ISE Fundamentals of Advanced Accounting

Cover
Fundamentals of Advanced Accounting
Dedication
About the Authors
Acknowledgments
Brief Contents
Contents
Chapter One: The Equity Method of Accounting for Investments
	Why Do Business Firms Invest in the Equity Shares of Other Business Firms?
	The Reporting of Investments in Corporate Equity Securities
		Fair-Value Method
		Cost Method (Investments in Equity Securities without Readily Determinable Fair Values)
		Consolidation of Financial Statements
		Equity Method
	Discussion Question: Did the Cost Method Invite Earnings Manipulation?
	Application of the Equity Method
		Criterion for Utilizing the Equity Method
		Accounting for an Investment—The Equity Method
	Equity Method Accounting Procedures
		Excess of Investment Cost over Book Value Acquired
	Discussion Question: Does the Equity Method Really Apply Here?
		The Amortization Process
	International Accounting Standard 28—Investments in Associates
	Equity Method—Additional Issues
		Reporting a Change to the Equity Method
		Reporting Investeeís Other Comprehensive Income and Irregular Items
		Reporting Investee Losses
		Reporting the Sale of an Equity Investment
	Deferral of Intra-Entity Gross Profits in Inventory
		Downstream Sales of Inventory
		Upstream Sales of Inventory
	Financial Reporting Effectsand Equity Method Criticisms
		Equity Method Reporting Effects
		Criticisms of the Equity Method
	Fair-Value Reporting for Equity Method Investments
	Summary
Chapter Two: Consolidation of Financial Information
	Expansion through Corporate Takeovers
		Reasons for Firms to Combine
		Goodyear Tire & Rubber and Cooper Tire & Rubber
		Google and Fitbit
		Uber and Postmates
	Business Combinations, Control, and Consolidated Financial Reporting
		Business Combinations—Creating a Single Economic Entity
		Control—An Elusive Quality
		Consolidation of Financial Information
	Financial Reporting for Business Combinations
		The Acquisition Method
		Consideration Transferred for the Acquired Business
		Contingent Consideration: An Additional Element of Consideration Transferred
		Assets Acquired and Liabilities Assumed
		Goodwill, and Gains on Bargain Purchases
	Procedures for Consolidating Financial Information
		Acquisition Method When Dissolution Takes Place
		Related Costs of Business Combinations
		The Acquisition Method When Separate Incorporation Is Maintained
	Acquisition-Date Fair-Value AllocationsóAdditional Issues
		Intangibles
		Preexisting Goodwill on Acquired Firmís Books
		Acquired In-Process Research and Development
	Convergence between U.S. and International Accounting Standards
	Summary
	Discussion Question: What if an Acquired Entity is Not a Business?
	Appendix A: Legacy Methods of Accounting for Business Combinations
	The Purchase Method: An Application of the Cost Principle
	The Pooling of Interests Method: Continuity of Previous Ownership
	Comparisons across the Pooling of Interests, Purchase, and Acquisition Methods
	Appendix B: Pushdown Accounting
Chapter Three: ConsolidationsóSubsequent to the Date of Acquisition
	Consolidation—The Effects Created by the Passage of Time
		Consolidated Net Income Determination
		The Parentís Choice of Investment Accounting
	Investment Accounting by the Acquiring Company
		Internal Investment Accounting Alternatives—The Equity Method, Initial Value Method, and Partial Equity Method
	Discussion Question: How Does a Company Really Decide Which Investment Method to Apply?
	Subsequent Consolidation—Investment Recorded by the Equity Method
		Acquisition Made during the Current Year
		Determination of Consolidated Totals
		Consolidation Worksheet
		Consolidation Subsequent to Year of AcquisitionóEquity Method
	Subsequent ConsolidationsóInvestment Recorded Using Initial Value or Partial Equity Method
		Acquisition Made during the Current Year
		Consolidation Subsequent to Year of AcquisitionóInitial Value and Partial Equity Methods
	Discussion Question
	Excess Fair Value Attributable to Subsidiary Long-Term Debt: Postacquisition Procedures
	Goodwill Impairment
		Assigning Goodwill to Reporting Units
		Qualitative Assessment Option
		Testing Goodwill for Impairment
		Illustration—Accounting and Reporting for a Goodwill Impairment Loss
		Comparisons with International Accounting Standards
	Amortization and Impairment of Other Intangibles
	Contingent Consideration—Postcombination
		Accounting for Contingent Consideration in Periods Subsequent to a Business Combination
	Summary
	Appendix: Private Company Accounting for Business Combinations
Chapter Four: Consolidated Financial Statements and Outside Ownership
	Consolidated Financial Reporting in the Presence of a Noncontrolling Interest
		Subsidiary Acquisition-Date Fair Value in the Presence of a Noncontrolling Interest
	Discussion Question: Noncontrolling Interest Valuation
		Control Premiums, Noncontrolling Interest Valuation, and Goodwill
		Allocating Consolidated Net Income to the Parent and Noncontrolling Interest
	Partial Ownership Consolidations (Acquisition Method)
		Illustration—Partial Acquisition with No Control Premium
		Illustration—Partial Acquisition with Control Premium
		Effects Created by Alternative Investment Methods
	Revenue and Expense Reporting for Midyear Acquisitions
		Consolidating Postacquisition Subsidiary Revenue and Expenses
		Acquisition Following an Equity Method Investment
	Step Acquisitions
		Control Achieved in Steps—Acquisition Method
		Example: Step Acquisition Resulting in Control—Acquisition Method
		Worksheet Consolidation for a Step Acquisition (Acquisition Method)
		Example: Step Acquisition Resulting after Control Is Obtained
	Discussion Question: Does GAAP Undervalue Post-Control Stock Acquisitions?
	Parent Company Sales of Subsidiary Stock—Acquisition Method
		Sale of Subsidiary Shares with Control Maintained
		Sale of Subsidiary Shares with Control Lost
		Cost-Flow Assumptions
		Accounting for Shares That Remain
	Comparisons with International Accounting Standards
	Summary
Chapter Five: Consolidated Financial StatementsóIntra-Entity Asset Transactions
	Intra-Entity Inventory Transfers
		The Sales and Purchases Accounts
		Intra-Entity Gross Profit—Year of Transfer (Year 1)
	Discussion Question: Earnings Management
		Intra-Entity Gross Profit—Year Following Transfer (Year 2)
		Intra-Entity Gross Profit—Effect on Noncontrolling Interest
		Intra-Entity Inventory Transfers Summarized
		Intra-Entity Inventory Transfers Illustrated: Parent Uses Equity Method
		Effects of Alternative Investment Methods on Consolidation
	Discussion Question: What Price Should We Charge Ourselves?
	Intra-Entity Land Transfers
		Accounting for Land Transactions
		Eliminating Intra-Entity GainsóLand Transfers
		Recognizing the Effect on Noncontrolling Interest—Land Transfers
	Intra-Entity Transfer of Depreciable Assets
		Deferral and Subsequent Recognition of Intra-Entity Gains
		Depreciable Asset Intra-Entity Transfers Illustrated
		Years Following Downstream Intra-Entity Depreciable Asset TransfersóParent Uses Equity Method
		Effect on Noncontrolling Interest—Depreciable Asset Transfers
	Summary
Chapter Six: Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues
	Consolidation of Variable Interest†Entities
		What Is a VIE?
		Consolidation of Variable Interest Entities
		Procedures to Consolidate Variable Interest Entities
		Consolidation of a Primary Beneficiary and VIE Illustrated
	Comparisons with International Accounting Standards
	Intra-Entity Debt Transactions
		Acquisition of Affiliateís Debt from an Outside Party
		Accounting for Intra-Entity Debt TransactionsóIndividual Financial†Records
		Effects on Consolidation Process
		Assignment of Retirement Gain or Loss
		Intra-Entity Debt Transactions—Years Subsequent to Effective Retirement
	Discussion Question: Who Lost This $300,000?
	Subsidiary Preferred Stock
	Consolidated Statement of Cash Flows
		Acquisition Period Statement of Cash Flows
		Statement of Cash Flows in Periods Subsequent to Acquisition
	Consolidated Earnings per Share
	Subsidiary Stock Transactions
		Changes in Subsidiary ValueóStock Transactions
		Subsidiary Stock Transactions—Illustrated
	Summary
Chapter Seven: Foreign Currency Transactions and Hedging Foreign Exchange Risk
	Foreign Exchange Markets
		Exchange Rate Mechanisms
		Foreign Exchange Rates
		Foreign Currency Forward Contracts
		Foreign Currency Options
	Foreign Currency Transactions
		Accounting Issue
		Balance Sheet Date before Date of Payment
	International Accounting Standard 21óThe Effects of Changes in Foreign Exchange Rates
	Foreign Currency Borrowing
		Foreign Currency Loan
	Hedges of Foreign Exchange Risk
	Derivatives Accounting
		Fundamental Requirement of Derivatives Accounting
		Determination of Fair Value of Derivatives
		Accounting for Changes in the Fair Value of Derivatives
	Hedge Accounting
		Nature of the Hedged Risk
		Hedge Effectiveness
		Hedge Documentation
		Hedging Combinations
	Hedges of Foreign Currency-Denominated Assets and Liabilities
		Cash Flow Hedge
		Fair Value Hedge
	Forward Contract Hedge of a Foreign Currency-Denominated Asset
		Forward Contract Designated as Cash Flow Hedge
		Forward Contract Designated as Fair Value Hedge
	Discussion Question: Do We Have a Gain or What?
	Option Hedge of a Foreign Currency-Denominated Asset
		Option Designated as Cash Flow Hedge
		Option Designated as Fair Value Hedge
	Hedge of Unrecognized Foreign Currency Firm Commitment
		Forward Contract Fair Value Hedge of a Firm Commitment
		Option Fair Value Hedge of Firm Commitment
	Hedge of Forecasted Foreign Currency Transaction
		Forward Contract Cash Flow Hedge of a Forecasted Transaction
		Option Cash Flow Hedge of a Forecasted Transaction
	Use of Hedging Instruments
	Discussion Question: Is Bitcoin a Foreign Currency?
	International Financial Reporting Standard 9—Financial Instruments
	Summary
Chapter Eight: Translation of Foreign Currency Financial Statements
	Exchange Rates Used in Translation
		Translation Adjustments
	Discussion Question: How Do We Report This?
	Balance Sheet Exposure
	Translation Methods
		Current Rate Method
		Temporal Method
		Translation of Retained Earnings
	Complicating Aspects of the Temporal Method
		Calculation of Cost of Goods Sold
		Application of the Lower-of-Cost-or-Net-Realizable-Value Rule
		Property, Plant, and Equipment, Depreciation, and Accumulated Depreciation
		Gain or Loss on the Sale of an Asset
	Treatment of Translation Adjustment
	Authoritative Guidance
		Determining the Appropriate Translation Method
		Highly Inflationary Economies
		Appropriate Exchange Rate
	International Accounting Standard 21—The Effects of Changes in Foreign Exchange Rates
	The Translation Process Illustrated
	Translation of Financial Statements—Current Rate Method
		Translation of the Balance Sheet
		Translation of the Statement of Cash Flows
	Remeasurement of Financial Statements—Temporal Method
		Remeasurement of the Income Statement
		Remeasurement of the Statement of Cash Flows
		Nonlocal Currency Balances
	Comparison of the Results from Applying the Two Different Methods
		Underlying Valuation Method
		Underlying Relationships
	Hedging Balance Sheet Exposure
		Accounting for Hedges of Remeasurement-Related Balance Sheet Exposure
		Accounting for Hedges of Translation-Related Balance Sheet Exposure
	International Financial Reporting Standard 9-Financial Instruments
	Disclosures Related to Translation
	Consolidation of a Foreign Subsidiary
		Translation of Foreign Subsidiary Trial Balance
		Determination of Balance in Investment Account—Equity Method
		Consolidation Worksheet
	Summary
Chapter Nine: Partnerships: Formation and Operation
	PartnershipsóAdvantages and Disadvantages
	Alternative Legal Forms
		Subchapter S Corporation
		Limited Partnerships (LPs)
		Limited Liability Partnerships (LLPs)
		Limited Liability Companies (LLCs)
	Partnership AccountingóCapital Accounts
		Articles of Partnership
	Discussion Question: What Kind of Business Is This?
		Accounting for Capital Contributions
		Additional Capital Contributions and Withdrawals
	Discussion Question: How Will the Profits Be Split?
		Allocation of Income
	Accounting for Partnership Dissolution
		DissolutionóAdmission of a New Partner
		Dissolution—Withdrawal of a Partner
	Summary
Chapter Ten: Partnerships: Termination and Liquidation
	Termination and Liquidation—Protecting the Interests of All Parties
	Partnership Liquidation Procedures
	Statement of Partnership Liquidation
	Deficit Capital Balances
	Discussion Question: What Happens if a Partner Becomes Insolvent?
		Partner with Deficit—Contribution to Partnership
		Partner with DeficitóLoss to Remaining Partners
		Two Partners with Deficit Capital Balances
	Safe Payments to Partners
	Preliminary Distribution of Partnership Assets
		Preliminary Distribution Illustrated
	Predistribution Plan
	Summary
Chapter Eleven: Accounting for State and Local Governments (Part 1)
	Introduction to the Financial Reporting for State and Local Governments
		Governmental AccountingóUser Needs
		Two Sets of Financial Statements
		The Evolution to Reporting Two Sets of Financial Statements
		Internal RecordkeepingóFund Accounting
		Fund Accounting Classifications
	Overview of State and Local Government Financial†Statements
		Government-Wide Financial Statements
		Fund Financial Statements
	Accounting for Governmental Funds
		The Importance of Budgets and the Recording of Budgetary Entries
		Encumbrances
	Recognition of Expenditures and Revenues
	Discussion Question: Is It an Asset or a Liability?
		Recognition of Revenues—Overview
		Reporting Derived Tax Revenues Such as Income Taxes and Sales Taxes
		Reporting Imposed Nonexchange Revenues Such as Property Taxes and Fines
		Reporting Government-Mandated Nonexchange Transactions and Voluntary Nonexchange Transactions
		Issuance of Bonds
		Special Assessments
		Interfund Transactions
	Summary
Chapter Twelve: Accounting for State and Local Governments (Part 2)
	The Hierarchy of U.S. Generally Accepted Accounting Principles (GAAP) for State and Local Governments
		Tax Abatement Disclosure
	Defined Benefit Pension Plans
	Lease Accounting
	Solid Waste Landfill
		Landfills—Government-Wide Financial Statements
		LandfillsóFund Financial Statements
	Works of Art and Historical Treasures
	Infrastructure Assets and Depreciation
	Annual Comprehensive Financial Report (ACFR)
	The Primary Government and Component Units
		Primary Government
		Identifying Component Units
		Reporting Component Units
	Discussion Question: Is It Part of the County?
		Special-Purpose Governments
	Acquisitions, Mergers, and Transfers of Operations
	Government-Wide and Fund Financial Statements Illustrated
		Statement of Net Position—Government-Wide Financial Statements
		Statement of Activities—Government-Wide Financial Statements
		Balance Sheet—Governmental FundsóFund Financial Statements
		Statement of Revenues, Expenditures, and Other Changes in Fund Balances—Governmental FundsóFund Financial Statements
		Statement of Net Position—Proprietary Funds—Fund Financial Statements
		Statement of Revenues, Expenses, and Other Changes in Net Position—Proprietary Funds—Fund Financial Statements
		Statement of Cash FlowsóProprietaryFundsóFund Financial Statements
	Reporting Public Colleges and Universities
	Summary
Index