Advanced Accounting,
5th Edition
by Patrick Hopkins and Halsey
Complete Chapter Solutions Manual are
included (Ch 1 to 13)
** Immediate Download
** Swift Response
** All Chapters included
, Advanced Accounting
Fifth Edition
By Patrick E. Hopkins and Robert F. Halsey
Solution Manual
Chapter 1— Accounting for Intercorporate Investments
1. a. If the investor acquired 100% of the investee at book value, the Equity Investment
account is equal to the Stockholders’ Equity of the investee company. It, therefore,
includes the assets and liabilities of the investee company in one account. The
investor’s balance sheet, therefore, includes the Stockholders’ Equity of the investee
company, and, implicitly, its assets and liabilities. In the consolidation process, the
balance sheets of the investor and investee company are brought together.
Consolidated Stockholders’ Equity will be the same as that which the investor
currently reports; only total assets and total liabilities will change.
b. If the investor owns 100% of the investee, the equity income that the investor reports
is equal to the net income of the investee, thus implicitly including its revenues and
expenses. Replacing the equity income with the revenues and expenses of the
investee company in the consolidation process will yield the same net income.
2. FASB ASC 323-10 provides the following guidance with respect to the accounting for
receipt of dividends using the equity method:
The equity method tends to be most appropriate if an investment enables the
investor to influence the operating or financial decisions of the investee. The
investor then has a degree of responsibility for the return on its investment, and
it is appropriate to include in the results of operations of the investor its share of
the earnings or losses of the investee. (¶323-10-05-5)
The equity method is an appropriate means of recognizing increases or decreases
measured by generally accepted accounting principles (GAAP) in the economic resources
underlying the investments. Furthermore, the equity method of accounting more closely
meets the objectives of accrual accounting than does the cost method because the
investor recognizes its share of the earnings and losses of the investee in the periods in
which they are reflected in the accounts of the investee. (¶323-10-05-4)
Under the equity method, an investor shall recognize its share of the earnings or losses
of an investee in the periods for which they are reported by the investee in its financial
statements rather than in the period in which an investee declares a dividend (¶323-10-
35-4).
2023
Solutions Manual, Chapter 1 1-1
, 3. The recognition of equity income does not mean that cash has been received. In fact,
dividends paid by the investee to the investor are typically a small percentage of its
reported net income. The projection of future net income that includes equity income as
a significant component might not, therefore, imply significant generation of cash.
4. The accounting for Altria’s investment in ABI depends on the degree of influence or
control it can exert over that company. A classification of “no influence” does not appear
appropriate since Altria owns 10.1% of the outstanding common stock and also “active
representation on ABI’s Board of Directors (“ABI Board”) and certain ABI Board
committees. Through this representation, Altria participates in ABI policy making
processes.” A classification of “significant influence” seems most appropriate given the
facts, and this classification warrants accounting for the investment using the equity
method of accounting.
5. a. An investor may write down the carrying amount of its Equity Investment if the fair
value of that investment has declined below its carrying value and that decline is
deemed to be other than temporary.
b. There is considerable judgment in determining whether a decline in fair value is other
than temporary. The write-down amounts to a prediction that the future fair value of
the investment will not rise above the current carrying amount. If a company deems
the decline to be temporary, it does not write down the investment, and a loss is not
recognized in its income statement. If the decline is deemed to be other than
temporary, the investment is written down and a loss is reported. Companies can use
this flexibility to decide whether to recognize a loss in the current year or to postpone
it to a future year.
6. Under the equity method, an investor recognizes its share of the earnings or losses of an
investee in the periods for which they are reported by the investee in its financial
statements. FASB ASC 323-10-35-7 states that “Intra-entity profits and losses shall be
eliminated until realized by the investor or investee as if the investee were consolidated.”
These intercompany items are eliminated to avoid double counting and prematurely
recognizing income.
2023
1-2 Advanced Accounting, 5th Edition
5th Edition
by Patrick Hopkins and Halsey
Complete Chapter Solutions Manual are
included (Ch 1 to 13)
** Immediate Download
** Swift Response
** All Chapters included
, Advanced Accounting
Fifth Edition
By Patrick E. Hopkins and Robert F. Halsey
Solution Manual
Chapter 1— Accounting for Intercorporate Investments
1. a. If the investor acquired 100% of the investee at book value, the Equity Investment
account is equal to the Stockholders’ Equity of the investee company. It, therefore,
includes the assets and liabilities of the investee company in one account. The
investor’s balance sheet, therefore, includes the Stockholders’ Equity of the investee
company, and, implicitly, its assets and liabilities. In the consolidation process, the
balance sheets of the investor and investee company are brought together.
Consolidated Stockholders’ Equity will be the same as that which the investor
currently reports; only total assets and total liabilities will change.
b. If the investor owns 100% of the investee, the equity income that the investor reports
is equal to the net income of the investee, thus implicitly including its revenues and
expenses. Replacing the equity income with the revenues and expenses of the
investee company in the consolidation process will yield the same net income.
2. FASB ASC 323-10 provides the following guidance with respect to the accounting for
receipt of dividends using the equity method:
The equity method tends to be most appropriate if an investment enables the
investor to influence the operating or financial decisions of the investee. The
investor then has a degree of responsibility for the return on its investment, and
it is appropriate to include in the results of operations of the investor its share of
the earnings or losses of the investee. (¶323-10-05-5)
The equity method is an appropriate means of recognizing increases or decreases
measured by generally accepted accounting principles (GAAP) in the economic resources
underlying the investments. Furthermore, the equity method of accounting more closely
meets the objectives of accrual accounting than does the cost method because the
investor recognizes its share of the earnings and losses of the investee in the periods in
which they are reflected in the accounts of the investee. (¶323-10-05-4)
Under the equity method, an investor shall recognize its share of the earnings or losses
of an investee in the periods for which they are reported by the investee in its financial
statements rather than in the period in which an investee declares a dividend (¶323-10-
35-4).
2023
Solutions Manual, Chapter 1 1-1
, 3. The recognition of equity income does not mean that cash has been received. In fact,
dividends paid by the investee to the investor are typically a small percentage of its
reported net income. The projection of future net income that includes equity income as
a significant component might not, therefore, imply significant generation of cash.
4. The accounting for Altria’s investment in ABI depends on the degree of influence or
control it can exert over that company. A classification of “no influence” does not appear
appropriate since Altria owns 10.1% of the outstanding common stock and also “active
representation on ABI’s Board of Directors (“ABI Board”) and certain ABI Board
committees. Through this representation, Altria participates in ABI policy making
processes.” A classification of “significant influence” seems most appropriate given the
facts, and this classification warrants accounting for the investment using the equity
method of accounting.
5. a. An investor may write down the carrying amount of its Equity Investment if the fair
value of that investment has declined below its carrying value and that decline is
deemed to be other than temporary.
b. There is considerable judgment in determining whether a decline in fair value is other
than temporary. The write-down amounts to a prediction that the future fair value of
the investment will not rise above the current carrying amount. If a company deems
the decline to be temporary, it does not write down the investment, and a loss is not
recognized in its income statement. If the decline is deemed to be other than
temporary, the investment is written down and a loss is reported. Companies can use
this flexibility to decide whether to recognize a loss in the current year or to postpone
it to a future year.
6. Under the equity method, an investor recognizes its share of the earnings or losses of an
investee in the periods for which they are reported by the investee in its financial
statements. FASB ASC 323-10-35-7 states that “Intra-entity profits and losses shall be
eliminated until realized by the investor or investee as if the investee were consolidated.”
These intercompany items are eliminated to avoid double counting and prematurely
recognizing income.
2023
1-2 Advanced Accounting, 5th Edition
