Solution Manual for Advanced
By Theodore Christensen, Da
Budd 13 edition Solu
,Chapter 01 - INTERCORPORATE ACQUISITIONS AND INVESTMENTS IN OTHER ENTITIES
CHAPTER 1
INTERCORPORATE ACQUISITIONS AND INVESTMENTS
IN OTHER ENTITIES
IMPORTANT NOTE TO INSTRUCTORS
The 13th edition of Advanced Financial Accounting continues the approach to
consolidation which was used in the 12th edition. While we encourage instructors to read through
the description of all changes in the 13th edition provided in the preface to the book, we summarize
this consolidation approach here since it is the fundamental organizational structure for several
chapters in the text. As this approach is developed in chapters 2 through 5, we believe it offers
students an intuitive foundation for developing consolidated financial statements. We summarize
the two main features in our approach to consolidation in the 13th edition here:
✓ A Building-Block Approach to Consolidation—Virtually all advanced financial
accounting classes cover consolidation topics. While this topic is perhaps the most
important to instructors, students frequently struggle to gain a firm grasp of consolidation
principles. This edition provides students with a learning friendly framework to
consolidations by introducing consolidation concepts and procedures gradually. This is
accomplished by a building-block approach, which introduces consolidations earlier than
some texts by beginning the consolidation discussion in chapters 2 and 3. The building-
block approach can be summarized as follows:
• Chapter 2 begins with the most basic consolidation situation: the consolidation of
a wholly owned subsidiary that is either created or purchased at an amount equal
to the book value of net assets. Thus, students practice basic consolidation
procedures without having to worry about the complications associated with a
differential or with noncontrolling shareholders.
• Chapter 3 introduces the notion of partial ownership of a subsidiary that is
created or acquired at an amount equal to the book value of net assets. In this way
students are exposed to the nuances associated with the existence of
noncontrolling shareholders, but without the details associated with a differential.
• Chapter 4 exposes students to the intricacies of consolidation when the
subsidiary
is acquired for an amount that exceeds the book value of net assets. In order to
isolate the new concepts and procedures that accompany the consolidation of a
subsidiary with a differential, this chapter focuses on wholly owned subsidiaries.
• Chapter 5 finally brings students full circle to the point where they are ready to
tackle more realistic situations where the parent company purchases a controlling
.
1-1
,Chapter 01 - INTERCORPORATE ACQUISITIONS AND INVESTMENTS IN OTHER ENTITIES
interest in a subsidiary (but less than 100% ownership) and the acquisition price
exceeds the book value of net assets. Thus, students learn how to simultaneously
handle all of the details associated with a differential and with noncontrolling
shareholders.
The overall coverage of the consolidation process by chapter is illustrated below.
✓ Organization of Consolidation Entries—Consistent with the building block approach to
consolidation, this edition facilitates the elimination of the investment in a subsidiary in
two steps: (1) first the book value portion of the investment and income from the
subsidiary are eliminated and (2) then the differential portion of the investment and
income from the subsidiary are eliminated with separate entries. This approach facilitates
the building-block approach in chapters 2-5. This edition also uses frequent illustrations
to help students visualize the steps in the consolidation process.
.
1-2
, Chapter 01 - INTERCORPORATE ACQUISITIONS AND INVESTMENTS IN OTHER ENTITIES
OVERVIEW OF CHAPTER 1
Chapter 1 provides students with an understanding of the legal forms of business
combinations and the financial statement effects of the accounting procedures used in recording a
business combination. It also discusses the proliferation of complex organizational structures and
regulatory as well as ethical considerations. This chapter fully illustrates accounting for business
combinations on the date of acquisition, using the acquisition method, both for business
combinations effected through an acquisition of net assets and by an acquisition of common shares.
The discussions contain specific illustrations of the valuation of tangible and intangible
assets and liabilities held by the acquired company on the date of acquisition. Chapter 1 also
illustrates the measurement and reporting of goodwill and the treatment of a bargain purchase and
discusses the impairment of goodwill. It also explains the treatment of costs associated with
completing a merger and the associated disclosure requirements.
The Additional Considerations portion of the chapter discusses factors adding to
uncertainty in business combinations; in-process research and development; and noncontrolling
equity held prior to combination.
.
1-3
By Theodore Christensen, Da
Budd 13 edition Solu
,Chapter 01 - INTERCORPORATE ACQUISITIONS AND INVESTMENTS IN OTHER ENTITIES
CHAPTER 1
INTERCORPORATE ACQUISITIONS AND INVESTMENTS
IN OTHER ENTITIES
IMPORTANT NOTE TO INSTRUCTORS
The 13th edition of Advanced Financial Accounting continues the approach to
consolidation which was used in the 12th edition. While we encourage instructors to read through
the description of all changes in the 13th edition provided in the preface to the book, we summarize
this consolidation approach here since it is the fundamental organizational structure for several
chapters in the text. As this approach is developed in chapters 2 through 5, we believe it offers
students an intuitive foundation for developing consolidated financial statements. We summarize
the two main features in our approach to consolidation in the 13th edition here:
✓ A Building-Block Approach to Consolidation—Virtually all advanced financial
accounting classes cover consolidation topics. While this topic is perhaps the most
important to instructors, students frequently struggle to gain a firm grasp of consolidation
principles. This edition provides students with a learning friendly framework to
consolidations by introducing consolidation concepts and procedures gradually. This is
accomplished by a building-block approach, which introduces consolidations earlier than
some texts by beginning the consolidation discussion in chapters 2 and 3. The building-
block approach can be summarized as follows:
• Chapter 2 begins with the most basic consolidation situation: the consolidation of
a wholly owned subsidiary that is either created or purchased at an amount equal
to the book value of net assets. Thus, students practice basic consolidation
procedures without having to worry about the complications associated with a
differential or with noncontrolling shareholders.
• Chapter 3 introduces the notion of partial ownership of a subsidiary that is
created or acquired at an amount equal to the book value of net assets. In this way
students are exposed to the nuances associated with the existence of
noncontrolling shareholders, but without the details associated with a differential.
• Chapter 4 exposes students to the intricacies of consolidation when the
subsidiary
is acquired for an amount that exceeds the book value of net assets. In order to
isolate the new concepts and procedures that accompany the consolidation of a
subsidiary with a differential, this chapter focuses on wholly owned subsidiaries.
• Chapter 5 finally brings students full circle to the point where they are ready to
tackle more realistic situations where the parent company purchases a controlling
.
1-1
,Chapter 01 - INTERCORPORATE ACQUISITIONS AND INVESTMENTS IN OTHER ENTITIES
interest in a subsidiary (but less than 100% ownership) and the acquisition price
exceeds the book value of net assets. Thus, students learn how to simultaneously
handle all of the details associated with a differential and with noncontrolling
shareholders.
The overall coverage of the consolidation process by chapter is illustrated below.
✓ Organization of Consolidation Entries—Consistent with the building block approach to
consolidation, this edition facilitates the elimination of the investment in a subsidiary in
two steps: (1) first the book value portion of the investment and income from the
subsidiary are eliminated and (2) then the differential portion of the investment and
income from the subsidiary are eliminated with separate entries. This approach facilitates
the building-block approach in chapters 2-5. This edition also uses frequent illustrations
to help students visualize the steps in the consolidation process.
.
1-2
, Chapter 01 - INTERCORPORATE ACQUISITIONS AND INVESTMENTS IN OTHER ENTITIES
OVERVIEW OF CHAPTER 1
Chapter 1 provides students with an understanding of the legal forms of business
combinations and the financial statement effects of the accounting procedures used in recording a
business combination. It also discusses the proliferation of complex organizational structures and
regulatory as well as ethical considerations. This chapter fully illustrates accounting for business
combinations on the date of acquisition, using the acquisition method, both for business
combinations effected through an acquisition of net assets and by an acquisition of common shares.
The discussions contain specific illustrations of the valuation of tangible and intangible
assets and liabilities held by the acquired company on the date of acquisition. Chapter 1 also
illustrates the measurement and reporting of goodwill and the treatment of a bargain purchase and
discusses the impairment of goodwill. It also explains the treatment of costs associated with
completing a merger and the associated disclosure requirements.
The Additional Considerations portion of the chapter discusses factors adding to
uncertainty in business combinations; in-process research and development; and noncontrolling
equity held prior to combination.
.
1-3
