SOLUTION MANUAL FOR Advanced Accounting, 5th Edition Patrick E. Hopkins ISBN: ‎ 978-1618534323 COMPLETE GUIDE WITH RATIONALES 100% VERIFIED A+ GRADE ASSURED!!!!!NEW LATEST UPDATE!!!!!

Advanced Accounting,
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5th Edition
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by Patrick Hopkins and Halsey
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, Advanced Accounting Fift YH YH



h Edition YH



By Patrick E. Hopkins and Robert F. Halsey
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Solution Manual YH




Chapter 1— Accounting for Intercorporate Investments
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1. a. If the investor acquired 100% of the investee at book value, the Equity Investme
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nt account is equal to the Stockholders’ Equity of the investee company. It, ther
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efore, includes the assets and liabilities of the investee company in one account.
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The investor’s balance sheet, therefore, includes the Stockholders’ Equity of the
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investee company, and, implicitly, its assets and liabilities. In the consolidation pr
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ocess, the balance sheets of the investor and investee company are brought tog
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ether. Consolidated Stockholders’ Equity will be the same as that which the inve
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stor currently reports; only total assets and total liabilities will change.
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b. If the investor owns 100% of the investee, the equity income that the investor rep
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orts is equal to the net income of the investee, thus implicitly including its reven
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ues and expenses. Replacing the equity income with the revenues and expenses
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of the investee company in the consolidation process will yield the same net inc
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ome.

2. FASB ASC 323- YH Y H


10 provides the following guidance with respect to the accounting for receipt
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of dividends using the equity method:
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The equity method tends to be most appropriate if an investment enables th
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e investor to influence the operating or financial decisions of the investee. T
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he investor then has a degree of responsibility for the return on its investme
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nt, and it is appropriate to include in the results of operations of the investo
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r its share of the earnings or losses of the investee. (¶323-10-05-5)
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The equity method is an appropriate means of recognizing increases or decreases m
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easured by generally accepted accounting principles (GAAP) in the economic resource
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s underlying the investments. Furthermore, the equity method of accounting more cl
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osely meets the objectives of accrual accounting than does the cost method becaus
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e the investor recognizes its share of the earnings and losses of the investee in the
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periods in which they are reflected in the accounts of the investee. (¶323-10-05-4)
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Under the equity method, an investor shall recognize its share of the earnings or lo
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sses of an investee in the periods for which they are reported by the investee in its
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Hfinancial statements rather than in the period in which an investee declares a divid
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SolutionsYH Manual,YH ChapterY 1-1
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, end (¶323-10- 35-4).
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1-2 AdvancedYH Accounting,YH 5thYHEditi
on

, 3. The recognition of equity income does not mean that cash has been received. In fac
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t, dividends paid by the investee to the investor are typically a small percentage of
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its reported net income. The projection of future net income that includes equity inc
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ome as a significant component might not, therefore, imply significant generation of
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Hcash.

4. The accounting for Altria’s investment in ABI depends on the degree of influence or
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control it can exert over that company. A classification of “no influence” does not ap
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pear appropriate since Altria owns 10.1% of the outstanding common stock and also
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“active representation on ABI’s Board of Directors (“ABI Board”) and certain ABI Bo
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ard committees. Through this representation, Altria participates in ABI policy making
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processes.” A classification of “significant influence” seems most appropriate given t
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he facts, and this classification warrants accounting for the investment using the eq
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uity method of accounting.
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5. a. Y H An investor may write down the carrying amount of its Equity Investment if the
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fair value of that investment has declined below its carrying value and that decli
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ne is deemed to be other than temporary.
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b. There is considerable judgment in determining whether a decline in fair value is ot
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her than temporary. The write-
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down amounts to a prediction that the future fair value of the investment will no
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t rise above the current carrying amount. If a company deems the decline to be
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temporary, it does not write down the investment, and a loss is not recognized i
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n its income statement. If the decline is deemed to be other than temporary, th
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e investment is written down and a loss is reported. Companies can use this flexib
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ility to decide whether to recognize a loss in the current year or to postpone it to
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a future year. YH YH




6. Under the equity method, an investor recognizes its share of the earnings or losses
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of an investee in the periods for which they are reported by the investee in its fina
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ncial statements. FASB ASC 323-10-35-7 states that “Intra-
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entity profits and losses shall be eliminated until realized by the investor or investee
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as if the investee were consolidated.” These intercompany items are eliminated to av
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oid double counting and prematurely recognizing income.
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2023
SolutionsYH Manual,YH ChapterY 1-3
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