TABLE OF CONTENTSPART 1 BUSINESS COMBINATIONS 1
1 Business Combinations Involving the Merger or Consolidation of Net Assets 2
The Business and Economic Incentives for Business Combinations 3
Types of Business Combinations 4
Merger/Consolidation 5
Acquisitions of stock 6
Consolidated financial statements 6
Accounting for Business Combinations 7
The conceptual differences between pooling and purchase 8
The purchase method of accounting for a merger—book and fair market value equal 10
Incidental costs associated with purchase method acquisitions 12
The purchase method of accounting for a merger—purchase price exceeds fair value of net assets acquired 13
Financial Statements in Purchase Combinations 16
Comprehensive Illustration 18
Summary 21
Appendix 1:Accounting for Goodwill 22
Appendix 2:Bargain Purchase Acquisitions 23
The purchase metbod of accounting for a merger—purchase price is less than the book value of net assets acquired 26
Summary 28
Questions 28
Exercises 29
Problems 34
2 Accounting in for Investments in the Common Stock of Affiliates 42
Accounting for Acquisitions of Common Stock 43
Passive investments in common stock 43
Substantial influence investments in common stock 44
Controlled investments in common stock 46
A Comparison of the Cost Method and the Equity Method 47
Equity Method Investments where Cost Exceeds Fair Market Value of Investee's Identifiable Net Assets 49
Changes in ownership percentage of common stock investments 51
Interim acquisitions 52
Summary 54
Appendix:Bargain Purchase Situations 55
Case 1:Investment cost falls between book and fair market value of underlying investee net assets 55
Case 2:Investment cost is less than underlying book ualue 57
Summary 59
Questions 59
Exercises 60
Problems 65
3 Consolidated Balance Sheet on the Date of Acquisition 72
The Concept of Consolidation 73
Consolidation policv—the Criteria for Consolidation 74
Consolidation Theory 77
Proportional consolidation—a bybrid approach to investment reporting 78
Consolidated Balance Sheet at the Date of Acquisition 79
100%-owned subsidiaries—cost and book value are equal 79
Less-than-100%-owned subsidiaries—cost and book value are equal 81
100%-owned subsidiaries—cost is greater than book value 82
Less-than-100%-owned subsidiaries—cost is greater tban book value 85
Financial statement disclosure of noncontrolling interest 86
Comprehensive illustration 87
Summary 90
Appendix 92
Bargain purchase acquisitions of a 100%interest 92
Bargain purchase acquisitions of less than a 100%interest 94
Summary 97
Questions 98
Exercises 98
Problems 103
4 Consolidated Financial Statements Subsequent to Acquisition 112
Effects of Method of Accounting on the Investment in Subsidiary Account 113
Choice of accounting method for subsidiary investments 113
Relationship between the investment account and the subsidiary stockholders'equity under the equity method 114
Formats for Consolidated Financial Statements Worksheets 116
Purchase Method Subsidiaries Accounted for by the Equity Method—Year 1 116
Adjustments for errors and omissions 116
Elimination of intercompany profit and elimination of reciprocal assets and liabilities 117
Elimination of current year equity earnings and intercompany dividends 118
Establisbment of the noncontrolling interest share of consolidated net income 118
Elimination of beginning of year balances of subsidiary stockholders'equity and investment in subsidiary 119
Allocation and amortization of unamortized differential 119
Completion of the Consolidated Statements Worksheet 120
Purchase Method Subsidiaries Accounted for by the Equity Method—Subsequent Years 120
Purchase Method Subsidiaries Accounted for by the Cost Method—Year 1 123
Purchase Method Subsidiaries Accounted for by the Cost Method—Subsequent Years 124
Comprehensive Illustration 127
The allocation schedule 128
The noncontrolling interest adjustment 129
Consolidated statements worksheet—equity method 130
Elimination entries—equity method 130
Consolidated statements worksheet—cost method 133
Summary 135
Questions 137
Exercises 137
Problems 143
5 Intercompany Transactions in Inventories 152
Conceptual Basis for Elimination of Intercompany Accounts 153
Intercompany Transactions in Inventory 153
Cost and Equity Method Issues 154
Sales by parent to subsidiary—the downstream case 155
Sales by subsidiary to parent—the upstream case 156
Elimination Entries 157
Modified equity and cost method situations—downstream sales 158
Modified equity and cost method situations—upstream sales 161
Full equity situations—downstream sales 162
Full equity situations—upstream sales 164
Summary—elimination entries for intercompany profit in inventory 165
Calculating the noncontrolling interest sbare of consolidated net income 167
Comprehensive Illustration 168
Summary 177
Appendix:Estimating the Amount of Intercompany Profit in Inventory 179
Questions 180
Exercises 181
Problems 185
6 Intercompany Transactions in Plant Assets 196
Conceptual Issues Underlying Intercompany Transactions in Plant Assets 197
Cost and Equity Method Issues 197
Downstream sale of land 198
Upstream sale of land with a noncontrolling interest 198
Downstream sale of equipment 199
Upstream sale of equipment with a noncontrolling interest 200
Elimination Entries 200
Modified equity and cost method situations—downstream sales 201
Modified equity and cost method situations—upstream sales with a noncontrolling interest 204
Full equity situations—downstream sales 207
Full equity situations—upstream sales with a noncontrolling interest 210
Calculating the noncontrolling interest share of consolidated net income 213
Comprehensive Illustration 215
Summary 224
Questions 225
Exercises 225
Problems 229
7 Business Combinations Using the Pooling of Interests Method 238
The Conceptual Basis for a Pooling of Interests 239
The Criteria for Use of the Pooling of Interests Method 241
Recording a Pooling Acquisition 242
Incidental costs associated with acquisitions accounted for by the pooling method 246
Less than 100%acquisitions 246
Postacquisition accounting 247
Asset Mergers under the Pooling Method 248
Consolidated Financial Statements under the Pooling Method 249
Consolidated balance sheet at the date of acquisition（100%acquisition） 250
Consolidated balance sheet at the date of acquisition （<100%acquisition） 251
Consolidated financial statements subsequent to the date of acquisition—100%ownership 251
Consolidated financial statements subsequent to the date of acquisition（<100%ownership） 253
Summary 255
Questions 256
Exercises 257
Problems 262
PART 2 FOREIGN EXCHANGE AND TRANSLATION 269
8 International Accounting-Foreign Currency Concepts and Transactions 270
Accounting Problems in International Business 271
Translation of foreign currency financial statements 271
Foreign currency transactions 272
Risk management of foreign exchange assets and liabilities 272
Economic Issues in Import and Export Transactions 273
Foreign exchange assets and liabilities 273
Foreign exchange rates for foreign currency transactions 275
Foreign exchange rates for translation of foreign currency financial statements 276
Accounting for Import and Export Transactions 277
Accountiing for a purchase of inventory 277
Illustration of the sale of inventory 278
Other foreign exchange transactions 279
Managing Foreign Exchange Risk with Forward Exchange Contracts 280
Accounting for hedges on foreign currency assets 281
Accounting for hedges on foreign currency liabilities 284
Accounting for hedges on foreign currency commitments 284
Speculating in Foreign Exchange 289
Hedging Investments in Foreign Currency 291
Summary 292
Questions 292
Exercises 293
Problems 297
9 Translation of Foreign Currency Financial Statements 304
The Need for Translated Financial Statements 305
Translation of the language 305
Translation of the accounting principles 306
Translation of the currency 306
Translation Terminology 307
Functional currency 307
Exchange rates used in translation 308
Translating the Currency in Foreign Financial Statements 309
Historical issues in foreign currency translation 309
Example of translation 311
Example of remeasurement 312
Accounting for an Investment in a Foreign Subsidiary 314
Applying the equity method to a translated financial statement 316
Applying the equity method to a remeasured financial statement 317
Comprehensive Illustration—Consolidation of a Foreign Subsidiary 318
Case of functional currency=local currency 319
Managing foreign exchange risk associated with foreign investments 324
Summary 326
Questions 327
Exercises 327
Problems 331
Index 341