Advanced kAccounting,
5th kEdition
by kPatrick kHopkins kand kHalsey
Complete kChapter kSolutions
kManual kare kincluded k(Ch k1 kto
k13)
** kImmediate kDownload
** kSwift kResponse
** kAll kChapters kincluded
, Advanced
kAccounting kFifth
kEdition
By kPatrick kE. kHopkins kand kRobert kF. kHalsey
Solution kManual
Chapter k1— kAccounting kfor kIntercorporate kInvestments
1. a. k If kthe kinvestor kacquired k100% kof kthe kinvestee kat kbook kvalue, kthe
kEquity kInvestment kaccount kis kequal kto kthe kStockholders’ kEquity kof kthe
kinvestee kcompany. kIt, ktherefore, kincludes kthe kassets kand kliabilities kof
kthe kinvestee kcompany kin kone kaccount. kThe kinvestor’s kbalance ksheet,
ktherefore, kincludes kthe kStockholders’ kEquity kof kthe kinvestee kcompany,
kand, kimplicitly, kits kassets kand kliabilities. kIn kthe kconsolidation kprocess,
kthe kbalance ksheets kof kthe kinvestor kand kinvestee kcompany kare kbrought
ktogether. kConsolidated kStockholders’ kEquity kwill kbe kthe ksame kas kthat
kwhich kthe kinvestor kcurrently kreports; konly ktotal kassets kand ktotal
kliabilities kwill kchange.
b. If kthe kinvestor kowns k100% kof kthe kinvestee, kthe kequity kincome kthat kthe
kinvestor kreports kis kequal kto kthe knet kincome kof kthe kinvestee, kthus
kimplicitly kincluding kits krevenues kand kexpenses. kReplacing kthe kequity
kincome kwith kthe krevenues kand kexpenses kof kthe kinvestee kcompany kin
kthe kconsolidation kprocess kwill kyield kthe ksame knet kincome.
2. FASB k ASC k 323-10 k provides k the k following k guidance k with k respect k to
k the k accounting k for kreceipt kof kdividends kusing kthe kequity kmethod:
The kequity kmethod ktends kto kbe kmost kappropriate kif kan kinvestment
kenables kthe kinvestor kto kinfluence kthe koperating kor kfinancial kdecisions
kof kthe kinvestee. kThe kinvestor kthen khas ka kdegree kof kresponsibility
kfor kthe kreturn kon kits kinvestment, kand kit kis kappropriate kto kinclude
kin kthe kresults kof koperations kof kthe kinvestor kits kshare kof kthe
kearnings kor klosses kof kthe kinvestee. k(¶323-10-05-5)
The kequity kmethod kis kan kappropriate kmeans kof krecognizing kincreases kor
kdecreases kmeasured kby kgenerally kaccepted kaccounting kprinciples k(GAAP) kin
kthe keconomic kresources kunderlying kthe kinvestments. kFurthermore, kthe kequity
kmethod kof kaccounting kmore kclosely kmeets kthe kobjectives kof kaccrual
kaccounting kthan kdoes kthe kcost kmethod kbecause kthe kinvestor krecognizes kits
kshare kof kthe kearnings kand klosses kof kthe kinvestee kin kthe kperiods kin
kwhich kthey kare kreflected kin kthe kaccounts kof kthe kinvestee. k(¶323-10-05-4)
2023
Solutions kManual, 1-1
kChapter k1
, Under kthe kequity kmethod, kan kinvestor kshall krecognize kits kshare kof kthe
kearnings kor klosses kof kan kinvestee kin kthe kperiods kfor kwhich kthey kare
kreported kby kthe kinvestee kin kits kfinancial kstatements krather kthan kin kthe
kperiod kin kwhich kan kinvestee kdeclares ka kdividend k(¶323-10- k35-4).
2023
1-2 Advanced kAccounting, k5th
kEdition
, 3. The krecognition kof kequity kincome kdoes knot kmean kthat kcash khas kbeen
kreceived. kIn kfact, kdividends kpaid kby kthe kinvestee kto kthe kinvestor kare
ktypically ka ksmall kpercentage kof kits kreported knet kincome. kThe kprojection kof
kfuture knet kincome kthat kincludes kequity kincome kas ka ksignificant kcomponent
kmight knot, ktherefore, kimply ksignificant kgeneration kof kcash.
4. The kaccounting kfor kAltria’s kinvestment kin kABI kdepends kon kthe kdegree kof
kinfluence kor kcontrol kit kcan kexert kover kthat kcompany. kA kclassification kof
k“no kinfluence” kdoes knot kappear kappropriate ksince kAltria kowns k10.1% kof
kthe koutstanding kcommon kstock kand kalso k“active krepresentation kon kABI’s
kBoard kof kDirectors k(“ABI kBoard”) kand kcertain kABI kBoard kcommittees.
kThrough kthis krepresentation, kAltria kparticipates kin kABI kpolicy kmaking
kprocesses.” kA kclassification kof k“significant kinfluence” kseems kmost kappropriate
kgiven kthe kfacts, kand kthis kclassification kwarrants kaccounting kfor kthe
kinvestment kusing kthe kequity kmethod kof kaccounting.
5. a. k An kinvestor kmay kwrite kdown kthe kcarrying kamount kof kits kEquity
kInvestment kif kthe kfair kvalue kof kthat kinvestment khas kdeclined kbelow kits
kcarrying kvalue kand kthat kdecline kis kdeemed kto kbe kother kthan
ktemporary.
b. There kis kconsiderable kjudgment kin kdetermining kwhether ka kdecline kin kfair
kvalue kis kother kthan ktemporary. kThe kwrite-down kamounts kto ka kprediction
kthat kthe kfuture kfair kvalue kof kthe kinvestment kwill knot krise kabove kthe
kcurrent kcarrying kamount. kIf ka kcompany kdeems kthe kdecline kto kbe
ktemporary, kit kdoes knot kwrite kdown kthe kinvestment, kand ka kloss kis knot
krecognized kin kits kincome kstatement. kIf kthe kdecline kis kdeemed kto kbe
kother kthan ktemporary, kthe kinvestment kis kwritten kdown kand ka kloss kis
kreported. kCompanies kcan kuse kthis kflexibility kto kdecide kwhether kto
krecognize ka kloss kin kthe kcurrent kyear kor kto kpostpone kit kto ka kfuture
kyear.
6. Under kthe kequity kmethod, kan kinvestor krecognizes kits kshare kof kthe kearnings
kor klosses kof kan kinvestee kin kthe kperiods kfor kwhich kthey kare kreported kby
kthe kinvestee kin kits kfinancial kstatements. kFASB kASC k323-10-35-7 kstates kthat
k“Intra-entity kprofits kand klosses kshall kbe keliminated kuntil krealized kby kthe
kinvestor kor kinvestee kas kif kthe kinvestee kwere kconsolidated.” kThese
kintercompany kitems kare keliminated kto kavoid kdouble kcounting kand
kprematurely krecognizing kincome.
2023
Solutions kManual, 1-3
kChapter k1
5th kEdition
by kPatrick kHopkins kand kHalsey
Complete kChapter kSolutions
kManual kare kincluded k(Ch k1 kto
k13)
** kImmediate kDownload
** kSwift kResponse
** kAll kChapters kincluded
, Advanced
kAccounting kFifth
kEdition
By kPatrick kE. kHopkins kand kRobert kF. kHalsey
Solution kManual
Chapter k1— kAccounting kfor kIntercorporate kInvestments
1. a. k If kthe kinvestor kacquired k100% kof kthe kinvestee kat kbook kvalue, kthe
kEquity kInvestment kaccount kis kequal kto kthe kStockholders’ kEquity kof kthe
kinvestee kcompany. kIt, ktherefore, kincludes kthe kassets kand kliabilities kof
kthe kinvestee kcompany kin kone kaccount. kThe kinvestor’s kbalance ksheet,
ktherefore, kincludes kthe kStockholders’ kEquity kof kthe kinvestee kcompany,
kand, kimplicitly, kits kassets kand kliabilities. kIn kthe kconsolidation kprocess,
kthe kbalance ksheets kof kthe kinvestor kand kinvestee kcompany kare kbrought
ktogether. kConsolidated kStockholders’ kEquity kwill kbe kthe ksame kas kthat
kwhich kthe kinvestor kcurrently kreports; konly ktotal kassets kand ktotal
kliabilities kwill kchange.
b. If kthe kinvestor kowns k100% kof kthe kinvestee, kthe kequity kincome kthat kthe
kinvestor kreports kis kequal kto kthe knet kincome kof kthe kinvestee, kthus
kimplicitly kincluding kits krevenues kand kexpenses. kReplacing kthe kequity
kincome kwith kthe krevenues kand kexpenses kof kthe kinvestee kcompany kin
kthe kconsolidation kprocess kwill kyield kthe ksame knet kincome.
2. FASB k ASC k 323-10 k provides k the k following k guidance k with k respect k to
k the k accounting k for kreceipt kof kdividends kusing kthe kequity kmethod:
The kequity kmethod ktends kto kbe kmost kappropriate kif kan kinvestment
kenables kthe kinvestor kto kinfluence kthe koperating kor kfinancial kdecisions
kof kthe kinvestee. kThe kinvestor kthen khas ka kdegree kof kresponsibility
kfor kthe kreturn kon kits kinvestment, kand kit kis kappropriate kto kinclude
kin kthe kresults kof koperations kof kthe kinvestor kits kshare kof kthe
kearnings kor klosses kof kthe kinvestee. k(¶323-10-05-5)
The kequity kmethod kis kan kappropriate kmeans kof krecognizing kincreases kor
kdecreases kmeasured kby kgenerally kaccepted kaccounting kprinciples k(GAAP) kin
kthe keconomic kresources kunderlying kthe kinvestments. kFurthermore, kthe kequity
kmethod kof kaccounting kmore kclosely kmeets kthe kobjectives kof kaccrual
kaccounting kthan kdoes kthe kcost kmethod kbecause kthe kinvestor krecognizes kits
kshare kof kthe kearnings kand klosses kof kthe kinvestee kin kthe kperiods kin
kwhich kthey kare kreflected kin kthe kaccounts kof kthe kinvestee. k(¶323-10-05-4)
2023
Solutions kManual, 1-1
kChapter k1
, Under kthe kequity kmethod, kan kinvestor kshall krecognize kits kshare kof kthe
kearnings kor klosses kof kan kinvestee kin kthe kperiods kfor kwhich kthey kare
kreported kby kthe kinvestee kin kits kfinancial kstatements krather kthan kin kthe
kperiod kin kwhich kan kinvestee kdeclares ka kdividend k(¶323-10- k35-4).
2023
1-2 Advanced kAccounting, k5th
kEdition
, 3. The krecognition kof kequity kincome kdoes knot kmean kthat kcash khas kbeen
kreceived. kIn kfact, kdividends kpaid kby kthe kinvestee kto kthe kinvestor kare
ktypically ka ksmall kpercentage kof kits kreported knet kincome. kThe kprojection kof
kfuture knet kincome kthat kincludes kequity kincome kas ka ksignificant kcomponent
kmight knot, ktherefore, kimply ksignificant kgeneration kof kcash.
4. The kaccounting kfor kAltria’s kinvestment kin kABI kdepends kon kthe kdegree kof
kinfluence kor kcontrol kit kcan kexert kover kthat kcompany. kA kclassification kof
k“no kinfluence” kdoes knot kappear kappropriate ksince kAltria kowns k10.1% kof
kthe koutstanding kcommon kstock kand kalso k“active krepresentation kon kABI’s
kBoard kof kDirectors k(“ABI kBoard”) kand kcertain kABI kBoard kcommittees.
kThrough kthis krepresentation, kAltria kparticipates kin kABI kpolicy kmaking
kprocesses.” kA kclassification kof k“significant kinfluence” kseems kmost kappropriate
kgiven kthe kfacts, kand kthis kclassification kwarrants kaccounting kfor kthe
kinvestment kusing kthe kequity kmethod kof kaccounting.
5. a. k An kinvestor kmay kwrite kdown kthe kcarrying kamount kof kits kEquity
kInvestment kif kthe kfair kvalue kof kthat kinvestment khas kdeclined kbelow kits
kcarrying kvalue kand kthat kdecline kis kdeemed kto kbe kother kthan
ktemporary.
b. There kis kconsiderable kjudgment kin kdetermining kwhether ka kdecline kin kfair
kvalue kis kother kthan ktemporary. kThe kwrite-down kamounts kto ka kprediction
kthat kthe kfuture kfair kvalue kof kthe kinvestment kwill knot krise kabove kthe
kcurrent kcarrying kamount. kIf ka kcompany kdeems kthe kdecline kto kbe
ktemporary, kit kdoes knot kwrite kdown kthe kinvestment, kand ka kloss kis knot
krecognized kin kits kincome kstatement. kIf kthe kdecline kis kdeemed kto kbe
kother kthan ktemporary, kthe kinvestment kis kwritten kdown kand ka kloss kis
kreported. kCompanies kcan kuse kthis kflexibility kto kdecide kwhether kto
krecognize ka kloss kin kthe kcurrent kyear kor kto kpostpone kit kto ka kfuture
kyear.
6. Under kthe kequity kmethod, kan kinvestor krecognizes kits kshare kof kthe kearnings
kor klosses kof kan kinvestee kin kthe kperiods kfor kwhich kthey kare kreported kby
kthe kinvestee kin kits kfinancial kstatements. kFASB kASC k323-10-35-7 kstates kthat
k“Intra-entity kprofits kand klosses kshall kbe keliminated kuntil krealized kby kthe
kinvestor kor kinvestee kas kif kthe kinvestee kwere kconsolidated.” kThese
kintercompany kitems kare keliminated kto kavoid kdouble kcounting kand
kprematurely krecognizing kincome.
2023
Solutions kManual, 1-3
kChapter k1
