Advanced financial accounting 10th edition pdf download

We provide them primarily as a way of organizing the material. We also include short multiple choice questions at the end of most learning objectives. Finally, we provide longer exercises and problems that many instructors find useful in assessing understanding and encouraging group learning. LO Understand and explain how ownership and control can influence the accounting for investments in common stock.

While slide 4 repeats the diagram from the chapter, slide 5 provides a more interactive view of the same concept. The simple example in slide 19 allows students to practice cost method journal entries.

The simple example in slides allows students to practice equity method journal entries. The example in slides allows students to practice making journal entries under both methods and to easily compare them. This series of slides provides the foundation for helping students begin to learn how to prepare consolidated financial statements.

Instructors should spend enough time here to ensure that students understand these basic concepts. In slide 63 instructors should explain that the first step in preparing a consolidation worksheet is to enter the numbers from trail balances of the parent and subsidiary into the first two columns of the worksheet.

In slide 64, we emphasize that the same line items that are subtotaled in the actual financial statements of the companies need to subtotaled in the elimination entry columns. This is a critical point. In slide 65 we ask students to introduce the numbers from the basic elimination entry for the Pea Soup example from the previous section into the worksheet.

We emphasize that debits and credits in each sub-section need to be sub-totaled. Since net income carries down to the statement of retained earnings, the sub totals in the elimination entry adjustment columns must be carried down with the net income number. Likewise, since the ending balance in retained earnings carries down from the statement of retained earnings to the balance sheet, the sub totals in the elimination entry columns must be carried down with the retained earnings ending balances.

Emphasize that taking time to pay attention to these details will save students a significant amount of time and headaches in the long run. We only do this once in chapter 2. Once students have practiced adding across each row, we assume they can do it on future worksheets. While this may seem like a tedious exercise and even though this is an advanced financial accounting text , we have found from our experience that students often forget the normal balance in different types of accounts and have trouble remembering whether a debit or credit entry increases or decreases different types of accounts.

We find that walking through this exercise one time helps students to remember these basic concepts. We have students work this exercise in small groups in class. Advanced preparation includes either providing students a spreadsheet file or a hard copy similar to slide 73 so that they can work this exercise in class.

In slide 74, we ask students to work together to perform the book value calculations. In slide 75, we review the book value calculations and explain which numbers are used in the basic elimination entry. We then ask students to attempt the basic elimination entry in their groups. In slide 76, we show them the answer. In purchasing another company, it is also useful to ensure that the fixed assets of the acquired company appear in the consolidated financial statements as if the acquiring company had acquired those assets on the date of acquisition.

This elimination entry nets the accumulated depreciation on the date of acquisition against the cost basis, so that they appear as if they were newly acquired at their net book values on the acquisition date. After having students go through this process with their groups, we show them slide 79 BEFORE having them complete the worksheet. Slide 80 provides the solution. Some instructors like to show students how to perform a consolidation under the cost method.

Students could be asked to write a brief memo discussing why companies would be encouraged to invest in the stock of other companies. A question could be raised as to the trade-off of investing in stock of another company or increasing the capital expenditures of the company for additional fixed assets.

What are the economic benefits of investing in another company? Students could be assigned a recent article on investments on the Internet and asked to prepare an executive summary of the article, highlighting its major points for a business executive e.

Students could be asked to review the financial statements of a large public company and write a report on their investments. Students should list the different type of investments, percentage ownership, and method of accounting for the investments. Choice of Accounting Method The criteria used in determining significant influence are reviewed. Students also must specify when investment income will be greater under the cost method and when it will be greater under the equity method.

They should also explain why the use of the equity method becomes more appropriate as the percentage of ownership increases. They should support their findings with citations and quotations from the appropriate literature. Application of the Equity Method Students must review authoritative pronouncements to determine whether the company should utilize the cost or equity method subsequent to the sale of part of its investment.

Students must prepare a memorandum to the controller and outline and support their opinion. Need for Consolidation Process An effective answer to this case requires an understanding of which balances must be eliminated in order to avoid misstating the consolidated balance sheet totals.

Consolidating an Unprofitable Subsidiary An unprofitable venture is currently consolidated with a profitable entity without separately disclosing the loss. Students must research the issue to determine if disclosure is necessary, and describe what type of disclosures will be necessary in the financial statement notes or the management discussion.

Reference to authoritative literature must be included in a memorandum to the treasurer. Account Presentation Students must research authoritative literature to determine the proper way of combining account balances from different subsidiaries. A memorandum that reports findings and provides the necessary supporting references is required. Two multiple-choice questions deal with conceptual issues related to the cost and equity methods. Journal entries for the final year are recorded under both methods.

Dividends in excess of earnings are paid in the third year. Cost versus Equity Reporting Students must compute the income to be reported for three years under the a cost method and b the equity method. Liquidating dividends exist for the cost method. E 15 min. LO E EA 5 min. LO , LO M. Investment Value Calculation of the investment account balance is required for three consecutive years.

Investee with Preferred Stock Outstanding Journal entries must be given for the investor under the equity method. Preferred stock information is provided.

Fair Value Recognition Journal entries are required for all transactions occurring during the year of purchase assuming that the investor utilizes 1 the equity method and 2 the fair value method. Common stock. Cash, bonds, or common stock. Legal form. Economic substance. Both legal form and economic substance. Neither legal form nor economic substance. The investee is in reorganization in bankruptcy proceedings. There is a large passive minority interest in the investee.

No subsidiaries of the parent company. Foreign subsidiaries of the parent company. Finance-related subsidiaries of the parent company. Subsidiaries not controlled by the parent company. In a completed working paper elimination in journal entry format for a parent com- pany and its wholly owned subsidiary on the date of the business combination, the total of the debits generally equals the: a.

Total paid-in capital of the subsidiary. In the working paper for consolidated balance sheet prepared on the date of the business combination of a parent company and its wholly owned subsidiary, whose liabilities had current fair values equal to their carrying amounts, the total of the Eliminations column is equal to: a. An amount that is not determinable. Working paper elimination.

Subsidiary journal entry. Parent company journal entry. In a business combination resulting in a parent company—wholly owned subsidiary re- lationship, goodwill developed in the working paper elimination is attributed: a. In its entirety to the subsidiary.

In its entirety to the parent company. In its entirety to the consolidated entity. In a consolidated balance sheet of a parent company and its partially owned subsidiary, minority interest in net assets of subsidiary is displayed as a: a. Liability under both the economic unit concept and the parent company concept.

On the date of the business combination of a parent company and its partially owned subsidiary, under the computation method used in this book, the amount assigned to minority interest in net assets of subsidiary is based on the: a. Some other amounts. Under the compu- tation method used in this book, Goodwill—Paul and Minority Interest in Net Assets of Subsidiary are, respectively: a. Yes Yes b. Yes No c. No Yes d. No No Exercise 6.

Out-of-pocket costs of the business combination may be disregarded. Exercise 6. The current fair values of all other assets and liabilities of Single were equal to their carrying amounts.

Prepare a working paper to compute the amount of goodwill to be displayed in the December 31, , consolidated balance sheet of Phyll Corporation and subsidiary. Prepare a working paper to compute the amount of goodwill to be displayed in the consolidated balance sheet of Pelerin Corporation and subsidiary on December 31, Prepare a working paper to compute the amount of plant assets to be displayed in the consolidated balance sheet of Pelerin Corporation and subsidiary on December 31, Prepare a consolidated balance sheet for Painter Corporation and subsidiary on May 31, , without using a working paper.

Disregard income taxes. There was no contingent consideration involved in the combination. Superb was Debit goodwill— to be a subsidiary of Pristine. Additional Information for May 31, 1. Prepare a working paper elimination, in journal entry format omit explanation for the con- solidated balance sheet of Pristine Corporation and subsidiary on May 31, Prepare journal entries for Ploy Corporation on February 28, , to record the busi- ness combination with Skye Company. Prepare a working paper to compute the following amounts for the consolidated balance sheet of Ploy Corporation and subsidiary on February 28, 1 Goodwill neither Ploy nor Skye had goodwill in its separate balance sheet.

Each company had a minimal amount of liabilities and a simple capital structure consisting solely of common stock. Out-of-pocket costs of the combination may be disregarded. Prepare a working paper to compute the minority interest in net assets of subsidiary and the goodwill that would be displayed in the consolidated balance sheet of Combinor Cor- poration and subsidiary, under three alternative methods of computation as illustrated on page Disre- gard income taxes.

On that date, Payton acquired most of the outstanding common stock of Sutton Company for cash. Answer the following questions show supporting computations : a. What percentage of the outstanding common stock of the subsidiary was acquired by the parent company? What amount would be assigned to minority interest in net assets of subsidiary under the method described in c?

Cases Case 6. Bankruptcy Code. Instructions What is your opinion of the foregoing accounting practice? Case 6. The term of the voting trust is three years. Valuation of the investment is based on an unrelated cash issuance of Saye Company common stock on this date.

Instructions a. Do you concur with the foregoing journal entry? Which position do you prefer? The CEO gives you Section Instructions What are your ethical obligations in this matter? Instructions Do you support the view of student Michael or of student Roger?

Problems Problem 6. Prepare journal entries for Parr Corporation on September 30, , to record the busi- ness combination with Sane Company. Prepare a working paper elimination for Parr Corporation and subsidiary in journal en- try format on September 30, Problem 6. Prepare journal entries for Philly Corporation on September 30, , to record the business combination with Stype Company. Prepare a working paper for consolidated balance sheet and related working paper elim- ination in journal entry format for Philly Corporation and subsidiary on September 30, There was no contingent consideration, and Shire became a subsidiary of Pellman.

Prepare journal entries for Pellman Corporation to record the business combination with Shire Company on May 31, Prepare a working paper for consolidated balance sheet of Pellman Corporation and sub- sidiary on May 31, , and the related working paper elimination in journal entry format.

Prepare a journal entry for Seaver Company on April 30, , to record its payment of out-of-pocket costs of the business combination on behalf of Powell Corporation. Prepare journal entries for Powell Corporation to record the business combination with Seaver Company on April 30, Prepare a working paper for consolidated balance sheet of Powell Corporation and sub- sidiary on April 30, , and the related working paper elimination in journal entry format.

Prepare a working paper elimination in journal entry format and the related working pa- per for consolidated balance sheet of Pyr Corporation and subsidiary on July 31, Disregard in- come taxes. Instructions Reconstruct the working paper elimination in journal entry format for the working paper for consolidated balance sheet of Pali Corporation and subsidiary on August 31, Sayre was to be a subsidiary of Pagel.

Prepare working paper eliminations in journal entry format on October 31, , and the related working paper for the consolidated balance sheet of Pagel Corporation and subsidiary. Dis- regard income taxes. Prepare journal entries for Porcino Corporation on January 31, , to record its busi- ness combination with Secor Company.