TEST BANK FOR Advanced Accounting – 15th Edition by Hoyle, Schaefer & Doupnik ISBN 978-1264798483 (Chapters 1–19) –COMPLETE GUIDE 100 % VERIFIED A+GRADE ASSURED !!!! LATEST UPDATE!!!!!

SOLUTION MANUAL FOR ADVANCED ACCOUNTING 15TH EDITION
BY JOE BEN




2-1
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
X X X X X X X X X X X X X X X X X X X

,Solution Manual For All Chapters
X X X X




SOLUTION MANUAL FOR X X




ADVANCED ACCOUNTING 15TH EDITION BY JOE BEN HOYLE, THOMAS SCHAEFER
X X X X X X X X X




AND TIMOTHY DOUPNIK
X X X




CHAPTER 1-19 X




CHAPTER1 TH X X




E EQUITY METHOD OF ACCOUNTING FOR INVESTMENTS
X X X X X X




Chapter Outline X




I. Four methods are principally used to account for an investment in equity securities along with
X X X X X X X X X X X X X X X




a fair value option.
X X X




A. Fair value method: applied by an investor when only a small percentage of a com
X X X X X X X X X X X X X X




pany‘s voting stock is held. X X X X




1. The investor recognizes income when the investee declares a dividend.
X X X X X X X X X




2. Portfolios are reported at fair value. If fair values are unavailable, investment is rep
X X X X X X X X X X X X X




orted at cost. X X




B. Cost Method: applied to investments without a readily determinable fair value. When the f
X X X X X X X X X X X X X




air value of an investment in equity securities is not readily determinable, and the investm
X X X X X X X X X X X X X X




ent provides neither significant influence nor control, the investment may be measured at
X X X X X X X X X X X X X




cost. The investment remains at cost unless
X X X X X X




1. A demonstrable impairment occurs for the investment, or
X X X X X X X




2. An observable price change occurs for identical or similar investments of the same issu
X X X X X X X X X X X X X




er.
The investor typically recognizes its share of investee dividends declared as dividend inco
X X X X X X X X X X X X




me.

C. Consolidation: when one firm controls another (e.g., when a parent has a majority inter X X X X X X X X X X X X X




est in the voting stock of a subsidiary or control through variable interests, their financial
X X X X X X X X X X X X X X X




statements are consolidated and reported for the combined entity. X X X X X X X X




D. Equity method: applied when the investor has the ability to exercise significant infl
X X X X X X X X X X X X




uence over operating and financial policies of the investee.
X X X X X X X X




1. Ability to significantly influence investee is indicated by several factors including rep
X X X X X X X X X X X




resentation on the board of directors, participation in policy-making, etc. X X X X X X X X X




2. GAAP guidelines presume the equity method is applicable if 20 to 50 percent of the
X X X X X X X X X X X X X X




2-1
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
X X X X X X X X X X X X X X X X X X X

, outstanding voting stock of the investee is held by the investor. X X X X X X X X X X




Current financial reporting standards allow firms to elect to use fair value for any new investme
X X X X X X X X X X X X X X X




nt in equity shares including those where the equity method would otherwise apply. However, t
X X X X X X X X X X X X X X




he option, once taken, is irrevocable. The investor recognizes both investee dividends and ch
X X X X X X X X X X X X X




anges in fair value over time as income.
X X X X X X X




II. Accounting for an investment: the equity method X X X X X X




A. The investor adjusts the investment account to reflect all changes in the equity of the inve
X X X X X X X X X X X X X X X




stee company. X




B. The investor accrues investee income when it is reported in the investee‘s financial stat
X X X X X X X X X X X X X




ements.

C. Dividends declared by the investee create a reduction in the carrying amount of the Invest
X X X X X X X X X X X X X X




ment account. This book assumes all investee dividends are declared and paid in the sam
X X X X X X X X X X X X X X




e reporting period.
X X




III. Special accounting procedures used in the application of the equity method
X X X X X X X X X X




A. Reporting a change to the equity method when the ability to significantly influence an inve
X X X X X X X X X X X X X X




stee is achieved through a series of acquisitions.
X X X X X X X




1. Initial purchase(s) will be accounted for by means of the fair value method (or at cost
X X X X X X X X X X X X X X X




) until the ability to significantly influence is attained.
X X X X X X X X




2. When the ability to exercise significant influence occurs following a series of stock pur
X X X X X X X X X X X X X




chases, the investor applies the equity method prospectively. The total fair value at th
X X X X X X X X X X X X X




e date significant influence is attained is compared to the investee‘s book value to det
X X X X X X X X X X X X X X




ermine future excess fair value amortizations. X X X X X




B. Investee income from other than continuing operations X X X X X X




1. The investor recognizes its share of investee reported other comprehensive inc
X X X X X X X X X X




ome (OCI) through the investment account and the investor‘s own OCI.
X X X X X X X X X X




2. Income items such as discontinued operations that are reported separately by the inv
X X X X X X X X X X X X




estee should be shown in the same manner by the investor. The materiality of these ot
X X X X X X X X X X X X X X X




her investee income elements (as it affects the investor) continues to be a criterion for
X X X X X X X X X X X X X X X




separate disclosure. X




C. Investee losses X




1. Losses reported by the investee create corresponding losses for the investor. X X X X X X X X X X




2. A permanent decline in the fair value of an investee‘s stock should be recognized imm
X X X X X X X X X X X X X X




ediately by the investor as an impairment loss. X X X X X X X




3. Investee losses can possibly reduce the carrying value of the investment account to a z X X X X X X X X X X X X X X




ero balance. At that point, the equity method ceases to be applicable and the fair-
X X X X X X X X X X X X X X




value method is subsequently used. X X X X




D. Reporting the sale of an equity investment X X X X X X




1. The investor applies the equity method until the disposal date to establish a proper boo
X X X X X X X X X X X X X X




k value. X




2. Following the sale, the equity method continues to be appropriate if enough shares are X X X X X X X X X X X X X X




still held to maintain the investor‘s ability to significantly influence the investee. If that a
X X X X X X X X X X X X X X




bility has been lost, the fair-value method is subsequently used.
X X X X X X X X X




2-24
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
X X X X X X X X X X X X X X X X X X X

, Solution Manual For All Chapters X X X X




IV. Excess investment cost over book value acquired X X X X X X




A. The price an investor pays for equity securities often differs significantly from the inv
X X X X X X X X X X X X X




estee‘s underlying book value primarily because the historical cost based accountin X X X X X X X X X X




g model does not keep track of changes in a firm‘s fair value.
X X X X X X X X X X X X




B. Payments made in excess of underlying book value can sometimes be identified with spe X X X X X X X X X X X X X




cific investee accounts such as inventory or equipment. X X X X X X X




C. An extra acquisition price can also be assigned to anticipated benefits that are expected t
X X X X X X X X X X X X X X




o be derived from the investment. In accounting, these amounts are presumed to reflect a
X X X X X X X X X X X X X X




n intangible asset referred to as goodwill. Goodwill is calculated as any excess payment t
X X X X X X X X X X X X X X




hat is not attributable to specific identifiable assets and liabilities of the investee. Becaus
X X X X X X X X X X X X X




e goodwill is an indefinite-lived asset, it is not amortized.
X X X X X X X X X




V. Deferral of intra-entity gross profit in inventory X X X X X X




A. The investor‘s share of intra- X X X X




entity profits in ending inventory are not recognized until the transferred goods are either co
X X X X X X X X X X X X X X




nsumed or until they are resold to unrelated parties. X X X X X X X X




B. Downstream sales of inventory X X X




1. ―Downstream‖ refers to transfers made by the investor to the investee. X X X X X X X X X X




2. Intra-
entity gross profits from sales are initially deferred under the equity method and then X X X X X X X X X X X X X X




recognized as income at the time of the inventory‘s eventual disposal. X X X X X X X X X X




3. The amount of gross profit to be deferred is the investor‘s ownership percentage mul X X X X X X X X X X X X X




tiplied by the markup on the merchandise remaining at the end of the year. X X X X X X X X X X X X X




C. Upstream sales of inventory X X X




1. ―Upstream‖ refers to transfers made by the investee to the investor. X X X X X X X X X X




2. Under the equity method, the deferral process for intra- X X X X X X X X




entity gross profits is identical for upstream and downstream transfers. The procedur X X X X X X X X X X X




es are separately identified in Chapter One because the handling does vary within the
X X X X X X X X X X X X X X




consolidation process. X




Answers to Discussion Questions X X X




The textbook includes discussion questions to stimulate student thought and discussion. These quest
X X X X X X X X X X X X




ions are also designed to allow students to consider relevant issues that might otherwise be overlooke
X X X X X X X X X X X X X X X




d. Some of these questions may be addressed by the instructor in class to motivate student discussion
X X X X X X X X X X X X X X X X




. Students should be encouraged to begin by defining the issue(s) in each case. Next, authoritative acc
X X X X X X X X X X X X X X X X




ounting literature (FASB ASC) or other relevant literature can be consulted as a preliminary step in arri
X X X X X X X X X X X X X X X X




ving at logical actions. Frequently, the FASB Accounting Standards Codification will provide the nece
X X X X X X X X X X X X X




ssary support. X




Unfortunately, in accounting, definitive resolutions to financial reporting questions are not always avail
X X X X X X X X X X X X




able. Students often seem to believe that all accounting issues have been resolved in the past so that a
X X X X X X X X X X X X X X X X X X




ccounting education is only a matter of learning to apply historically prescribed procedures. However,
X X X X X X X X X X X X X X




in actual practice, the only real answer is often the one that provides the fairest representation of the fir
X X X X X X X X X X X X X X X X X X




m‘s transactions. If an authoritative solution is not available, students should be directed to list all of the
X X X X X X X X X X X X X X X X X




Xissues involved and the consequences of possible alternative actions. The various factors presented
X X X X X X X X X X X X X




can be weighed to produce a viable solution.
X X X X X X X




The discussion questions are designed to help students develop research and critical thinking skills in
X X X X X X X X X X X X X X X




addressing issues that go beyond the purely mechanical elements of accounting.
X X X X X X X X X X




2-3
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
X X X X X X X X X X X X X X X X X X X