Solution Manual for Advanced Accounting 15th Edition By Joe Ben Hoyle, Thomas Schaefer and Timothy Doupnik Chapter (1-19) Q&A Verified With Rationales| Grade A+ Assured |ISBN 9780073344737

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Solution Manual for Advanced Accounting 15th Edition

By Joe Ben Hoyle, Thomas Schaefer and Timothy Doupnik

Chapter (1-19) Q&A Verified With Rationales| Grade A+

Assured

ISBN 9780073344737




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,THIS DOCUMENT BELONGS TO TESTBANKSPROF


TABLE OF CONTENTS
CHAPTER 1 THE EQUITY METHOD OF ACCOUNTING FOR INVESTMENTS .................... 3
CHAPTER 2: CONSOLIDATION OF FINANCIAL INFORMATION ..................................... 38
CHAPTER 3 CONSOLIDATIONS SUBSEQUENT TO THE DATE OF ACQUISITION ............ 75
CHAPTER 4: CONSOLIDATED FINANCIAL STATEMENTS AND OUTSIDE ..................... 150
OWNERSHIP .............................................................................................................. 150
CHAPTER 5 CONSOLIDATED FINANCIAL STATEMENTS—INTRA-ENTITY ASSET
TRANSACTIONS ......................................................................................................... 220
CHAPTER 6: VARIABLE INTEREST ENTITIES, INTRA-ENTITY DEBT, CONSOLIDATED
CASH FLOWS, AND OTHER ISSUES ............................................................................. 288
CHAPTER 7 CONSOLIDATED FINANCIAL STATEMENTS—OWNERSHIP PATTERNS AND
INCOME TAXES .......................................................................................................... 343
CHAPTER 8 :SEGMENT AND INTERIM REPORTING ................................................... 385
CHAPTER 9 FOREIGN CURRENCY TRANSACTIONS AND HEDGING FOREIGN EXCHANGE
RISK........................................................................................................................... 420
CHAPTER 10 TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS ...... 498
CHAPTER 11 WORLDWIDE ACCOUNTING DIVERSITY AND INTERNATIONAL ........... 578
CHAPTER 12 FINANCIAL REPORTING AND THE SECURITIES AND EXCHANGE
COMMISSION ............................................................................................................. 627
CHAPTER 13 ACCOUNTING FOR LEGAL REORGANIZATIONS AND ............................. 645
CHAPTER 14 PARTNERSHIPS: FORMATION AND OPERATION .................................. 686
CHAPTER 15 PARTNERSHIPS: TERMINATION AND LIQUIDATION ............................ 726
CHAPTER 16 ACCOUNTING FOR STATE AND LOCAL GOVERNMENTS ........................ 779
CHAPTER 17 ACCOUNTING FOR STATE AND LOCAL GOVERNMENTS ........................ 839
CHAPTER 18 ACCOUNTING AND REPORTING FOR PRIVATE NOT-FOR- PROFIT
ENTITIES ................................................................................................................... 898
CHAPTER 19 ACCOUNTING FOR ESTATES AND TRUSTS ............................................ 945




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CHAPTER 1 THE EQUITY METHOD OF ACCOUNTING FOR
INVESTMENTS
Chapter Outline
I. Four methods are principally used to account for an investment in equity securities
along with a fair value option.
A. Fair value method: applied by an investor when only a small percentage of a company‘s
voting stock is held.
1. The investor recognizes income when the investee declares a dividend.
2. Portfolios are reported at fair value. If fair values are unavailable, investment is reported
at cost.
B. Cost Method: applied to investments without a readily determinable fair value. When the
fair value of an investment in equity securities is not readily determinable, and the investment
provides neither significant influence nor control, the investment may be measured at cost. The
investment remains at cost unless
1. A demonstrable impairment occurs for the investment, or
2. An observable price change occurs for identical or similar investments of the same
issuer.
The investor typically recognizes its share of investee dividends declared as dividend income.
C. Consolidation: when one firm controls another (e.g., when a parent has a majority
interest in the voting stock of a subsidiary or control through variable interests, their financial
statements are consolidated and reported for the combined entity.
D. Equity method: applied when the investor has the ability to exercise significant influence
over operating and financial policies of the investee.
1. Ability to significantly influence investee is indicated by several factors including
representation on the board of directors, participation in policy-making, etc.
2. GAAP guidelines presume the equity method is applicable if 20 to 50 percent of the


outstanding voting stock of the investee is held by the investor.
Current financial reporting standards allow firms to elect to use fair value for any new
investment in equity shares including those where the equity method would otherwise apply.
However, the option, once taken, is irrevocable. The investor recognizes both investee dividends
and changes in fair value over time as income.
II. Accounting for an investment: the equity method
A. The investor adjusts the investment account to reflect all changes in the equity of the
investee company.
B. The investor accrues investee income when it is reported in the investee‘s financial
statements.



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C. Dividends declared by the investee create a reduction in the carrying amount of the
Investment account. This book assumes all investee dividends are declared and paid in the same
reporting period.
III. Special accounting procedures used in the application of the equity method
A. Reporting a change to the equity method when the ability to significantly influence an
investee is achieved through a series of acquisitions.
1. Initial purchase(s) will be accounted for by means of the fair value method (or at cost)
until the ability to significantly influence is attained.
2. When the ability to exercise significant influence occurs following a series of stock
purchases, the investor applies the equity method prospectively. The total fair value at the date
significant influence is attained is compared to the investee‘s book value to determine future
excess fair value amortizations.
B. Investee income from other than continuing operations
1. The investor recognizes its share of investee reported other comprehensive income
(OCI) through the investment account and the investor‘s own OCI.
2. Income items such as discontinued operations that are reported separately by the
investee should be shown in the same manner by the investor. The materiality of these other
investee income elements (as it affects the investor) continues to be a criterion for separate
disclosure.
C. Investee losses
1. Losses reported by the investee create corresponding losses for the investor.
2. A permanent decline in the fair value of an investee‘s stock should be recognized
immediately by the investor as an impairment loss.
3. Investee losses can possibly reduce the carrying value of the investment account to a
zero balance. At that point, the equity method ceases to be applicable and the fair-value method
is subsequently used.
D. Reporting the sale of an equity investment
1. The investor applies the equity method until the disposal date to establish a proper book
value.
2. Following the sale, the equity method continues to be appropriate if enough shares are
still held to maintain the investor‘s ability to significantly influence the investee. If that ability
has been lost, the fair-value method is subsequently used.


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IV. Excess investment cost over book value acquired
A. The price an investor pays for equity securities often differs significantly from the
investee‘s underlying book value primarily because the historical cost based accounting model
does not keep track of changes in a firm‘s fair value.

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