Solutions for Advanced Accounting, 5th Edition by Patrick Hopkins.pdf

Advanced Accounting, n




5th Edition n




by Patrick Hopkins and Halsey
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Complete Chapter Solutions Manual are i
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ncluded (Ch 1 to 13) n n n n




** Immediate Download
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** Swift Response
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** All Chapters included
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, Advanced Accounting Fift
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h Edition
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BynPatrick nE.nHopkinsnandnRobert nF.nHalsey


Solution Manual
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Chapter 1— Accounting for Intercorporate Investments
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1. a.n Ifntheninvestor nacquiredn100%nofntheninvesteenatnbooknvalue,nthenEquitynInvestmentnacc
ountnisnequalntonthenStockholders’nEquitynofntheninvesteencompany.nIt,ntherefore,ninclu
desnthenassetsnandnliabilitiesnofntheninvesteencompanyninnonenaccount.nTheninvestor’sn
balancensheet,ntherefore,nincludesnthenStockholders’nEquitynofntheninvesteencompany,n
and,nimplicitly,nitsnassetsnandnliabilities.nInnthenconsolidationnprocess,nthenbalancenshe
etsnofntheninvestor nandninvesteencompanynarenbroughtntogether.nConsolidatednStockh
olders’nEquitynwillnbenthensamenasnthatnwhichntheninvestor ncurrentlynreports;nonlyntota
lnassetsnandntotalnliabilitiesnwillnchange.

b. Ifntheninvestor nownsn100%nofntheninvestee,nthenequitynincomenthatntheninvestor nreportsn
isnequalntonthennetnincomenofntheninvestee,nthusnimplicitlynincluding nitsnrevenuesnandne
xpenses.nReplacing nthenequitynincomenwithnthenrevenuesnandnexpensesnofntheninveste
encompanyninnthenconsolidationnprocessnwillnyieldnthensamennetnincome.

2. FASBn ASC n 323-
10n providesn then following n guidancen withn respectn ton then accounting n fornreceiptnofndivid
endsnusing nthenequitynmethod:

Thenequitynmethodntendsntonbenmostnappropriatenifnanninvestmentnenablesntheninv
estorntoninfluencenthenoperating nornfinancialndecisionsnofntheninvestee.nTheninvesto
rnthennhasnandegreenofnresponsibilitynfornthenreturnnonnitsninvestment,nandnitnisnapp
ropriatentonincludeninnthenresultsnofnoperationsnofntheninvestor nitsnsharenofnthenear
ningsnornlossesnofntheninvestee.n(¶323-10-05-5)

Thenequitynmethodnisnannappropriatenmeansnofnrecognizingnincreasesnorndecreasesnmeasu
rednbyngenerallynacceptednaccounting nprinciplesn(GAAP)ninntheneconomicnresourcesnunderl
ying ntheninvestments.nFurthermore,nthenequitynmethodnofnaccounting nmorencloselynmeets
n then objectivesn ofn accrualn accounting n thann doesn then costn methodn becausen then investor n re

cognizesnitsnsharenofnthenearningsnandnlossesnofntheninvesteeninnthenperiodsninnwhichntheyn
arenreflectedninnthenaccountsnofntheninvestee.n(¶323-10-05-4)

Under nthenequitynmethod,nanninvestor nshallnrecognizenitsnsharenofnthenearningsnornlossesno
fnanninvesteeninnthenperiodsnfornwhichntheynarenreportednbyntheninvesteeninnitsnfinancial nst
atementsnrather nthanninnthenperiodninnwhichnanninvesteendeclaresnandividendn(¶323-10-
n 35-4).


2023
SolutionsnManual,nChaptern1 1-1

,3. Thenrecognitionnofnequitynincomendoesnnotnmeannthatncashnhasnbeennreceived.nInnfact,ndiv
idendsnpaidnbyntheninvesteentontheninvestor narentypicallynansmallnpercentagenofnitsnreporte
dnnetnincome.nThenprojectionnofnfuturennetnincomenthatnincludesnequitynincomenasnansignifi
cantncomponentnmightnnot,ntherefore,nimplynsignificantngenerationnofncash.

4. Thenaccounting nfornAltria’sninvestmentninnABIndependsnonnthendegreenofninfluencenorncont
rolnitncannexertnovernthatncompany.nAnclassificationnofn“noninfluence”ndoesnnotnappear nappr
opriatensincenAltrianownsn10.1%nofnthenoutstanding ncommonnstocknandnalson“activenrepre
sentationnonnABI’snBoardnofnDirectorsn(“ABInBoard”)nandncertainnABInBoardncommittees.nT
hroughnthisnrepresentation,nAltrianparticipatesninnABInpolicynmaking nprocesses.”nAnclassific
ationnofn“significantninfluence” nseemsnmostnappropriatengivennthenfacts,nandnthisnclassific
ationnwarrantsnaccounting nforntheninvestmentnusing nthenequitynmethodnofnaccounting.

5. a.n Anninvestor nmaynwritendownnthencarryingnamountnofnitsnEquitynInvestmentnifnthenfair nv
aluenofnthatninvestmentnhasndeclinednbelownitsncarryingnvaluenandnthatndeclinenisndee
medntonbenother nthanntemporary.

b. Therenisnconsiderablenjudgmentninndetermining nwhether nandeclineninnfairnvaluenisnother n
thanntemporary.nThenwrite-
downnamountsntonanpredictionnthatnthenfuturenfairnvaluenofntheninvestmentnwillnnotnris
enaboventhencurrentncarryingnamount.nIfnancompanyndeemsnthendeclinentonbentempora
ry,nitndoesnnotnwritendownntheninvestment,nandnanlossnisnnotnrecognizedninnitsnincomens
tatement.nIfnthendeclinenisndeemedntonbenother nthanntemporary,ntheninvestmentnisnwri
ttenndownnandnanlossnisnreported.nCompaniesncannusenthisnflexibilityntondecidenwhether n
tonrecognizenanlossninnthencurrentnyear norntonpostponenitntonanfuturenyear.

6. Under nthenequitynmethod,nanninvestor nrecognizesnitsnsharenofnthenearningsnornlossesnofnann
investeeninnthenperiodsnfornwhichntheynarenreportednbyntheninvesteeninnitsnfinancial nstatem
ents.nFASBnASC n323-10-35-7nstatesnthatn“Intra-
entitynprofitsnandnlossesnshallnbeneliminatednuntilnrealizednbyntheninvestor norninvesteenasnifnt
heninvesteenwerenconsolidated.” nThesenintercompanynitemsnareneliminatedntonavoidndoub
lencounting nandnprematurelynrecognizing nincome.




2023
1-2 AdvancednAccounting, n5thnEdition

, 7. FASBnASC n323-10-
15nrequiresnthenusenofnthenequitynmethodnofnaccounting nfornanninvestor nwhoseninvestmen
tninnvoting nstockngivesnitnthenabilityntonexercisensignificantninfluence novernoperating nandnfin
ancialnpoliciesnofnanninvestee.nSectionn15-
6nstatesnthatn“Abilityntonexercisensignificantninfluencenover noperatingnandnfinancialnpoliciesn
ofnanninvesteenmaynbenindicatedninnseveralnways,nincluding nthenfollowing:nRepresentationn
onnthenboardnofndirectors,nParticipationninnpolicy-makingnprocesses,nMaterialnintra-
entityntransactions,nchangenofnmanagerialnpersonnel,nTechnological ndependency,nandnExte
ntnofnownershipnbynanninvestor ninnrelationntonthenconcentrationnofnother nshareholdingsn(b
utnsubstantial nornmajoritynownershipnofnthenvoting nstocknofnanninvesteenbynanother ninvest
orndoesnnotnnecessarilynprecludenthenabilityntonexercisensignificantninfluencenbyntheninvest
or)”n(emphasisnadded).nItnisnclear,ninnthisncase,nthatntheninvesteenisncriticallyndependentnup
onnthentechnologynlicensedntonitnbyntheninvestor.nTheninvestor nshould,ntherefore,naccountn
for nitsninvestmentnusing nthenequitynmethod.

8. Evennthoughntheninvestor nownsn30%nofntheninvestee,nitnshouldnnotnusenthenequitynmethodn
asnitncannotnexertnsignificantninfluencenover ntheninvestee.nFurther,nsincentheninvesteenisnnotn
anpublicncompanyn(allnofnthenremainingnstocknisnprivatelynheld),ntheninvestor nshouldnusenthen
costnmethodntonaccountnfornthisninvestmentnasnthenfairnvaluenmethodnpresumesnanpubliclyn
tradednstocknwithnsufficientnliquidityntonreasonablyndeterminenanfair nvalue.

9. a.n ThenlossesndidnnotnaffectnEnron’snincomenstatement.nSincentheninvesteesnwereninsolven
t,nEnron’snEquitynInvestmentnwasnreducedntonzeron(itnhadnnotnmadenanynloansnornother
n advancesn ton then investeen companies).n Asn a n result,n Enronn discontinuedn reporting n for n t

hesenEquitynInvestmentsnusing nthenequitynmethodnand,ntherefore,ndidnnotnrecognizenit
snproportionatensharenofninvesteenlosses.

b. “…nonlynafter nitsnsharenofnthatnnetnincomenequalsnthensharenofnnetnlossesnnotnrecognizedn
during nthenperiodnthenequitynmethodnwasnsuspended”nmeansnthatntheninvesteenhasnre
coupednallnofnthenlossesnthatnhavenbeennreported.nSincentheninvestor nceasesntonaccoun
tnfornitsnEquitynInvestmentnusing nthenequitynmethodnoncenthenbalancenreachesnzeron(a
ssuming nthatnitnhasnnotnguaranteednthendebtsnofntheninvesteencompany),nthisngenerall
ynimpliesnthatntheninvestee’snStockholders’nEquitynisnbelownzeron(i.e.,nandeficit).nTheninv
estornresumesnitsnaccounting nfor nthenEquityninvestmentnusing nthenequitynmethodnonc
entheninvestee’snStockholders’nEquitynisnpositive.nItnisnatnthatnpointnwhenntheninvesteen
companynhasnrecoupednallnofnitsnpriornlossesn(assuming nthatntheninvesteencompanynha
snnotnraisednadditionalnequityncapital).




2023
SolutionsnManual,nChaptern1 1-3