About the Authors xi About the Financial Accounting Professors xiii Welcome to Financial Accounting and Reporting xv Conceptual Framework and Financial Reporting 1 Financial Accounting Standards Board (FASB) 2 Overview of U.S. GAAP 2 FASB and Standard Setting 2 Accrual Accounting 6 Financial Statements 12 Financial Accounting Standards Codification 17 Conceptual Framework of Financial Reporting by Business Enterprises 21 Objectives and Qualitative Characteristics 21 Assumptions and Accounting Principles 24 Constraints and Present Value 28 Fair Value Framework 31 Fair Value Framework-Introduction and Definitions 31 Recognition and Measurement 35 Inputs and Hierarchy 38 Disclosure Requirements 40 International Financial Reporting Standards (IFRS) 44 IASB Accounting Standards 44 IASB Framework 49 IFRS for SMEs 52 IFRS-General-Purpose Financial Statements 55 General-Purpose Financial Statements 62 Balance Sheet/Statement of Financial Position 62 Income Statement 70 Statement of Comprehensive Income 76 Statement of Changes in Equity 80 Statement of Cash Flows 83 Sources and Uses of Cash 83 Operating, Investing, and Financing Activities 86 Operating Cash Flows-Indirect Method 94 Notes to Financial Statements 102 Notes to Financial Statements 102 Risks and Uncertainties 108 Subsequent Events 113 Evaluating Financial Statements 116 Ratios-Liquidity/Solvency and Operational 116 Ratios-Profitability and Equity 120 Consolidated Financial Statements 123 Introduction to Consolidated Financial Statements 123 Consolidating Process 127 Consolidation at Acquisition 127 Consolidation Subsequent to Acquisition 134 Consolidation Less than 100% Ownership 139 Intercompany (I/C) Transactions and Balances 144 Intercompany I/C Transactions and Balances-Introduction 144 Intercompany (I/C) Inventory Transactions 147 Intercompany (I/C) Fixed Asset Transactions 156 Intercompany (I/C) Bond Transactions 167 IFRS-Consolidations 175 Combined Financial Statements 180 Variable Interest Entities (VIEs) 182 Exit or Disposal Activities and Discontinued Operations 184 Public Company Reporting Topics (SEC, EPS, Interim, and Segment) 189 U.S. Securities and Exchange Commission (SEC) 189 SEC-Role and Standard-Setting Process 189 SEC Reporting Requirements 192 Earnings per Share 197 Introduction to Earnings per Share 197 Basic Earnings per Share 201 Diluted Earnings per Share 205 Earnings per Share and IFRS 215 Segment Reporting 216 Interim Financial Reporting 221 Interim Reporting Principles 221 Interim Reporting-Details and IFRS 225 Special Purpose Frameworks 230 Cash, Modified Cash, Income Tax 230 Private Company Council 234 Select Financial Statement Accounts 239 Cash and Cash Equivalents 240 Cash 240 Bank Reconciliations 243 Receivables 246 Accounts Receivable-Accounting and Reporting 246 Uncollectible-Direct Write-Off and Allowance 249 Allowance-Income Statement and Balance Sheet Approach 251 Notes Receivable 255 Criteria for Sale of Receivables 259 Factoring, Assignment, and Pledging 262 Notes Receivable-Impairment 265 Inventory 267 Introduction to Inventory 267 Periodic Inventory System and Cost-Flow Assumption 271 Perpetual Inventory System and Cost-Flow Assumption 278 Evaluation of FIFO and LIFO 282 Dollar-Value LIFO 285 Subsequent Measurement of Inventory 289 Gross Margin and Relative Sales Value Method 293 Retail Inventory Method 296 Dollar-Value LIFO Retail 300 Inventory Errors 302 Losses on Purchase Commitments 304 Inventory and IFRS 306 Property, Plant, and Equipment 308 Categories and Presentation 308 Capitalized Costs 309 Valuation 311 Interest Capitalization Basics 314 Interest Capitalization Limits 317 Post-Acquisition Expenditures 322 Non-Accelerated Depreciation Methods 324 Accelerated Depreciation Methods 327 Natural Resources 331 Impairment-Assets for Use and Held-for-Sale 335 Impairment and IFRS 339 PPE and IFRS 341 Nonmonetary Exchange 344 Commercial Substance 344 No Commercial Substance 348 Nonmonetary Exchanges and IFRS 351 Investments 352 Introduction-Equity and Debt Investments 352 Investments in Equity Securities 357 Equity Investments at Fair Value 357 Equity Investments at Cost 361 Equity Investments Using Equity Method Accounting 365 Investments in Debt Securities 373 Debt Investments at Fair Value 373 Debt Investments at Amortized Costs 382 Investor Stock Dividends, Splits, and Rights 386 Comparison and Transfers of Investments 389 IFRS-Investments in Equity and Debt Securities 397 Intangible Assets-Goodwill and Other 402 Introduction to Intangible Assets 402 Goodwill 407 Research and Development Costs 414 Software Costs 417 Intangibles and IFRS 421 Payables and Accrued Liabilities 424 Current Liabilities 424 Specific Current Liabilities 428 Costs and Expenses 431 Compensated Absences 435 Contingencies, Commitments, and Guarantees (Provisions) 437 Contingent Liability Principles 437 Examples of Contingent Liabilities and Additional Aspects 440 IFRS-Contingencies 443 Long-Term Debt (Financial Liabilities) 445 Notes Payable 445 Bonds Payable 451 Bond Accounting Principles 451 Bond Complications 455 Bond Fair Value Option, International 458 Modification and Debt Retirement 461 Refinancing Short-Term Obligations 461 Debt Retirement 463 Troubled Debt 465 Debt Covenant Compliance 472 Distinguishing Liabilities from Equity 477 Equity 481 Owners' Equity Basics 481 Stock Issuance 490 Preferred Stock 495 Treasury Stock 498 Dividends 503 Stock Dividends and Splits 507 Dividend Allocation 510 Stock Rights, Retained Earnings 514 Book Value per Share 518 Select Transactions 521 Revenue Recognition 521 Five Steps of Revenue Recognition 521 Determining Transaction Price 527 Allocating Transaction Price 532 Special Issues in Revenue Recognition 535 Contract Modifications and Other Considerations 541 Accounting for Construction Contracts 549 Employee/Retiree Benefit Plans 556 Pension Principles, Reporting 556 Pension Expense Basics 561 Pension Expense, Delayed Recognition 564 Pension Plan Reporting, International 573 Postretirement Benefits 576 Share-Based Payments 582 Stock Options 582 Stock Awards 589 Stock Appreciation Rights 593 Income Taxes 596 Income Tax Basics 596 Permanent Differences 599 Temporary Differences 601 Tax Accrual Entry 607 Tax Allocation Process 611 Valuation Allowance for Deferred Tax Assets 615 Uncertain Tax Positions 618 Net Operating Losses 621 Accounting Changes and Error Corrections 628 Types of Changes and Accounting Approaches 628 Retrospective Application 632 Prospective Application 635 Accounting Errors-Restatement 638 Business Combinations 642 Introduction to Business Combinations 642 Acquisition Method of Accounting 646 Introduction to the Acquisition Method of Accounting 646 Determining the Cost of the Business Acquired 650 Recognizing/Measuring Assets, Liabilities, and Noncontrolling Interest 654 Recognizing/Measuring Goodwill or Bargain Purchase Amount 659 Post-Acquisition Issues 662 Disclosure Requirements-Acquisition Method 666 Recording Business Combinations 668 IFRS-Business Combinations 679 Financial Instruments 682 Financial Instruments Introduction 682 IFRS-Financial Instruments 685 Financial Instruments Disclosures 690 Derivatives and Hedging 693 Derivatives Introduction 693 Hedging Introduction 698 Fair Value Hedges 703 Cash-Flow Hedges 706 Foreign Currency Hedges 711 Effectiveness and Disclosure 713 IFRS-Hedging 717 Foreign Currency Denominated Transactions 720 Introduction and Definitions 720 Import Transactions 725 Export Transactions 728 Foreign Currency Hedges 731 Introduction to Forward and Option Contracts 731 Natural (Economic) Hedge 736 Hedging Forecasted Transactions and Firm Commitment 740 Hedging Asset/Liability, Available for Sale, and Foreign Operations 744 Speculation and Summary 747 Conversion of Foreign Financial Statements 749 Introduction to Conversion of Foreign Financial Statements 749 Conversion Using Translation 751 Conversion Using Remeasurement 754 Remeasurement, Translation, and IFRS 758 Leases 760 Background, Operating Leases 760 Capital Lease Basics 763 Direct Financing Leases 768 Sales-Type Leases, International 772 Additional Aspects of Capital Leases 777 Depreciation, BPO, and Residuals 779 Capital Lease Examples 783 Sale Leasebacks and Disclosures 794 Not-for-Profit Organizations 800 Introduction to Types of Not-for-Profit Entities and Standard Setting 800 Financial Reporting 802 Donations, Pledges, Contributions, and Net Assets 810 Special Issues-Recent Developments 817 Special Industries: Healthcare and Colleges 821 Healthcare Organizations 821 Colleges and Universities 827 State and Local Governments 831 State and Local Government Concepts 832 Introduction to Governmental Organizations 832 GASB Concepts Statements 835 Fund Accounting 841 Measurement Focus Basis of Accounting 847 Budgetary Accounting 852 Encumbrance Accounting 855 Deferred Outflows and Deferred Inflows of Resources 860 Net Position and Fund Balance 865 Governmental Funds 869 Proprietary Funds 886 Fiduciary Funds 891 Format and Content of Comprehensive Annual Financial Report (CAFR) 911 The Comprehensive Annual Financial Report 911 Determining the Financial Reporting Entity 926 Major Funds and Fund-Level Reporting 930 Deriving Government-Wide Financial Statements from Fund-Level Financial Statements 932 Typical Items and Specific Types of Transactions and Events 938 Interfund Transactions, Construction Projects, and Infrastructure 938 Long-Term Liabilities Other Than Bonded Debt 944 Terminology and Nonexchange Transactions 948 Special Items-Recent Developments 958 Index 965
