ISE Advanced Financial Accounting

Cover
Half Title
Title
Copyright
About the Authors
Preface
Connect
Acknowledgments
Brief Table of Contents
Table of Contents
Chapter 1 Intercorporate Acquisitions and Investments in other Entities
	T-Mobile’s Merger with Sprint
	An Introduction to Complex Business Structures
		Enterprise Expansion
		Business Objectives
		Frequency of Business Combinations
		Ethical Considerations
	Business Expansion and Forms of Organizational Structure
		Internal Expansion: Creating a Business Entity
		External Expansion: Business Combinations
		Organizational Structure and Financial Reporting
	The Development of Accounting for Business Combinations
	Accounting for Internal Expansion: Creating Business Entities
	Accounting for External Expansion: Business Combinations
		Legal Forms of Business Combinations
		Methods of Effecting Business Combinations
		Valuation of Business Entities
	Acquisition Accounting
		Fair Value Measurements
		Applying the Acquisition Method
		Goodwill
		Combination Effected through the Acquisition of Net Assets
		Combination Effected through Acquisition of Stock
		Financial Reporting Subsequent to a Business Combination
	Additional Considerations in Accounting for Business Combinations
		Uncertainty in Business Combinations
		In-Process Research and Development
		Noncontrolling Equity Held Prior to Combination
	Summary of Key Concepts
	Key Terms
	Questions
	Cases
	Exercises
	Problems
Chapter 2 Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with No Differential
	Berkshire Hathaway’s Many Investments
	Accounting for Investments in Common Stock
	Securities Carried at Fair Value
		Accounting Procedures for Securities Carried at Fair Value
		Changes in the Number of Shares Held
	The Equity Method
		Use of the Equity Method
		Investor’s Equity in the Investee
		Recognition of Income
		Recognition of Dividends
		Carrying Amount of the Investment and Investment Income under the Equity Method
		Changing to the Equity Method at an Interim Date
		Acquisition at Interim Date
		Changes in the Number of Shares Held
	Investments Carried at Fair Value and Investments Accounted for Using the Equity Method
	Overview of the Consolidation Process
	Consolidation Procedures for Wholly Owned Subsidiaries That Are Created or Purchased at Book Value
	Consolidation Worksheets
		Worksheet Format
		Nature of Consolidation Entries
	Consolidated Balance Sheet with Wholly Owned Subsidiary
		100 Percent Ownership Acquired at Book Value
	Consolidation Subsequent to Acquisition
		Consolidated Net Income
		Consolidated Retained Earnings
	Consolidated Financial Statements—100 Percent Ownership, Created or Acquired at Book Value
		Initial Year of Ownership
		Second and Subsequent Years of Ownership
		Consolidated Net Income and Retained Earnings
	Summary of Key Concepts
	Key Terms
	APPENDIX 2A Additional Considerations Relating to the Equity Method
	APPENDIX 2B Consolidation When Parent Companies Choose to Carry at Cost Investments That Are to Be Consolidated
	Questions
	Cases
	Exercises
	Problems
Chapter 3 The Reporting Entity and the Consolidation of Less-Than-Wholly-Owned Subsidiaries with No Differential
	The Coca-Cola Company
	The Usefulness of Consolidated Financial Statements
	Limitations of Consolidated Financial Statements
	Subsidiary Financial Statements
	Consolidated Financial Statements: Concepts and Standards
		Traditional View of Control
		Indirect Control
		Ability to Exercise Control
		Differences in Fiscal Periods
		Changing Concept of the Reporting Entity
	Noncontrolling Interest
		Computation and Presentation of Noncontrolling Interest
	The Effect of a Noncontrolling Interest
		Consolidated Net Income
		Consolidated Retained Earnings
		Worksheet Format
	Consolidated Balance Sheet with a Less-Than-Wholly-Owned Subsidiary
		80 Percent Ownership Acquired at Book Value
	Consolidation Subsequent to Acquisition—80 Percent Ownership Acquired at Book Value
		Initial Year of Ownership
		Second and Subsequent Years of Ownership
	Combined Financial Statements
	Special-Purpose and Variable Interest Entities
		Variable Interest Entities
	Summary of Key Concepts
	Key Terms
	APPENDIX 3A Consolidation of Variable Interest Entities
	Questions
	Cases
	Exercises
	Problems
Chapter 4 Consolidation of Wholly Owned Subsidiaries Acquired at More Than Book Value
	How Much Work Does It Really Take to Consolidate? Ask the People Who Do It at Disney
	Dealing with the Differential
		The Difference between Acquisition Price and Underlying Book Value
	Consolidation Procedures for Wholly Owned Subsidiaries Acquired at More Than Book Value
		Treatment of a Positive Differential
		Illustration of Treatment of a Complex Differential
		100 Percent Ownership Acquired at Less Than Fair Value of Net Assets
		Illustration of Treatment of Bargain Purchase
	Consolidated Financial Statements—100 Percent Ownership Acquired at More Than Book Value
		Initial Year of Ownership
		Second Year of Ownership
	Intercompany Receivables and Payables
	Push-Down Accounting
	Summary of Key Concepts
	Key Terms
	APPENDIX 4A Push-Down Accounting Illustrated
	Questions
	Cases
	Exercises
	Problems
Chapter 5 Consolidation of Less-Than-Wholly-Owned Subsidiaries Acquired at More Than Book Value
	Walmart Acquires a Controlling Interest in Massmart
	A Noncontrolling Interest in Conjunction with a Differential
	Consolidated Balance Sheet with Majority-Owned Subsidiary
	Consolidated Financial Statements with a Majority-Owned Subsidiary
		Initial Year of Ownership
		Second Year of Ownership
	Discontinuance of Consolidation
	Treatment of Other Comprehensive Income
		Modification of the Consolidation Worksheet
		Adjusting Entry Recorded by Subsidiary
		Adjusting Entry Recorded by Parent Company
		Consolidation Worksheet—Second Year Following Combination
		Consolidation Procedures
		Consolidation Worksheet—Comprehensive Income in Subsequent Years
	Summary of Key Concepts
	Key Terms
	APPENDIX 5A Additional Consolidation Details
	Questions
	Cases
	Exercises
	Problems
Chapter 6 Intercompany Inventory Transactions
	Inventory Transfers at Samsung Electronics
	Overview of the Consolidated Entity and Intercompany Transactions
		Elimination of Intercompany Transfers
		Elimination of Unrealized Profits and Losses
	Inventory Transactions
		Worksheet Consolidation Entries
		Transfers at Cost
		Transfers at a Profit or Loss
		Calculating Unrealized Profit or Loss
		Deferring Unrealized Profit or Loss on the Parent’s Books
		Deferring Unrealized Profit or Loss in the Consolidation
		Why Adjust the Parent’s Books and Make Worksheet Entries?
	Downstream Inventory Sale
		Year 1
		Year 2
	Upstream Inventory Sale
	Additional Considerations
		Sale from One Subsidiary to Another
		Sales and Purchases before Affiliation
	Summary of Key Concepts
	Key Terms
	APPENDIX 6A Intercompany Inventory Transactions—Modified Equity Method and Cost Method
	Questions
	Cases
	Exercises
	Problems
Chapter 7 Intercompany Transfers of Services and Noncurrent Assets
	Micron’s Intercompany Fixed Asset Sale
	Intercompany Transfers of Services
	Intercompany Long-Term Asset Transfers
	Intercompany Land Transfers
		Overview of the Profit Consolidation Process
		Assignment of Unrealized Profit Consolidation
		Downstream Land Sale—Comprehensive Three-Year Example
		Year 1—Downstream Land Sale
		Year 2—Subsidiary Holds Land
		Year 3—Land Sold to Nonafilliated Party
		Upstream Sale of Land (Year of Sale)
	Intercompany Transfers of Depreciable Assets
		Downstream Sale
		Change in Estimated Life of Asset upon Transfer
		Upstream Sale
		Asset Transfers before Year-End
	Intercompany Transfers of Amortizable Assets
	Summary of Key Concepts
	Key Terms
	APPENDIX 7A Intercompany Noncurrent Asset Transactions—Modified Equity Method and Cost Method
	Questions
	Cases
	Exercises
	Problems
Chapter 8 Intercompany Indebtedness
	Caesars Entertainment Corporation’s Debt Transfers
	Consolidation Overview
	Bond Sale Directly to an Affiliate
		Transfer at Par Value
		Transfer at a Discount or Premium
	Bonds of Affiliate Purchased from a Nonaffiliate
		Purchase at Book Value
		Purchase at an Amount Less Than Book Value
		Purchase at an Amount Higher Than Book Value
	Summary of Key Concepts
	Key Terms
	APPENDIX 8A Intercompany Indebtedness—Fully Adjusted Equity Method Using Straight-Line Interest Amortization
	APPENDIX 8B Intercompany Indebtedness—Modified Equity Method and Cost Method
	Questions
	Cases
	Exercises
	Problems
Chapter 9 Consolidation Ownership Issues
	Berkshire Hathaway’s Varied Investments
	Subsidiary Preferred Stock Outstanding
		Consolidation with Subsidiary Preferred Stock Outstanding
		Subsidiary Preferred Stock Held by Parent
		Subsidiary Preferred Stock with Special Provisions
		Illustration of Subsidiary Preferred Stock with Special Features
	Changes in Parent Company Ownership
		Parent’s Purchase of Additional Shares from Nonaffiliate
		Parent’s Sale of Subsidiary Shares to Nonaffiliate
		Subsidiary’s Sale of Additional Shares to Nonaffiliate
		Subsidiary’s Sale of Additional Shares to Parent
		Subsidiary’s Purchase of Shares from Nonaffiliate
		Subsidiary’s Purchase of Shares from Parent
	Complex Ownership Structures
		Multilevel Ownership and Control
		Reciprocal or Mutual Ownership
	Subsidiary Stock Dividends
		Illustration of Subsidiary Stock Dividends
		Impact on Subsequent Periods
	Summary of Key Concepts
	Key Terms
	Questions
	Cases
	Exercises
	Problems
Chapter 10 Additional Consolidation Reporting Issues
	Advanced Consolidation Issues at Alphabet
	Consolidated Statement of Cash Flows
		Preparation of a Consolidated Cash Flow Statement
		Consolidated Cash Flow Statement Illustrated
		Consolidated Cash Flow Statement—Direct Method
	Consolidation Following an Interim Acquisition
		Parent Company Entries
		Consolidation Worksheet
	Consolidation Income Tax Issues
		Allocating the Basis of Assets Acquired in a Business Combination
		Tax Allocation Procedures When Separate Tax Returns Are Filed
		Tax Effects of Unrealized Intercompany Profit Eliminations
	Consolidated Earnings per Share
		Computation of Diluted Consolidated Earnings per Share
		Computation of Consolidated Earnings per Share Illustrated
	Summary of Key Concepts
	Key Terms
	Questions
	Cases
	Exercises
	Problems
Chapter 11 Multinational Accounting: Foreign Currency Transactions and Financial Instruments
	Microsoft’s Multinational Business
	Doing Business in a Global Market
	The Accounting Issues
	Foreign Currency Exchange Rates
		The Determination of Exchange Rates
		Direct versus Indirect Exchange Rates
		Changes in Exchange Rates
		Spot Rates versus Current Rates
		Forward Exchange Rates
	Foreign Currency Transactions
		Foreign Currency Import and Export Transactions
	Managing International Currency Risk with Foreign Currency Forward Exchange Financial Instruments
		Derivatives Designated as Hedges
		Forward Exchange Contracts
		Case 1: Managing an Exposed Foreign Currency Net Asset or Liability Position: Not a Designated Hedging Instrument
		Case 2: Hedging an Unrecognized Foreign Currency Firm Commitment: A Foreign Currency Fair Value Hedge
		Case 3: Hedging a Forecasted Foreign Currency Transaction: A Foreign Currency Cash Flow Hedge
		Case 4: Speculation in Foreign Currency Markets
		Foreign Exchange Matrix
	Additional Considerations
		A Note on Measuring Hedge Effectiveness
		Interperiod Tax Allocation for Foreign Currency Gains (Losses)
		Hedges of a Net Investment in a Foreign Entity
	Summary of Key Concepts
	Key Terms
	APPENDIX 11A Illustration of Valuing Forward Exchange Contracts with Recognition for the Time Value of Money
	APPENDIX 11B Use of Other Financial Instruments by Multinational Companies
	Questions
	Cases
	Exercises
	Problems
Chapter 12 Multinational Accounting: Issues in Financial Reporting and Translation of Foreign Entity Statements
	MCDonald’s—The World’s Fast Food Favorite
	Convergence of Accounting Principles
	Accounting for Differences in Currencies and Exchange Rates
		Currency Definitions
	Determination of the Functional Currency
		Functional Currency Designation in Highly Inflationary Economies
	Translation versus Remeasurement of Foreign Financial Statements
	Translation of Functional Currency Statements into the Reporting Currency of the U.S. Company
		Financial Statement Presentation of Translation Adjustment
		Illustration of Translation and Consolidation of a Foreign Subsidiary
		Noncontrolling Interest of a Foreign Subsidiary
	Remeasurement of the Books of Record into the Functional Currency
		Statement Presentation of Remeasurement Gain or Loss
		Illustration of Remeasurement of a Foreign Subsidiary
		Proof of Remeasurement Exchange Gain
		Remeasurement Case: Subsequent Consolidation Worksheet
		Summary of Translation versus Remeasurement
	Additional Considerations in Accounting for Foreign Operations and Entities
	Foreign Investments and Unconsolidated Subsidiaries
		Liquidation of a Foreign Investment
	Hedge of a Net Investment in a Foreign Subsidiary
	Disclosure Requirements
		Statement of Cash Flows
		Lower-of-Cost-or-Market Inventory Valuation under Remeasurement
		Intercompany Transactions
		Income Taxes
		Translation When a Third Currency Is the Functional Currency
	Summary of Key Concepts
	Key Terms
	Questions
	Cases
	Exercises
	Problems
Chapter 13 Segment and Interim Reporting
	Segment Reporting at Walmart
	Reporting for Segments
	Segment Reporting Accounting Issues
		International Financial Reporting Standards for Operating Segments
	Information about Operating Segments
		Defining Reportable Segments
		Comprehensive Disclosure Test
		Reporting Segment Information
	Enterprisewide Disclosures
		Information about Products and Services
		Information about Geographic Areas
		Information about Major Customers
	Interim Financial Reporting
	The Format of the Quarterly Financial Report
	Accounting Issues
		Accounting Pronouncements on Interim Reporting
		International Financial Reporting Standards for Interim Reporting
	Reporting Standards for Interim Income Statements
		Revenue
		Cost of Goods Sold and Inventory
		All Other Costs and Expenses
		Accounting for Income Taxes in Interim Periods
		Disposal of a Component of the Entity or Unusual, Infrequently Occurring, and Contingent Items
	Accounting Changes in Interim Periods
		Change in an Accounting Principle (Retrospective Application)
		Change in an Accounting Estimate (Current and Prospective Application)
		Changes in Depreciation, Amortization, or Depletion
		Change in a Reporting Entity (Retrospective Application)
		International Financial Reporting Standards for Accounting Changes
	Summary of Key Concepts
	Key Terms
	Questions
	Cases
	Exercises
	Problems
Chapter 14 SEC Reporting
	The Genesis of Securities Regulation
	International Harmonization of Accounting Standards for Public Offerings
	Securities and Exchange Commission
		Organizational Structure of the Commission
		Laws Administered by the SEC
		The Regulatory Structure
	Issuing Securities: The Registration Process
		The Registration Statement
		SEC Review and Public Offering
		Accountants’ Legal Liability in the Registration Process
	Periodic Reporting Requirements
		Accountants’ Legal Liability in Periodic Reporting
	Electronic Data Gathering, Analysis, and Retrieval (EDGAR) System
	Foreign Corrupt Practices Act of 1977
	Sarbanes-Oxley Act of 2002
		Title I: Public Company Accounting Oversight Board
		Title II: Auditor Independence
		Title III: Corporate Responsibility
		Title IV: Enhanced Financial Disclosures
		Title V: Analyst Conflicts of Interest
		Title VI: Commission Resources and Authority
		Title VII: Studies and Reports
		Title VIII: Corporate and Criminal Fraud Accountability
		Title IX: White-Collar Crime Penalty Enhancements
		Title X: Sense of Congress Regarding Corporate Tax Returns
		Title XI: Corporate Fraud and Accountability
	Dodd-Frank Wall Street Reform and Consumer Protection Act
	Jumpstart Our Business Startups (JOBS) Act
	Disclosure Requirements
		Management Discussion and Analysis
		Pro Forma Disclosures
	Summary of Key Concepts
	Key Terms
	Questions
	Cases
	Exercises
Chapter 15 Partnerships: Formation, Operation, and Changes in Membership
	The Evolution of PricewaterhouseCoopers (PwC)
	The Nature of the Partnership Entity
		Legal Regulation of Partnerships
		Definition of a Partnership
		Formation of a Partnership
		Other Major Characteristics of Partnerships
		Accounting and Financial Reporting Requirements for Partnerships
		International Financial Reporting Standards for Small and Medium-Size Entities and Joint Ventures
	Accounting for the Formation of a Partnership
		Illustration of Accounting for Partnership Formation
	Accounting for the Operations of a Partnership
		Partners’ Accounts
	Allocating Profit or Loss to Partners
		Illustrations of Profit Allocation
		Multiple Profit Allocation Bases
		Special Profit Allocation Methods
	Partnership Financial Statements
	Changes in Membership
		General Concepts to Account for a Change in Membership in the Partnership
		New Partner Purchases a Partnership Interest Directly from an Existing Partner
		New Partner Invests in the Partnership
		Determining a New Partner’s Investment Cost
		Disassociation of a Partner from the Partnership
	Summary of Key Concepts
	Key Terms
	APPENDIX 15A Tax Aspects of a Partnership
	APPENDIX 15B Joint Ventures
	Questions
	Cases
	Exercises
	Problems
Chapter 16 Partnerships: Liquidation
	The Demise of Laventhol & Horwath
	Overview of Partnership Liquidations
		Disassociation, Dissolution, Winding-Up, and Liquidation of a Partnership
	Lump-Sum Liquidations
		Realization of Assets
		Liquidation Expenses
		Illustration of a Lump-Sum Liquidation
	Installment Liquidations
		Illustration of Installment Liquidation Using Schedules of Safe Payments
		Cash Distribution Plan
	Additional Considerations
		Incorporation of a Partnership
	Summary of Key Concepts
	Key Terms
	APPENDIX 16A Partners’ Personal Financial Statements
	Questions
	Cases
	Exercises
	Problems
Chapter 17 Governmental Entities: Introduction and General Fund Accounting
	Accounting for the Bustling City of San Diego
	Differences between Governmental and Private Sector Accounting
	History of Governmental Accounting
	Major Concepts of Governmental Accounting
		Elements of Financial Statements
		Expendability of Resources versus Capital Maintenance Objectives
		Definitions and Types of Funds
	Financial Reporting of Governmental Entities
		Fund-Based Financial Statements: Governmental Funds
	Measurement Focus and Basis of Accounting (MFBA)
		Basis of Accounting—Governmental Funds
		Basis of Accounting—Proprietary Funds
		Basis of Accounting—Fiduciary Funds
	Budgetary Aspects of Governmental Operations
		Recording the Operating Budget
	Accounting for Expenditures
		The Expenditure Process
		Classification of Expenditure Transactions and Accounts
		Outstanding Encumbrances at the End of the Fiscal Period
		Expenditures for Inventory
		Accounting for Fixed Assets
		Long-Term Debt and Capital Leases
		Investments
	Interfund Activities
		Interfund Loans
		Interfund Services Provided and Used
		Interfund Transfers
		Interfund Reimbursements
	Overview of Accounting and Financial Reporting for the General Fund
	Comprehensive Illustration of Accounting for the General Fund
		Adoption of the Budget
		Property Tax Levy and Collection
		Other Revenue
		Expenditures
		Acquisition of Capital Asset
		Interfund Activities
		Adjusting Entries
		Closing Entries
		General Fund Financial Statement Information
	Summary of Key Concepts
	Key Terms
	Questions
	Cases
	Exercises
	Problems
Chapter 18 Governmental Entities: Special Funds and Governmentwide Financial Statements
	Governmental Accounting in Maryland
	Summary of Governmental Fund Types
	Governmental Funds Worksheets
	Special Revenue Funds
	Capital Projects Funds
		Illustration of Transactions
		Financial Statement Information for the Capital Projects Fund
	Debt Service Funds
		Illustration of Transactions
		Financial Statement Information for the Debt Service Fund
	Permanent Funds
		Illustration of Transactions
	Governmental Funds Financial Statements
	Enterprise Funds
		Illustration of Transactions
		Financial Statements for the Proprietary Funds
	Internal Service Funds
		Illustration of Transactions
		Financial Statements for Internal Service Funds
	Trust Funds
		Illustration of Private-Purpose Trust Fund
	Agency Funds
		Illustration of Transactions in an Agency Fund
	The Government Reporting Model
		Four Major Issues
		Government Financial Reports
		Governmentwide Financial Statements
		Reconciliation Schedules
		Budgetary Comparison Schedule
		Management’s Discussion and Analysis
		Notes to the Governmentwide Financial Statements
		Other Financial Report Items
		Interim Reporting
		Auditing Governmental Entities
	Additional Considerations
		Special-Purpose Governmental Entities
	Summary of Key Concepts
	Key Terms
	APPENDIX 18A Other Governmental Entities—Public School Systems and the Federal Government
	Questions
	Cases
	Exercises
	Problems
Chapter 19 Not-for-Profit Entities
	United Way Worldwide
	Financial Reporting for Private, Not-for-Profit Entities
		Additional Standards for Not-for-Profit Entities
	Colleges and Universities
		Special Conventions of Revenue and Expenditure Recognition
		Board-Designated Funds
		Public Colleges and Universities
		Private Colleges and Universities
	Health Care Providers
		Hospital Accounting
		Financial Statements for a Not-for-Profit Hospital
		Comprehensive Illustration of Hospital Accounting and Financial Reporting
		Summary of Hospital Accounting and Financial Reporting
	Voluntary Health and Welfare Organizations
		Accounting for a VHWO
		Financial Statements for a VHWO
		Summary of Accounting and Financial Reporting for VHWOs
	Other Not-for-Profit Entities
		Accounting for an ONPO
		Financial Statements of an ONPO
		Summary of Accounting and Financial Reporting for an ONPO
	Summary of Key Concepts
	Key Terms
	Questions
	Cases
	Exercises
	Problems
Chapter 20 Corporations in Financial Difficulty
	GM in Financial Distress
	Courses of Action
		Nonjudicial Actions
		Judicial Actions
	Chapter 11 Reorganizations
		Fresh Start Accounting
		Plan of Reorganization
		Illustration of a Reorganization
	Chapter 7 Liquidations
	Classes of Creditors
		Secured Creditors
		Creditors with Priority
		General Unsecured Creditors
		Statement of Affairs
	Additional Considerations
		Trustee Accounting and Reporting
	Summary of Key Concepts
	Key Terms
	Questions
	Cases
	Exercises
	Problems
Index