page i Advanced Financial Accounting page ii page iii Advanced Financial Accounting Thirteenth Edition Theodore E. Christensen University of Georgia David M. Cottrell Brigham Young University Cassy JH Budd Brigham Young University page iv ADVANCED FINANCIAL ACCOUNTING Published by McGraw Hill LLC, 1325 Avenue of the Americas, New York, NY 10019. Copyright ©2023 by McGraw Hill LLC. All rights reserved. Printed in the United States of America. 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 McGraw Hill LLC, 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. 1 2 3 4 5 6 7 8 9 LWI 25 24 23 22 ISBN 978-1-265-04261-5 MHID 1-265-04261-6 Cover Image: Chones/Shutterstock All credits appearing on page or at the end of the book are considered to be an extension of the copyright page. The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw Hill LLC, and McGraw Hill LLC does not guarantee the accuracy of the information presented at these sites. mheducation.com/highered page v About the Authors Courtesy Brigham Young University/Photo by Alison Fidel Theodore E. Christensen Ted Christensen has been a faculty member at the University of Georgia since 2015. Prior to coming to UGA, he was on the faculty at Brigham Young University for 15 years and Case Western Reserve University for five years. He received a BS degree in accounting at San Jose State University, a MAcc degree in tax at Brigham Young University, and a PhD in accounting from the University of Georgia (so he is now teaching at a second alma mater). Professor Christensen has authored and coauthored articles published in many journals including The Accounting Review, Journal of Accounting Research, Journal of Accounting and Economics, Review of Accounting Studies, Contemporary Accounting Research, Accounting Organizations and Society, Journal of Business Finance & Accounting, Accounting Horizons, and Issues in Accounting Education. Professor Christensen has taught financial accounting at all levels, financial statement analysis, both introductory and intermediate managerial accounting, and corporate taxation. He is the recipient of numerous awards for both teaching and research. He has been active in serving on various committees of the American Accounting Association and is a CPA. Courtesy Brigham Young University/Photo by Kristen Gudmund David M. Cottrell Professor Cottrell joined the faculty at Brigham Young University in 1991. Prior to coming to BYU, he spent five years at The Ohio State University, where he earned his PhD. Before pursuing a career in academics, he worked as an auditor and consultant for the firm of Ernst & Young in its San Francisco office. At BYU, Professor Cottrell has developed and taught courses in the School of Accountancy, the MBA program, and the Finance program. He has won numerous awards from the alumni and faculty for his teaching and curriculum development. He received the Outstanding Professor Award in the college of business as selected by the students in the Finance Society; he received the Outstanding Teaching Award as selected by the Marriott School of Management; and he is a four-time winner of the collegewide Teaching Excellence Award for Management Skills, which is selected by the Alumni Board of the Marriott School of Management at BYU. Professor Cottrell also has authored many articles about accounting and auditing issues. His articles have been published in Issues in Accounting Education, Journal of Accounting Case Research, Quarterly Review of Distance Education, Journal of Accountancy, The CPA Journal, Internal Auditor, The Tax Executive, and Journal of International Taxation, among others. Courtesy Brigham Young University/Photo by Tabitha Sumsion Cassy JH Budd Professor Budd has been a faculty member at Brigham Young University since 2005. Prior to coming to BYU, she was on the faculty at Utah State University for three years. She received a BS degree in accounting at Brigham Young University and a MAcc degree in tax at Utah State University. Before pursuing a career in academics, she worked as an auditor for the firm of PricewaterhouseCoopers LLP in its Salt Lake, San Jose, and Phoenix offices and continues to maintain her CPA license. Professor Budd has taught financial accounting at all levels, as well as managerial accounting, undergraduate and graduate auditing, and partnership taxation. She is the recipient of numerous awards for teaching and student advisement, including the BYU Marriott School Teaching Excellence Award; the Dean Fairbanks Teaching and Learning Faculty Fellowship, Brigham Young University; School of Accountancy Advisor of the Year, Utah State University; State of Utah Campus Compact Service-Learning Engaged Scholar Award; and the Joe Whitesides Scholar–Athlete page vi Recognition Award from Utah State University. She has been active in serving on various committees of the American Accounting Association (AAA), including serving as president of the AAA Teaching, Learning and Curriculum section and chairing the annual Conference on Teaching and Learning in Accounting. Professor Budd is currently serving as the AAA Council Representative for the Teaching, Learning and Curriculum Section. page vii Preface The Thirteenth Edition of Advanced Financial Accounting is an up-to-date, comprehensive, and highly illustrated presentation of the accounting and reporting principles and procedures used in a variety of business entities. Every day, the business press carries stories about merger and acquisition mania, the complexities of modern business entities, new organizational structures for conducting business, accounting scandals related to complex business transactions, the foreign activities of multinational firms, the operations of governmental and not-for-profit entities, and bankruptcies of major firms. Accountants must understand and know how to deal with the accounting and reporting ramifications of these issues. OVERVIEW As in prior editions, this edition provides detailed coverage of advanced accounting topics with clarity and integrated coverage based on continuous case examples. The text is complete with illustrations of worksheets, schedules, and financial statements allowing students to see the development of each topic. Inclusion of recent FASB and GASB pronouncements and the continuing deliberations of the authoritative bodies provide a current and contemporary text for students preparing for the CPA examination and current practice. This emphasis has become especially important given the recent rapid pace of the authoritative bodies in dealing with major issues having far-reaching implications. The Thirteenth Edition covers the following topics: Multicorporate Entities Business Combinations 1. Intercorporate Acquisitions and Investments in Other Entities Consolidation Concepts and Procedures 2. Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with No Differential 3. The Reporting Entity and the Consolidation of Less-Than-Wholly-Owned Subsidiaries with No Differential 4. Consolidation of Wholly Owned Subsidiaries Acquired at More Than Book Value 5. Consolidation of Less-Than-Wholly-Owned Subsidiaries Acquired at More Than Book Value Intercompany Transactions 6. Intercompany Inventory Transactions 7. Intercompany Transfers of Services and Noncurrent Assets 8. Intercompany Indebtedness Additional Consolidation Issues 9. Consolidation Ownership Issues 10. Additional Consolidation Reporting Issues Multinational Entities Foreign Currency Transactions 11. Multinational Accounting: Foreign Currency Transactions and Financial Instruments Translation of Foreign Statements 12. Multinational Accounting: Issues in Financial Reporting and Translation of Foreign Entity Statements page viii Reporting Requirements Segment and Interim Reporting 13. Segment and Interim Reporting SEC Reporting 14. SEC Reporting Partnerships Formation, Operation, Changes 15. Partnerships: Formation, Operation, and Changes in Membership Liquidation 16. Partnerships: Liquidation Governmental and Not-for-Profit Entities Governmental Entities 17. Governmental Entities: Introduction and General Fund Accounting Special Funds 18. Governmental Entities: Special Funds and Governmentwide Financial Statements Not-for-Profit Entities 19. Not-for-Profit Entities Corporations in Financial Difficulty 20. Corporations in Financial Difficulty NEW FEATURES FOR THE THIRTEENTH EDITION Videos. The Thirteenth Edition of Advanced Financial Accounting continues one of the most student-centered technology supplements ever