hoy36628_fm_i-xx.qxd 1/27/10 1:55 PM Page i Advanced Accounting Tenth Edition Joe B Hoyle Associate Professor of Accounting Robins School of Business University of Richmond Thomas F Schaefer KPMG Professor of Accountancy Mendoza College of Business University of Notre Dame Timothy S Doupnik Professor of Accounting Moore School of Business University of South Carolina hoy36628_fm_i-xx.qxd 1/27/10 1:55 PM Page ii ADVANCED ACCOUNTING Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020 Copyright © 2011, 2009, 2007, 2004, 2001, 1998, 1994, 1991, 1987, 1984 by The McGraw-Hill Companies, Inc All rights reserved No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning Some ancillaries, including electronic and print components, may not be available to customers outside the United States This book is printed on acid-free paper WDQ/WDQ ISBN MHID 978-0-07-813662-7 0-07-813662-8 Vice president and editor-in-chief: Brent Gordon Editorial director: Stewart Mattson Publisher: Tim Vertovec Senior sponsoring editor: Dana L Woo Director of development: Ann Torbert Development editor: Katie Jones Vice president and director of marketing: Robin J Zwettler Marketing director: Sankha Basu Associate marketing manager: Dean Karampelas Vice president of editing, design and production: Sesha Bolisetty Managing editor: Lori Koetters Lead production supervisor: Carol A Bielski Interior and cover designer: Pam Verros Media project manager: Joyce J Chappetto Cover credit: © Adam Gault/Digital Vision/Getty Images Typeface: 10/12 Times New Roman Compositor: Aptara®, Inc Printer: Worldcolor Library of Congress Cataloging-in-Publication Data Hoyle, Joe Ben Advanced accounting / Joe B Hoyle, Thomas F Schaefer, Timothy S Doupnik.—10th ed p cm Includes index ISBN-13: 978-0-07-813662-7 (alk paper) ISBN-10: 0-07-813662-8 (alk paper) Accounting I Schaefer, Thomas F II Doupnik, Timothy S III Title HF5636.H69 2011 657'.046—dc22 2009054189 www.mhhe.com hoy36628_fm_i-xx.qxd 1/27/10 1:55 PM Page iii To our families hoy36628_fm_i-xx.qxd 1/27/10 1:55 PM Page iv The real purpose of books is to trap the mind into doing its own thinking Christopher Morley hoy36628_fm_i-xx.qxd 1/27/10 1:55 PM Page v About the Authors Joe B Hoyle, University of Richmond Joe B Hoyle is Associate Professor of Accounting at the Robins School of Business at the University of Richmond, where he teaches Intermediate Accounting and Advanced Accounting In 2009, he was named one of the 100 most influential people in the accounting profession by Accounting Today He was named the 2007 Virginia Professor of the Year by the Carnegie Foundation for the Advancement of Teaching and the Center for Advancement and Support of Education He has been named a Distinguished Educator five times at the University of Richmond and Professor of the Year on two occasions Joe recently authored a book of essays titled Tips and Thoughts on Improving the Teaching Process in College, which is available without charge at http://oncampus.richmond.edu/~jhoyle/ Thomas F Schaefer, University of Notre Dame Thomas F Schaefer is the KPMG Professor of Accounting at the University of Notre Dame He has written a number of articles in scholarly journals such as The Accounting Review, Journal of Accounting Research, Journal of Accounting & Economics, Accounting Horizons, and others His primary teaching and research interests are in financial accounting and reporting Tom is active with the Association for the Advancement of Collegiate Schools of Business International and is a past president of the American Accounting Association’s Accounting Program Leadership Group Tom received the 2007 Joseph A Silvoso Faculty Merit Award from the Federation of Schools of Accountancy Timothy S Doupnik, University of South Carolina Timothy S Doupnik is Professor of Accounting at the University of South Carolina, where he teaches Financial and International Accounting Tim has published extensively in the area of international accounting in journals such as Accounting, Organizations, and Society; Abacus; International Journal of Accounting; and Journal of International Business Studies Tim is a past president of the American Accounting Association’s International Accounting Section, and he received the section’s Outstanding International Accounting Educator Award in 2008 v hoy36628_fm_i-xx.qxd 1/27/10 1:55 PM Page vi Students Solve the Accounting Puzzle The approach used by Hoyle, Schaefer, and Doupnik allows students to think critically about accounting, just as they will in their careers and as they prepare for the CPA exam Read on to understand how students will succeed as accounting majors and as future CPAs by using Advanced Accounting, 10e EXHIBIT 2.1 Recent Notable Business Combinations Thinking Critically With this text, students gain a well-balanced appreciation of the accounting profession As Hoyle 10e introduces them to the field’s many aspects, it often focuses on past controversies and present resolutions The text shows the development of financial reporting as a product of intense and considered debate that continues today and will in the future Readability The writing style of the nine previous editions has been highly praised Students easily comprehend chapter concepts because of the conversational tone used throughout the book The authors have made every effort to ensure that the writing style remains engaging, lively, and consistent Acquirer Pfizer InBev Merck Bank of America Verizon Wireless Mars Oracle Delta Airlines EMC Abbott Laboratories Target Wyeth Anheuser-Busch Schering-Plough Merrill Lynch Alltel Wm Wrigley, Jr Sun Microsystems Northwest Airlines Data Domain Advanced Medical Optics If the goal of business activity is to maximize the firm combinations help achieve that goal? Clearly, the busine toward business combinations as a strategy for growth and obviously becoming critical as firms compete in today’s ma ficient in delivering goods and services, they gain a compe fi bl f h i l d Discussion Question HOW DOES A COMPANY REALLY DECIDE W Pilgrim Products, Inc., buys a controlling inte poration Shortly after the acquisition, a m convened to discuss the internal reporting p subsidiary Each member of the staff has a method, initial value method, or partial equ issue, Pilgrim’s chief financial officer outline I already understand how each method w disadvantages of all three I realize, for e more detailed information whereas the in vi Real-World Examples Students are better able to relate what they learn to what they will encounter in the business world after reading these frequent examples Quotations, articles, and illustrations from Forbes, The Wall Street Journal, Time, and BusinessWeek are incorporated throughout the text Data have been pulled from business, not-for-profit, and government financial statements as well as official pronouncements Discussion Questions This feature facilitates student understanding of the underlying accounting principles at work in particular reporting situations Similar to minicases, these questions help explain the issues at hand in practical terms Many times, these cases are designed to demonstrate to students why a topic is problematic and worth considering hoy36628_fm_i-xx.qxd 1/27/10 1:55 PM Page vii with 10th Edition Features CPA Simulations Please visit the text Web site for the o Situation: On January 1, Year 1, Big Corporation acqu outstanding voting stock It was the first such acquis transaction, Big and Little reported, respectively, a $900,000 and $330,000, contributed capital of $30 $800,000 and $370,000 Unless otherwise stated, assu book value of $200,000 but a fair value of $300,000 Little’s other assets and liabilities are fairly valued in Hoyle et al.’s CPA Simulations, powered by Kaplan, are found in Chapters 3, 5, 10, 17, and 18 of the 10th edition Simulations are set up in the text and completed online at the 10th edition Web site (mhhe.com/hoyle10e) This allows students to practice advanced accounting concepts in a Web-based interface identical to that used in the actual CPA exam There will be no hesitation or confusion when students sit for the real exam; they will know exactly how to maneuver through the computerized test Topics to be covered in simulation: • Goodwill to be reported • Consolidated assets and equities • Consolidated expenses • Unrecorded intangible assets • Goodwill impairment • Determination of control End-of-Chapter Materials As in previous editions, the end-of-chapter material remains a strength of the text The sheer number of questions, problems, and Internet assignments tests, and therefore expands, the students’ knowledge of chapter concepts Excel Spreadsheet Assignments extend specific problems and are located on the 10th edition Web site at mhhe.com/hoyle10e An Excel icon appears next to those problems that have corresponding spreadsheet assignments “Develop Your Skills” asks questions that address the four skills students need to master to pass the CPA exam: Research, Analysis, Spreadsheet, and Communication An icon indicates when these skills are tested Comprehensive Illustration PROBLEM (Estimated Time: 40 to 65 Minutes) On pany’s outstanding common stock for $84 a 12-year remaining life was undervalued life was undervalued, but only by $10,000 were equal to their fair values at that time value of $40,000 and a 20-year remainin $720,000 During 2011, Bottom reported net inco $120,000 in 2012 with $20,000 in divide the companies reported the following se the year: Develop Your Skills ACCOUNTING THEORY RESEARCH CASE CPA skills The FASB ASC paragraph 810-10-45-16 states consolidated statement of financial position w amount shall be clearly identified and labeled, fo However, prior to issuing this current reportin D Questions What is a business combination? Problems Describe the different types of legal arrangements t What does the term consolidated financial statem Within the consolidation process, what is the purp LO1 Jones Company obtains all of the common stock o stock Under these circumstances, why might the What is the accounting basis for consolidating recorded using the acquisition method? Note: Problems 1–25 relate to the acquisition met 26 through 30 relate to the purchase method Pro The Acquisition Method Which of the following does not represent a a Combinations as a vehicle for achieving b Cost savings through elimination of dupl c Quick entry for new and existing product d Larger firms being less likely to fail vii hoy36628_fm_i-xx.qxd 1/27/10 1:55 PM Page viii Supplements Instructor’s Resource CD ISBN 9780077268022 MHID 0077268024 includes electronic files for all of the Instructor Supplements For the Instructor • Instructor’s Resource and Solutions Manual, revised by the text authors, includes the solutions to all discussion questions, end-of-chapter questions, and problems It provides chapter outlines to assist instructors in preparing for class • Test Bank, revised by Ilene Persoff, CW Post Campus/ Long Island University, has been significantly updated • EZ Test Computerized Test Bank can be used to make different versions of the same test, change the answer order, edit and add questions, and conduct online testing Technical support for this software is available at (800) 331-5094 or visit www.mhhe.com/eztest ã PowerPointđ Presentations, revised by Marilynn Leathart, Concordia University of Texas, deliver a complete set of slides covering many of the key concepts presented in each chapter • Excel Template Problems and Solutions, revised by Jack Terry of ComSource Associates, Inc., allow students to develop important spreadsheet skills by using Excel templates to solve selected assignments • Connect Accounting accounting ISBN 9780077417307; MHID 0077417305 • Connect Plus Accounting accounting ISBN 9780077417321; MHID 0077417321 For the Student • Study Guide/Working Papers ISBN 9780077268046; MHID 0077268040 Revised by Sharon O’Reilly, St Mary’s University of Minnesota, this combination of study guide and working papers reinforces the book’s key concepts by providing students with chapter outlines, multiple-choice questions, and problems for each chapter in the text In addition, this paperback contains all forms necessary for completing the end-of-chapter material viii • Self-Grading Multiple-Choice Quizzes (mhhe.com/ hoyle10e) for each chapter are available on the Student Center of the text’s Online Learning Center • Excel Template Problems (mhhe.com/hoyle10e) are available on the Student Center of the text’s Online Learning Center The software includes innovatively designed Excel templates that may be used to solve many complicated problems found in the book These problems are identified by a logo in the margin • PowerPoint Presentations (mhhe.com/hoyle10e) are available on the Student Center of the text’s Online Learning Center These presentations accompany each chapter of the text and contain the same slides that are available to the instructor Assurance of Learning Ready Assurance of learning is an important element of many accreditation standards Hoyle 10e is designed specifically to support your assurance of learning initiatives Each chapter in the book begins with a list of numbered learning objectives that appear throughout the chapter, as well as in the end-of-chapter problems and exercises Every test bank question is also linked to one of these objectives, in addition to level of difficulty, topic area, Bloom’s Taxonomy level, AACSB, and AICPA skill area EZ Test, McGraw-Hill’s easy-to-use test bank software, can search the test bank by these and other categories, providing an engine for targeted Assurance of Learning analysis and assessment AACSB Statement The McGraw-Hill Companies is a proud corporate member of AACSB International Understanding the importance and value of AACSB accreditation, Hoyle 10e has sought to recognize the curricula guidelines detailed in the AACSB standards for business accreditation by connecting selected questions in the test bank to the general knowledge and skill guidelines found in the AACSB standards The statements contained in Hoyle 10e are provided only as a guide for the users of this text The AACSB leaves content coverage and assessment within the purview of individual schools, the mission of the school, and the faculty While Hoyle 10e and the teaching package make no claim of any specific AACSB qualification or evaluation, we have, within the test bank, labeled selected questions according to the six general knowledge and skills areas hoy36628_fm_i-xx.qxd 1/27/10 1:55 PM Page ix Technology CPA Simulations McGraw-Hill Connect Accounting accounting Less Managing More Teaching Greater Learning McGraw-Hill Connect Accounting is an online assignment and assessment solution that connects students with the tools and resources they’ll need to achieve success McGraw-Hill Connect Accounting helps prepare students for their future by enabling faster learning, more efficient studying, and higher retention of knowledge Connect Accounting offers a number of powerful tools and features to make managing assignments easier, so faculty can spend more time teaching Connect Accounting offers you the features described below Simple assignment management With Connect Accounting, creating assignments is easier than ever The assignment management function enables you to: • Create and deliver assignments easily with selectable end-of-chapter questions and test bank items • Streamline lesson planning, student progress reporting, and assignment grading to make classroom management more efficient than ever • Go paperless with the eBook and online submission and grading of student assignments Smart grading When it comes to studying, time is precious Connect Accounting helps students learn more efficiently by providing feedback and practice material when they need it, where they need it The grading function enables you to: • Have assignments scored automatically, giving students immediate feedback on their work and side-by-side comparisons with correct answers • Access and review each response; manually change grades or leave comments for students to review • Reinforce classroom concepts with practice tests and instant quizzes Student progress tracking Connect Accounting keeps instructors informed about how each student, section, and class is performing, allowing for more productive use of lecture and office hours The progress-tracking function enables you to: • View scored work immediately and track individual or group performance with assignment and grade reports • Access an instant view of student or class performance relative to learning objectives • Collect data and generate reports required by many accreditation organizations, such as AACSB and AICPA McGraw-Hill Connect Plus Accounting McGraw-Hill reinvents the textbook learning experience for the modern student with Connect Plus Accounting A seamless integration of an eBook and Connect Accounting, Connect Plus Accounting provides all of the Connect Accounting features plus an integrated eBook, allowing for anytime, anywhere access to the textbook; dynamic links between the problems or questions you assign to your students and the location in the eBook where that problem or question is covered; and a powerful search function to pinpoint and connect key concepts in a snap For more information about Connect, go to www.mcgrawhillconnect.com, or contact your local McGraw-Hill sales representative CPA Simulations The McGraw-Hill Companies and Kaplan have teamed up to bring students CPA simulations to test their knowledge of the concepts discussed in various chapters, practice critical professional skills necessary for career success, and prepare for the computerbased CPA exam Kaplan CPA Review provides a broad selection of Web-based simulations that were modeled after the AICPA format Exam candidates become familiar with the item format, the research database, and the spreadsheet and word processing software used exclusively on the CPA exam (not Excel or Word), as well as the functionality of the simulations, including the tabs, icons, screens, and tools used on the exam CPA simulations are found in the end-of-chapter material after the very last cases in Chapters 3, 5, 10, 17, and 18 Online Learning Center www.mhhe.com/hoyle10e For instructors, the book’s Web site contains the Instructor’s Resource and Solutions Manual, PowerPoint slides, Excel templates and solutions, Interactive Activities, Text and Supplement Updates, and links to professional resources The student section of the site features online multiple-choice quizzes, a sample Study Guide chapter, PowerPoint presentations, Check Figures, and Excel template exercises ALEKS® for Financial Accounting ALEKS (Assessment and Learning in Knowledge Spaces) delivers precise, qualitative diagnostic assessments of students’ knowledge, guides them in selecting appropriate new study material, and records their progress toward mastery of curricular goals in a robust classroom management system ALEKS interacts with the student much as a skilled human tutor would, moving between explanation and practice as needed, correcting and analyzing errors, defining terms, and changing topics on request CourseSmart CourseSmart is a new way to find and buy eTextbooks At CourseSmart you can save up to 40% off the cost of a print textbook, reduce your impact on the environment, and gain access to powerful Web tools for learning Go to www.coursesmart.com to learn more ix hoy36628_ch19_817-850.qxd 1/14/10 9:17 PM Page 846 846 Chapter 19 LO3 b Assume that the estate has the following assets: $55,000 cash in the First National Bank, $6,000 cash in the New Hampshire Savings and Loan, 1,200 shares of Coca-Cola stock, 600 shares of Xerox stock, and other property valued at $22,000 What distributions will be made from this estate? 34 Zac Peterson’s estate reports the following information: Value of estate assets Conveyed to spouse Conveyed to children Conveyed to trust fund for benefit of cousin Conveyed to charities Funeral expenses Administrative expenses Debts LO3 What is the taxable estate value? 35 Donna Stober’s estate has the following assets (all figures approximate fair value): Investments in stocks and bonds House Cash Investment land Automobiles (three) Other assets LO3 $1,400,000 700,000 70,000 60,000 51,000 100,000 The house, cash, and other assets are left to the decedent’s spouse The investment land is contributed to a charitable organization The automobiles are to be given to the decedent’s brother The investments in stocks and bonds are to be put into a trust fund The income generated by this trust will go to the decedent’s spouse annually until all of the couple’s children have reached the age of 25 At that time, the trust will be divided evenly among the children The following amounts are paid prior to distribution and settlement of the estate: funeral expenses of $20,000 and estate administration expenses of $10,000 a What value is to be reported as the taxable estate for federal estate tax purposes? b How does the year in which an individual dies affect the estate tax computation? For example, what is the impact of dying on December 30, 2008, versus January 2, 2009, or December 30, 2009, versus January 2, 2010? 36 During 2010, an estate generated income of $20,000: Rental income Interest income Dividend income LO4, LO5 $2,300,000 1,000,000 230,000 500,000 260,000 23,000 41,000 246,000 $9,000 6,000 5,000 The interest income is conveyed immediately to the beneficiary stated in the decedent’s will Dividends of $1,200 are given to the decedent’s church What amount of federal income tax must this estate pay? 37 The executor of Rose Shield’s estate listed the following properties (at fair value): Cash Life insurance receivable Investments in stocks and bonds Rental property Personal property $300,000 200,000 100,000 90,000 130,000 a Prepare journal entries to record the property held by Ms Shield’s estate and then each of the following transactions that occur in the months following the decedent’s death: (1) Claims of $80,000 are made against the estate for various debts incurred before the decedent’s death (2) Interest of $12,000 is received from bonds held by the estate Of this amount, $5,000 had been earned prior to death (3) Ordinary repairs costing $6,000 are made to the rental property hoy36628_ch19_817-850.qxd 1/14/10 9:17 PM Page 847 Accounting for Estates and Trusts 847 LO4, LO5 (4) All debts ($80,000) are paid (5) Stocks recorded in the estate at $16,000 are sold for $19,000 cash (6) Rental income of $14,000 is collected Of this amount, $2,000 had been earned prior to the decedent’s death (7) Cash of $6,000 is distributed to Jim Arness, an income beneficiary (8) The proceeds from the life insurance policy are collected and the money is immediately distributed to Amanda Blake as specified in the decedent’s will (9) Funeral expenses of $10,000 are paid b Prepare in proper form a charge and discharge statement 38 The executor of Gina Purcell’s estate has recorded the following information: Assets discovered at death (at fair value): Cash Life insurance receivable Investments: Walt Disney Company Polaroid Corporation Ford Motor Company Dell Computer Corporation Rental property Cash outflows: Funeral expenses Executor fees Ordinary repairs of rental property Debts Distribution of income to income beneficiary Distribution to charitable remainder trust Cash inflows: Sale of Polaroid stock Rental income ($4,000 earned prior to death) Dividend income ($2,000 declared prior to death) Life insurance proceeds LO4, LO5 $600,000 200,000 11,000 27,000 34,000 32,000 300,000 $ 21,000 12,000 2,000 81,000 4,000 300,000 $ 30,000 11,000 12,000 200,000 Debts of $17,000 still remain to be paid The Dell shares have been conveyed to the appropriate beneficiary Assume that Ms Purcell’s will stated that all executor fees are to be paid from principal Prepare an interim charge and discharge statement for this estate 39 Jerry Tasch’s will has the following provisions: • $150,000 in cash goes to Thomas Thorne • All shares of Coca-Cola go to Cindy Phillips • Residence goes to Kevin Simmons • All other estate assets are to be liquidated with the resulting cash going to the First Church of Freedom, Missouri Prepare journal entries for the following transactions: a Discovered the following assets (at fair value): Cash Interest receivable Life insurance policy Residence Shares of Coca-Cola Company Shares of Polaroid Corporation Shares of Ford b c d e f g Collected interest of $7,000 Paid funeral expenses of $20,000 Discovered debts of $40,000 Located an additional savings account of $12,000 Conveyed title to the residence to Kevin Simmons Collected life insurance policy $ 80,000 6,000 300,000 200,000 50,000 110,000 140,000 hoy36628_ch19_817-850.qxd 1/14/10 9:17 PM Page 848 848 Chapter 19 LO4, LO5 h Discovered additional debts of $60,000 Paid debts totaling $100,000 i Conveyed cash of $150,000 to appropriate beneficiary j Sold the shares of Polaroid for $112,000 k Paid administrative expenses of $10,000 40 After the death of Lennie Pope, his will was read It contained the following provisions: • $110,000 in cash goes to decedent’s brother, Ned Pope • Residence and other personal property go to his sister, Sue Pope • Proceeds from the sale of Ford stock go to uncle, Harwood Pope • $300,000 goes into a charitable remainder trust • All other estate assets are to be liquidated with the cash going to Victoria Jones a Prepare journal entries for the following transactions that subsequently occur: (1) Discovered the following assets (at fair value): Cash Certificates of deposit Dividends receivable Life insurance policy Residence and personal effects Shares of Ford Motor Company Shares of Xerox Corporation LO4, LO5 LO4, LO5 $ 19,000 90,000 3,000 450,000 470,000 72,000 97,000 (2) Collected life insurance policy (3) Collected dividends of $4,000 (4) Discovered debts of $71,000 (5) Conveyed title to the residence to Sue Pope along with the decedent’s personal effects (6) Discovered title to land valued at $15,000 (7) Discovered additional debts of $37,000 Paid all of the debts totaling $108,000 (8) Paid funeral expenses of $31,000 (9) Conveyed cash of $110,000 to Ned Pope (10) Sold the shares of Ford for $81,000 (11) Paid administrative expenses of $16,000 (12) Made the appropriate payment to Harwood Pope b Prepare a charge and discharge statement 41 James Albemarle created a trust fund at the beginning of 2010 The income from this fund will go to his son Edward When Edward reaches the age of 25, the principal of the fund will be conveyed to United Charities of Cleveland Mr Albemarle specified that 75 percent of trustee fees are to be paid from principal Terry Jones, CPA, is the trustee Prepare all necessary journal entries for the trust to record the following transactions: a James Albemarle transferred cash of $300,000, stocks worth $200,000, and rental property valued at $150,000 to the trustee of this fund b Immediately invested cash of $260,000 in bonds issued by the U.S government Commissions of $3,000 are paid on this transaction c Incurred permanent repairs of $7,000 so that the property can be rented Payment is made immediately d Received dividends of $4,000 Of this amount, $1,000 had been declared prior to the creation of the trust fund e Paid insurance expense of $2,000 on the rental property f Received rental income of $8,000 g Paid $4,000 from the trust for trustee services rendered h Conveyed cash of $5,000 to Edward Albemarle 42 Henry O’Donnell created an inter vivos trust fund He owns a large department store in Higgins, Utah He also owns a tract of land adjacent to the store used as an extra parking lot when the store is having a sale and during the Christmas season O’Donnell expects the land to appreciate in value and eventually be sold for an office complex or additional stores O’Donnell places this land into a charitable lead trust, which will hold the land for 10 years until O’Donnell’s son is 21 At that time, title will transfer to the son The store will pay rent to use the hoy36628_ch19_817-850.qxd 1/14/10 9:17 PM Page 849 Accounting for Estates and Trusts 849 land during the interim The income generated each year from this usage will be given to a local church The land is currently valued at $320,000 During the first year of this arrangement, the trustee records the following cash transactions: Cash inflows: Rental income Cash outflows: Insurance Property taxes Paving (considered an extraordinary repair) Maintenance Distribution to income beneficiary $60,000 $ 4,000 6,000 4,000 8,000 30,000 Prepare all journal entries for this trust fund including the entry to create the trust Develop Your Skills RESEARCH CASE CPA skills The CPA firm of Simon, Winslow, and Tate has been approached by a client who is interested in information about the possibility of establishing a minor’s Section 2503(c) trust Go to the Web site http://www.finaid.org/savings/2503ctrust.phtml Alternatively, use an Internet search engine to find other analyses of a Section 2503(c) trust Required Based on the results of this search, write a memo for the client outlining the requirements, design, advantages, and disadvantages of a minor’s Section 2503(c) trust so the client can make an informed decision RESEARCH CASE CPA skills A staff employee for the CPA firm of O’Brien, Leahy, and Sweeney is currently preparing Form 1041 as an income tax return for an estate The staff employee knows that the estate is allowed a deduction for income distributions to beneficiaries up to the amount of the estate’s distributable net income (DNI) for the period However, the employee is not certain how to compute the exact amount of this deduction Go to the Web site www.irs.gov Do a search for “Instruction 1041” to get the instruction information for estate and trust income taxes published by the IRS Required Read the information provided, and write a memo to the employee explaining (in general terms) how to calculate this deduction RESEARCH CASE CPA skills A client, Beth Voga, asks for advice She tells you that her grandmother, a widowed resident of Montana, has no will She asks whether any portion of her grandmother’s estate will pass to her (Beth’s) cousins, whom her grandmother despises Required Use an Internet search engine to locate the Montana version of the Uniform Probate Code Then briefly advise Ms Voga, answering her specific question Also advise her on the necessity of a will for her grandmother hoy36628_ch19_817-850.qxd 1/14/10 9:17 PM Page 850 850 Chapter 19 ANALYSIS CASE CPA skills Use an Internet search engine to locate an explanation of the benefits of a grantor retained annuity trust Required Write a memo describing the circumstances that would make this type of trust most advantageous ANALYSIS CASE CPA skills A law firm is preparing to file a federal estate tax return (Form 706) The estate’s executor has elected to use the alternate valuation date The partner in charge of filing this return is not certain about all of the ramifications of having chosen to use this alternate date Go to the Web site www.irs.gov Do a search for “Instruction 706” to get the instruction information published by the IRS for federal estate taxes Required Read the information provided, and write a memo to the partner outlining the information the IRS provides as to the significance of the alternate valuation date hoy36628_ndx_851-860.qxd 1/25/10 11:02 PM Page 851 Index Page numbers followed by n refer to notes A A H Robins, 559n, 579 Abatement process, 821 Abbott Laboratories, 39, 408–409 ABC, 335 Accounting diversity evidence for, 490–494 international harmonization of financial reporting and, 498–499 obstacles to worldwide comparability of financial statements and, 521–522 principles-based approach to standard setting and, 519–521 problems caused by, 497–498 reasons for, 494–496 general model of, 496–497 Accounting Principles Board (APB), Opinions No 28, 350, 355 No 29, 504 Accounting standards See also International accounting standards; International Accounting Standards (IASs); International financial reporting standards (IFRSs); U.S generally accepted accounting principles (GAAP) diversity of See Accounting diversity principles-based approach to setting, 519–521 U.S and international, convergence of, 59 Accounting Standards Codification See Financial Accounting Standards Board (FASB), Accounting Standards Codification (ASC) Accrual accounting government-wide financial statements and, 672 unrealized foreign exchange gains and losses and, 382 Accumulated depreciation, temporal method of financial statement translation and, 442–443 Acquisition(s) See also Consolidations contributions to not-for-profit organizations and, 793–794 of not-for-profit organizations, 793, 794 Acquisition method, for partial ownership consolidations, 144–154 Adelphia Communications, 539 Administrator, of estate, 819 Advanced Medical Optics, 39 Advanced Micro Devices, Inc., 543–544 Affiliated groups, income tax accounting and, 308 Afterman, Allan B., 498n Agency funds, 678 AICPA (American Institute of Certified Public Accountants) Accounting Trends & Techniques, 349n Alliant Food Service, Inc., 83 Alltel, 39 Altria Group Inc., 294 American Cancer Society, 777, 778 American Express Co., 636 American Heart Association, Inc., 786, 790, 792 American Institute of Certified Public Accountants (AICPA) Accounting Trends & Techniques, 349n American Red Cross, 778 Amoco, 456 Amortization(s) in equity method of accounting for investments, 15–17 of intangibles, 109–110 Amortization, depreciation, and impairments, 492 Andersen, 636n, 637 Anheuser-Busch, 39, 40, 435 APB See Accounting Principles Board (APB) Application for Recognition of Exemption under Section 501(c)(3) of Internal Revenue Code (Form 1023), 792 ARCA Biopharma, 58 Arnold, Jerry L., 445n Arnst, Catherine, 41n Arons, David F., 777n Articles of partnership, 603 Art works contribution to not-for-profit organizations, 787–788 government accounting and, 726–727 ASB (Auditing Standards Board), Sarbanes-Oxley Act and, 540 ASC See Financial Accounting Standards Board (FASB), Accounting Standards Codification (ASC) Asinof, Lynn, 834n Assets capital fund-based financial statements and, 688–689 government-wide financial statements and, 688 foreign currency denominated, hedges of, 386–395 cash flow hedges versus fair value hedges for, 394–395 forward contracts designated as cash flow hedges and, 389–392 forward contracts designated as fair value hedges and, 392–394 gain or loss on sale of, temporal method of financial statement translation and, 443 infrastructure, in government accounting, 727–729 net, temporarily restricted, release of, 783 partnership, termination and liquidation and, 647–653 tangible, 481 Assets transactions, intra-entity See Intra-entity assets transactions Asset test for determination of reportable operating segments, 338, 340 Astor, Will, 560n AT&T, Inc., 6, 56 AT&T Broadband, 56, 158 Auditing Standards Board (ASB), Sarbanes-Oxley Act and, 540 Available-for-sale securities, 2, Aviaciän y Comerdio, S.A., 511 B Balance sheet exchange rates used for financial statement translation and, 438 during reorganization, 575–576 Balance sheet exposure, hedging, financial statement translation and, 457–458 Balance sheet—government funds, fund-based, 737, 740–741, 742 Balance sheet translation, current rate method for, 450–451 Bank balances and other liquid funds, 491 Bank of America, 39, 40, 49 Bankruptcy, 557–581 Bankruptcy Reform Act of 1978 and, 559–564 Chapter (liquidation), 567–571 Chapter 11 versus, 562–563 statement of realization and liquidation and, 569–571 trustees’ role and, 568–569 Chapter 11 (reorganization), 571–580 acceptance and confirmation of plan and, 573–574 Chapter versus, 562–563 financial reporting during, 574–576 financial reporting for companies emerging from, 576–580 plan for, 572–573 classification of creditors and, 560–562 involuntary, 559 statement of financial affairs and, 563–567 voluntary, 559 Bankruptcy Reform Act of 1978, 559–564 Bargain purchases, consolidations and, 46–47 Barrett, William P., 777n BASF, 498 Bayer AG, 497, 518–519 BellSouth, Benedicta, 435 Benston, G., 22n Bequests, 820 Berkshire Hathaway, Inc., 81 Berry, Jeffrey M., 777n Billone Mechanical Contractors Inc., 560 Birds Eye, Inc., 294 Black, Pam, 834n Block, Sandra, 550n Blumenthal, Robin Goldwyn, 542n Boeing Company, 335 Bond issuance, government accounting and, 694–696 Bonhiver, Homer A., 559n, 567n Bonuses credited to new partners, admission of partner through contribution and, 616–617 credited to original partners, admission of partner through contribution and, 614–615 dissolution through withdrawal of partner and, 618 Bonus method for intangible contributions to partnerships, 606, 607 851 hoy36628_ndx_851-860.qxd 1/25/10 11:02 PM Page 852 852 Index Book value, acquisition of investment whose cost exceeds, 13–17 Borrowing, foreign currency, 410–411 Bourque, Donald D., 579n Brandzel, Jacob, 636 Brennan, John J., 508n Bresiger, Gregory, 817n Brooks, Jermyn Paul, 494n Brzezenski, Thomas I., 823n Buckeye Partners, L.P., 602 Budgets, in governmental accounting, 683–685 Burger, Jeff, 832n Burkhardt, Katrin, 521n Burton, Thomas M., 573n Bush, George W., 536, 822 Bushee, Brian J., 550n C CAFR (comprehensive annual financial report), 730 Campbell, David R., Sr., 521n Cangialosi, Loretta, 145 Capital, share, 491 Capital accounts, of partnerships, 602–611 additional capital contributions and withdrawals and, 607 allocation of income and, 607–611 capital contributions and, 604–607 Capital assets fund-based financial statements and, 688–689 government-wide financial statements and, 688 Capital balance, deficit contribution by partner at liquidation and, 640–641 loss to remaining partners at liquidation and, 641 Capital contributions to partnerships additional capital contributions and withdrawals and, 607 admission of partner through, 614–617 capital contributions and, 604–607 Capital leases, in government accounting, 719–722 Capital projects funds, 676 Cash flow exposure, 385 Cash flow hedges, 386 of forecasted foreign currency denominated transactions forward contracts as, 405–407 options as, 403–405 of foreign currency denominated assets and liabilities, 386 Cash flow statement, consolidated, 259–263 acquisition period, 259–260 in periods subsequent to acquisition, 260–263 Catholic Charities USA, 778 CCE (Coca-Cola Enterprises, Inc.), 17, 19 Chandler Act of 1938, 559 Chapter bankruptcy (liquidation), 567–571 Chapter 11 versus, 562–563 statement of realization and liquidation and, 569–571 trustees’ role and, 568–569 Chapter 11 bankruptcy (reorganization), 571–580 acceptance and confirmation of plan and, 573–574 Chapter versus, 562–563 financial reporting during, 574–576 financial reporting for companies emerging from, 576–580 plan for, 572–573 Charge and discharge statement, 831 Charitable lead trusts, 834 Charitable remainder trusts, 834 Chesapeake Corporation, 112, 113 Chewco, 242n China Northern Airlines (CNA), 516–517 China Southern Airlines Company Limited (CSA), 516–517 Chrisman, Heidi Hadlich, 521n Christian Children’s Fund, 780–786, 791 Chrysler LLC, 558 Circuit City, 559n, 571 Cirrus Logic, Inc., 375 Cisco Systems, Inc., 37 Citigroup, 22 Clinton, Bill, 822 CNA (China Northern Airlines), 516–517 CNBC, 293 Coca-Cola Company, 3, 12, 17, 19, 22, 346, 409, 435, 497–498 Coca-Cola de Chile, S.A., 497 Coca-Cola Enterprises, Inc (CCE), 17, 19 Coca-Cola Italia S.r.L., 497 Cochrane, James L., 498n Colgate, 795 Collateral, 560 Colleges, public, 752–757 Collins, Stephen H., 500n Comcast, 158 Compensated absences, in government accounting, 725 Component units, in government accounting, 731–733 Comprehensive annual financial report (CAFR), 730 Comprehensive income, changes in fair value of derivatives and, 385 Conceptual framework, IASB-FASB joint projects and, 506 Concord Electric Corp., 560 Conglomerates, 39 Connecting affiliation, 302–303 Connell Limited Partnership, 599 Conseco Inc., 558 Consolidated earnings per share, 263–266 Consolidated financial statements, 37–65, 139–172, 195–221, 293–317 See also Consolidations indirect subsidiary control and, 293–303 connecting affiliation and, 302–303 international accounting standards and, 307 intra-entity asset transactions and, 195–221 assets transfer and, 216–220 inventory and, 196–197 land transfers and, 214–216 unrealized gross profit and, in year of transfer, 197–213 mutual ownership and, 304–307 treasury stock approach for, 304–305 with noncontrolling interest, 140–144 comparisons with international accounting standards and, 167 with control premium, 155–158 legacy purchase method for, 168–172 mid-year acquisitions and, revenue and expense reporting for, 158–160 with partial ownership, using acquisition method, 144–154 step acquisitions and, 160–167 subsidiary acquisition-date fair value and, 141–144 subsidiary net income allocation to parent and, 144 step acquisitions with noncontrolling interest and, 160–167 accounting for remaining shares and, 167 acquisition method for, 161–166 cost-flow assumptions and, 167 Consolidated statement of cash flows, 259–263 acquisition period, 259–260 in periods subsequent to acquisition, 260–263 Consolidations See also Acquisitions; Mergers acquisition-date fair-value allocations and, 56–58 acquired in-process research and development and, 57–58 intangibles and, 56 preexisting goodwill in subsidiary’s books and, 56–57 acquisition method and consideration transferred for acquired business and, 45 fair value of asses acquired and liabilities assumed and, 46 goodwill and gains on bargain purchases and, 46–47 ownership change and, 44–45 convergence between U.S and international accounting standards and, 59 through corporate takeovers, 38–41 reasons for firms to combine and, 38–39 of financial statements, 2–3 financial statements and See Consolidated financial statements financial statement translation and, 459–463 IASB-FASB joint projects and, 505–506 legacy methods of accounting for, 59–64 comparisons across pooling of interests, purchase, and acquisition methods and, 62–64 pooling of interests method as, 61–62 purchase method as, 59–61 operating loss carryfowards and, 315–317 of postacquisition subsidiary revenue and expenses, 158–160 procedures for consolidating financial information and, 47–55 acquisition method when dissolution takes place and, 48–51 acquisition method when separate incorporation is maintained, 52–55 related expenses of business combinations and, 51–52 process of, 41–44 consolidation of financial information and, 43–44 control and, 43 creation of single economic entity and, 41–43 statutory, 42 subsequent to acquisition, 81–114 contingent consideration and, 110–111 effects created by passage of time and, 82 equity method for, 82–83, 84–94 goodwill impairment and, 103–110 initial value method for, 83, 84, 94–103 investment accounting by acquiring company and, 82–84 partial equity method for, 83–84, 94–103 push-down accounting and, 111–113 of variable interest entities, 243–246 Consumption method, for government accounting, 690 Continental Airlines Corporation, 579 Contingent consideration, in business combinations, 110–111 hoy36628_ndx_851-860.qxd 1/25/10 11:02 PM Page 853 Index 853 Contributions to not-for-profit organizations, 786–794 of art works and historical treasures, 787–788 exchange transactions and, 791 holding contributions for others and, 789–790 mergers and acquisitions and, 793–794 of services, 790–791 tax-exempt status and, 791–792 Control consolidations and, 43 step acquisition resulting after control is obtained and, 163–165 step acquisition resulting in, acquisition method and, 161–163 Control premium, evidence of, fair-value specification and, 155–158 Cornell, Camilla, 635n Corporate accounting scandals, Sarbanes-Oxley Act and See Sarbanes-Oxley Act of 2002 Corporations, subchapter S, 601 Corr, Paul J., 579n Cost approach, for estimating fair values of assets and liabilities, 46 Cost flow, step acquisitions and, 167 Cost method, See also Initial value method Cost of goods sold calculation of, temporal method of financial statement translation and, 442 interim reporting and, 351–352 County Bank, 50 Creditors, 491 classification of, 560–562 Credit shelter trusts, 833 Crosby, Bing, 833 CSA (China Southern Airlines Company Limited), 516–517 Culture accounting diversity due to, 496 impact on financial reporting, 522 Current exchange rates, 436 Current financial resources, in government accounting, 673 Current rate, lower-of-cost-or-market rule under, 442 Current rate method, for financial statement translation, 439, 449–452 balance sheet translation and, 450–451 fixed assets, depreciation, and accumulated depreciation under, 443 gain or loss on sale of asset under, 443 statement of cash flows translation and, 451–452 Customers, major, disclosures about, 348–349 D Daimler-Benz, 498 Daimler-Chrysler, 502n Data Domain, 39 Davidson, Ronald A., 521n Debts, fully and partially secured, 560 Debt service funds, 676 Debt transactions, intra-entity, 249–256 acquisition of affiliate’s debt from outside party and, 250 assignment of retirement gain/loss and, 250–252 individual financial records and, 250–252 subsequent to year of acquisition, 254–256 Decision making, equity method and, 21 Deferral approach, to unrealized foreign exchange gains and losses, 382 Deferred income taxes, consolidations and, 308–309 Deloitte Development LLC, 512n Deloitte Touche Tohmatsu, 503n, 513n, 599 Delta Airlines Inc., 39, 575 Demonstrative legacies, 820 Denham, Robert E., 507n Depreciable assets, intra-entity transfer of, 216–220 Depreciation of infrastructure assets, in government accounting, 727–729 temporal method of financial statement translation and, 442–443 Derivatives, 383–385 fair value of changes in, 385 determination of, 384 fundamental requirement of accounting for, 384 Deutsche Bank, 497 Devises, 820 Direct quotes, 378 Disclosure, U.S GAAP and IFRSs compared and, 515 Discounts, foreign exchange rates and, 378 Dissolution of partnerships, 612–619 by admission of new partner, 612–617 by withdrawal of partner, 617–619 Dividends, intra-entity, deferred income taxes and, 308–309 Donaldson, William H., 539 Doupnik, Timothy S., 446n, 496n, 521n, 522n Dow Corning Corp., 573 Downstream sales, of inventory, 18–19 Duff, James C., 559n Dugan, Ianthe Jeanne, 636n Duke, Paul, Jr., 548n Duke University, 752, 799 E Earehart, Allen, 84 Earnings per share (EPS), consolidated, 263–266 Ebbers, Bernard, 539 Economic factors, accounting diversity due to, 495 Economic Growth and Tax Relief Reconciliation Act of 2001, 825 EDGAR (Electronic Data Gathering, Analysis, and Retrieval System), 549–551 Edward Charles Institute for Nonprofit Mergers and Acquisitions, 793 E.I du Pont de Nemours and Company, 348, 349, 394, 498 Elective forced share provisions, 824n Electronic Data Gathering, Analysis, and Retrieval System (EDGAR), 549–551 EMC, 39 Emshwiller, John, 551n EMS Technologies, 45 Encumbrances, in governmental accounting, 686–687 Enron Corporation, 242, 537, 539, 558, 561, 561n Enterprise funds, 676–677 Entity-wide information, 346–349 information about geographic areas and, 347–348 information about major customers and, 348–349 information about products and services and, 346 EPS (earnings per share), consolidated, 263–266 Equity investments, sale of, 12–13 Equity method, 1–24 acquisition following equity method acquisition and, 160 changes to, reporting, 9–11 for consolidations subsequent to acquisition, 82, 84–94 criteria for using, 4–6 criticisms of, 21–22 for determination of balance in investment account, 461 downstream transfers when parent uses, depreciable intra-entity transfers and, 219 elimination of unrealized profits in inventory and, 17–22 criticisms of method and, 21–22 decision making and, 21 downstream sales of inventory and, 18–19 upstream sales of inventory and, 19–20 excess of investment cost over book value acquired and, 13–17 amortization process and, 15–17 extensions of, fair-value reporting option for, 22–23 investee income from sources other than continuing operations and, 11 investee losses and, 11–12 limitations of, 5–6 sale of equity investment and, 12–13 ESPN, 335 Estates, 817–832 administration of, 818–819 discovery of claims against decedent and, 819–820 distinction between income and principal and, 826–827 distributions from, 820–821 income taxes and, 825–826 inheritance taxes and, 822–825 property included in, 819 protection for remaining family members and, 820 recording transactions of, 827–831 Estate taxes, 822–825 Euro, 409 Euro Disney, 244 European Monetary System, 376 European Union (EU), harmonization of financial reporting and, 498–499 Evans, Thomas G., 446n Every Child Matters, 792 Excess amortization expenses, 89 Exchange rate(s), 376–378 See also Foreign exchange entries current, 436 for financial statement translation, 436–438 balance sheet exposure and, 438 translation adjustments and, 438 historical, 436 spot and forward, 378 Exchange rate mechanisms, 376 Exchange transactions, contribution to not-for-profit organizations and, 791 Executor, of estate, 818 Expense reporting, for mid-year acquisitions, 158–160 hoy36628_ndx_851-860.qxd 1/25/10 11:02 PM Page 854 854 Index Extraordinary items, interim reporting and, 353 Exxon, 456 ExxonMobil, 61n F Fair value acquisition-date, with noncontrolling interest, 141–144 of assets acquired and liabilities assumed, consolidations and, 46 of derivatives changes in, 384 determination of, 384 evidence of control premium and, 155–158 implied, of goodwill, determining, 107–108 Fair-value exposure, 385 Fair-value hedges, 386 of foreign currency denominated assets and liabilities, 387 Fair-value method, acquired in-process research and development and, 57–58 for equity method investments, 22–23 intangibles and, 56 preexisting goodwill on subsidiary’s books and, 56–57 Family allowance, 820 FASB See Financial Accounting Standards Board (FASB) Father-son-grandson relationships, 293 Fiduciary funds, 675, 677–678 Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC), 3, 4, 9, 12, 23, 244n, 245n, 304, 311, 315 Topic 270, 350 Topic 280, Segment Reporting, 106, 336 Topic 320, Investments—Debt and Equity Securities, Topic 350, Intangibles—Goodwill and Other, 103 Topic 740, Income Taxes, 312 Topic 805, Business Combinations, 45, 59 Topic 810, Consolidations, 59 Topic 815, Derivatives and Hedging, 383 Topic 830, 444 Concepts Statement No 6, 689 convergence with IASB, 503–506 Exposure Drafts Business Combinations and Consolidated Financial Statements, Including Accounting and Reporting of Noncontrolling Interests in Subsidiaries, 171 Business Combinations and Intangible Assets, 56 Earnings per Share—An Amendment of FASB Statement No 128, 505 Interpretations No 18, 350 No 46R, “Consolidation of Variable Interest Entities,” 243n overruling, 544 Sarbanes-Oxley Act and, 540 Statements, No 6, 17n Financial Reporting Releases (FRRs), 542 Financial statements See also specific statements consolidation of, 2–3 fund-based, 671, 672–678, 680–683, 734–752 art works and historical treasures and, 726 bond issuance and, 694–695 capital assets and, 688–689 compensated absences and, 725 encumbrances and, 686–687 internal exchange transactions and, 700 intra-activity transactions and, 698–699 landfills and, 724 leases and, 721–722 need for, 672–673 property taxes and, 692–693 special assessments and, 697 supplies and prepaid expenses and, 690 tax anticipation notes and, 696 government-wide, 671, 672–673, 678, 679, 734–752 art works and historical treasures and, 726–727 bond and interest payments and, 695 capital assets and, 688 compensated absences and, 725 derived tax revenues and, 692 interactivity transactions and, 699 internal exchange transactions and, 700 landfills and, 723–724 leases and, 720–721 property taxes and, 692–693 special assessments and, 696–697 tax anticipation notes and, 696 for not-for-profit organizations, 779–780 presentation of, IASB-FASB joint projects and, 506 worldwide comparability of, obstacles to, 521–522 Financial statement translation, 435–465 current rate method for, 439, 449–452 balance sheet translation and, 450–451 statement of cash flows translation and, 451–452 disclosures related to, 458–459 disposition of translation adjustment and, 443–444 exchange rates used in, 436–438 balance sheet exposure and, 438 translation adjustments and, 438 foreign subsidiary consolidation and, 459–463 hedging balance sheet exposure and, 457–458 IFRSs and, 463–464 illustration of, 447–449 remeasurement and, temporal method for, 452–455 retained earnings translation and, 440–441 temporal method for, 439–440, 441, 442–443 cost of goods sold calculation and, 442 fixed assets, depreciation, and accumulated depreciation and, 442–443 gain or loss on sale of asset and, 443 lower-of-cost-or-market rule application and, 442 underlying valuation method for, 456–457 U.S rules for, 444–447 high inflationary economies and, 446–447 translation combinations and, 444–446 Financing system, accounting diversity due to, 495 Fines, revenues from, 692–693 Fixed assets, temporal method of financial statement translation and, 442–443 FLNA (Frito-Lay North America), 346 Ford Motor Company, 39, 145, 730 Forecasted foreign currency denominated transactions, hedges of, 405–408 forward contract cash flow hedges as, 405–407 options designated as cash flow hedges and, 407–408 Foreign Corrupt Practices Act of 1977, 537 Foreign currency borrowing, 410–411 Foreign currency denominated asset hedges cash flow hedges versus fair value hedges for, 394–395 forward contracts designated as cash flow hedges and, 389–392 forward contracts designated as fair value hedges and, 392–394 Foreign currency financial statements, translation of See Financial statement translation Foreign currency firm commitments, 383 Foreign currency forward contracts, 383 Foreign currency loans, 411 Foreign currency options, 378–379, 383 foreign currency denominated asset hedges for, 395–400 designated as cash flow hedges, 396–398 designated as fair value hedges, 398–400 Foreign currency transactions, 379–383 accounting methods for, 380–381 balance sheet before date of payment and, 381–383 Foreign exchange markets, 376–379 exchange rate mechanisms and, 376 exchange rates and, 376–378 option contracts and, 378–379 spot and forward rates and, 378 Foreign exchange rates See Exchange rate(s) Foreign exchange risk, hedges of, 383 Form 8-K, 549 Form 10-K, 548 Form 10-Q, 548 Form 20-F, 492 Form 990 (Return of Organization Exempt from Income Tax), 792 Form 1023 (Application for Recognition of Exemption under Section 501(c)(3) of Internal Revenue Code), 792 Forward contracts cash flow hedges versus fair value hedges and, 394–395 designated as cash flow hedges, 389–392 of forecasted foreign currency denominated transactions, 405–407 designated as fair value hedges, 392–394 as hedges of unrecognized foreign currency firm commitments, 401–403 Forward exchange rates, 378 Foss, Brad, 539n Freeman, Robert J., 670n Frequency Electronics, Fresh start accounting, 576–579 Frito-Lay, 37 Frito-Lay North America (FLNA), 346 Front Line Co., 160 FRRs (Financial Reporting Releases), 542 Full and fair disclosure, SEC and, 537–538 Fully secured debts, 560 Functional currency, financial statements translation and, 445–446 Fund accounting, 683–687 budgets and recording of budgetary entries and, 683–685 classifications for, 674–678 encumbrances and, 686–687 hoy36628_ndx_851-860.qxd 1/25/10 11:02 PM Page 855 Index 855 Fund balances, 682–683 Fund-based financial statements See Financial statements, fund-based G GAAP (U.S generally accepted accounting principles) consolidations subsequent to acquisition and, 108–109 differences between IFRSs and, 512–519 for noncontrolling interest, 167 SEC’s authority over, 542–544 Gains intra-entity, unrealized, deferred income taxes and, 309 retirement, assignment of, intra-entity debt transactions and, 253–254 on sale of asset, temporal method of financial statement translation and, 443 unrealized on depreciable assets, deferral of, 216–217 foreign exchange, accrual approach to, 382 intra-entity, deferred income taxes and, 309 on land transfers, eliminating, 214–215 Garber, Joseph R., 551n Garden Ridge, 573 GASB See Governmental Accounting Standards Board (GASB) Gauthier, Stephen J., 730n Geico, Inc., 81 General Electric Company (GE), 247, 293, 729 General Foods, 294 General fund, 675 General legacies, 820 Generally accepted accounting principles (GAAP) consolidations subsequent to acquisition and, 108–109 differences between IFRSs and, 512–519 for noncontrolling interest, 167 SEC’s authority over, 542–544 General Motors Corporation (GM), 558, 572 Geographic areas, disclosures about, 347–348 Georgetown University, 786–787, 795 Gerber Products Company, 266 Girl Scouts, 793 Global Crossing, 537 GM (General Motors Corporation), 558, 572 Golden Circle Limited, 435 Goll, Al, 571n Goodman, Carl, 561 Goodman, James A., 563n Goodwill, 14, 15 consolidations and, 46 credited to new partners, admission of partner through contribution and, 616–617 credited to original partners, admission of partner through contribution and, 615 deferred income taxes and, 309 determining implied fair value of, 107–108 dissolution through withdrawal of partner and, 618–619 with noncontrolling interest, 143 preexisting, on subsidiary’s books, 56–57 testing for impairment, 105–106 Goodwill Industries International, 778, 787 Goodwill method, for intangible contributions to partnerships, 606–607 Gorton, Daniel, 544n Government accounting, 669–701 art works and, 726–727 capital leases and, 719–722 compensated absences and, 725 component units and, 731–733 expanded financial reporting and, 729–730 fund accounting and, 683–687 budgets and recording of budgetary entries and, 683–685 encumbrances and, 686–687 fund-based financial statements and See Financial statements, fund-based government-wide financial statements and See Financial statements, government-wide historical treasures and, 726–727 infrastructure assets and depreciation and, 727–729 primary government and, 730–731 for public colleges and universities, 752–757 recognition of expenditures for operations and capital additions and, 687–700 bond issuance and, 694–696 derived tax revenues and, 691–692 government-mandated nonexchange transactions and voluntary nonexchange transactions and, 693–694 imposed nonexchange revenues such as property taxes and fines and, 692–693 interfund transactions and, 698–700 special assessments and, 696–697 solid waste landfill and, 723–724 for special purpose governments, 733–734 user needs and, 671 Governmental Accounting Standards Board (GASB), 670 Statements No 1, “Objectives of Financial Reporting,” 671 No 14, 736 No 33, “Accounting and Financial Reporting for Nonexchange Transactions,” 691 No 34, “Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments,” 671n, 726 No 35, “Basic Financial Statements—and Management’s Discussion and Analysis— for Public Colleges and Universities,” 753 No 54, “Fund Balance Reporting and Governmental Fund Type Definitions,” 675n, 687n Governmental funds, 675–676 Government-wide financial statements See Financial statements, government-wide Granett, Garfield, 561 Grantor(s), 832–833 Grantor retained annuity trusts (GRATs), 834 Grant Thornton, 22n Gray, Sidney J., 496, 496n Grupo Coral, S A., 266 Gunn, Ellen P., 817n, 825n H Harhan, Timothy M., 112n Harmelink, Philip J., 822n Harmon, Florence E., 508n Hartgraves, A., 22n Harvard, 752 Hasbro, Inc., 349 Havens, John, 817n Health care organizations, 797–799 patient service revenues and, 797–799 Hedge(s) of balance sheet exposure, financial statement translation and, 457–458 Euro and, 409 of forecasted foreign currency denominated transactions, 405–408 forward contract cash flow hedges as, 405–407 options designated as cash flow hedges and, 407–408 of foreign currency denominated assets and liabilities, 386–387 cash flow, 386 fair value, 387 foreign currency options for, 395–400 forward contracts for, 387–395 of foreign exchange risk, 383 instruments for, use of, 408–409 of unrecognized foreign currency firm commitments, 400–405 forward contract used as, 401–403 options used as, 403–405 Hedge accounting, 385–386 hedge documentation and, 386 hedge effectiveness and, 386 nature of risk and, 385–386 Heineken N.V., 491–492 Heins, John, 456n Heller, 561 Hertz Rental, 39 Herz, Robert H., 507n, 508n Hess Corporation, 12 Hewlett-Packard, 559n High inflationary economies, financial statement translation and, 446–447 Historical exchange rate, 436 Historical treasures contribution to not-for-profit organizations, 787–788 government accounting and, 726–727 H.J Heinz Company, 435n Hofstede, Geert, 496 Holder, William W., 445n Homestead allowance, 820 Hong Kong Disneyland, 244 Hybrid method for admission of partner through contribution, 615–616 dissolution through withdrawal of partner and, 619 I IAS(s) See International Accounting Standards (IASs) IASB See International Accounting Standards Board (IASB) IASC (International Accounting Standards Committee), 499–500 Iberia, 510, 511–512 IBM (International Business Machines Corporation), 347–348, 349, 459, 496, 730 IFRSs See International financial reporting standards (IFRSs) Image City Interiors Inc., 560 Impairment of intangibles, 109–110 testing goodwill for, 105–106 InBev, 39, 40, 49, 435 hoy36628_ndx_851-860.qxd 1/25/10 11:02 PM Page 856 856 Index Income allocation of, partnerships and, 607–611 comprehensive, changes in fair value of derivatives and, 385 of estate, principal differentiated from, 826–827 from sources other than continuing operations, equity method for, 11 subsidiary, calculation of, 294 Income approach, for estimating fair values of assets and liabilities, 46 Income beneficiaries, 826 Income statement remeasurement of, 452–455 during reorganization, 574–575 Income taxes See also Internal Revenue Service (IRS) business combinations and, 307–317 affiliated groups and, 308 deferred income taxes and, 308–309 filing of separate tax returns and, 311–314 income tax expense assignment and, 310–311 international accounting standards and, 317 operating loss carryforwards and, 315–317 temporary differences created by business combinations and, 314–315 estates and, 825–826 interim reporting and, 353–354 revenues from, 691–692 tax-exempt status and, 791–792 trusts and, 825–826 Income tax expense, assignment of, for consolidated returns, 310–311 Independent float, 376 Indirect subsidiary control consolidated financial statements and, 293–303 connecting affiliation and, 302–303 international accounting standards and, 307 Industrial Commission, 535 Inflation, accounting diversity due to, 495 Infrastructure assets, in government accounting, 727–729 Inheritance taxes, 822–823, 825 Initial value method for consolidations subsequent to acquisition, 83, 84, 94–103 for fair-value specification, 158 In-process research and development (IPR&D), acquisition of, 57–58 Insider Trading and Securities Fraud Enforcement Act of 1988, 537 Insider Trading Sanctions Act of 1984, 537 Insull, Samuel, 533 Intangible(s) See also Goodwill amortization of, 109–110 fair-value method and, 56 impairment of, 109–110 Intangible contributions, to partnerships, 605–607 Integrated disclosure system, 538 Intel Corp., 544 Intercompany balances, 86n Interfund transactions, 698–700 Interim reporting, 350–355 extraordinary items and, 353 income taxes and, 353–354 inventory and cost of goods sold and, 351–352 minimum disclosures in, 355–356 other costs and revenues and, 352–353 retrospective application and, 354–355 revenue recognition and, 351 seasonal items and, 355 segment information in, 356 Internal Revenue Service (IRS) See also Income taxes Form 990 (Return of Organization Exempt from Income Tax), 792 Form 1023 (Application for Recognition of Exemption under Section 501(c)(3) of Internal Revenue Code), 792 Internal service funds, 677 International accounting standards income tax accounting for business combinations and, 317 indirect subsidiary control and, 307 for noncontrolling interest, 167 International Accounting Standards (IASs), 499 No 12, “Income taxes,” 510 No 17, “Accounting for Leases,” 520 No 19, “Revenue,” 505–506 No 21, “The Effects of Changes in Foreign Exchange Rates,” 411, 463–464 No 23, “Borrowing Costs,” 505, 517 No 28, No 31, “Interests in Joint Ventures,” 521–522 No 34, “Interim Financial Reporting,” 357 No 37, “Provisions, Contingent Liabilities and Contingent Assets,” 521, 522 No 39, “Financial Instruments: Recognition and Measurement,” 411, 463–464 International Accounting Standards Board (IASB), 500–503 convergence with FASB, 503–506 joint projects and, 505–506 short-term convergence project and, 504–505 financial reporting standards and See International financial reporting standards (IFRSs) International Financial Reporting Standards and See International financial reporting standards (IFRSs) International Accounting Standards Committee (IASC), 499–500 International Business Machines Corporation (IBM), 347–348, 349, 459, 496, 730 International financial reporting standards (IFRSs), 500–502 consolidations subsequent to acquisition and, 108–109 first-time adoption of, 508–512 accounting policy hierarchy and, 510, 512 No 1, “Presentation of Financial Statements,” 500, 509, 510 No 2, “Inventories,” 501 No 3, “Business Combinations,” 59, 505–506, 518 No 4, “Depreciation Accounting,” 501 No 5, “Noncurrent Assets Held for Sale and Discontinued Operations,” 505 No 8, “Operating Segments,” 349–350, 505 for noncontrolling interest, 167 SEC acceptance of, 507–508 IFRS Roadmap and, 507–508 special purpose entities and, 248–249 translation into other languages, 521–522 U.S GAAP contrasted with, 512–519 measurement differences, 514–515 presentation and disclosure differences, 515–516 recognition differences, 514 reconciliations and, 516–519 use of, 502–503 International Flavors and Fragrances, Inc., 435 International Organization of Securities Commissions (IOSCO), 500 Compatibility Project of, 500 International Paper Company, Inter vivos trusts, 832, 836 Intra-entity, defined, 86n Intra-entity assets transactions, 195–221 assets transfer and, 216–220 inventory and, 196–197 Sales and Purchases accounts and, 196–197 land transfers and, 214–216 unrealized gross profit and effect of alternative investment methods on consolidation and, 209–213 inventory and, 202–209 noncontrolling interest valuation and, 201–202 in year following transfer, 200–201 unrealized gross profit in year of transfer and, 197–201 Intra-entity debt transactions, 249–256 acquisition of affiliate’s debt from outside party and, 250 assignment of retirement gain/loss and, 250–252 individual financial records and, 250–252 subsequent to year of acquisition, 254–256 Intra-entity dividends, deferred income taxes and, 308–309 Intra-entity gains, unrealized, deferred income taxes and, 309 Intrinsic value, of foreign exchange options, 379 Inventory downstream sales of, 18–19 interim reporting and, 351–352 intra-entity transactions involving, 196–197 Sales and Purchases accounts and, 196–197 unrealized profits in, elimination of, 17–22 upstream sales of, 19–22 Investment(s), equity method for See Equity method Investment account, equity method for determination of balance in, 461 Investment Advisers Act of 1940, 537 Investment costs, exceeding book value, acquisition of, 13–17 Investment trust funds, 677 IOSCO (International Organization of Securities Commissions), 500 Compatibility Project of, 500 IPR&D (in-process research and development), acquisition of, 57–58 Irrevocable life insurance trusts, 835 IRS (Internal Revenue Service) See also Income taxes Form 990 (Return of Organization Exempt from Income Tax), 792 Form 1023 (Application for Recognition of Exemption under Section 501(c)(3) of Internal Revenue Code), 792 Ivey, Mark, 571n J Jackson, Estelle, 833n James Madison University, 753–757 Jardine Matheson, 490–491 JB Hunt Transport Services, 1, Jereski, Laura, 549n Johnson, L Todd, 103n Johnston, William C., 636n K Kadlec, Dan, 777n Kaiser Aluminum, 576 Keck, Mahin and Cate, 636 hoy36628_ndx_851-860.qxd 1/25/10 11:02 PM Page 857 Index 857 King’s Daughters’ Hospital and Health Services of Madison, Indiana, 797 Kmart Holdings, 576–577 KPMG LLP, 104, 105n, 242n, 510n L Labaton, Stephen, 539n, 549n La Bonne Cuisine, 435 LAF (Latin America Foods), 346 Land, intra-entity transfers of, 214–216 Language, translation of IFRSs and, 521–522 Latin America Foods (LAF), 346 Laux, Bob, 145 Lavelle, Louis, 540n, 541n Laventhol & Horwath, 635–636 Laws of descent, 818 Laws of distribution, 818 Lay, Kenneth, 539 LCM (lower-of-cost-or-market) rule, under current and temporal methods of financial statement translation, 442 Leech, Noyes E., 550n Legacies, 820 Legacy purchase method, for consolidated financial reporting with noncontrolling interest, 168–172 Legal systems, accounting diversity due to, 494–495 Lehman Brothers Holdings Inc., 558 Leuz, Christian, 550n Liabilities, foreign currency denominated, hedges of, 386–387 Life insurance trusts, irrevocable, 835 Life tenants, 835 Limited liability companies (LLCs), 602 Limited liability partnerships (LLPs), 602 Limited partnerships (LPs), 602 Lineas Aéreas de España, S.A., 510, 511–512 Liquidation (Chapter 7), 567–571 Chapter 11 versus, 562–563 statement of realization and liquidation and, 569–571 trustees’ role and, 568–569 Liquidation of partnerships See Partnerships, termination and liquidation of Little, Patricia A., 145 Living trusts, revocable, 833 LLCs (limited liability companies), 602 LLPs (limited liability partnerships), 602 LMJ1, 242n Loans, foreign currency, 411 Local governments See Government accounting Lockheed Martin Corporation, 375 Lopez, Thomas J., 522n Losses equity method for, 11–12 operating, carryforwards of, business combinations and, 315–317 profit or loss test and, for determination of reportable operating segments, 338, 340 retirement, assignment of, intra-entity debt transactions and, 253–254 on sale of asset, temporal method of financial statement translation and, 443 unrealized, foreign exchange accrual approach to, 382 deferral approach to, 382 Lower-of-cost-or-market (LCM) rule, under current and temporal methods of financial statement translation, 442 Lowe’s Companies, Inc., 346 LPs (limited partnerships), 602 M Mamis, Robert A., 563n Management’s discussion and analysis (MD&A), 729 Manville Corporation, 559n Market approach, for estimating fair values of assets and liabilities, 46 Mars, 39 Marvel Entertainment, 559n Mautz, R K., 689 Maxwell House Coffee Company, 294 Maynard, Philip, 834n McDonald’s Corporation, 346 McNamee, Mike, 540n, 541n MD&A (management’s discussion and analysis), 729 MEAA (PepsiCo International—Middle East, Africa, and Asia), 346 Meade, Inc., 165 Meade Europe, 165 Measurement, U.S GAAP and IFRSs compared and, 514–515 Meek, Gary K., 494n Merck, 39, 383 Mercy Hospital (Springfield, Missouri), 798 Mergers See also Consolidations contributions to not-for-profit organizations and, 793–794 of not-for-profit organizations, 793–794 statutory, 42 Merrill Lynch, 39, 40 Mertin, Dietz, 494n MGM Grand, Inc., 59 Microsoft, 3, 145 Middle Tennessee State University, 753 Midgett, Warren, 822n Mid-year acquisitions, revenue and expense reporting for, 158–160 Miller, Richard I., 539n Mills Corporation, Minor’s section 2503(c) trusts, 834 Mirage Resorts, Inc., 59 Mobil, 456 Modified accrual basis of accounting, government recognition of expenditures and revenues and, 688 Molinari, Jeffrey, 676n Moran, Mark, 537n Morion, Inc., Morris, Nancy M., 507n Moskowitz, Daniel B., 571n Mothers Against Drunk Driving, 778 Movie Gallery, 572 MSNBC, Mundheim, Robert H., 550n Museum of Modern Art, 791–792 Mutual ownership, 304–307 treasury stock approach for, 304–305 N NBC (National Broadcasting Company), 3, 42 NBC Universal, Inc., 293 Nestlé, 497 Net assets, temporarily restricted, release of, 783 Net operating losses (NOLs), carryforwards of, business combinations and, 315–317 Nike, Inc., 346, 435n Nobes, Christopher W., 496n, 497 Noise Cancellation Technologies, Inc., 12 Nokia, 498 NOLs (net operating losses), carryforwards of, business combinations and, 315–317 Noncontrolling interest See also Consolidated financial statements, with noncontrolling interest control and accountability and, 140–141 defined, 140 valuation of depreciable asset transfers and, 220 land transfers and, 216 Nonexchange transactions, in government accounting, 691–694 Northwest Airlines, 39 Norwalk Agreement, 503–504 Not-for-profit organizations, 777–800 contributions to, 786–794 of art works and historical treasures, 787–788 exchange transactions and, 791 holding contributions for others and, 789–790 mergers and acquisitions and, 793–794 of services, 790–791 tax-exempt status and, 791–792 financial reporting for, 778–786 statement of activities and changes in net assets, 781–786, 796 statement of financial position, 780–781 health care organizations, 797–799 patient service revenues and, 797–799 Notre Dame, 795 Nuvelo, 58 O Occidental, 456 Off-balance sheet structures, 241 See also Variable interest entities (VIEs) The Ohio State University, 752 Oneal, Michael, 573n One-transaction perspective, foreign currency transactions and, 383 Operating loss carryforwards, business combinations and, 315–317 Operating segments, 337 See also Segment reporting Option(s), as hedges of unrecognized foreign currency firm commitments, 403–405 Option contracts, foreign exchange markets and, 378–379 Option premiums, 379 Options cash flow hedges, of forecasted foreign currency denominated transactions, 407–408 Oracle, 39 Orey, Michael, 561n Oscar Mayer Foods Corporation, 294 Other comprehensive income, Other costs and expenses, interim reporting and, 352–353 Ownership, change in, business combinations and, 44–45 Own shares held, 491 P PAB (PepsiCo Americas Beverages), 346 Pacelle, Mitchell, 636n Pacific Gas and Electric Co., 558 Pac-Man Defense, 304 Pae, Peter, 636n hoy36628_ndx_851-860.qxd 1/25/10 11:02 PM Page 858 858 Index Papillon, 435 Parent company See also Consolidated financial statements; Consolidations allocating subsidiary net income to, 144 Parker, Robert A., 335n Partial equity method for consolidations subsequent to acquisition, 83–84, 94–103 for fair-value specification, 158 Partially secured debts, 560 Partnerships, 599–620 advantages and disadvantages of, 600–601 alternative legal forms, 601–602 articles of partnership and, 603 capital accounts and, 602–611 additional capital contributions and withdrawals and, 607 allocation of income and, 607–611 capital contributions and, 604–607 dissolution of, 612–619 by admission of new partner, 612–617 by withdrawal of partner, 617–619 insolvent, termination and liquidation of, 645–647 limited, 602 limited liability, 602 termination and liquidation of, 635–653 with deficit capital balance and contribution by partner, 640–641 with deficit capital balance and loss remaining to partners, 641–647 liquidation in installments and, 649–650 predistribution plan for, 650–653 preliminary distribution of assets and, 647–650 procedures for, 637–639 schedule of liquidation and, 639–640 Pashkoff, Paul H., 539n Patton, Terry K., 670n PCAOB (Public Company Accounting Oversight Board), creation of, 539–540 Pearson, John K., 559n, 560n Peat, Marwick, Mitchell, 456 Pegged currencies, 376 Pension trust funds, 677–678 Penske Truck Leasing Company, 247 PepsiCo, Inc., 3, 37, 346 PepsiCo Americas Beverages (PAB), 346 PepsiCo International—Middle East, Africa, and Asia (MEAA), 346 PepsiCo International—United Kingdom and Europe (UKEU), 346 Pepsi-Quaker Oats, 61n Percentage allocation method, for income tax assignment, 310 Permanent funds, 676 Personnel expenses, 492 Petrone, Kimberly R., 103n Pfizer, Inc., 39, 40–41, 49, 106, 145 Pfizer-Warner Lambert, 61n Philip Morris Companies, Inc., 294 Picker, Ida, 457n Piergallini, Paul J., 822n Pittman, Jeffrey R., 648 Political factors, accounting diversity due to, 495 Poll, Edward, 635n Pooling of interests method, for business combinations, 61–62 purchase method compared with, 62–64 Preferences, 568 Preferred stock, of subsidiaries, 256–258 Premiums foreign exchange rates and, 378 option, 379 share, 491 Prepaid items, in government accounting, 690 Presentation, U.S GAAP and IFRSs compared and, 515–516 Previts, Gary John, 537n PricewaterhouseCoopers, 22n, 145, 307, 599 Primary government, 730–731 Princeton University, 752 Principal, income of estate principal differentiated from, 826–827 Private-purpose trust funds, 677 Probate laws, 818 Products, disclosures about, 346 Profit(s), unrealized, in inventory, elimination of, 17–22 Profit or loss test, for determination of reportable operating segments, 338, 340 Program services, of not-for-profit organizations, 783–784 Property taxes, revenues from, 692–693 Proprietary funds, 675, 676–677 Provisions, 491 Proxy information, 538 Proxy statements, 549 Public accounting firms auditor independence and, 541–542 inspections of, 541 registration of, 540–542 Public Company Accounting Oversight Board (PCAOB), creation of, 539–540 Public Utility Holding Company Act of 1935, 537 Pugh, Tony, 558n Purchase(s), of current interest, admission of partner through, 612–614 Purchase method, for business combinations, 59–61 pooling of interests method compared with, 62–64 Purchases method, for government accounting, 690 Push-down accounting, consolidations subsequent to acquisition and, 111–113 Put options, foreign exchange, 379 Q Quaker Foods North America (QFNA), 346 Qualified personal resident trusts (QPRTs), 835 Qualified terminable interest property trusts (QTIPs), 833–834 Qualifying special purpose entities (QSPEs), 242 R Rampell, Catherine, 797n Raviv, Dan, 559n Raw material, consumables and services, 492 R&D (research and development), in-process, acquired, 57–58 Reagan, Jack, 729n Recognition, U.S GAAP and IFRSs compared and, 514 Registration statements, 545–546 Regulation S-K, 537–538, 542 Regulation S-X, 537, 538, 542 Reither, Cheri L., 520 Remaindermen, 826, 835 Remeasurement, financial statement translation and, temporal method for, 452–455 Reorganization (Chapter 11), 571–580 acceptance and confirmation of plan and, 573–574 Chapter versus, 562–563 financial reporting during, 574–576 financial reporting for companies emerging from, 576–580 plan for, 572–573 Reporting currency, financial statements translation and, 445 Reporting units assigning values to, 106 periodic determination of fair values of, 106–107 Research and development (R&D), in-process, acquired, 57–58 Residual legacies, 820 Retained earnings, translation of, 440–441 Retirement gain/loss, assignment of, intra-entity debt transactions and, 253–254 Retrospective application, 354 Return of Organization Exempt from Income Tax (Form 990), 792 Revenue and other reserves, 491 Revenue recognition in government accounting, 687–700 bond issuance and, 694–696 derived tax revenues and, 691–692 government-mandated nonexchange transactions and voluntary nonexchange transactions and, 693–694 imposed nonexchange revenues such as property taxes and fines and, 692–693 interfund transactions and, 698–700 special assessments and, 696–697 IASB-FASB joint projects and, 506 interim reporting and, 351 Revenue reporting, for mid-year acquisitions, 158–160 Revenue test, for determination of reportable operating segments, 338, 339–340 Revocable living trusts, 833 Reynolds Metals Corporation, 84 Richter, Martin, 521n, 522n Rigas, John J., 539 Robbins, John, 571n Robstein, Larry, 637 Rosenfield, Paul, 571n Rossi, Josephine, 833n Rostelecom, 489 Royal, Amanda, 561n Rule 14c-3, 538 S Sale(s) of assets, gain or loss on, temporal method of financial statement translation and, 443 downstream, of inventory, 18–19 of equity investments, 12–13 upstream, of inventory, 19–22 Sales taxes, revenues from, 691–692 Salvation Army, 777, 778, 787 Salwen, Kevin G., 542n, 548n Sarbanes-Oxley Act of 2002, 537, 539–551 EDGAR and, 549–551 filings with SEC and, 544–549 IASB-FASB convergence and, 504 PCAOB creation and, 539–540 registration of public accounting firms and, 540–542 SEC authority over GAAP and, 542–544 Saudagaran, Sharokh M., 494n hoy36628_ndx_851-860.qxd 1/25/10 11:02 PM Page 859 Index 859 Scarpa, Anna, 561 Schechtman, Daniel, 546n Schedule of liquidation, 639–640, 648–649 Schering-Plough, 39 Schervish, Paul, 817n Schmarak, Bradley S., 568n Schultz, Joseph J., 522n Schütte, Silvia, 521n Scitex Corporation, S corporations, 601 Seasonal items, interim reporting and, 355 Section 501(c)(3) entities, 792 Securities Act of 1933, 537 purpose of, 535–536 Securities and Exchange Commission (SEC), 533–552 creation of, 533–534 filing requirements of, 537–538 Form 8-K and, 549 Form 10-K and, 548 Form 10-Q and, 548 Form 20-F, 492 full and fair disclosure and, 537–538 IFRS acceptance by, 507–508 periodic filings with, 548–549 proxy statements and, 549 purpose of U.S securities laws and, 535–536 registration procedures of, 546–547 registration statements and, 545–546 Sarbanes-Oxley Act and See Sarbanes-Oxley Act of 2002 Staff Accounting Bulletins of, 542 No 54, “Application of ‘Push Down’ Basis of Accounting in Financial Statements of Subsidiaries Acquired by Purchase,” 112 No 73, “ ‘Push Down’ Basis of Accounting for Parent Company Debt Related to Subsidiary Acquisitions,” 112 No 101, 542–543 structure of, 534–535 Securities Exchange Act of 1934, 537 purpose of, 535–536 Securities Investor Protection Act of 1970, 537 Segment reporting, 336–346 determination of reportable operating segments and, 337–342 other guidelines for, 341–342 quantitative thresholds for, 338–339 testing procedures for, 339–341 examples of operating segment disclosures and, 345–346 information to be disclosed by operating segments and, 342–345 explanation of measurement and, 344–345 reconciliations to consolidated totals and, 343–344 management approach for, 337 Separate incorporation, acquisition method with, 52–55 Separate return method, for income tax assignment, 310–311 Services, contribution to not-for-profit organizations, 790–791 Settlors, 832–833 SFASs See Statements of Financial Accounting Standards (SFASs) Shapiro, James E., 498n Share capital, 491 Share premium, 491 Shellenbarger, Sue, 635n Shriners’ Hospitals for Children, 777 Sinopec, 498 Sirower, Mark, 39n Skousen, K Fred, 545n, 547n, 549n SK Telecom Co., Ltd., 493–494 Smith, Aaron, 41n Smith, Anna Nicole, 821n Solid waste landfill, in government accounting, 723–724 Sonoco Products Company, 458–459 Southwest Airlines, 356 Special assessments, 696–697 Special purpose entities (SPEs), 241 See also Variable interest entities (VIEs) qualifying, 242 Special purpose governments, 733–734 Special purpose vehicles, 241 See also Variable interest entities (VIEs) Special revenue funds, 675–676 Specific legacies, 820 Spector, Mike, 572n Spendthrift trusts, 834 SPEs (special purpose entities), 241 See also Variable interest entities (VIEs) qualifying, 242 Spot exchange rates, 378 Staff Accounting Bulletins, 542 No 54, “Application of ‘Push Down’ Basis of Accounting in Financial Statements of Subsidiaries Acquired by Purchase,” 112 No 73, “ ‘Push Down’ Basis of Accounting for Parent Company Debt Related to Subsidiary Acquisitions,” 112 No 101, 542–543 Standards See Accounting standards; International accounting standards; International Accounting Standards (IASs); International financial reporting standards (IFRSs); U.S generally accepted accounting principles (GAAP) Stanford, 752 State governments See Government accounting Statement of activities, 678 government-wide, 736–737 for not-for-profit organizations, 796 Statement of activities and changes in net assets, for not-for-profit organizations, 780, 781–786, 796 Statement of cash flows for not-for-profit organizations, 780 remeasurement of, 455 translation of, current rate method for, 451–452 Statement of cash flows—proprietary funds, fund-based, 743, 750–751, 752 Statement of financial affairs, 563–567 Statement of financial position, for not-for-profit organizations, 779, 780–781 Statement of functional expenses, for not-for-profit organizations, 780, 785–786 Statement of net assets, 678 government-wide, 734–736 Statement of net assets—proprietary funds, fund-based, 743, 746–747 Statement of partners’ capital, 609 Statement of Position 90-7, 574 Statement of realization and liquidation, 568, 569–571 Statement of revenues expenditures, and changes in fund balances— government funds, fund-based, 742–743, 744–745 expenses, and changes in fund net assets— proprietary funds, fund-based, 743, 748–749 Statements of Financial Accounting Standards (SFASs) No 1, “Disclosure of Foreign Currency Translation Information,” 444 No 3, 350 No 8, “Accounting for the Translation of Foreign Currency Transactions and Foreign Currency Translation Statements,” 444 No 13, “Accounting for Leases,” 519–520, 720 No 14, 336 No 19, “Financial Accounting and Reporting by Oil and Gas Producing Companies,” 544 No 52, “Foreign Currency Translation,” 444 No 116, “Accounting for Contributions Received and Contributions Made,” 727, 779, 788 No 117, “Financial Statements of Not-for-Profit Organizations,” 779 No 123, “Share-Based Payment,” 505 No 131, “Disclosures about Segments of an Enterprise and Related Information,” 336 No 133, “Accounting for Derivative Instruments and Hedging Activities,” 383, 492 No 141, 518 No 141R, “Business Combination,” 505–506 No 151, “Inventory Costs—An Amendment of ARB 43, Chapter 4,” 504 No 153, “Exchanges of Nonmonetary Assets— An Amendment of APB Opinion 29,” 504 No 154, “Accounting Changes and Error Corrections—A Replacement of APB Opinion No 20 and FASB Statement No 3,” 505 No 160, “Noncontrolling Interests in Consolidated Financial Statements,” 505–506 Statutory consolidations, 42 Statutory mergers, 42 Stempel, Jonathan, 40n Step acquisitions, 160–167 accounting for remaining shares and, 167 acquisition method and, 161–166 cost-flow assumptions and, 167 Stock consolidated earnings per share and, 263–266 subsidiary, parent sales of, acquisition method and, 165–166 Stock, Howard, 545n Stockholders, financial reporting to, SEC’s impact on, 538 Stocks and works in progress, 491 Subchapter S corporations, 601 Subsidiaries See also Consolidated financial statements; Consolidations preferred stock of, 256–258 Subsidiary stock transactions, 266–273 changes in subsidiary value and, 266–269 Sun Microsystems, 39 Supplies, in government accounting, 690 Supporting service costs, of not-for-profit organizations, 784 T T Rowe Price, 498 Tangible assets, 481 Target Corporation, 349 Tax(es) estate, 822–825 income See Income taxes; Internal Revenue Service (IRS) inheritance, 822–823, 825 property, revenues from, 692–693 sales, revenues from, 691–692 hoy36628_ndx_851-860.qxd 1/25/10 11:02 PM Page 860 860 Index Tax anticipation notes, 695–696 Taxation, accounting diversity due to, 495 Tax-exempt status, contributions to not-for-profit organizations and, 791–792 Tax revenues, derived, 691–692 Temporal method for financial statement translation, 439–440, 441, 442–443 cost of goods sold calculation and, 442 fixed assets, depreciation, and accumulated depreciation and, 442–443 gain or loss on sale of asset and, 443 lower-of-cost-or-market rule application and, 442 fixed assets, depreciation, and accumulated depreciation under, 442–443 gain or loss on sale of asset under, 443 lower-of-cost-or-market rule under, 442 for remeasurement, financial statement translation and, 452–455 Termination, of partnerships See Partnerships, termination and liquidation of Testamentary trusts, 832 Texaco Inc., 456, 558, 559n Textron, Inc., 375 Third-party payors, contractual agreements with, 798–799 Thomson Financial, 38 Thornburg Mortgage Inc., 558 Ticketmaster Entertainment Corporation, 160 Time value, of foreign exchange options, 379 TIM Participaỗừes S.A., 489 Tkac, Paula A., 498n Tobin, Jean E., 498n Tomczak, Joe, 83 Toys “R” Us, Inc., 349 TPI (Transplace, Inc.), 1, Trading securities, Transplace, Inc (TPI), 1, Treasury stock approach, for mutual ownership, 304–305 Treger, Tracy L., 568n Trial balance, of foreign subsidiary, translation of, 460–461 Tribune Company, 573 Tropicana Products, 37 Trump Hotels & Casino Resorts, 573 Trust(s), 831–836 accounting for activities of, 836 annuity, grantor retained, 834 charitable lead, 834 charitable remainder, 834 credit shelter, 833 income taxes and, 825–826 inter vivos, 832, 836 life insurance, irrevocable, 835 living, revocable, 833 minor’s section 2503(c), 834 qualified personal resident, 835 qualified terminable interest property, 833–834 record keeping for, 835–836 spendthrift, 834 testamentary, 832 Trustees, Chapter bankruptcy and, 568–569 Trust Indenture Act of 1940, 537 Trustors, 832–833 Tsakumis, George T., 496n, 521n, 522n Tweedie, David, 519, 521n Two-transaction perspective, foreign currency transactions and, 383–384 Tyco, 537 Tyer, Charlie, 676n U UKEU (PepsiCo International—United Kingdom and Europe), 346 Umbro Pic, 435 Underlying valuation method, for financial statement translation, 456–457 Uniform Probate Code, 818 United Cerebral Palsy, 792n U.S generally accepted accounting principles (GAAP) consolidations subsequent to acquisition and, 108–109 differences between IFRSs and, 512–519 for noncontrolling interest, 167 SEC’s authority over, 542–544 United Way, 780 Universities, public, 752–757 University of Kansas, 752 Univision, Inc., 104 Unocal, 456 Unrealized gains on depreciable assets, deferral of, 216–217 foreign exchange accrual approach to, 382 deferral approach to, 382 intra-entity, deferred income taxes and, 309 on land transfers, eliminating, 214–215 Unrealized profits, in inventory, elimination of, 17–22 Unrecognized foreign currency firm commitments, hedges of, 400–405 forward contract used as, 401–403 options used as, 403–405 Upstream sales, of inventory, 19–22 Utah State University, 752 Variable interest(s), Variable interest entities (VIEs), 6, 42, 241–248 characteristics of, 242–243 consolidation of, 243–248 defined, 242–243 disclosure requirements for, 248 identification of, 244 international accounting standards and, 248–249 Verizon Wireless, 39 VIEs See Variable interest entities (VIEs) W Wake Forest University, 795 Walker, Michael A., 546n Walmart Stores, Inc., 139, 346, 349, 822 The Walt Disney Company, 6, 244, 335 Walton, Helen, 822 Walton, Sam, 822 Washington Mutual Inc., 558 Webster Holiday Inn Express Hotel & Suites, 560 Weinstein, Stanley, 546n Weir, James, 456 Westamerica Bank, 50 Whitehall Jewelers, 571 Whitis, Robert E., 648 Wills, 818 Wilson Foods Corporation, 579 Withdrawal of partners, dissolution through, 617–619 Withdrawals of capital, from partnerships, 607 Wm Wrigley Jr., 39 Works of art contribution to not-for-profit organizations, 787–788 government accounting and, 726–727 WorldCom Inc., 537, 539, 558, 563n Wyeth, 39, 40–41 X Xinjiang Airlines (XJA), 516–517 Y Yahoo!-Broadcast.com, 61n Yale University, 781 YMCA of the United States, 778, 781, 792n, 793 Z V Vandenburgh, William M., 822n Vanderbilt University, 795 Zecher, J Richard, 550n Zeff, Stephen A., 543n Zell, Sam, 573 ... Cataloging-in-Publication Data Hoyle, Joe Ben Advanced accounting / Joe B Hoyle, Thomas F Schaefer, Timothy S Doupnik.? ?10th ed p cm Includes index ISBN-13: 97 8-0 -0 7-8 1366 2-7 (alk paper) ISBN-10: 0-0 7-8 1366 2-8 ... outside the United States This book is printed on acid-free paper WDQ/WDQ ISBN MHID 97 8-0 -0 7-8 1366 2-7 0-0 7-8 1366 2-8 Vice president and editor-in-chief: Brent Gordon Editorial director: Stewart Mattson... Consolidated assets and equities • Consolidated expenses • Unrecorded intangible assets • Goodwill impairment • Determination of control End-of-Chapter Materials As in previous editions, the end-of-chapter