e Stays Current