Advanced Accounting, 5e

by Hopkins, Halsey

| ISBN: 978-1-61853-432-3 | Copyright 2022

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Road Map
LO Learning Objective Page eLecture Guided Example Assignments
LO3.1

Describe the equity method of accounting for the Equity Investment.

128

MC16, MC17, MC18, MC19, MC22, MC23

LO3.2

Describe the consolidation process subsequent to the date of acquisition when the parent uses the equity method to account for its Equity Investment.

131

MC27, MC28, MC29, MC30, E38, E39, E40, E41, E42, P46, P48, P49, P50, P51, P53, P54, P55, P58

LO3.3

Describe the consolidation process subsequent to the date of acquisition when the parent uses the equity method to account for its Equity Investment.

141

MC20, MC21, MC24, MC25, E43, E44, E45, P47, P52, P56, P57, P59

LO3.4

Describe the accounting for Goodwill and Bargain Acquisition Gains.

149

MC26, E31, E32, E33, E37, P53, P54, P55

LO3.5

Describe the accounting for common control business combinations and the pooling-of-interests method.

164

P58, P59

Data Analytics

Businesses havexperienced significant change in the last several decades due to the increased use of new technologies ranging from data analytics and Blockchain to machine learning and artificial intelligence. In response to the changing demands of the business world, the AACSB has incorporated data analytics requirements within its educational framework. More recently, the AICPA and NASBA have underscored the importance of data analytics by making it a significant element in the CPA Evolution Model Curriculum.  The consensus suggests that students entering the accounting profession (or the business world more generally) need an understanding and working knowledge of data analytics to compete for the best jobs.

In recognition of the increasing importance of data analytics, the Fifth Edition includes assignments in myBusinessCourse that help students develop their data analytics skills. The assignments use Excel and Tableau to hone analysis and visualization skills. In addition, Appendix A at the end of the book provides an overview of data analytics, data visualization, and best practices for the effective display of data.




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Welcome to the Fifth Edition of Advanced Accounting!

Our goal in writing this book was to satisfy the needs of todays accounting students by providing the most contemporary, relevant, engaging, and student-oriented textbook available. We think that we have accomplished that objective by maintaining a conceptually rigorous discussion of the material in an intuitive and student-friendly style. Prior to writing this book, we both taught advanced financial accounting for many years, and we both felt that the structure and format of available textbooks contributed to the difficulties that our students have had in learning the material. Several examples come to mind:

  1. Too many issues discussed simultaneously.  Taken individually, consolidation issues can be difficult for students to grasp. The learning process is made all the more difficult when a particular topic (intercompany sales of assets, for example) is presented using alternative methods of pre-consolidation equity investment bookkeeping (e.g., equity, partial equity, and cost). Our experience—and the experience of many of our focus group participants—indicates that students are generally confused by the mixing of bookkeeping approaches in the main-chapter discussion of most textbooks. To address this issue, we present only two pre-consolidation bookkeeping approaches: equity method and cost method. In each consolidations-related chapter, we begin the consolidations-related discussion with the equity method because it provides the clearest and easiest-to-understand linkage between the parents pre-consolidation financial statements and the consolidated financial statements. We then use a page-edge border to very clearly mark the pages in which we discuss cost-method consolidations procedures. By clearly distinguishing between the two approaches, we make it much easier for instructors and students to know exactly which approach we are covering. In addition, this makes tailoring the material much easier. For example, if an instructor wishes to only cover the equity method of pre-consolidation bookkeeping, the easy-to-follow chapter set-up makes this possible.
  2. Mechanics versus intuition.  After completing our courses and entering the working world, our former students have encountered many different consolidation approaches used by their employers and clients. Given the diversity of processes and procedures in practice, we adjusted our own teaching styles to emphasize an intuitive understanding of the concepts over the rote memorization of static journal-entry approaches. Unfortunately, the available textbooks were mostly written with a mechanical perspective. In writing this text, we incorporated our teaching-based observations. In each chapter, we initially focus on conceptual explanations and discuss mechanics only after we convey an intuitive perspective on each topic. In addition, to help students immediately identify each of the various consolidation entries, we consistently color-code the C-E-A-D-I consolidation entries throughout the chapter discussion, the consolidation-entry listings, and in the consolidation worksheets.
  3. Connection between fund-based statements and government-wide statements. Most texts combine, in a single chapter, fund-based accounting and government-wide financial statements, and do not demonstrate how government-wide statements are generated from fund-based accounting. We address this issue by covering these topics in two separate chapters, and we focus on the adjustments necessary to create government-wide financial statements described in the reconciliations from fund statements to government-wide statements. We present this material within the context of an actual New England town. The town is large enough to demonstrate the accounting concepts, yet small enough to avoid obscuring the learning process with unnecessary complexity. 
  4. Not written for students. Many texts are written using overly technical language. Our text, while rigorous, is written in a student-friendly, conversational style that makes the material much easier for students to comprehend and apply.


CPA Evolution Model Curriculum

In spring 2020, the AICPA and NASBA boards of directors voted in favor of the CPA Evolution initiative, which is an effort to ensure that the CPA credential continues to ref lect the rapidly changing skills and competencies accounting professionals will need in the future. As part of this effort, starting in 2024, the Uniform CPA Exam will be comprehensively revised to include core skills in accounting, auditing, tax and technology.  In preparation for this transition, the AICPA and NASBA released in 2021 a CPA Evolution Model Curriculum, which provides an example of the types of knowledge and skills students should develop during their undergraduate and graduate studies.

As reflected in the CPA Evolution Model Curriculum, the Fifth Edition of our text continues to provide essential core knowledge and skills necessary for successful completion of the Uniform CPA Exam. In addition to our Data Analytics content, we include in-depth coverage of the following necessary topics (references to specific sections of the Model curriculum in parentheses):


  • Chapter 1: Classify, measure, account for, and report investments in financial instruments using appropriate technology (Section 1, Module 2, Topic 6)
  • Chapters 2-6: Recall more complex consolidated concepts and terms and prepare a set of consolidated financial statements using appropriate technology (Section 1, Module 2, Topic 2)
  • Chapter 3: Identify and calculate goodwill and other indefinite-lived intangible assets reported in the financial statements and prepare entries (Section 1, Module 3, Topic 1)
  • Chapters 2-6: Define concepts of and prepare journal entries to account for business combinations using appropriate technology (Section 1, Module 4, Topic 1)
  • Chapter 7: Identify characteristics of derivatives and hedge accounting and prepare journal entries under hedge accounting for derivative financial instruments using appropriate technology (Section 1, Module 4, Topic 2)
  • Chapter 8: Define foreign currency translation concepts and calculate gains or losses from translation of foreign currencies using appropriate technology (Section 1, Module 4, Topic 3)
  • Chapters 9-10: Various topics related to governmental accounting, including state and local government financial reporting, government-wide financial statements, individual fund statements, the annual comprehensive financial report, government component units, budgets and encumbrances, and fund balances and interfund activities (Section 1, Module 6, Topics 1-6)
  • Chapter 11: Various topics related to not-for-profit (NFP) accounting, including preparing a statement of financial position, statement of activities, statement of cash f lows and required disclosures, and accounting for nonreciprocal transfers (Section 1, Module 5, Topics 1-5)
  • Chapter 12: Prepare financial statement note disclosures for reportable segments (Section 1, Module 2, Topic 3)
  • Chapter 12: List requirements and financial statements related to for-profit entity financial reporting, such as Securities and Exchange Commission (SEC) requirements (Section 1, Module 1, Topic 6)
  • Chapter 13: Although covered in the tax modules in the CPA Evolution Model Curriculum, fundamentals related to partnership formation, realignment and liquidation will continue to be included on the Uniform CPA Exam (Section 3, Module 7, Topics 1-6)
  • End of chapter questions across all chapters: explain accounting research and applications (Section 1, Module 1, Topic 1)

Pedagogical Hallmarks Of Our Approach

Advanced accounting is a challenging course for most  students. To help students succeed, we use a number of proven pedagogical devices throughout the textbook that we have developed and refined over five editions.


Emphasis on Intuition

We introduce topics by discussing the intuition behind accounting standards before discussing the mechanics of the accounting process. In addition, we intentionally deemphasize memorization of journal entry mechanics. We believe that this approach allows students to better understand the material and to develop relevant transferrable knowledge.

Easy-To-Remember Mnemonic and Pedagogical Use of Color

Although our text emphasizes the intuition underlying the consolidation process, we also introduce the C-E-A-D-I (pronounced “Seedy”) consolidation journal entry sequence to assist students in learning the mechanics of consolidation. The sequence systematically eliminates the book value of subsidiary equity (C, E), establishes the fair value adjustments for subsidiary net assets (A, D), and eliminates intercompany transactions and balances (I). Over the years, weve observed that this easy-to-remember mnemonic improves students’ understanding of consolidations and allows for easier recall of each step of the consolidation adjustment process. In addition, we use a consistent set of colors for each type of journal entry to make it easy for students to trace the various amounts in consolidation worksheets.


FASB Codification Throughout

We wrote our text after implementation of the FASBs (and GASBs) Codification and we integrated the Codification throughout, including end-of-chapter problem assignments. Unlike many advanced accounting textbooks, we cite passages of the Codification frequently so that students can become familiar with the actual language of the standards, not just the authors’ summary of the standards. This also allows students to easily find the relevant passages on their own. In addition, to familiarize students with the Codification search engine and to better develop their research skills, we also include numerous Codification-related research assignments in our end-of-chapter problem sets.


Relevance and Engagement

Advanced accounting is a challenging topic. We have adopted a number of techniques in our book to make the material relevant and engaging to students. These techniques include:

Focus Companies for Each Chapter

Each chapter incorporates a “focus company” for special emphasis and demonstration. We chose companies that illustrate the topic of the chapter so that students can learn the material within context. In addition, our chapters on governmental accounting are written around a small New England town that is large enough to effectively communicate the concepts of governmental accounting, yet small enough not to obscure those concepts in unnecessary complexity.

The following are the focus companies we use to introduce our topics:
  • Consolidation chapters—Hulu, Coca-Cola, Cummins, Exxon Mobil, Alcoa, Walt Disney
  • Foreign currency, derivatives, and consolidation of foreign subsidiaries—Coca-Cola, Starbucks
  • Government and NFP—Town of Acton, MA and United Way Worldwide
  • Segments—3M Company
  • Partnerships—Boardwalk Pipeline Partners, LLP

Real Company Data in Text and Assignments

We believe that an important part of the learning process involves the application of concepts to real- world data. We include references to actual footnotes in the body of our text and also include a number of end-of-chapter problems that are written around actual footnote disclosures. These problems allow students to think about accounting concepts more broadly (i.e., less mechanically) and from the perspective of the users of financial statements.

The following is a typical example:

Practice Insight Boxes

We provide a number of Practice Insight Boxes resulting from interviews with practicing accountants and financial managers. These boxes provide students with insight into issues that accountants face in the real world, and with a glimpse into the types of decisions that practicing accountants must make.

The following is a typical example:

Mid-Chapter and Chapter-End Reviews

Advanced accounting concepts can be challenging. To reinforce concepts presented in each chapter and to ensure student comprehension, we include topic reviews that require students to recall and apply the financial accounting techniques and concepts described in each chapter.


Clear Cost-Method Coverage

In practice, companies apply procedures that blend the cost and equity methods of pre-consolidation bookkeeping. With that in mind, we have incorporated extensive cost method coverage in the relevant chapters and assignment material (Chapters 3-6). The Fifth Edition continues to focus on the full equity method in the consolidations chapters, while also discussing the cost method. All cost-method discussion is clearly marked with a labeled, colored bar in the margins.


Readability

Our text is written with rigorous content, but in a student-friendly conversational style that facilitates the learning process. Previous textbooks by the authors have met with extremely positive reviews for writing quality, and students who have used our textbook comment on the relative ease with which they are able to assimilate the material.


IFRS Coverage

Accounting students must become familiar with IFRS. Fortunately, the current accounting standards relating to the main topic of the book—business combinations and consolidation—were written jointly by the FASB and the IASB, and are 99% equivalent. In addition, other standards (e.g., segment reporting) are similar, but have key differences. In the text, we discuss the IFRS equivalent of accounting standards and highlight the differences between the two sets of accounting standards when they occur. These discussions are identified with the IFRS icon.



New to the Fifth Edition

  • Data Analytics:  Due Due to the increasing interest in data analysis technology, we have added a new end of book appendix (Appendix A) on Data Analytics and Blockchain. In addition, new Data Analytics and Data Visualization assignments are included in nearly every chapter. These assignments are in MBC and are auto graded.
  • Strong Excel skills have always been an indication of career readiness. To help students develop relevant Excel skills in accounting, we have added Excel assignments to many chapters. In addition, we have created short Excel tutorial videos that demonstrate essential Excel functionality. Excel assignments and videos are accessible through MBC and are auto graded.
  • CPA prep content: Cambridge Business Publishers has partnered with Gleim CPA Review, the trusted leader in CPA Exam preparation for over 45 years, to provide students with CPA prep materials that will give them a competitive advantage as they transition from the accounting classroom to taking the CPA Exam. Multiple choice questions and solutions from Gleim are available within MBC. In addition, simulations and practice tests are available for free from Gleim.
  • Goodwill impairment model completely updated for simplified approach required after 2021.
  • Includes newly created Integrated Comprehensive Review problems across chapters 2-6. Goes from acquisition date fact set to post-acquisition consolidation with intercompany profits and noncontrolling interest.
  • New cost-method Comprehensive Review problems across chapters 2-6, with fact sets that mir- ror the Equity Method Comprehensive Review problems. Facilitates direct comparison across the two bookkeeping approaches to allow students to identify points of similarities and differences.
  • Extensive revisions to Chapter 7 (Derivatives and Hedging) to simplify discussion.
  • All Topic Review problems and all end-of-chapter multiple choice, exercises, and problems have been revised and updated. Added more than 25 new multiple choice items.
  • MBC assets have been expanded and improved. More assignments are available in the 5th edition MBC course. All revisions have been prepared by and/or overseen by the authors to ensure consistency with the text.


Teaching Supplements

  • myBusinessCourse:  A web-based learning and assessment program intended to complement your textbook and classroom instruction. This easy-to-use course management system grades homework automatically and provides students with additional help when you are not available. In addition, detailed diagnostic tools assess class and individual performance. myBusinessCourse is ideal for online courses or traditional face-to-face courses for which you want to offer students more resources to succeed. Assignments with the MBC Homework icon the margin are available in myBusinessCourse.
  • Solutions Manual: We have a complete solutions manual for each chapter that has been developed by the authors.
  • PowerPoint: We have instructional PowerPoint slides for each chapter that have been developed by the authors.
  • Test Bank: The test bank includes multiple-choice items, exercises, and problems.
  • Excel Spreadsheets: We have Excel solution spreadsheets available for all of the consolidation-related problems and for problems in our fund accounting and government-wide financial statements chapters.
    These spreadsheets support the preparation of consolidated financial statements, for the governmental accounting chapters, from a trial balance and related journal entries.



Patrick E. Hopkins

Patrick E. Hopkins

Patrick E. Hopkins, is a professor and Deloitte Foundation Accounting Faculty Fellow at Indiana University’s Kelley School of Business. Professor Hopkins received his B.S. and M.Acc. from the University of Florida and his Ph.D. from the University of Texas at Austin.

Prior to entering the accounting doctoral program, Professor Hopkins served as a senior consultant with the Emerging Business Services practice of Deloitte, Haskins and Sells in Miami, Florida. Professor Hopkins has been at IU since 1995, where he teaches undergraduate and graduate courses on financial reporting for mergers, acquisitions and changes in corporate structure. He also served as a Visiting Professor at Stanford University’s Graduate School of Business, where he taught courses on global financial reporting and on accounting for mergers, acquisitions and changes in corporate structure. During his career, Professor Hopkins won each of the top teaching awards in the Kelley School of Business, including the Trustees Teaching Award, the Schuyler F. Otteson Award, and the Sauvain Award. He also teaches in international and online executive MBA programs at Indiana University, and in the doctoral program at HHL University in Leipzig, Germany. Professor Hopkins is also a widely respected research scholar in the area of financial reporting, and investor and analyst judgment and decision making. His work has appeared in top accounting journals, including The Accounting Review, the Journal of Accounting Research, Contemporary Accounting Research, and Accounting Organizations and Society, and has been discussed in business press publications, including Barron’s, CFO, and The Deal. He is the past winner of the American Accounting Association’s Financial Accounting and Reporting Section Best Research Paper Award, the Indiana University Outstanding Junior Faculty Award, and Kelley School of Business Outstanding Research Award.


Robert F. Halsey

Robert F. Halsey

Robert F. Halsey is Professor of Accounting and Associate Dean of the Undergraduate School at Babson College. He received his MBA and PhD from the University of Wisconsin.

Prior to obtaining his PhD he worked as the chief financial officer (CFO) of a privately held retailing and manufacturing company and as the vice president and manager of the commercial lending division of a large bank.

Professor Halsey teaches courses in financial and managerial accounting at both the graduate and undergraduate levels, including a popular course in financial statement analysis for second year MBA students. He has also taught numerous executive education courses for large multinational companies through Babson’s school of Executive Education as well as for a number of stock brokerage firms in the Boston area. He is regarded as an innovative teacher and has been recognized for outstanding teaching at both the University of Wisconsin and Babson College.

Professor Halsey co-authors Advanced Accounting published by Cambridge Business Publishers. Professor Halsey’s research interests are in the area of financial reporting, including firm valuation, financial statement analysis, and disclosure issues. He has publications in Advances in Quantitative Analysis of Finance and Accounting, The Journal of the American Taxation Association, Issues in Accounting Education, The Portable MBA in Finance and Accounting, the CPA Journal, AICPA Professor/Practitioner Case Development Program, and in other accounting and analysis journals.

Professor Halsey is an active member of the American Accounting Association and other accounting, analysis, and business organizations. He is widely recognized as an expert in the areas of financial reporting, financial analysis, and business valuation.


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Errata
Last Updated: Jan 18 2022

Corrections to the text identified after the book's printing.

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