Advanced Accounting, 2nd ed.

by Halsey and Hopkins

Welcome to the second edition of Advanced Accounting. Our goal in writing this book was to satisfy the needs of today’s accounting students by providing the most contemporary, relevant, engaging, and student-oriented textbook available.

We think that we have accomplished that objective by maintaining a conceptually rigorous discussion of the material in an intuitive and student friendly style. Prior to writing this book, we both taught advanced financial accounting for many years, and we both felt that the structure and format of available textbooks contributed to the difficulties that our students have had in learning the material. several examples come to mind:

  1. Too many issues discussed simultaneously. Taken individually, consolidation issues can be difficult for students to grasp. The learning process is made all the more difficult when a particular topic (intercompany sales of assets, for example) is presented using alternative methods of equity investment accounting (e.g., full equity, partial equity, and cost) and under different business combination standards (e.g., pooling-of-interests, purchase method, and acquisition method). Our experience and the experience of many of our focus group participants—indicates that students are generally confused by the mixing of approaches and standards in the main-chapter discussion of most textbooks. To address this issue, we present all of our accounting topics using only the full-equity method of investment accounting and the current acquisition-accounting standard for business combinations. For instructors who wish to cover alternative equity-investment accounting approaches or business combination standards, we also provide appendices that include different methods by which the parent can account for the equity investment (e.g., cost method) and other currently relevant business combination standards (e.g., pooling-of-interest currently required for commonccontrol mergers).
  2. Mechanics versus intuition. After completing our courses and entering the working world, our former students have encountered many different consolidation approaches used by their employers and clients. Given the diversity of processes and procedures in practice, we adjusted our own teaching styles to emphasize an intuitive understanding of the concepts over the rote memorization of static journal-entry approaches. Unfortunately, the available textbooks were mostly written with a mechanical perspective. In writing this text, we incorporated our teaching-based observations. in each chapter, we initially focus on conceptual explanations and discuss mechanics only after we convey an intuitive perspective on each topic.
  3. Connection between fund-based statements and government-wide statements. Most texts combine, in a single chapter, fund-based accounting and government-wide financial statements, and do not demonstrate how government-wide statements are generated from fund-based accounting. We address this issue by covering these topics in two separate chapters, and by illustrating the process by which fund accounting is used to generate government-wide financial statements. We present this material within the context of an actual, small new england town. The town is large enough to demonstrate the accounting concepts, yet small enough to avoid obscuring the learning process with unnecessary complexity.
  4. Not writing for students. Many texts are written using overly technical language. Our text, while rigorous, is written in a student-friendly, conversational style that makes the material much easier for students to comprehend and apply.

This book is the product of extensive market research including focus groups, market surveys, class tests, manuscript reviews, and interviews with faculty from across the country. We are grateful for the feedback from faculty who reviewed, and students who studied, early drafts of our text.

Table of Contents

Chapter Title
1 Accounting for Intercorporate Investments
2 Introduction to Business Combinations and the Consolidation Process
3 Consolidated Financial Statements Subsequent to the Date of Acquisition
4 Consolidated Financial Statements and Intercompany Transactions
5 Consolidated Financial Statements with Less than 100% Ownership
6 Consolidation of Variable Interest Entities and Other Intercompany Investments
7 Accounting for Foreign Currency Transactions and Derivatives
8 Consolidation of Foreign Subsidiaries
9 Government Accounting: Fund-Based Financial Statements
10 Government Accounting: Government-Wide Financial Statements
11 Accounting for Not-for-Profit Organizations
12 Segment Disclosures and Interim Financial Reporting
13 Accounting for Partnerships

Features

Target Audience

Advanced Accounting is intended for use in undergraduate and graduate accounting programs that include a course in advanced accounting as part of the curriculum. This book is especially written for advanced accounting courses in which an intuitive understanding of the material, in addition to accounting mechanics, is emphasized. Feedback from students who used our text, and subsequently completed the uniform CPA exam, has been extremely positive. They report that they felt well-prepared for the portions of the exam relating to advanced financial accounting topics.

The examples in this textbook reinforced well the theoretical concepts discussed in the chapters. The understanding I gained after using this textbook helped prepare me well for some of the toughest material in the CPA Exam.

Jon Slebodnick—Audit Associate, Deloitte

Emphasis on Intuition

We introduce topics by discussing the intuition behind accounting standards before discussing the mechanics of the accounting process. in addition, we intentionally deemphasize memorization of journal entry mechanics. We believe that this approach allows students to better understand the material and to develop relevant transferrable knowledge.

The advanced accounting textbook provided a clear and concise presentation of not only how certain accounting concepts are applied, but also why they are important and pertain to us directly.

Dan Brown—Audit Associate, PriceWaterhouseCoopers

Easy-to-Remember Mnemonic

Although our text emphasizes the intuition underlying the consolidation process, we also introduce the C-E-A-D-I (pronounced “seedy”) consolidation journal entry sequence to assist students in learning the mechanics of consolidation. The sequence systematically eliminates the book value of subsidiary equity (C, E), establishes the fair value adjustments for subsidiary net assets (A, D), and eliminates intercompany transactions and balances (I). Over the years, we’ve observed that this easy-to-remember mnemonic improves students’ understanding of consolidations and allows for easier recall of each step of the consolidation adjustment process.

FASB Codification Throughout

We wrote our text after implementation of the FASB’s Codification and we integrated the Codification throughout, including end-of-chapter problem assignments. Unlike many advanced accounting textbooks, we cite passages of the Codification frequently so that students can become familiar with the actual language of the standards, not just the authors' summary of the standards. This also allows students to easily find the relevant passages on their own. In addition, to familiarize students with the Codification search engine and to better develop their research skills, we also include numerous FASB Codification-related research assignments in our end-of-chapter problem sets.

IFRS Coverage

Accounting students must become familiar with IFRS. Fortunately, the current accounting standards relating to the main topic of the book business combinations and consolidation were written jointly by the FASB and the IASB, and are 99% equivalent. In addition, other standards (e.g., segment reporting) are similar, but have key differences. In the text, we discuss the IFRS equivalent of accounting standards and highlight the differences between the two sets of accounting standards when they occur. These discussions are identified with the IFRS icon.

Relevance and Engagement

Advanced accounting is a challenging topic. We have adopted a number of techniques in our book to make the material relevant and engaging to students. These techniques include:

Focus Companies for Each Chapter

Each chapter incorporates a “focus company” for special emphasis and demonstration. We chose companies that illustrate the topic of the chapter so that students can learn the material within context. In addition, our chapters on governmental accounting are written around a small new england town that is large enough to effectively communicate the concepts of governmental accounting, yet small enough not to obscure those concepts in unnecessary complexity. The following are the focus companies we use to introduce our topics:

Consolidation chapters
AT&T, Cummins, American Apparel, Comcast-General Electric joint venture, Walt Disney
Foreign currency, derivatives and consolidation of foreign subsidiaries
Coca-Cola
Government and NFP
Town of Acton, MA and the American Red Cross
Segments
3M Company
Partnerships
Boardwalk Pipeline Partners, LLP

Real company Data in Text and Assignments

We believe that an important part of the learning process involves the application of concepts to realworld data. We include references to actual footnotes in the body of our text and also include a number of end-of-chapter problems that are written around actual footnote disclosures. These problems allow students to think about accounting concepts more broadly (i.e., less mechanically) and from the perspective of the users of financial statements. The following is a typical example:

Practice Insight Boxes

We provide a number of Practice insight Boxes resulting from interviews with practicing accountants and financial managers. These boxes provide students with insight into issues that accountants face in the real world, and with a glimpse into the types of decisions that practicing accountants must make. The following is a typical example:

Mid-Chapter and Chapter-End Reviews

Advanced accounting concepts can be challenging. To reinforce concepts presented in each chapter and to ensure student comprehension, we include topic reviews that require students to recall and apply the financial accounting techniques and concepts described in each chapter.

Readability

Our text is written with rigorous content, but in a student-friendly conversational style that facilitates the learning process. Previous textbooks by the authors have met with extremely positive reviews for writing quality, and students who have used our textbook comment on the relative ease with which they are able to assimilate the material.

This book was very engaging and simple to follow, which made for a more enjoyable class! The examples and exhibits do a great job supporting the text to better retain the information.

Moises Numa— Audit Associate, Deloitte

Class-Tested Content

Prior to publishing the first edition of this text, we tested drafts of our text in our own courses for two years. As a result of feedback we received from our students at Babson College and Indiana University, we made substantive revisions to the text. We also received substantive input from many faculty members at other colleges and universities via in-depth reviews of preliminary drafts of our text and participation in focus groups. This edition of our text reflects substantial revisions that we made to reflect this input.

Supplements

Instructors
Solutions Manual Created by the authors, the Solutions Manual contains complete solutions to all the assignment material in the text.
PowerPoint Created by the authors, the PowerPoint slides outline key elements of each chapter.
Test Bank The test bank includes multiple-choice items, matching questions, short essay questions, and problems.
Excel Tempates Excel Templates: We provide Excel spreadsheets for assignments. We have excel solution spreadsheets available for all of the consolidation-related problems and for problems in our government-wide financial statements chapter. These spreadsheets support the preparation of financial statements from a trial balance and related journal entries.
myBusinessCourse A web-based learning and assessment program intended to complement your textbook and classroom instruction. This easy-to-use course management system grades homework automatically and provide students with additional help when you are not available. in addition, detailed diagnostic tools assess class and individual performance. myBusinessCourse is ideal for online courses or traditional face-to-face courses for which you want to offer students more resources to succeed. Assignments with the checkmark in the margin are available in myBusinessCourse.
Students
Excel Templates We provide Excel spreadsheets for all of the end-of-chapter problems that require significant data input. These spreadsheets will save students' time in data entry and allow them to dedicate additional time to learning the material. The Excel spreadsheets are identified by the Excel icon
myBusinessCourse A web-based learning and assessment program intended to complement your textbook and faculty instruction. This easy-to-use program grades homework automatically and provides you with additional help when your instructor is not available. Assignments with the checkmark in the margin are available in myBusinessCourse. Access is free with new copies of this textbook (look for page containing the access code towards the front of the book) if you buy a used copy of the book, you can purchase access at www.mybusinesscourse.com.

MyBusinessCourse

MyBusinessCourse is a web-based learning and assessment program that students and faculty can access anytime, anywhere, from most internet-enabled devices.

Whether being used as an Instructor Led or Student Self Study, myBusinessCourse offers excellent resources to help students.

Instructor Led

  • eLectures
  • Guided Examples
  • Homework Problems
  • Computerized Test Bank

Self Study

  • eLectures
  • Guided Examples

The Author Team

Robert F. Halsey

Robert F. Halsey is Professor of Accounting and Associate Dean of the Undergraduate School at Babson College. He received his MBA and PhD from the University of Wisconsin.

Prior to obtaining his PhD he worked as the chief financial officer (CFO) of a privately held retailing and manufacturing company and as the vice president and manager of the commercial lending division of a large bank.

Professor Halsey teaches courses in financial and managerial accounting at both the graduate and undergraduate levels, including a popular course in financial statement analysis for second year MBA students. He has also taught numerous executive education courses for large multinational companies through Babson’s school of Executive Education as well as for a number of stock brokerage firms in the Boston area. He is regarded as an innovative teacher and has been recognized for outstanding teaching at both the University of Wisconsin and Babson College.

Professor Halsey co-authors Advanced Accounting published by Cambridge Business Publishers. Professor Halsey’s research interests are in the area of financial reporting, including firm valuation, financial statement analysis, and disclosure issues. He has publications in Advances in Quantitative Analysis of Finance and Accounting, The Journal of the American Taxation Association, Issues in Accounting Education, The Portable MBA in Finance and Accounting, the CPA Journal, AICPA Professor/Practitioner Case Development Program, and in other accounting and analysis journals.

Professor Halsey is an active member of the American Accounting Association and other accounting, analysis, and business organizations. He is widely recognized as an expert in the areas of financial reporting, financial analysis, and business valuation.

Patrick E. Hopkins

Patrick E. Hopkins, is a professor and Deloitte Foundation Accounting Faculty Fellow at Indiana University’s Kelley School of Business. Professor Hopkins received his B.S. and M.Acc. from the University of Florida and his Ph.D. from the University of Texas at Austin.

Prior to entering the accounting doctoral program, Professor Hopkins served as a senior consultant with the Emerging Business Services practice of Deloitte, Haskins and Sells in Miami, Florida. Professor Hopkins has been at IU since 1995, where he teaches undergraduate and graduate courses on financial reporting for mergers, acquisitions and changes in corporate structure. He also served as a Visiting Professor at Stanford University’s Graduate School of Business, where he taught courses on global financial reporting and on accounting for mergers, acquisitions and changes in corporate structure. During his career, Professor Hopkins won each of the top teaching awards in the Kelley School of Business, including the Trustees Teaching Award, the Schuyler F. Otteson Award, and the Sauvain Award. He also teaches in international and online executive MBA programs at Indiana University, and in the doctoral program at HHL University in Leipzig, Germany. Professor Hopkins is also a widely respected research scholar in the area of financial reporting, and investor and analyst judgment and decision making. His work has appeared in top accounting journals, including The Accounting Review, the Journal of Accounting Research, Contemporary Accounting Research, and Accounting Organizations and Society, and has been discussed in business press publications, including Barron’s, CFO, and The Deal. He is the past winner of the American Accounting Association’s Financial Accounting and Reporting Section Best Research Paper Award, the Indiana University Outstanding Junior Faculty Award, and Kelley School of Business Outstanding Research Award.

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