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EAC 4401 Advanced Accounting


Advanced Accounting

Course Description

Covers accounting principles for partnerships, mergers, acquisitions and consolidations. Includes the worksheet analysis of consolidation principles and introduces international accounting and fund accounting.

Course Objectives

After completing this course, the student will be able to:

  • Identify the major reasons firms combine
  • Indicate the factors used to determine the price and the method of payment for a business combination
  • Calculate an estimate of the value of goodwill to be included in an offering price
  • Distinguish between the purchases and the pooling of interests methods of accounting for business combinations and explain why some firms preferred the pooling of interests method
  • Describe the valuation of assets, including goodwill, and liabilities acquired in a business combination accounted for by the purchase method
  • Describe a leveraged buyout and the technique of platforming
  • Explain the concept of control and the role of noncontrolling interests in business combinations
  • List the requirements for inclusion of a subsidiary in consolidated financial statements
  • Record the investment in the subsidiary on the parent’s books at the date of acquisition and prepare the consolidated workpapers and eliminating entries at the date of acquisition
  • Prepare journal entries on the parent’s books to account for an investment using the cost method, the partial equity method, and the complete equity method
  • Prepare a schedule for the computation and allocation of the difference between cost and book value
  • Prepare workpapers for the year of acquisition and the year(s) subsequent to acquisition, assuming that the parent accounts for the investment using the cost, the partial equity, and the complete equity methods
  • Describe the financial reporting objectives for intercompany sales of inventory and determine the amount of intercompany profit, if any, to be eliminated from the consolidated statements
  • Explain when gains or losses on intercompany sales of depreciable assets should be recognized on a consolidated basis and describe the eliminating entry needed to adjust the consolidated financial statements when the purchasing affiliate sells a depreciable asset that was acquired from another affiliate
  • Explain some differences in accounting methods as they are applied internationally and list five major classifications of accounting models in different geographic regions
  • Identify some of the more common foreign currency transactions and identify three stages of concern to accountants for foreign currency transactions
  • Translate the statements of a foreign entity when the functional currency is the local currency (the U.S. dollar)
  • Prepare journal entries to form a partnership using the bonus and the goodwill methods and describe the methods used to record partnership changes when a new partner is admitted or when a partner withdraws from the partnership
  • Prepare a liquidation schedule to settle partnership debts and allocate assets
  • Explain the classification of revenue (and other resource inflows) and expenditures (and other resource outflows) for fund accounting
  • Explain how capital expenditures are recorded in an expendable fund
  • Identify the issues involved in developing standards for nonprofit organizations
  • Distinguish between a general fund and a special revenue fund
  • Distinguish between proprietary funds and government funds
  • Explain the use of a capital projects fund, a debt service fund, and a permanent fund
  • Describe the types of interfund activities

 


Week 1


Lecture: About the Instructor
Lecture: Course Overview

Outcomes

After completing this module, the student will be able to:

  • Describe the various methods of accounting for an investment in equity shares of another company
  • Identify the sole criterion for applying the equity method of accounting with guidance in assessing whether the criterion has been met
  • Determine how to prepare basic equity method journal entries for an investor
  • Describe financial reporting requirements for equity method investments
  • Explain how to allocate the cost of an equity method investment and compute amortization expense for the excess of cost over investee book value
  • Explain how to allocate the cost of an equity method investment and compute amortization expense for the excess of cost over investee book value
  • Determine how to record the sale of an equity investment
  • Identify the accounting method to apply to shares remaining after a partial sale of an equity investment
  • Describe the rationale and calculations necessary to defer unrealized gross profits on any unsold intra-entity transfers
  • Describe the rationale and reporting implications of the fair–value option for reporting equity level investments
Lecture: Equity Methods of Accounting for Investments, Part 1
Lecture: Equity Methods of Accounting for Investments, Part 2
Lecture: Conversion to the Equity Method Problem
Lecture: Basic of Consolidating Financial Information
Lecture: Consolidation Procedures

Outcomes

After completing this module, the student will be able to:

  • Describe motives for business combinations
  • Identify when consolidation of financial information of two businesses is necessary
  • Determine what comprises a business combination
  • Describe the valuation principles of the acquisition method of consolidation
  • Determine the total fair value of consideration transferred for an acquisition of a business enterprise
  • Allocate the fair value transferred to specific subsidiary assets acquired and liabilities assumed including goodwill
  • Prepare the journal required when a subsidiary is dissolved
  • Distinguish the steps required to prepare a worksheet to consolidate the financial information of a combined enterprise when both entities remain
  • Describe the criteria for recognizing intangible assets apart from goodwill
  • Identify the legacy methods of accounting for past business combinations and why they remain important

 

 


Week 2


Lecture: Consolidating Financial Information in the Initial Year (Expanded Information)
Lecture: Consolidating Financial Information in the Years After Purchase
Lecture: Consolidating Financial Information in the Years After Purchase: Goodwill Impairment

Outcomes

After completing this course, the student will be able to:

  • Describe the complexities involved in preparing consolidated financial statements in the years after purchase
  • Identify the various methods a parent may use to account for its investment in its subsidiary
  • Recognize that consolidated totals on financial statements are not influenced by the parent company’s internal accounting method
  • Describe the steps necessary to prepare consolidated financial statements in years subsequent to acquisition
  • Understand how consolidation steps change when the parent company’s internal accounting method varies
  • Discuss the rationale for goodwill impairment testing for subsidiaries
  • Determine the procedures for conducting a goodwill impairment test
  • Understand accounting and reporting requirements for contingent consideration
  • Describe the requirements of push-down accounting and when it should be used

 


Week 3


Lecture: Consolidating Financial Statements with Outside Ownership
Lecture: Consolidating Financial Statements When Acquired Midyear or in Steps 

Outcomes

After completing this course, the student will be able to:

  • Determine that complete ownership is not a pre-requisite for forming a business combination
  • Distinguish the valuation principles underlying the acquisition method of accounting for a non-controlling interest
  • Allocate goodwill acquired in a business combination to the controlling and non-controlling interests
  • Calculate consolidated net income and allocate the non-controlling interest’s portion
  • Determine the four amounts associated with the non-controlling interest during a consolidation
  • Prepare a consolidation worksheet with a non-controlling interest present
  • Properly place the non-controlling interest components in the consolidated financial statements
  • Appropriately consider the effect of a control premium payment by the parent on the consolidated financial statements
  • Distinguish the impact of a mid-year acquisition of a subsidiary on the preparation of consolidated financial statements 
  • Determine the effects of a step acquisition of a subsidiary on the consolidated financial statements
  • Prepare the appropriate journal entries for the sale of a subsidiary

Week 4


Lecture: Consolidating Financial Information: Considering Intra-Entity Transactions

 

Outcomes

 After completing this course, the student will be able to:

  • Distinguish the accounting difficulties created by intra-entity asset transfers between affiliated companies
  • Determine the reasons why and procedures for eliminating intra-company inventory transfers in the consolidation process
  • Discern the reasons for eliminating gross profit from ending inventory balances until that profit has been earned
  • Recognize the consolidation process steps to defer gross profits from inventory until the profits are earned or consumed
  • Distinguish the differences between upstream and downstream inventory transfers and their effects on the consolidation process and entries
  • Prepare and record the entries to remove any unrealized gains or losses from the transfer of land and other fixed assets
  • Prepare consolidation entries to remove the effects of upstream and downstream intra-entity fixed asset transfers across affiliated entities.

Week 5


Lecture: Variable Interest Entities and Intra-Entity Debt Transactions
Lecture: Consolidated Cash Flows and Other Consolidation Issues
Lecture: Problem Resolution – Consolidation with Inventory Transfers, Other Transfers, and Debt Retirement

Outcomes

After completing this course, the student will be able to:

  • Distinguish the accounting difficulties created by intra-entity asset transfers between affiliated companies
  • Determine the reasons why and procedures for eliminating intra-company inventory transfers in the consolidation process
  • Discern the reasons for eliminating gross profit from ending inventory balances until that profit has been earned
  • Recognize the consolidation process steps to defer gross profits from inventory until the profits are earned or consumed
  • Distinguish the differences between upstream and downstream inventory transfers and their effects on the consolidation process and entries
  • Prepare and record the entries to remove any unrealized gains or losses from the transfer of land and other fixed assets
  • Prepare consolidation entries to remove the effects of upstream and downstream intra-entity fixed asset transfers across affiliated entities.

Week 6


Lecture: Foreign Currency Transactions
Lecture: Hedging Foreign Exchange Risk
Lecture: Problem Resolution: Hedge Accounting

Outcomes

After completing this course, the student will be able to:

  • Explain concepts related to foreign currency, exchange rates, and foreign exchange risk
  • Account for foreign currency transactions using a two-transaction perspective and accrual accounting
  • Distinguish ways that foreign currency forward contracts and foreign currency options can be used to hedge foreign currency exchange risk
  • Explain the concept of a foreign currency asset or liability position
  • Determine the appropriate accounting for forward contracts and options used as hedges of foreign currency assets and liabilities
  • Account for forward contracts and options used as a hedge of a foreign currency firm commitment
  • Distinguish the accounting required for forward contracts and options used as hedges of forecasted foreign currency transactions
  • Explain how to account for foreign currency borrowings

Week 7


Lecture: Translation of Foreign Currency Financial Statements, Part 1
Lecture: Translation of Foreign Currency Financial Statements, Part 2

Outcomes

After completing this course, the student will be able to:

  • Explain the reasons underlying the current rate and temporal methods of foreign currency translation of financial statements as well as their limitations
  • Distinguish, using appropriate guidelines, when the current rate and temporal methods of translation and re–measurement should be used
  • Determine how to translate a foreign subsidiary’s financial statements into the parent’s reporting currency using the current rate method
  • Calculate the appropriate translation adjustment necessary using the method
  • Determine how to re–measure a foreign subsidiary’s financial statements using the temporal method and calculate the associated re–measurement gain or loss
  • Distinguish the appropriate rationale for hedging a net investment in a foreign operation
  • Describe the treatment of gains and losses on hedges of net investments in foreign operations
  • Explain the appropriate consolidation procedures for a parent company and its foreign subsidiary

Week 8


Lecture: Formation and Operation of Partnerships
Lecture: Problem Resolution: Income Allocation and Statement of Partners’ Capital
Lecture: Problem Resolution: Admission and Retirement of Partners

Outcomes

After completing this course, the student will be able to:

  • Distinguish the advantages and disadvantages of the partnership form of organization as compared to incorporation
  • Determine the purpose of the articles of partnership and identify specific items that should be included in the agreement
  • Prepare the journal entry to record the initial capital investment made by a partner
  • Record a partner’s capital investment using both the bonus method and the goodwill method
  • Allocate partnership income to the partners and determine the effect on the individual partners’ capital balances
  • Distinguish appropriate allocations to partners when interest and/or salary factors are included in the partnership agreement
  • Explain the meaning of partnership dissolution and why it may have little or no effect on business operations
  • Journalize the entry of an acquiring partner after their purchase of a portion or all of an existing partner’s capital interest in the partnership
  • Prepare appropriate journal entries for the entry of a new partner with a direct contribution to the partnership
  • Create proper journal entries for the withdrawal of a current partner
Lecture: Termination and Liquidation of Partnerships
Lecture: Problem Resolution – Pre–distribution Schedule with Safe Balances

Outcomes

After completing this course, the student will be able to:

  • Determine the appropriate amounts to be disbursed to partners upon liquidation of the partnership
  • Prepare journal entries to record the transactions associated with the liquidation of the partnership
  • Establish appropriate cash distributions when one or more partners have deficit capital balances or become personally insolvent
  • Prepare a proposed schedule of liquidation from safe capital balances to determine an equitable preliminary distribution of available partnership assets
  • Determine a predistribution plan to guide the disbursement of assets in a partnership liquidation

 

The course description, objectives and learning outcomes are subject to change without notice based on enhancements made to the course. November 2013