Solution Manual For
Advanced Accounting
Author: Joe Ben Hoyle
15th Edition
,TABLE OF CONTENTS
Chapter 1: The Equity Method of Accounting for Investments
Chapter 2: Consolidation of Financial Information
Chapter 3: Consolidations—Subsequent to the Date of Acquisition
Chapter 4: Consolidated Financial Statements and Outside Ownership
Chapter 5: Consolidated Financial Statements—Intra-Entity Asset Transactions
Chapter 6: Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues
Chapter 7: Consolidated Financial Statements—Ownership Patterns and Income Taxes
Chapter 8: Segment and Interim Reporting
Chapter 9: Foreign Currency Transactions and Hedging Foreign Exchange Risk
Chapter 10: Translation of Foreign Currency Financial Statements
Chapter 11: Worldwide Accounting Diversity and International Standards
Chapter 12: Financial Reporting and the Securities and Exchange Commission
Chapter 13: Accounting for Legal Reorganizations and Liquidations
Chapter 14: Partnerships: Formation and Operation
Chapter 15: Partnerships: Termination and Liquidation
Chapter 16: Accounting for State and Local Governments (Part 1)
Chapter 17: Accounting for State and Local Governments (Part 2)
Chapter 18: Accounting and Reporting for Private Not-for-Profit Entities
Chapter 19: Accounting for Estates and Trusts
,Solution Manual For All Chapters
Solution Manual For
Advanced Accounting 15th Edition By Joe Ben Hoyle, Thomas Schaefer And
Timothy Doupnik
Chapter 1-19
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.
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.
2-24
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
Advanced Accounting
Author: Joe Ben Hoyle
15th Edition
,TABLE OF CONTENTS
Chapter 1: The Equity Method of Accounting for Investments
Chapter 2: Consolidation of Financial Information
Chapter 3: Consolidations—Subsequent to the Date of Acquisition
Chapter 4: Consolidated Financial Statements and Outside Ownership
Chapter 5: Consolidated Financial Statements—Intra-Entity Asset Transactions
Chapter 6: Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues
Chapter 7: Consolidated Financial Statements—Ownership Patterns and Income Taxes
Chapter 8: Segment and Interim Reporting
Chapter 9: Foreign Currency Transactions and Hedging Foreign Exchange Risk
Chapter 10: Translation of Foreign Currency Financial Statements
Chapter 11: Worldwide Accounting Diversity and International Standards
Chapter 12: Financial Reporting and the Securities and Exchange Commission
Chapter 13: Accounting for Legal Reorganizations and Liquidations
Chapter 14: Partnerships: Formation and Operation
Chapter 15: Partnerships: Termination and Liquidation
Chapter 16: Accounting for State and Local Governments (Part 1)
Chapter 17: Accounting for State and Local Governments (Part 2)
Chapter 18: Accounting and Reporting for Private Not-for-Profit Entities
Chapter 19: Accounting for Estates and Trusts
,Solution Manual For All Chapters
Solution Manual For
Advanced Accounting 15th Edition By Joe Ben Hoyle, Thomas Schaefer And
Timothy Doupnik
Chapter 1-19
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.
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.
2-24
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
