Final PDF to printer Advanced Accounting Fourteenth Edition Joe B Hoyle Associate Professor of Accounting Robins Teaching Fellow 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 Distinguished Professor Emeritus of Accounting Darla Moore School of Business University of South Carolina hoy47821_fm_i-xxii i 10/15/19 08:11 PM www.ebookslides.com Final PDF to printer ADVANCED ACCOUNTING, FOURTEENTH EDITION Published by McGraw-Hill Education, Penn Plaza, New York, NY 10121 Copyright © 2021 by McGraw-Hill Education All rights reserved Printed in the United States of America Previous edition © 2017, 2015, and 2013 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 24 23 22 21 20 ISBN 978-1-260-24782-4 (bound edition) MHID 1-260-24782-1 (bound edition) ISBN 978-1-260-72644-2 (loose-leaf edition) MHID 1-260-72644-4 (loose-leaf edition) Managing Director: Tim Vertovec Director: Rebecca Olson Product Development Manager: Michele Janicek Product Developers: Danielle McLimore and Christina Sanders Director of Digital Content: Kevin Moran Marketing Manager: Zach Rudin Program Manager: Marianne Musni Content Project Managers: Erika Jordan, Brian Nacik, and Karen Jozefowicz Buyer: Susan K Culbertson Design: Egzon Shaqiri Content Licensing Specialist: Gina Oberbroeckling Cover Image: Tokarchuk Andrii/Shutterstock Compositor: SPi Global 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, Distinguished Professor Emeritus of Accounting, Darla Moore School of Business, University of South Carolina Description: Fourteenth Edition | New York : McGraw-Hill Education, 2020 | Revised edition of the authors’ Advanced accounting, 2016 Identifiers: LCCN 2019036373 | ISBN 9781260247824 (hardcover) | ISBN 9781260726435 (ebook) Subjects: LCSH: Accounting Classification: LCC HF5636 H69 2020 | DDC 657/.046—dc23 LC record available at https://lccn.loc.gov/2019036373 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 hoy47821_fm_i-xxii ii 10/15/19 08:11 PM www.ebookslides.com Final PDF to printer To our families hoy47821_fm_i-xxii iii 10/15/19 08:11 PM Final PDF to printer www.ebookslides.com The real purpose of books is to trap the mind into doing its own thinking —Christopher Morley hoy47821_fm_i-xxii iv 10/15/19 08:11 PM www.ebookslides.com Final PDF to printer 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 He is also a Robins Teaching Fellow 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.” In 2019, former students raised money to create an Accounting Teaching Fellowship, which will be renamed the “Joe Hoyle Accounting Teaching Fellowship” on his eventual retirement.” He has authored a book of essays titled Tips and Thoughts on Improving the Teaching Process in College, which is available at https://facultystaff.richmond edu/~jhoyle/documents/book-teaching-x.doc.pdf 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, University of South Carolina Timothy S Doupnik is distinguished professor emeritus of accounting at the University of South Carolina His primary teaching interests are in financial 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 (AAA) International Accounting Section and a recipient of the section’s Outstanding International Accounting Educator Award He is a coauthor of the paper that received the AAA’s Notable Contribution to the Auditing Literature Award in 2019 v hoy47821_fm_i-xxii v 10/17/19 11:37 AM www.ebookslides.com Final PDF to printer Advanced Accounting 14e 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, 14th Edition: Chapter ∙ Added a new section on business motivations for making equity method investments emphasizing economic benefits of significant influence ∙ Updated real-world references, with a new reference when an equity method investment is reduced to zero Chapter ∙ Three new business combinations are discussed in terms of motivations to combine Amazon– Whole Foods, Salesforce.com–MuleSoft, and Tesla– Grohmann ∙ Updated real-world references ∙ Added a Discussion Question addressing situations where an acquired entity is not a business ∙ Added new end-of-chapter problems and three new cases Chapter ∙ Updated material on goodwill impairment to reflect ASU updates for ASC Topic 350, Intangibles— Goodwill and Other ∙ Updated real-world references ∙ Revised and expanded section on accounting for contingent consideration in periods subsequent to acquisition ∙ Revised and added new end-of-chapter problems and cases Chapter ∙ Introduced a table showing recent noncontrolling interest reported values by business entities ∙ Updated real-world references ∙ Revised and added new end-of-chapter problems and cases ∙ Provided additional ASC citations on valuing noncontrolling interests and control premiums ∙ Revised the section covering control premiums to provide additional focus on goodwill implications Chapter ∙ Streamlined and clarified the coverage for intraentity gross profits in inventory and implications of the parent’s investment accounting methods ∙ Revised and added new end-of-chapter problems and cases Chapter ∙ Updated real-world references ∙ Revised and clarified the section on accounting for variable interest entities including additional ASC citations Revised the consolidation examples for variable interest entities (acquisition date and post acquisition) by incorporating a management fee paid by the variable interest entity to the primary beneficiary ∙ Revised several end-of-chapter problems ∙ Revised examples and end-of-chapter problems for changes in federal corporate income tax rates from the Tax Cut and Jobs Act enacted in December 2017 Chapter ∙ Revised and updated coverage of income taxes for business combinations for changes from the Tax Cut and Jobs Act ∙ Updated real-world references ∙ Revised/updated several end-of chapter problems and cases to align with new tax regulations Chapter ∙ Updated references to actual company practices and excerpts from annual reports vi hoy47821_fm_i-xxii vi 10/15/19 08:11 PM www.ebookslides.com Final PDF to printer as the Accounting Profession Changes ∙ Changed the real-world companies used to demonstrate disclosure of geographic information in “Entitywide Information” and the seasonal nature of operations in “Interim Reporting.” ∙ Added an annual report excerpt related to the determination and aggregation of reportable segments ∙ Added a paragraph on the recent SEC requirement to include a reconciliation of changes in stockholders’ equity in an interim report ∙ Decreased the scope of the requirements in the two research cases at the end of the chapter ∙ ∙ ∙ Chapter ∙ Updated the chapter to reflect Accounting Standards Update (ASU) No 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which amends ASC Topic 815, Derivatives and Hedging This ASU requires an entity to present the income effect of the hedging instrument in the same income statement line item in which the income effect of the hedged item is reported If an entity excludes certain portions of a hedging instrument’s change in fair value from the assessment of hedge effectiveness (a so-called excluded component), the ASU permits an entity to recognize the initial value of the excluded component in net income using (1) changes in the fair value of the excluded component or (2) a systematic and rational method (such as straight-line) over the life of the hedging instrument Further, the ASU requires the income effect of an excluded component to be recognized in the same income statement line item in which the income effect of the hedged item is reported ∙ Introduced the concept of forward points in describing foreign currency forward contracts ∙ Added a timeline in “Hedges of Foreign Exchange Risk” to illustrate how the various hedges differ in terms of timing ∙ Added a subsection to the discussion on “Hedge Effectiveness” to cover issues relating to the “Exclusion of Components from Hedge Effectiveness Assessment.” ∙ Changed the hedge examples to exclude the forward points on a forward contract and the time value of an option from the assessment of hedge effectiveness whenever possible In allocating the excluded components to net income, the examples consistently use ∙ ∙ ∙ ∙ a straight-line amortization approach for forward points on a forward contract and the change in fair value approach for the time value of an option Changed the name of the fictitious company in the hedge examples to Eximco and the example currency to British pounds to signal that examples have been changed Deleted reference to the effective interest method for allocating forward points to net income, as well as the comparison of the effective interest versus straight line methods of allocation Revised the hedges examples, for simplicity, to ignore discounting to present value in determining the fair value of forward contracts and firm commitments Changed the journal entries in the hedge examples so that all gains and losses related to foreign currency denominated assets and liabilities, firm commitments, forward contracts, and options are recognized in a single income statement line item titled “Foreign Exchange Gains and Losses.” Changed the journal entries in the hedge examples so that those entries that are ultimately reflected in accumulated other comprehensive income are first debited or credited to an “Other Comprehensive Income (OCI)” account rather than to “Accumulated Other Comprehensive Income (AOCI).” Revised the facts and instructions in most of the end-of-chapter problems dealing with hedges to be consistent with changes made in the chapter Also, changed company names in revised problems to signal that these problems have been changed Updated real-world references including examples of company practices, excerpts from annual reports, and foreign exchange rates Chapter 10 ∙ Updated information about countries currently meeting the definition of highly inflationary economy ∙ Changed the hypothetical exchange rates used in the Swissco example (“The Translation Process Illustrated”) to be more consistent with the current U.S dollar/Swiss franc exchange rate Changed the hypothetical exchange rates and U.S dollar amounts in Exhibits 10.4–10.9 accordingly ∙ Expanded the discussion related to hedging balance sheet exposure and added a numerical example demonstrating the accounting related to a hedge of a net investment vii hoy47821_fm_i-xxii vii 10/15/19 08:11 PM www.ebookslides.com ∙ Updated real-world references including examples of company practices and excerpts from annual reports ∙ Changed the foreign currency in several end-ofchapter problems to eliminate the use of nonexistent currency names ∙ Revised the facts in an end-of-chapter problem related to a hedge of a net investment ∙ Changed one of the companies included in the requirements for the second research case at the end of the chapter Chapter 11 ∙ Updated real-world references including excerpts from annual reports ∙ Introduced the nomenclature “IFRS Standards” now used by the IASB when referring to its standards ∙ Updated exhibits listing IFRS Standards and countries’ use of IFRS Standards ∙ Updated information on the use of full IFRS and IFRS for SMEs ∙ Updated CPA exam coverage of IFRS based upon the AICPA’s 2018 CPA exam blueprints ∙ Updated the discussion and exhibit related to differences between IFRS and U.S GAAP ∙ Deleted the section related to gain on sale and leaseback from the comprehensive illustration ∙ Added a question to the end-of-chapter material ∙ Deleted end-of-chapter problems related to gain on sale and leaseback ∙ Revised the end-of-chapter second analysis case to replace the requirement related to gain on sale and leaseback with convertible bonds ∙ Replaced the end-of-chapter research case related to “Reconciliation to U.S GAAP” with a case focusing on “Differences between IFRS and U.S GAAP.” Chapter 12 ∙ Added new section on SEC Content in the FASB’s Accounting Standards Codification® (ASC) ∙ Added new section on SEC and PCAOB Fees and Budgets ∙ Added discussion of Regulation FD (Fair Disclosure) and its effect on disclosures in Form 8-K Final PDF to printer ∙ Added discussion of expanded reporting requirements requiring greater use of real-time disclosures for material changes in their financial condition or operations between periodic 10-K and 10-Q filings on Form 8-K, which were enacted as rules to implement the Sarbanes–Oxley Act ∙ Updated SEC data on filing fees ∙ Updated web references as necessary Chapter 13 ∙ Revised references to include companies that have recently experienced bankruptcy such as Sears Holdings, Nine West, Claire’s, Bon-Ton, Brookstone, and Rockport Chapter 14 ∙ Revised and updated coverage of the tax implications of partnership for changes from the Tax Cut and Jobs Act ∙ Updated real-world references ∙ Updated several end-of-chapter problems Chapter 15 ∙ Added two learning objectives related to (1) preparing a statement of partnership liquidation and (2) calculating safe payments ∙ Made “Partnership Liquidation Procedures,” “Statement of Partnership Liquidation,” and “Deficit Capital Balances” major headings ∙ Moved the “Two Partners with Deficit Capital Balances” example to the “Deficit Capital Balances” section ∙ Renamed “Statement of Liquidation” as “Statement of Partnership Liquidation.” ∙ Reorganized “Safe Payments to Partners” as a major section with a new, related learning objective ∙ Deleted the subsection on “Insolvent Partnership.” ∙ Relabeled the section on “Installment Liquidations” as “Preliminary Distribution of Partnership Assets.” ∙ Made “Predistribution Plan” a major heading ∙ Deleted an end-of-chapter question related to the Uniform Partnership Act and revised a question related to safe payments viii hoy47821_fm_i-xxii viii 10/15/19 08:11 PM www.ebookslides.com ∙ Revised requirements in several end-of-chapter problems to require preparation either of a statement of partnership liquidation, proposed schedule of liquidation, or predistribution plan ∙ Replaced a multi-part problem with a problem requiring preparation of a proposed schedule of liquidation ∙ Deleted the Research Case ∙ Replaced the previous Analysis Case with a new case ∙ Replaced the previous Communication Case with two new cases Chapter 16 ∙ Updated numerous references to the financial statements of a wide variety of state and local governments such as the City of Portland, the City of Phoenix, the City of Greensboro, and the City of Las Vegas ∙ Discussed the ongoing evolution of U.S GAAP to highlight GASB’s release of two Preliminary Views documents, Financial Reporting Model Improvements and Recognition of Elements of Financial Statements that could eventually create significant changes in state and local government accounting Chapter 17 ∙ Provided coverage of new pronouncement: GASB Statement No 87, “Leases,” including comparison with FASB Accounting Standards Update No 201602, “Leases.” The two authoritative groups take significantly different approaches to the reporting of lease contracts ∙ Rearranged chapter coverage to increase emphasis on the reporting of defined benefit pension plans to highlight the risk of such large government obligations Final PDF to printer ∙ 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, the City of Cincinnati, and the City of Boston Chapter 18 ∙ Rewrote significant sections of the chapter as a result of Accounting Standards Update 2016-14, Presentation of Financial Statements for Not-for-Profit Entities, (released in August 2016) and Accounting Standards Update 2018-08, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made (released in June 2018) ∙ Described new reporting rules that require a notfor-profit (NFP) entity to classify its net asset total as either with donor restrictions or without donor restrictions ∙ Examined the difference between an exchange transaction and a contribution based on Accounting Standards Update 2014-09, Revenues from Contracts with Customers ∙ Identified conditional contributions and discussed the reporting of conditional contributions versus unconditional contributions ∙ Explained other new NFP reporting changes such as for the statement of cash flows as well as the disclosure of functional expenses and the entity’s expected method of handling liquidity issues Chapter 19 ∙ Updated tax code references, numbers, and statistics ∙ Included coverage of the Tax Cuts and Jobs Act of 2017 ∙ Revised web links in footnote references as appropriate ∙ Revised end-of-chapter material reflecting changes from the chapter ix hoy47821_fm_i-xxii ix 10/15/19 08:11 PM www.ebookslides.com Final PDF to printer Students Solve the Accounting Puzzle The approach used by Hoyle, Schaefer, and Doupnik allows students to think critically about accounting, just as they will in their careers and as they prepare for the CPA exam Read on to understand how students will succeed as accounting majors and as future CPAs by using Advanced Accounting, 14e Thinking Critically With this text, students gain a well-balanced appreciation of the accounting profession As Hoyle 14e introduces them to the field’s many aspects, it often focuses on past controversies and present resolutions The text shows the development of financial reporting as a product of intense and considered debate that continues today and will in the future Readability The writing style of the 13 previous editions has been highly praised Students easily comprehend chapter concepts because of theConfirming conversational tone used throughout Pages the book The authors have made every effort to ensure that the writing style remains engaging, lively, and consistent Consolidation of Financial Information 41 EXHIBIT 2.1 Recent Notable Business Combinations Acquirer AT&T Walt Disney CVS Health Cigna Walmart Amazon Conagra Celgene Diamondback Energy General Mills Microsoft Salesforce.com Verizon Pepsico Tyson Tesla Target Real-World Examples Deal Value $79.4B Students are better able to relate what $71.3B $69.0Bto what they will encounter in the they learn $52.0B business world after reading these frequent $16.0B $13.7B examples Quotations, articles, and illustra$10.9B $ 9.0B tions from Forbes, the Wall Street Journal, $ 8.4B Time, and Bloomberg BusinessWeek are $ 8.0B $ 7.5B incorporated throughout the text Data have $ 6.5B $ 4.7B from business, not-for-profit, and been pulled $ 3.2B Confirming Pages $ 2.2B financial statements as well as government $ 109M official pronouncements Time-Warner 21st Century Fox Aetna Express Scripts Flipkart Whole Foods Pinnacle Foods Juno Therapeutics Energen Blue Buffalo GitHub Mulesoft Yahoo SodaStream International Keystone Foods Grohmann Engineering raw material purchases, manufacturing, and delivery, substantial savings can result As an example, Oracle’s acquisition of Sun Microsystems creates synergies by enabling Oracle to integrate its software product lines with Sun’s hardware specifications The acquisition further allows Oracle to offer complete systems made of chips, computers, storage devices, and software with an aim toward increased efficiency and quality.2 Other cost savings resulting from elimination of redundant processes, such as data processing and marketing, can make a single entity more profitable than the separate parent and subsidiary had been in the past Such synergies often accompany business combinations Although no two business combinations are exactly alike, many share one or more of the following characteristics that potentially enhance profitability: 184 Chapter Discussion Question Discussion Questions This feature facilitates student understanding of the underlying accounting principles at DOES GAAP UNDERVALUE POST-CONTROL STOCK ACQUISITIONS? ∙ Vertical integration of one firm’s output and another firm’s or further workdistribution in particular reporting situations Simiprocessing In Berkshire Hathaway’s 2012 annual report, Warren Buffett, in discussing the company’s post∙ Coststep savings through elimination duplicate facilities and staff lar minicases, these questions help explain control acquisitions of MarmonofHoldings, Inc., observed theto following: ∙ Quick entry for new and existing products into domestic and foreign markets thegapissues hand book in practical terms Many Marmon provides an example of a clear and substantial existingat between ∙ Economies of scale allowing greater efficiency and negotiating power value and intrinsic value Let me explain the odd origin of this differential times, these cases are designed to demon∙ TheLast ability to Iaccess financing at had morepurchased attractive rates As firmshares size increases, negotiating year told you that we additional in Marmon, raising our power with financial institutions can increase also strate totold students why a topic is problematic ownership to 80% (up from the 64% we acquired in 2008) I also you that GAAP ∙ accounting Diversification of business required us torisk immediately record the 2011 purchase on our books at far and worth considering less than what we paid I’ve now had a yearfirms to think this weirdexpansion accounting rule, but Business combinations also occur because many seekabout the continuous of their x hoy47821_fm_i-xxii x organizations, often diversifiedthat areas Acquiring control over a vast network of differI’ve yet to find aninto explanation makes any sense—nor can Charlie or Marc Hamburg, entour businesses has been a strategy by a number of companies (sometimes CFO, come up with one utilized My confusion increases when I am told thatknown if we as hadn’t conglomerates) for decades industries immediately available the parent already owned 64%, theEntry 16% into we new purchased in is 2011 would have beentoentered on our without construct facilities, develop products, train management, or create market bookshaving at ourtocost recognition Many corporations have successfully employed this strategy to produce huge, In 2012 (and in early 2013, retroactive to year end 2012) we acquired an additional highly profitable organizations Unfortunately, others discovered that the task of managing a 10% of Marmon and the same bizarre accounting treatment was required The $700 milwidely diverse group of businesses can be a costly learning experience Even combinations immediately had synergies no effect and on earnings butwill did fail reduce thatlion arewrite-off designed we to take advantageincurred of operating cost savings if thebook value and, therefore, gain in net worth integration is not managed2012’s carefully The cost our recent 10% purchase a $12.6 billion value for traced the 90% Overall, the of primary motivations for manyimplies business combinations can be to of an Marmon we now own Our balance-sheet value for the 90%, however, is $8 billion increasingly competitive environment Threecarrying recent business combinations provide interesting examples distinct motivations to combine: Amazon and Whole Foodsvalue Market, Salesforce Charlieofand I believe our current purchase represents excellent If we are correct, 10/15/19 08:11 PM www.ebookslides.com Final PDF to printer 956 Index Coca-Cola Company, 2, 4, 7, 16, 19, 36–37, 363, 377, 405–407, 452, 479, 546, 799, 802 Coca-Cola FEMSA (Mexico), 2, Code law countries, 545 Codified Roman law, 544 College and university accounting and reporting, 834–840, 891 Collins, Stephen H., 547n Colombian Government Entity GAAP, 542–543 Comcast, 185 Comcast Corporation, 177–178 Common law, 544 Compensation, managerial, 22 Comprehensive annual financial report (CAFR), 795–796, 813–814 Conceptual Framework for Financial Reporting (IASB), 548 Conglomerates, 41 Connecting affiliation, 330–332 Conseco, Inc., 620 Consideration transferred, in business combinations, 47–48 Consolidated earnings per share, 288–291 Consolidated net income distribution, 163–164 Consolidated variable interest entities, 267–269 Consolidation Entry A, 59, 100, 101, 105, 107, 115–116 Consolidation Entry *C, 111, 114, 116 Consolidation Entry D (dividends), 100, 101, 105, 108–110, 115–116 Consolidation Entry E (expenses), 100–101, 105, 108–109, 115–116 Consolidation Entry I (income), 100, 101, 105, 107, 109–110, 115–116 Consolidation Entry P (payables), 105, 115–116 Consolidation Entry S, 58, 99, 101, 103–106, 115–116 Consolidation of financial information, 39–90 business combinations acquisition method for, 47 assets acquired and liabilities assumed, 48–49 consideration transferred, 47–48 contingent consideration transferred, 47–48 control in, 45–46 financial information consolidated in, 46–47 goodwill and gains on bargain purchases, 49 single economic entity creation, 43–45 corporate takeovers, 40–43 criterion for, FASB Accounting Standards Codification (ASC) Topic 810 (See Accounting Standards Codification (ASC), of FASB) for foreign subsidiaries, 508–512 intangible assets, 60–61 overview, 3–4 preexisting goodwill, 61–62 hoy47821_idx_953-970.indd 956 procedures for acquisition method with dissolution, 50–54 acquisition method with separate incorporation, 55–60 overview, 49–50 research and development in-process, 62–63 U.S and international standard convergence, 63 Consolidations subsequent to acquisition date, 91–156 amortization and impairment of other intangibles, 122–123 contingent consideration, 123–125 equity method for investment recording acquisition during current year, 95–102 application of, 96–97 consolidated totals, 98–99 consolidation worksheets, 99–102, 115–116 subsequent to year of acquisition, 101–105 excess fair value attributable to subsidiary long-term debt, 116–117 goodwill impairment assigning to reporting units, 118–119 example of, 120–121 international accounting standards for, 121–122 overview, 117–118 qualitative assessment option, 119–120 testing, 120, 122 zero or negative carrying amounts, 122–123 initial value or partial equity method for investment recording current year acquisition, 106–110 subsequent to year acquisition, 110–116 investment accounting by acquiring company, 92–95 passage of time effects, 92 Consumption method of cost recognition, 763–764 Contingent considerations, 47–48, 69, 123–125 Contract-based intangible assets, 61 Contributions to private not-for-profit entities of artworks and historical treasures, 881–882 conditional vs unconditional, 875–879 exchange transactions, 883–884 holding contributions for others, 882–883 mergers and acquisitions, 884–886 overview, 874–875 services as, 880–881 tax-exempt status, 886–888 Control, in business combinations, 45–46 Control premiums partial ownership consolidations with, 174–176 partial ownership consolidations without, 161, 165–174 Cornell, Camilla, 707n Corporate equity securities reporting, 2–5 Corporate scandals See Securities and Exchange Commission (SEC) Corporate takeovers, 40–43 10/08/19 04:48 PM Final PDF to printer www.ebookslides.com Index 957 Corr, Paul J., 646 Cost approach to valuation, 49 Costa (U.K.), 479 Costco Wholesale Corporation, 212 Cost-flow, in step acquisitions, 186 Cost method, 3, 5, Cost model, for asset measurement, 563 Cost of goods sold, 382–383, 486 Costs, 54–55 Craig, Karen, 863n Credit shelter trust, 935–936 Crosby, Bing, 935 Current financial resources, of state and local governments, 742–744 Current rate translation method, 483–484, 486–488, 495–499 Custodial funds, of governments, 750 Customer-related intangible assets, 61 CVS Health Corporation, 151 D Daimler-Benz (Germany), 546 Davidson, Ronald A., 570n Dealogic, 40 Debt See also Variable interest entities and intra-entity debt covenants on, 22 government funds to service, 747 long-term, of subsidiaries, 116–117 Deficit capital balance contribution by partner, 711–715 loss to remaining partners, 713–718 negative, 707 two partners with, 714–715 Defined benefit pension plan, state and local government accounting for, 803–805 Deloitte, 669 Demonstrative legacies, 922 Depreciable assets, in intra-entity asset transactions, 236–241 Depreciation of infrastructure assets, 812–813 property, plant, and equipment, 487 Derivatives accounting, 419–421 Derived tax revenues, in state and local government accounting, 765 Devise (real property estate distribution), 922 Diluted earnings per share, 290–291 DineInFresh, Inc., 48 Direct combination costs, 54–55, 68–69 “Disappearing plant problem,” 490 Discrete accounting periods, 381 hoy47821_idx_953-970.indd 957 Dissolution acquisition method with, 50–54 consolidation requirements with, 46–47 Distribution, of consolidated net income, 163–164 Diversification of risk, 41 Diversity in accounting See Accounting diversity Dividends Consolidation Entry D for, 100, 101, 105, 108–110, 115–116 intra-entity, 336–337 investment fair value reduced by, 24 in noncontrolling interest presence, 172–173 Dodd-Frank Act, 597n, 604 Donaldson, William H., 599 Doupnik, Timothy S., 570–571n Downstream inventory transfers, 222–225, 228–233 Downstream sales, 19–20, 22 Duke University, 886, 893 E Eadicicco, Lisa, 42 Earnings manipulation, Earnings per share, consolidated, 288–291 Earnouts, 48 Easterday, Kathryn E., 803n Eastman Kodak Company, 638, 641, 643 Eaton, Tim V., 803n eBay, Inc., 180 Ebbers, Bernard, 599 Economic Growth and Tax Relief Reconciliation Act of 2001, 924 Economics, accounting diversity impact on, 545 Economic unit concept, 158, 160 Ecopetrol S.A (Colombia), 542, 546 EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system of SEC, 611–612 Elderhostel, Inc., 862 Eli Lilly, Inc., 402 Emshwiller, John, 612n Encumbrances, in state and local government accounting, 759–761 End-of-year ownership percentage, 187 Energy Future Holdings Corp., 620 Enron Corporation, 216, 263–264, 596, 599, 620 Enterprise funds, of governments, 748 Equity basis, retained earnings conversion to, 110–111, 114 Equity method for investment recording acquisition during current year, 95–101, 106–110 acquisition following, 179 application of, 96–97 consolidated totals, 98–99 consolidation worksheets, 99–102, 115–116 10/08/19 04:48 PM Final PDF to printer www.ebookslides.com 958 Index Equity method for investment recording—Cont conversion from initial value method, 177 inventory in intra-entity asset transactions, 221–229 overview, 93, 94 partial, 177 subsequent to year of acquisition, 101–105 Equity method of accounting, 1–38 application of, 5–10 corporate equity securities reporting, 2–5 criticisms of, 23 effects of, 22 equity investment sales, 18–19 fair value reporting for, 23–24 International Accounting Standard 28, 14 intra-entity depreciable asset transfer, 240–241 inventory intra-entity gross profit deferral, 19–22 other comprehensive income and irregular items, 16–17 procedures in, 9–14 reporting changes to, 15–16 Equity-outsider financing systems, 545 Ernst & Young, 669 ESPN television network, 365 Esser, Jeffrey L., 744n Estates and trusts, 919–952 accounting for estates administration of estates, 920–921 charge and discharge statement, 933–934 claims against estates, 921–922 distributions, 922–924 income vs principal transactions, 928–929 inheritance taxes, 924–928 overview, 919–920 property in estates, 921 recording transactions, 929–933 accounting for trusts, 934–939 European Monetary System, 410 European Union, IFRS adopted by, 550–551 Excess fair value attributable to subsidiary long-term debt, 116–117 Excess of investment cost over book value, 9–12 Exchange rates See Financial statements, foreign currency and; Foreign currency transactions and hedging foreign exchange risk Expected value techniques, 160 Expedia, Inc., 161 Expenditure and revenue recognition in state and local government accounting for bond issues, 768–770 for derived tax revenues, 765 for expenses and capital asset by government fund activity, 761–762 for government-mandated and voluntary non-exchange transactions, 767–768 for imposed nonexchange revenues, 765–767 hoy47821_idx_953-970.indd 958 for interfund transactions, 772–775 overview, 761, 764–765 for special assessments, 771–772 for supplies and prepaid items, 762–764 Expenses, Consolidation Entry E for, 100–101, 105, 108–109, 115–116 Exxon, 503 Exxon-Mobil acquisition, 69n F Facebook, Inc., 52 Fair value acquisition method and, 39–40 of consideration transferred, 51–54 in consolidating variable interest entities, 269 criterion for, of derivatives, 419–421 of equity method investments, 2–3, 23–24 of estate property, 921 of excess amortizations, 285 of excess attributable to subsidiary long-term debt, 116–117 of foreign currency option, 412 forward contracts as hedge for, 433–436, 442–444 generally accepted accounting principles (GAAP) on, 48 income recognition under, 7–9 of intangible assets, 60–61 in noncontrolling interest presence, 158–159 option as hedge for, 444–447 option designated as hedge for, 439–442 subsidiary acquisition-date, 159–161 Family allowance, in estates, 922 Family trust, 935 Farmer, Liz, 802n FASB See Financial Accounting Standards Board (FASB) Father-son-grandson relationship, 321, 330–331 Federal estate tax, 924–927 Federal securities laws, 595–597 Feeding America, 861 Fiduciary funds, of governments, 746, 749–750 Field, Kyle, 43n FIFO liquidations of inventory, 386 Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Master Glossary, on not-for-profit entity, 862 Topic 205, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” 622 Topic 250, “Accounting Changes and Error Corrections,” 73n, 385 Topic 260, “EPS computation,” 289 Topic 270, “Interim Reporting,” 381–382, 386–387 Topic 280, “Segment Reporting,” 118, 366, 377, 380, 403–404 10/08/19 04:48 PM www.ebookslides.com Final PDF to printer Index 959 Topic 305, on qualitative assessments, 119–120 Topic 320, “Investments–Debt and Equity Securities,” 3n Topic 321, “Investments–Equity Securities,” 2, 3, Topic 323, “Investments, Equity Method and Joint Ventures,” 4, 5–6, 8, 15, 17 Topic 350, “Intangibles, Goodwill and Other,” 12, 117, 123, 129 Topic 450, “Contingencies,” 566, 568 Topic 606, “revenue recognition,” 557, 558 Topic 740, on income taxes, 345 Topic 805, on business combinations, 39–40, 47, 61, 63, 74, 90, 130, 160–161, 187, 269n, 556 Topic 810, on consolidation, 4, 37, 39–40, 43, 45, 63, 158, 187, 211, 213, 219, 265, 267, 269, 273, 332 Topic 815, on derivatives and hedging, 419, 505 Topic 820, on Fair Value Measurement, 48, 161n Topic 825, on fair value, 24 Topic 830, on foreign currency transactions, 414, 489, 491, 492 Topic 852, “Reorganizations,” 640 Topic 954, “Health Care Entities,” 892 Topic 958, “Not-for-Profit Entities,” 861n, 862, 875, 876n, 885n, 886n, 892 Accounting Standards Update (ASU) No 2013-07, “Liquidation Basis of Accounting,” 635–636 No 2013-12, on financial statements, 129 No 2014-02, on accounting for goodwill, 129 No 2014-09, “Revenue from Contracts with Customers,” 862, 894 No 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” 621 No 2014-17, “Business Combinations: Pushdown Accounting,” 73, 74 No 2014-18, “Accounting for Identifiable Intangible Assets in a Business Combination (a consensus of the Private Company Council),” 130 No 2015-01, “Income Statement-Extraordinary and Unusual Items,” 558 No 2015-11, “Inventory” (Topic 330), 558 No 2016-02, “Leases,” 556, 557, 805 No 2016-14, “Presentation of Financial Statements of Not-for-Profit Entities,” 861n, 863, 864, 874, 886n No 2016-16, “Income Taxes: Intra-Entity Transfers of Assets Other than Inventory” (Topic 740), 337n, 346 No 2017-04, on goodwill impairment, 120n No 2018-08, “Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made,” 863, 870n, 876n Proposed, “Simplifying the Equity Method of Accounting,” 12n artworks and historical treasures as contributions, 881 Business Combinations and Intangible Assets (Exposure Draft), 60 hoy47821_idx_953-970.indd 959 Business Combinations draft of 2005, 159 Concepts Statement No on assets, 763 FASB Interpretation No 46R (FIN 46R) standard, 266 functional currency concept of, 489–490 history of, 488–489 IASB convergence with, 556–558 operating segment identification tests of, 367–370 Private Company Council (PCC) of, 130 Project Updates: Business Combinations: Applying the Acquisition Method-Joint Project of the IASB and FASB: October 25, 2007, 63n reporting currency concept of, 489–490 SEC authority over, 604–605 Financial Reporting Releases (FRRs), of SEC, 602 Financial statements, foreign currency and, 479–538 See also Foreign currency transactions and hedging foreign exchange risk current rate translation method, 483–484, 486–488, 495–499 exchange rates in translation of, 480–482, 492–493 foreign subsidiary consolidation, 508–512 guidance on, 488–492 hedging balance sheet exposure, 504–506 International Financial Reporting Standards (IFRS) on, 492–493 remeasurement of, 499–502 retained earnings translation, 485–486 temporal rate translation method, 484–488 translation adjustment treatment, 488 translation disclosures, 507–508 translation method effects, 503–504 translation process illustrated, 493–495 Financial statements, intra-entity asset transactions in, 213–262 depreciable asset transfers, 236–241 intra-entity land transfers, 234–236 inventory transfers alternative investment method effects, 229–234 equity methods to illustrate, 221–229 gross profit effect on noncontrolling interest, 219–220 gross profit in year following transfer, 217–219 gross profit in year of transfer, 215–217 sales and purchase accounts, 214–215 summary of, 221 Financial statements, of state and local governments by fund, 752–756 government-wide, 750–752 two sets of, 742–744 Financial statements, outside ownership and, 157–212 acquisition method for partial ownership consolidations, 164–177 alternative investment method effects, 177 with control premium, 174–176 with no control premium, 165–174 10/08/19 04:48 PM Final PDF to printer www.ebookslides.com 960 Index Financial statements, outside ownership and—Cont international accounting standards vs., 187 noncontrolling interest presence and, 158–164 consolidated net income distribution, 163–164 definition of, 158–159 subsidiary acquisition-date fair value, 159–161 revenue and expense reporting for midyear acquisitions, 177–179 step acquisitions, 179–185 accounting for remaining shares, 187 acquisition method, 180–182 after control obtained, 182–185 cost-flow assumptions, 186 parent company sale of subsidiary stock, 185–187 worksheet consolidation for, 182 Financial statements, ownership patterns and income taxes on, 321–364 for consolidated entity, 335–345 affiliated groups, 336 deferred income taxes, 336–337 illustration of, 338 income tax expense assignment, 338–339 operating loss carryforwards, 344–345 separate tax returns, 339–343 temporary differences generated, 343–344 indirect subsidiary control, 321–330 accrual-based income and noncontrolling interest, 329–330 connecting affiliation, 330–332 consolidation entries, 324–330 retained earnings reduction, 328 subsidiary income calculation, 322–324 international accounting standards, 345–346 mutual ownership, 332–335 First-in first-out (FIFO) liquidation of inventory, 386 Flesher, Dale L., 803n FlipKart, 161, 479 Fluor Corporation, 375–377 Foltin, Craig, 803n Ford Motor Company, 4, 160, 215, 321, 370, 546 FordSollers (Russia), Forecasted foreign currency denominated transactions, 447–451 Foreign Corrupt Practices Act of 1977, 597 Foreign currency transactions and hedging foreign exchange risk, 409–478 See also Financial statements, foreign currency accounting for, 413–416 balance sheet exposure, 504–506 borrowing as, 416–418 derivatives accounting, 419–421 exchange rate mechanisms, 410 exchange rates, publication of, 410–411 hoy47821_idx_953-970.indd 960 forward contracts on as cash flow hedge, 430–432, 437–439 as fair value hedge, 433–436 overview, 411–412, 428–430 hedges accounting for, 421–424 of forecasted foreign currency denominated transactions, 447–451 of foreign currency denominated assets and liabilities, 424–428 hedging instruments, 451–452 of unrecognized foreign currency firm commitments, 442–447 International Financial Reporting Standards (IFRS) on, 416, 452 options on, 412, 436–442 Form 8-K, of SEC, 608–610 Form 10-K, of SEC, 608–610 Form 10-Q, of SEC, 608–610 Forward contracts on foreign currency as cash flow hedge, 430–432, 437–439, 447–449 as fair value hedge, 433–436 as fair value hedge of firm commitments, 442–444 as foreign exchange risk hedge, 418–419 overview, 411–412 Forward rate, on foreign currency, 411 Freeman, Robert J., 741n Friedberg, Leora, 803n Frito-Lay North America, 39, 377 FRRs (Financial Reporting Releases), of SEC, 602 Full-accrual basis, retained earnings conversion to, 110–111, 114 Full and fair disclosure assurance, of SEC, 598–599 Functional currency, FASB concept of, 489–490 Fund accounting, in state and local government, 745–750 Fund financial statements in state and local government accounting, 820–834 balance sheet, 825–827 overview, 742–743, 752–756 statement of cash flows of proprietary funds, 829–834 statement of net position of proprietary funds, 829–834 statement of revenues, expenditures, and other changes, 827–829 G GAAP See Generally accepted accounting principles (GAAP) Gains on bargain purchases, in business combinations, 49 Garber, Joseph R., 612n Gasaway, Sharilyn, 160 GASB See Governmental Accounting Standards Board (GASB) Gauthier, Stephen J., 801n, 815n 10/08/19 04:48 PM www.ebookslides.com Final PDF to printer Index 961 Geico, Inc., 91 General Electric Company, 185, 266, 320, 321 General fund, of governments, 747 General legacies, 922 Generally accepted accounting principles (GAAP) on college and university accounting, 834–835, 891 consolidated financial reporting, 335, 345–346 control through voting shares, 45 corporate equity investment reporting, diverse accounting problems, 546 fair value, 48 fair value assessments, fair value of derivatives, 421, 431 goodwill assets, 49, 121–122 hedge documentation, 423 interim reporting of operating segments, 387–388 International Financial Reporting Standards vs classification, presentation, and disclosure differences, 563–564 conversion from IFRS to GAAP, 564–570 on financial instruments, 507 on foreign exchange rates, 492–493 measurement differences, 562–563 recognition differences, 562 management approach for determining segments of, 366 noncontrolling interest reported in, 187 post-control stock acquisitions undervalued by, 184 reconciliations of U.S and foreign GAAP, 542–543 reorganization items, 640–642 SEC authority over, 593, 602–605 services as contributions to nonprofits, 880–881 state and local government accounting, 799–803 translation of foreign currency financial statements, 480 unrealized foreign exchange gains and losses, 415 variable interest entities, 45, 265, 274 Walt Disney Company compliance with, 365 General Motors Corporation, 620, 642 Georgetown University, 876, 881 Gerber Products Company, 291 Gillette Company, 322 Girl Scouts of the United States of America, 885, 886 GittiGidiyor online marketplace, 180 Going concern, 620 See also Reorganizations and liquidations Goldschmid, Harvey, 605 Goll, Al, 637n Goodman, James A., 625n Goodwill in acquisitions of non-profit organizations, 885 in Amazon acquisition of Whole Foods Market, 42 amortization of, 337 in business combinations, 49 controlling and noncontrolling interest allocation of, 161–163 hoy47821_idx_953-970.indd 961 description of, 11–12 generally accepted accounting principles (GAAP) on, 49 impairment of assigning to reporting units, 118–119 example of, 120–121 international accounting standards for, 121–122 overview, 117–118 qualitative assessment option, 119–120 testing, 120, 122, 621 zero or negative carrying amounts, 122–123 preexisting, 61–62 private company accounting for, 130 in pushdown accounting, 73 Goodwill Industries, 877 Goodwill method of recording partnership capital contributions, 676–677, 684–687 Google, 321 Government, accounting for See State and local government, accounting for The Government Accountants Journal, 860 Governmental Accounting Standards Board (GASB) on artwork and historical treasures capitalization, 811–812 on bond issues, 769 on budgets, 757 description of, 740–741 on encumbrances, 759 general fund, definition of, 747 on lease accounting, 805–808 on objectives of financial reporting, 742 on pension plan accounting (Statement No 68), 803–804 Preliminary Views on financial reporting model improvements, 745 on recognition of elements of financial statements, 745 on public college and university reporting, 834–835 Statements No 76, Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, 800 No 77, Tax Abatement Disclosures, 739n, 801 No 87, Leases, 805, 806 two sets of financial statements required by, 742–744 Governmental funds, 746–748 Government Finance Review, 860 Government-wide financial statements example of, 820–825 overview, 742, 743 statement of net position and statement of activities, 750–752 Grantor retained annuity trusts (GRATs), 936–937 Gray, Sidney J., 570 Greene, Richard, 744n Grohmann Engineering, 43 Grupo Coral, S.A (Mexico), 291 Gunn, Ellen P., 919n 10/08/19 04:48 PM www.ebookslides.com Final PDF to printer 962 Index H Hagey, Keith, 638n Hamburg, Charlie, 184 Hamburg, Marc, 184 Harley-Davidson, 320 Hasbro, Inc., 380 HCA Healthcare, 892 Health care not-for-profit entities, 892–897 Hedging foreign exchange risk See Foreign currency transactions and hedging foreign exchange risk Heineken N.V., 541–542 Heins, John, 503n Henrico Doctors’ Hospital, 892 The Hershey Company, 89 Hewlett Packard Enterprises (HPE), 378–380, 506, 623n Hierarchy of Generally Accepted Accounting Principles for State and Local Governments (GASB), 800 Highly inflationary economies, 490–491 Historical treasures as contributions to private not-for-profit entities, 881–882 state and local government accounting for, 810–812 Hogan, Jim, 639n Home Chef, 90 Homestead allowance, in estates, 922 HPE (Hewlett Packard Enterprises), 378–380 Hsu, Tiffany, 639n Hunter Holmes McGuire VA Medical Center, 892 I IASB See International Accounting Standards Board (IASB) Iberia, Líneas reas de Espa, S.A (Spain), 554–555 IBM, Inc., 378–390, 815 iHeartMedia, Inc., 641 Impact Biomedicines, Inc., 64 Impairment of goodwill, 118–121 of intangibles in consolidations subsequent to acquisition date, 122–123 international standards for, 121–122 Imposed nonexchange revenues, in state and local government accounting, 765–767 Income accrual-based, 329–330 allocation of, for partnerships, 678–681 Consolidation Entry I for, 100, 101, 105, 107, 109–110, 115–116 principal transactions vs., in estate accounting, 928–929 Income approach to valuation, 48–49 hoy47821_idx_953-970.indd 962 Income statement, in reorganizations, 640–641 Income taxes See also Financial statements, ownership patterns and income taxes on deferred, 336–337, 621 on estates and trusts, 927–928 in interim reports, 384–385 Incorporation by reference, 606 Independent float, as currency arrangement, 410 Indirect combination costs, 55 Inflation, 490–491, 545 Infrastructure assets and depreciation, 812–813 Inheritance taxes, 924–928 Initial value method for investment recording current year acquisition, 106–109 for deferred intra-entity profits, 229–234 equity method converted from, 177 in intra-entity debt transactions, 280–281 overview, 93, 94 subsequent to year of acquisition, 110, 111, 114–116 Insider trading, 595–596 Insider Trading and Securities Fraud Enforcement Act of 1988, 597 Insider Trading Sanctions Act of 1984, 597 Installment partnership liquidation, 720–721 Insull, Samuel, 593 Intangible assets acquisition-date fair-value allocations of, 60–61 in Amazon acquisition of Whole Foods Market, 42 in consolidations, 60–61 goodwill, 11–13 impairment of, in consolidations subsequent to acquisition date, 122–123 private company accounting for, 130 in Salesforce.com acquisition of MuleSoft, 42 Integral accounting periods, 381–382 Integrated disclosure system, of SEC, 598 Interbank prices, 410 Interest rates, financial reporting effects on, 22 Interfund transactions, in state and local government accounting, 772–775 Interim reporting See Segment and interim reporting Internal Revenue Service (IRS), 339 See also Income taxes Internal service funds, of governments, 748–749 International Accounting Standards Board (IASB) Financial Accounting Standards Board (FASB) convergence with, 63, 556–558 International Accounting Standards Committee (IASC) as precursor to, 539, 546–547 International Financial Reporting Standards (IFRS) and, 547–552 International accounting standards (IASs), 547–549 See also Accounting diversity; International Financial Reporting Standards 10/08/19 04:48 PM Final PDF to printer www.ebookslides.com Index 963 International Financial Reporting Standards (IFRS) See also Accounting diversity adoption of, 552–556 on business combinations (IFRS 3R), 63, 187 on changes in accounting estimates and errors (IAS 8), 555 on consolidated financial statements (IAS 10), 274 on deferred taxes, 346 on depreciation accounting (IAS 4), 548 on disclosure of interests in other entities (IAS 12), 274, 345 on employee benefits (IAS 19), 579–580 on financial instruments (IAS 39), 551 on financial instruments (IFRS 9), 452, 507 for financial statements with outside ownership, 187 on foreign exchange rates (IAS 21), 416, 492–493 generally accepted accounting principles (GAAP) vs., 560–570 classification, presentation, and disclosure differences, 563–564 conversion from IFRS to GAAP, 564–570 on financial instruments, 507 on foreign exchange rates, 492–493 measurement differences, 562–563 recognition differences, 562 on goodwill recognition, 121–122 on hyperinflationary economies (IAS 29), 493 on impairment of assets (IAS 36), 122, 578–579 on intangible assets (IAS 38), 562, 579–580 on interim financial reporting (IAS 34), 388 International Accounting Standards Board (IASB) and, 539, 547–552 on inventories (IAS 2), 547, 548 on investments in associates (IAS 28), 14 language translations of, 570 on leases (IAS 16), 556 list of, 549 on loss contingency situations (IAS 37), 566, 568 on operating segments (IAS 8), 381 ownership patterns and income taxes on financial statements, 345–346 on presentation of financial statements (IAS 1), 548, 553, 564 on property, plant, and equipment (IAS 16), 563, 573–574, 576 on revenue recognition (IFRS 15), 558 Security and Exchange Commission (SEC) recognition of, 558–560 on statement of cash flows (IAS 7), 553, 573 on variable interest entities and intra-entity debt, 274 International Flavors and Fragrances (IFF), Inc., 475, 479 International Organization of Securities Commissions (IOSCO), 547 Inter vivos trust, 935 hoy47821_idx_953-970.indd 963 Intestate (dying without will), 920 Intra-entity assets See Inventory Intra-entity asset transactions See Financial statements, intra-entity asset transactions in Intra-entity debt See Variable interest entities and intra-entity debt Intra-entity dividends, 336–337 Intra-entity sales, 19–22 See also Inventory Intrinsic value, 412 Inventory book values affected by costing methods for, 10 in interim reports, 382–383 intra-entity, 19–22 in intra-entity asset transactions alternative investment method effects, 229–234 equity methods to illustrate, 221–229 gross profit effect on noncontrolling interest, 219–220 gross profit in year following transfer, 217–219 gross profit in year of transfer, 215–217 sales and purchase accounts, 214–215 summary of, 221 intra-entity gross profit deferral, 19–22 Investment accounting by acquiring company, 92–95 Investment Advisors Act of 1940, 597 Investment Company Act of 1940, 597 Investments See also Equity method of accounting alternative methods in, 177 business motivations, costs reduced to zero, 18 excess of cost over book value, 9–12 Investment trust funds, of governments, 749 Involuntary bankruptcy, 623 Irrevocable life insurance trust, 937 IRS Form 1023, 886 IRS Form 990, Return of Organization Exempt from Income Tax, 887–888 J Jackson, Estelle, 935n James Madison University, 836–840 Jardine Matheson Holdings Limited, 539–541 Jeppson, Nathan H., 873n Jereski, Laura, 610 Johns Manville, Inc., 646 Johnson Controls, Inc., 451 Johnston-Willis Hospital, 892 Joint ventures equity method and, FASB-IASB convergence projects, 557 variable interest entities, 263 Journal of Accountancy, 763 Jumpstart Our Business Startups (JOBS) Act, 608 Juno Therapeutics Inc., 211 10/08/19 04:48 PM Final PDF to printer www.ebookslides.com 964 Index K Kim, Kyungjin, 801n Kmart Holdings, 643 Kroger, Inc., 90 L Labaton, Stephen, 599n, 612n Landfills, state and local government accounting for, 808–810 Land transfers, in intra-entity asset transactions, 234–236 Last-in first-out (LIFO) liquidation of inventory, 382–383, 385 Laux, Bob, 160 Lavelle, Louis, 601n Laws of descent, 920 Laws of distribution, 920 Lay, Kenneth, 599 Lease accounting, 805–808 Legacies, 922 Legacy methods of business combination accounting, 68–73 Lehman Brothers Holdings, Inc., 620 Leuz, Christian, 611 Liabilities assumed in business combinations, 48–49, 51–53 hedges of foreign currency denominated, 424–428 in pushdown accounting, 73 unlimited, in partnerships, 671 LIFO liquidations of inventory, 382–383, 385 Limited liability companies (LLCs), 672 Limited liability partnerships (LLPs), 672 Limited partnerships (LPs), 672 Liquidations See Reorganizations and liquidations Little, Patricia A., 160 LJM2, 216 Loans, foreign currency, 418 Local government, accounting for See State and local government, accounting for Lockheed Martin Corporation, 409 Long-term debt, excess fair value attributable to subsidiary, 116–117 Lopez, Thomas J., 571n Los Angeles Times, 638 Loten, Angus, 42 Lower-of-cost-or-net realizable value, for inventory, 383, 487 Lowe’s Companies, Inc., 377 M MADD (Mothers Against Drunk Driving), 862 Mamis, Robert A., 625n hoy47821_idx_953-970.indd 964 Managerial compensation, 22 Manville Corporation, 623n Market approach to valuation, 48 Marketing-related intangible assets, 61 Market trades, noncontrolling interest fair value from, 159–161 Marmon Holdings, Inc., 184 Mautz, R K., 763 Maynard, Philip, 936n Mayo Clinic, 893 McDonalds, Inc., 377, 506 McNamee, Mike, 601n Medical College of Virginia Hospitals, 892 Meek, Gary K., 544n Merck & Co., Inc., 402, 479 Mergers and acquisitions See also Consolidation of financial information in private not-for-profit entities, 884–886 in state and local government accounting, 819–820 Mertin, Dietz, 544n Mexico, IFRS adoption by, 551 MF Global Holdings, Ltd, 620 MGM Grand, Inc., 68 Michigan State University, 835 Microchip Technology Incorporated, 90 Microsemi Corporation, 90 Microsoft Corporation, 160 Middle Tennessee State University, 835–836 Midgett, Waren, 924n Midyear acquisitions, 177–179 Miller, Jay, 802–803n Miller, Richard I., 599n, 601n Mingione, Michael, 937n Minority interest, 157 Minor’s Section 2503(c) trust, 937 Mirage Resorts, Inc., 68 Mitchell, Olivia, 803n Mitchell, Tim, 819 Mobil, 503 Molinari, Jeffrey, 748n Monsanto, 479 Monster Beverage Corporation, Moran, Mark, 597n Mothers Against Drunk Driving (MADD), 862 MuleSoft, Inc., 42 Mutual agency concept, 671 Mutual ownership, 332–335 N Naked Juice Company, 39 NASCAR Hall of Fame, 747 National Conference of Commissioners on Uniform State Laws, 920 10/08/19 04:48 PM Final PDF to printer www.ebookslides.com Index 965 National Kidney Foundation, 887n Navistar International Corporation, 17 NBC Universal, 185 NCI See Noncontrolling interest (NCI) presence Negative carrying amounts of goodwill, 122–123 Net income, 92, 163–164 Net operating losses (NOLs), 344–345 New York Stock Exchange (NYSE), 546, 596 NFP (not-for-profit) entities See Private not-for-profit entities Nike, Inc., 377 Nobes, Christopher W., 545n Noncontrolling interest (NCI) presence, 158–164 accrual-based income with, 329–330 consolidated net income distribution, 163–164 definition of, 158–159 depreciable asset transfer effect on, 241 inventory in intra-entity asset transactions and, 219–220 subsidiary acquisition-date fair value, 159–161 for variable interest entities (VIEs), 273 Nonexchange transactions, government-mandated and voluntary, 764–765, 767–768 North America Beverages, 377 Norwalk Agreement of 2002 between FASB and IASB, 556 Not-for-profit entities See Private not-for-profit entities Nuvelo, Inc., 62 O Obama, Barack, 597, 924 Occidental, 503 OCI (other comprehensive income) and irregular items, 16–17 Off-balance sheet structures, 263 Offtermatt, Tim, 802 Ohio State University, The, 834 Ohnsman, Alan, 43n Omni Fort Worth (TX), 802 Onassis, Jacqueline Kennedy, 936 Options as cash flow hedge of forecasted transaction, 449–451 as fair value hedge of firm commitment, 444–447 foreign currency, 412, 436–442 Oracle, Inc., 41 Oral-B Laboratories, 322 Order for relief, in bankruptcies, 623 Other comprehensive income (OCI) and irregular items, 16–17 Outside ownership See also Financial statements, outside ownership motivations for, 1–2 Over-the-counter (OTC) market, 412 Ownership patterns and income taxes See Financial statements, ownership patterns and income taxes on hoy47821_idx_953-970.indd 965 P Pac-Man Defense, 332 Pacter, Paul, 551n Palank, Jacqueline, 638n Pallotta, Dan, 861n, 872n Parent companies investment accounting, choice of, 92, 94 retained earnings converted to full-accrual basis, 110–111, 114 sale of stock in subsidiaries by, 185–187 Partial equity method for investment recording current year acquisition, 109–110 in intra-entity debt transactions, 280–282 in intra-entity inventory transfers, 234 in noncontrolling interest presence, 177 overview, 93–94 subsequent to year of acquisition, 110, 111–116 Partial ownership consolidations with control premiums, 174–176 without control premiums, 165–174 Partnership formation and operation, 669–706 advantages and disadvantages of, 670–671 alternatives to, 671–672 capital accounts for accounting for capital contributions, 674–677 additional capital contributions and withdrawals, 677 articles of partnership, 673–674 income allocation, 678–681 overview, 673 dissolution of new partner admission, 682–687 overview, 682 partner withdrawal, 687–690 Partnership termination and liquidation, 707–738 deficit capital balance—contribution by partner, 711–715 deficit capital balance—loss to remaining partners, 713–718 deficit capital balance—two partners with, 714–715 installment, 720–721 overview, 708 predistribution plan, 721–724 preliminary distribution of assets, 718–721 procedures illustrated, 708–710 safe payments to partners, 715–718 statement of liquidation, 707, 711 Pashkoff, Paul H., 599n, 601n Passage of time effects in consolidations, 92 Patton, Terry K., 741n Patton, Travis, 887n Payables, 115–116 Payables, Consolidation Entry P for, 105 PCAOB (Public Company Accounting Oversight Board), 597, 600–601 10/08/19 04:48 PM Final PDF to printer www.ebookslides.com 966 Index PCC (Private Company Council), of FASB, 130 Pearson, John K., 621n, 623n Peat, Marwick, Mitchell, 503 Pegged to other currency, as currency arrangement, 410 Pension plans, state and local government accounting for, 803–805 Pension trust funds, of governments, 749 PepsiCo, Inc., 4, 39, 63n, 213–214, 377, 815 Percentage allocation method, 339 Permanent funds, of governments, 748 Pfizer Corporation, 62, 69n, 160, 320, 402 Philadelphia Stock Exchange, 412 Pittman, Jeffrey R., 719n Politics, accounting diversity impact on, 545 Pooling of interests method, of business combination accounting, 68, 70, 71–72 Preexisting goodwill, 61–62 Preferred stock of subsidiaries, 282–284 Prepaid items, state and local government accounting for, 762–764 Previts, Gary John, 597n, 803n PricewaterhouseCoopers, 160, 669 Primary beneficiary, of VIE, 264, 267–273 Primary government and component units, 815–819 Princeton University, 834, 881 Private company accounting for business combinations, 130 Private Company Council (PCC), of FASB, 130 Private not-for-profit entities, 861–918 contributions, accounting for of artworks and historical treasures, 881–882 conditional vs unconditional, 875–879 exchange transactions, 883–884 holding contributions for others, 882–883 mergers and acquisitions, 884–886 overview, 874–875 services as, 880–881 tax-exempt status, 886–888 financial reporting for financial statements, 864 overview, 862–863 statement of activities, 867–872 statement of financial position, 864–867 statement of functional expenses, 872 in health care, 892–897 statement of cash flows, 864, 872–874 transactions of, 888–890 Private-purpose trust funds, of governments, 749 Proctor & Gamble, Inc., 322, 799 Profit or loss test for operating segments (FASB), 367, 368–370 Property, plant, and equipment depreciation, in foreign currency financial statements, 487 expenditures, 563, 573–579 hoy47821_idx_953-970.indd 966 Proprietary funds, 746, 748–749, 829–834 Proxy statement requirements, of SEC, 598, 610 Pryor, Charlotte A., 812n Public accounting firms, SEC registration of, 600–601 Public college and university reporting, 834–840 Public Company Accounting Oversight Board (PCAOB), 597, 600–601 Public Utility Holding Company Act of 1935, 597 Purchase method, of business combination accounting, 68–71 Purchases method of cost recognition, 762–763 Pushdown accounting, 73–75 Put options, 412 Q Quaker Foods North America, 377 Quaker Oats Company, 39, 69n Qualified personal resident trust (QPRT), 937 Qualified terminable interest property (QTIP) trust, 936 Qualitative assessment option of goodwill impairment, 119–120 R Raviv, Dan, 623n Readily determinable fair values, Reagan, Jack, 756n, 813n Regulation S-K, of SEC, 598, 607 Regulation S-X, of SEC, 598, 602–603, 607 Reorganizations and liquidations, 619–668 bankruptcy laws, 622–628 Bankruptcy Reform Act of 1978, 623–631 overview, 620–622 statement of financial affairs, 627–631 Chapter liquidation, 631–636 liquidation basis of accounting, 635–636 overview, 631 statement of realization and liquidation, 632–635 trustee role, 631–632 Chapter 11 bankruptcy emerging from reorganization, 642–643 fresh start accounting, 643–647 reorganization financial reporting, 640–642 reorganization plan acceptance and confirmation, 639–640 reorganization plan overview, 637–639 LIFO liquidations of inventory, 382–383 Reportable operating segments See Segment and interim reporting Reporting currency, FASB concept of, 489–490 Reputation, financial reporting impact on, 22 10/08/19 04:48 PM www.ebookslides.com Final PDF to printer Index 967 Research and development (R&D) expenditures, 563, 579–580 in-process, in consolidations, 62–63, 70 Residual legacies, 922 Retained earnings acquisition-date subsidiary, 73 indirect subsidiary control and, 328 of parent company converted to full-accrual basis, 110–111, 114 in translation of financial statements, 485–486 Revaluation model for asset measurement, 563, 576–577 Revaluation surplus, 576–577 Revenue and expense reporting for midyear acquisitions, 177–179 Revenues, in interim reports, 382 Revenue test for operating segments, 367–368 Reverse conformity principle (Germany), 545 Revised Uniform Principal and Income Act, 929 Revocable living trust, 935 Richter, Martin, 570–571n Rigas, John J., 599 Risk, diversification of, 41 Robbins, John, 637n Rosenfield, Paul, 637n Ross, Brad, 599n Rossi, Josephine, 936n Ruddy, John A., 873n S SABs (Staff Accounting Bulletins), of SEC, 602 Safe payments to partners, 715–718 St Jude Children’s Research Hospital, Inc., 893 St Mary’s Hospital, 892 Salerno, David F., 873n Sales and purchase accounts, 214–215 Salesforce.com, 42 Sales of equity investments, 18–19 Salvage values, 12 Salvation Army, 877 Salwen, Kevin G., 602 Sam’s Club, 377 Sarbanes-Oxley Act of 2002, 596–597, 599–602 Saudagearan, Sharokh M., 544n Scale, competition and, 40–41 Schechtman, Daniel, 607n Schmarak, Bradley S., 632n Schultz, Joseph J., 571n Schwengel, Kenny, 819 Sears Holdings Corp., 666 Seasonal items, 386–387 Section 197 property, 337 Securities Act of 1933, 595, 597, 606 hoy47821_idx_953-970.indd 967 Securities and Exchange Commission (SEC), 593–618 EDGAR system of, 611–612 federal securities laws, 595–597 filings with, 606–611 foreign registrants’ financial statement filing with, 542–543, 546 full and fair disclosure assurance, 598–599 GAAP and, 602–605 IFRS recognition by, 558–560 in International Organization of Securities Commissions, 547 overview, 593–595 public entity definition, 129 on reporting quarterly financial data, 387 Sarbanes-Oxley Act of 2002, 599–602 Securities Exchange Act of 1934, 593, 595, 597, 606 Securities Investor Protection Act of 1970, 597 Securities, registration and issue costs of, 55 Segment and interim reporting, 365–408 on changes in accounting principle, 385–386 entitywide information, 377–381 examples of, 375–377 guidelines for, 371–372 on income taxes, 384–385 information disclosed in, 373–375 International Financial Reporting Standard on, 381 International Financial Reporting Standard 34 on, 388 on inventory and cost of goods sold, 382–383 management approach, 366 minimum disclosures in, 387 on other costs and expenses, 383–384 reportable operating segments, 366–368 on revenues, 382 on seasonal items, 386–387 testing procedures, 368–370 Seguin Services, 884 Separate incorporation in acquisitions, 55–60 consolidation requirements with, 46–47 Separate return method, 339 Services as contributions to private not-for-profit entities, 880–881 Shapiro, Bill, 864n Shares in step acquisitions, accounting for, 187 Shelf registration, with SEC, 607 SIC (standard industrial classification) codes, 612 Siemelink, Gillian, 869n, 875n Significant influence, ownership level to exercise, Single economic entity creation See Business combinations Six Flags Entertainment Corporation, 666 Skousen, K Fred, 606n, 608n, 610n Small and medium-sized entities (SMEs), 551–552 Solid waste landfills, state and local government accounting for, 808–810 10/08/19 04:48 PM www.ebookslides.com Final PDF to printer 968 Index Sollers (Russia), South Beach Beverage Company, 39 Southwest Airlines Co., 387–388 Special assessments, in state and local government accounting, 771–772 Special purpose entities (SPEs), 4, 216, 263 Special purpose governments, 817–819 Special purpose vehicles, 263 Special revenue funds, of governments, 747 Specific legacies, 922 Spector, Mike, 638n, 646 Spendthrift trust, 937 SPEs (special purpose entities), 4, 216, 263 Spot rate, on foreign currency, 411, 441–442 Staff Accounting Bulletins (SABs), of SEC, 602 Standard costing, for inventory, 383 Standard industrial classification (SIC) codes, 612 Starbucks, 179 State and local government, accounting for, 739–860 acquisitions, mergers, and transfers of operations, 819–820 art and historical treasures example, 810–812 budgets and recording budgetary entries, 757–761 comprehensive annual financial report of, 813–814 defined benefit pension plan example, 803–805 encumbrances, 759–761 expenditure and revenue recognition bond issues, 768–770 derived tax revenues, 765 for expenses and capital asset by government fund activity, 761–762 government-mandated and voluntary nonexchange transactions, 767–768 imposed nonexchange revenues, 765–767 interfund transactions, 772–775 overview, 761, 764–765 special assessments, 771–772 for supplies and prepaid items, 762–764 fund accounting, 745–750 fund financial statements, 820–834 balance sheet, 825–827 overview, 752–756 statement of cash flows of proprietary funds, 829–834 statement of net position of proprietary funds, 829–834 statement of revenues, expenditures, and other changes, 827–829 GAAP for, 799–803 government-wide financial statements, 750–752, 820–825 infrastructure assets and depreciation example, 812–813 lease accounting, 805–808 overview, 739–741 primary government and component units, 815–819 hoy47821_idx_953-970.indd 968 public college and university reporting, 834–840 solid waste landfill example, 808–810 two sets of financial statements, 742–744 user needs, 741–742 State estate tax, 927 Statement of activities for private not-for-profit entities, 864, 867–872 Statement of cash flows for private not-for-profit entities, 864, 872–874 Statement of financial affairs, in liquidations, 627–631 Statement of financial position for private not-for-profit entities, 864–867 Statement of functional expenses for private not-for-profit entities, 864, 872 Statement of liquidation, of partnerships, 711 Statement of partners’ capital, 679 Statement of realization and liquidation, 632–635 STC-MEMS, 53 Step acquisitions, 179–185 accounting for remaining shares, 187 acquisition method for, 180–182 after control obtained, 182–185 cost-flow assumptions, 186 parent company sale of subsidiary stock in, 185–187 worksheet consolidation for, 182 Stewart, D R., 627n Stifel Financial Corp., 802 Stocks in estate distributions, 923 GAAP undervaluation of acquisitions of, 184 of subsidiaries illustrations of, 295–298 overview, 291–292 preferred, 282–284 value changes in, 292–295 Stone, Mary S., 803n Straight-line methods, 12 Strike price, for exchange rates, 412, 441–442 Subchapter S Corporation, 672 Subsidiaries See also Financial statements, ownership patterns and income taxes on acquisition-date fair value for, 159–161 acquisition-date retained earnings of, 73 bargain purchases of separately incorporated, 60 consolidating postacquisition revenue and expenses of, 177–178 consolidation of foreign, 508–512 definition, 39 example of, 42 excess fair value attributable to long-term debt of, 116–117 parent company sale of stock in, 185–187 preferred stock of, 282–284 10/08/19 04:48 PM Final PDF to printer www.ebookslides.com Index 969 stock transactions of, 291–298 illustrations of, 295–298 overview, 291–292 value changes in, 292–295 Sun Microsystems, 41 Supplies and prepaid items, state and local government accounting for, 762–764 Switch, Inc., 18 Synergies, 41, 43 T Target Corporation, 380 Tax abatements, 801–802 Tax anticipation notes, 770 Tax Cuts and Jobs Act (TCJA) of 2017, 671, 924, 926, 927 Taxes See also Financial statements, ownership patterns and income taxes on accounting diversity impact on, 545 derived revenues from, in state and local government accounting, 765 inheritance, 924–928 for partnerships, 670–671 Tax-exempt status of private not-for-profit entities, 886–888 Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, 924n, 927 TCJA (Tax Cuts and Jobs Act) of 2017, 671, 924, 926, 927 Technology-based intangible assets, 61 Temporal rate translation method, 484–488, 499–502 Tesla, Inc., 43, 801 Testamentary trust, 935 Texaco, 503, 623n Thermo Fischer Scientific, Inc., 452 Time value, 412 Toyota (Japan), 546 Toys ‘R’ Us, Inc., 380, 637 Transfers of operations in state and local government accounting, 819–820 Translation of foreign currency in financial statements See Financial statements, foreign currency Treasury stock approach to mutual ownership, 332–335 Treger, Tracy L., 632n Tribune Company, 638 Trivago, Inc., 161 Tropicana Products, Inc., 39 Trump, Donald, 597 Trustee role, in reorganizations and liquidations, 631–632 Trust Indenture Act of 1939, 597 Trusts See Estates and trusts Tsakumis, George T., 570–571n Tyco, Inc., 596 Tyler, Charlie, 748n hoy47821_idx_953-970.indd 969 U UCP Seguin Chicago, 884 Unglesbee, Ben, 637n Uniform Partnership Act (UPA), 671, 708, 719 Uniform Probate Code, 920, 922 United Cerebral Palsy, 884 United Way Worldwide, 869, 876, 882 University of Alabama, 834 University of Arizona, 891 University of Georgia, 834 University of Kansas, 834 University of Southern California, 891 University of Tennessee, 835 University reporting, public, 834–840 Unocal, 503 Unrecognized foreign currency firm commitments, 442–447 UPA (Uniform Partnership Act), 671, 708, 719 Upstream inventory transfers, 225–229, 231, 233–234 Upstream sales, 19, 20–22 V Value, maximizing firm, 40 Variable interest entities (VIEs) and intra-entity debt, 263–320 accounting for, 276–278 affiliate debt acquisition from outside party, 275 cash flows consolidated statement, 284–288 consolidated earnings per share, 288–291 consolidation affected by, 278 consolidation of, 263–273 illustration of, 270–273 overview, 265–269 procedures to, 269–270 VIE definition, 264–265 description of, 44–45 international accounting standards vs., 274 overview, 6, 274–275 retirement gain or loss assignment, 278 subsidiary preferred stock, 282–284 subsidiary stock transactions, 291–298 illustrations of, 295–298 overview, 291–292 value changes in, 292–295 years subsequent to effective retirement, 278–282 Vaudt, David A., 745 Vertical integration, in mergers and acquisitions, 41 VIEs See Variable interest entities (VIEs) and intra-entity debt Virginia Commonwealth University Health System Authority, 892 Voting shares, control from, 1–2, 45–46 10/08/19 04:48 PM Final PDF to printer www.ebookslides.com 970 Index W Walker, Michael A., 607n Wall Street Journal, 42n Wall Street Reform and Consumer Protection Act of 2010, 597 Wal-Mart Stores, Inc., 157, 161, 182, 377, 380, 404–405, 479, 813, 924 Walt Disney Company, 6, 267, 320, 365 Walton, Helen, 924 Walton, Sam, 924 Warner Lambert, 69n Washington Mutual, Inc., 620 Weinstein, Stanley, 607n Weir, James, 503 WestRock, Inc., 52 Whitis, Robert E., 719n hoy47821_idx_953-970.indd 970 Whole Foods Market, 42 Wills See Estates and trusts WorldCom, Inc., 596, 599, 620 Y Yahoo!-Broadcast.com acquisition, 69n YMCA of the USA, 880, 883, 885, 886n YouTube, 321 Z Zecher, J Richard, 611 Zero, investments reduced to, 18 Zero or negative carrying amounts of goodwill, 122–123 10/08/19 04:48 PM ... as accounting majors and as future CPAs by using Advanced Accounting, 14e Thinking Critically With this text, students gain a well-balanced appreciation of the accounting profession As Hoyle 14e. .. Advanced Accounting 14e 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. .. 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