Table Of ContentEssentials of
Advanced
Financial
Accounting
Essentials of
Advanced Financial
Accounting
Richard E. Baker
Northern Illinois University
Theodore E. C hristensen
Young University
David M. Cottrell
Young University
With contributions from:
Valdean C. Lembke
University of Iowa
Thomas E. K ing
Illinois University, Edwardsville
Cynthia G. Jeffrey
Iowa University
ESSENTIALS OF ADVANCED FINANCIAL A
Published by McGra The McGraw-Hill Companies, Inc., 1221 Avenue
of the w Y , 10020. Cop y w-Hill Companies, Inc. All
rights reserved. No part of this publication ma y any
v w-Hill
Companies, Inc., including, but not limited to, in any netw
or broadcast for distance learning.
y not be available to customers outside
the United States.
.
1 2 3 4 5 6 7 8 9 0 QDB/QDB 1 0 9 8 7 6 5 4 3 2 1
ISBN 978-0-07-802564-8
MHID 0-07-802564-8
Vice president and editor-in-chief: Brent Gordon
Editorial director: Stewart Mattson
Publisher: Tim Vertovec
Senior sponsoring editor: Dana L. Woo
Executive director of development: Ann Torbert
Development editor II: Katie Jones
Vice president and director of marketing: Robin J. Zwettler
Marketing director: Brad Par
Kathleen Klehr
V
Lead project manager: Pat Frederic
Senior buyer: Carol A. Bielski
Greg Bates
Media project manager: Suresh Babu, Hurix Systems Pvt. Ltd.
Cover design: Matthew Baldwin
Cover image: © ges
Interior design:
T ace: 10.5/12 T
Compositor: ords Private Limited
Printer: Quad/Graphics
Library of Congress Cataloging-in-Publication Data
er, Richard E.
Essentials of advanced f er, Theodore E. Christensen,
Da Valdean C. Lembke,
y.—1st ed.
p. cm.
Includes index.
ISBN-13: 978-0-07-802564-8 (alk. paper)
ISBN-10: 0-07-802564-8 (alk. paper)
1. Accounting. I. Christensen, Theodore E. II. David M. III. Title.
HF5636.B35 2012
2010053791
About the Authors
Richard E. Baker
been recognized as an inaugural University Presidential Teaching Professor, the highest
continually integrating new electronic technology into the accounting classroom. Profes-
levels and has been selected as the Illinois CPA Society’s Outstanding Accounting Edu-
Theodore E. Christensen
a M.Acc. degree in tax at Brigham Young University, and a Ph.D. in accounting from
The Accounting Review, the Journal of Account-
ing and Economics, Review of Accounting Stud-
ies, the Journal of Business Finance & Accounting, Accounting Horizons, and Issues in
Accounting Education.
ing Association and is a CPA.
David M. Cottrell
taught a case-based accounting and auditing research course in the graduate program,
ment. He has received the Outstanding Professor Award in the college of business as
v
vi About the Authors
Issues in Accounting Education, T he Journal
of Accounting Case Research, The Quarterly Review of Distance Education, Journal of
Accountancy, T he CPA Journal, Internal Auditor, The Tax Executive, and The Journal of
International Taxation, among others.
NOTE FROM THE AUTHORS
Our objective in creating the “Essentials of Advanced Accounting” text was to give an
The subject matter of advanced accounting is expanding at an unprecedented rate.
New topics are being added, and traditional topics require more extensive coverage. Most
tors who would like to cover a wider set of topics, we invite you to examine our compre-
hensive text, Advanced Accounting, which is now in its ninth edition.
this book and express their gratitude to Val Lembke, Tom King, and Cindy Jeffrey for
their many years of hard work to the previous editions of the comprehensive text.
Preface
Essentials of Advanced Financial Accounting is an up-to-date, comprehensive, and
highly illustrated presentation of the accounting and reporting principles and procedures
used in a v ery day, the business press car
the merger and acquisition mania, the comple w
or
ple vities of multinational f
governmental and not-for-prof irms, and other topics
y included in advanced accounting. w how
ting ramifications of these issues.
OVERVIEW
Essentials of Advanced Financial Accounting provides strong coverage of advanced
grated coverage based on continuous
case examples. The text is highl orksheets,
schedules, and f velopment of each topic.
Inclusion of all recent F
of the authoritative bodies pro rent and contemporary te
for the CPA e rent practice. This has become especiall ven
the recent rapid pace of the authoritative bodies in dealing with major issues having far-
reaching implications. v w of the contents and or w.
Multi-Corporate Entities
Business Combinations
1 Intercorporate Acquisitions and Investments in Other Entities
Consolidation Concepts and Procedures
2 R eporting Intercorporate Investments and Consolidation of Wholly Owned with
No Differential
3 ential
4 Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
5 Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than
Book Value
Intercompany Transfers
6 Intercompany Inventory Transactions
7 Intercompany T ent Assets
Multinational Entities
Foreign Currency Transactions
8 Multinational Accounting: Foreign Currency Transactions and Financial Instruments
Translation of Foreign Statements
9 M ultinational Accounting: Issues in Financial Reporting and Translation of Foreign
Entity Statements
Partnerships
Formation, Operation, Changes
10 Partnerships: Formation, Operation, and Changes in Membership
Liquidation
11 Partnerships: Liquidation
Governmental and Not-for-Profit Entities
Governmental Entities
12 Governmental Entities: Introduction and General Fund Accounting
Special Funds
13 Governmental Entities: Special Funds and Government-wide Financial Statements
vii
viii Preface
KEY FEATURES OF ESSENTIALS OF ADVANCED FINANCIAL ACCOUNTING
• Introductory vignettes.
Chapter-by-Chapter Changes section on page xvi.
• A building-block approach to consolidation.
marized as follows:
• Chapter 2 begins with the most basic consolidation situation: the consolidation of
the book value of net assets. Thus, students practice basic consolidation procedures
• Chapter 3
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 share-
holders, but without the details associated with a differential.
• Chapter 4
is acquired for an amount that exceeds the book value of net assets. In order to
• Chapter 5
tackle more realistic situations where the parent company purchases a control-
and the acquisition price
ously handle all of the details associated with a differential and noncontrolling
shareholders.
The overall coverage of the consolidation process by chapter is illustrated below:
Wholly owned Partially owned
No
Investment = Book value
Investment > Book value
No NCI NCI
shareholders shareholders
• Consistent with the building-
block approach to consolidation, the text includes a slight reorganization of the elim-
Preface ix
approach facilitates the building-block approach in Chapters 2–5. The text also uses
• P resentation of intercompany transactions.
building-block approach in Chapters 2–5.
•
• I FRS comparisons. As the FASB and IASB work toward convergence to a single
• A dvancedStudyGuide.com. See page xv for details.
• T he use of a continuous case for each major subject-matter area. This textbook
end. At each stage of the entity’s development, including the acquisition of a subsid-
logos in the margin:
ing to absorb a new set of data. Second, the case adds realism to the study of advanced
using a continuous case allows students to evaluate different methods and outcomes
more readily.
• Extensive illustrations of key concepts.
• The self-contained units of
In addition, individual chapters are organized to allow for going into greater depth
on some topics through the use of the “Additional Considerations” sections. Several
x Preface
• Contemporary topical coverage. The dynamic business environment requires
• Extensive end-of-chapter materials. A large number of questions, cases, exercises,
chapter materials progress from simple focused exercises to more complex integrated
rial to real-world s ituations. These cases include research cases where students are
CPA exam: ( a ) analysis, ( b c e ) under-
on the topics in the chapters.
MCGRAW-HILL’S CONNECT ™ ACCOUNTING
Less Managing. More Teaching. Greater Learning.
McGraw-Hill’s C onnect ™ A ccounting
McGraw-Hill’s Connect ™ Accounting
McGraw-Hill’s Connect ™ Accounting Features
McGraw-Hill’s Connect ™ A ccounting offers a number of powerful tools and features
McGraw-Hill’s Connect ™ Accounting,
McGraw-
Hill’s Connect ™ A ccounting offers you the features described below.
Simple Assignment Management
With M cGraw-Hill’s Connect ™ Accounting,
function enables you to
•
test bank items.
•
•
