Contents
Financial Accounting and Accounting Standards
Financial Statements and Financial Reporting
Accounting and Capital Allocation
What Do the Numbers Mean? It's the Accounting
Objective of Financial Reporting
What Do the Numbers Mean? Don't Forget Stewardship
Parties Involved in Standard-Setting
Securities and Exchange Commission (SEC)
American Institute of Certified Public Accountants (AICPA)
Financial Accounting Standards Board (FASB)
Generally Accepted Accounting Principles
What Do the Numbers Mean? You Have to Step Back
GAAP in a Political Environment
Evolving Issue Fair Value, Fair Consequences?
Financial Reporting Challenges
International Accounting Standards
What Do the Numbers Mean? Can You Do That?
Ethics in the Environment of Financial Accounting
Conceptual Framework for Financial Reporting
Need for a Conceptual Framework
What Do the Numbers Mean? What's Your Principle?
Development of a Conceptual Framework
Overview of the Conceptual Framework
Second Level: Fundamental Concepts
Qualitative Characteristics of Accounting Information
What Do the Numbers Mean? Living in a Material World
What Do the Numbers Mean? Show Me the Earnings!
Third Level: Recognition and Measurement Concepts
What Do the Numbers Mean? Whose Company Is It?
Basic Principles of Accounting
What Do the Numbers Mean? You May Need a Map
The Accounting Information System
Needed: A Reliable Information System
Financial Statements and Ownership Structure
Identifying and Recording Transactions and Other Events
What Do the Numbers Mean? Am I Covered?
Preparing Financial Statements
What Do the Numbers Mean? 24/7 Accounting
Reversing Entries—An Optional Step
The Accounting Cycle Summarized
What Do the Numbers Mean? Hey, It's Complicated
Financial Statements for a Merchandising Company
Statement of Retained Earnings
What Do the Numbers Mean? Statements, Please
APPENDIX 3A Cash-Basis Accounting versus Accrual-Basis Accounting
Conversion from Cash Basis to Accrual Basis
Theoretical Weaknesses of the Cash Basis
APPENDIX 3B Using Reversing Entries
Illustration of Reversing Entries—Accruals
Illustration of Reversing Entries—Deferrals
APPENDIX 3C Using a Worksheet: The Accounting Cycle Revisited
Adjustments Entered on the Worksheet
Income Statement and Balance Sheet Columns
Preparing Financial Statements from a Worksheet
Income Statement and Related Information
Financial Statements Are Changing
Usefulness of the Income Statement
Limitations of the Income Statement
What Do the Numbers Mean? Four: The Loneliest Number
Format of the Income Statement
Elements of the Income Statement
Intermediate Components of the Income Statement
What Do the Numbers Mean? Top Line or Bottom Line?
Reporting Various Income Items
What Do the Numbers Mean? Are One-Time Charges Bugging You?
What Do the Numbers Mean? Extraordinary Times
Summary of Various Income Items
What Do the Numbers Mean? Different Income Concepts
Evolving Issue Income Reporting
Balance Sheet and Statement of Cash Flows
Usefulness of the Balance Sheet
Limitations of the Balance Sheet
What Do the Numbers Mean? Grounded
Classification in the Balance Sheet
What Do the Numbers Mean? “Show Me the Assets!”
What Do the Numbers Mean? Warning Signals
What Do the Numbers Mean? Watch That Cash Flow
Purpose of the Statement of Cash Flows
Content and Format of the Statement of Cash Flows
Overview of the Preparation of the Statement of Cash Flows
Usefulness of the Statement of Cash Flows
What Do the Numbers Mean? “There Ought to Be a Law”
What Do the Numbers Mean? What About Your Commitments?
Evolving Issue Balance Sheet Reporting: Gross or Net?
APPENDIX 5A Ratio Analysis—A Reference
Using Ratios to Analyze Performance
APPENDIX 5B Specimen Financial Statements: The Procter & Gamble Company
Accounting and the Time Value of Money
Applications of Time Value Concepts
What Do the Numbers Mean? A Pretty Good Start
Solving for Other Unknowns in Single-Sum Problems
Future Value of an Ordinary Annuity
What Do the Numbers Mean? Don't Wait to Make That Contribution!
Future Value of an Annuity Due
Examples of Future Value of Annuity Problems
Present Value of an Ordinary Annuity
What Do the Numbers Mean? Up in Smoke
Present Value of an Annuity Due
Examples of Present Value of Annuity Problems
Effective-Interest Method of Amortization of Bond Discount or Premium
Choosing an Appropriate Interest Rate
What Do the Numbers Mean? How Low Can They Go?
What Do the Numbers Mean? Luck of the Irish
Recognition of Accounts Receivable
Valuation of Accounts Receivable
What Do the Numbers Mean? I'm Still Waiting
Recognition of Notes Receivable
What Do the Numbers Mean? Economic Consequences and Write-Offs
Disposition of Accounts and Notes Receivable
What Do the Numbers Mean? Return to Lender
Evolving Issue A Cure for “Too Little, Too Late”?
Physical Protection of Cash Balances
Reconciliation of Bank Balances
APPENDIX 7B Impairments of Receivables
Impairment Measurement and Reporting
What Do the Numbers Mean? Lost in Translation
Valuation of Inventories: A Cost-Basis Approach
What Do the Numbers Mean? Staying Lean
Basic Issues in Inventory Valuation
Physical Goods Included in Inventory
What Do the Numbers Mean? No Parking!
Treatment of Purchase Discounts
What Do the Numbers Mean? You May Need a Map
Which Cost Flow Assumption to Adopt?
Special Issues Related to LIFO
What Do the Numbers Mean? Comparing Apples to Apples
What Do the Numbers Mean? Quite a Difference
Basis for Selection of Inventory Method
Inventory Valuation Methods—Summary Analysis
Inventories: Additional Valuation Issues
How Lower-of-Cost-or-Market Works
Methods of Applying Lower-of-Cost-or-Market
Recording “Market” Instead of Cost
Use of an Allowance—Multiple Periods
What Do the Numbers Mean? “Put It in Reverse”
Evaluation of the Lower-of-Cost-or-Market Rule
Valuation at Net Realizable Value
Valuation Using Relative Sales Value
Purchase Commitments—A Special Problem
The Gross Profit Method of Estimating Inventory
Computation of Gross Profit Percentage
Evaluation of Gross Profit Method
What Do the Numbers Mean? The Squeeze
Retail Inventory Method with Markups and Markdowns—Conventional Method
Special Items Relating to Retail Method
Evaluation of Retail Inventory Method
APPENDIX 9A LIFO Retail Methods
Stable Prices—LIFO Retail Method
Fluctuating Prices—Dollar-Value LIFO Retail Method
Subsequent Adjustments Under Dollar-Value LIFO Retail
Changing from Conventional Retail to LIFO
Acquisition and Disposition of Property, Plant, and Equipment
Property, Plant, and Equipment
Acquisition of Property, Plant, and Equipment
Interest Costs During Construction
What Do the Numbers Mean? What's in Your Interest?
Valuation of Property, Plant, and Equipment
Exchanges of Nonmonetary Assets
What Do the Numbers Mean? About Those Swaps
Costs Subsequent to Acquisition
What Do the Numbers Mean? Disconnected
Rearrangement and Reinstallation
Summary of Costs Subsequent to Acquisition
Disposition of Property, Plant, and Equipment
Depreciation, Impairments, and Depletion
Depreciation—A Method of Cost Allocation
Factors Involved in the Depreciation Process
What Do the Numbers Mean? Alphabet Dupe
What Do the Numbers Mean? Decelerating Depreciation
What Do the Numbers Mean? Depreciation Choices
Restoration of Impairment Loss
Impairment of Assets to Be Disposed Of
Estimating Recoverable Reserves
What Do the Numbers Mean? Reserve Surprise
Evolving Issue Full-Cost or Successful-Efforts?
Presentation of Property, Plant, Equipment, and Natural Resources
Analysis of Property, Plant, and Equipment
APPENDIX 11A Income Tax Depreciation
Modified Accelerated Cost Recovery System
What Do the Numbers Mean? Definitely Indefinite
Marketing-Related Intangible Assets
What Do the Numbers Mean? Keep Your Hands Off My Intangible!
Customer-Related Intangible Assets
Artistic-Related Intangible Assets
Contract-Related Intangible Assets
Technology-Related Intangible Assets
What Do the Numbers Mean? Patent Battles
What Do the Numbers Mean? The Value of a Secret Formula
Impairment of Intangible Assets
Impairment of Limited-Life Intangibles
Impairment of Indefinite-Life Intangibles Other Than Goodwill
What Do the Numbers Mean? Impairment Risk
Research and Development Costs
What Do the Numbers Mean? Branded
Presentation of Intangibles and Related Items
Presentation of Intangible Assets
Presentation of Research and Development Costs
Evolving Issue Recognition of R&D and Internally Generated Intangibles
Current Liabilities and Contingencies
Current Maturities of Long-Term Debt
Short-Term Obligations Expected to Be Refinanced
What Do the Numbers Mean? What About That Short-Term Debt?
Customer Advances and Deposits
What Do the Numbers Mean? Microsoft's Liabilities—Good or Bad?
What Do the Numbers Mean? Frequent Flyers
What Do the Numbers Mean? More Disclosure, Please
Presentation of Current Liabilities
Analysis of Current Liabilities
Evolving Issue Greenhouse Gases: Let's Be Standard-Setters
What Do the Numbers Mean? All About Bonds
Valuation of Bonds Payable—Discount and Premium
What Do the Numbers Mean? How's My Rating?
Bonds Issued at Par on Interest Date
Bonds Issued at Discount or Premium on Interest Date
Bonds Issued Between Interest Dates
What Do the Numbers Mean? Your Debt Is Killing My Equity
Notes Not Issued at Face Value
Special Notes Payable Situations
Reporting and Analyzing Liabilities
What Do the Numbers Mean? Obligated
Presentation and Analysis of Long-Term Debt
Evolving Issue Fair Value of Liabilities: Pick a Number, Any Number
APPENDIX 14A Troubled-Debt Restructurings
The Corporate Form of Organization
What Do the Numbers Mean? 1209 North Orange Street
Variety of Ownership Interests
What Do the Numbers Mean? The Case of the Disappearing Receivable
What Do the Numbers Mean? Buybacks—Good or Bad?
What Do the Numbers Mean? A Class (B) Act
Accounting for and Reporting Preferred Stock
Financial Condition and Dividend Distributions
Stock Dividends and Stock Splits
What Do the Numbers Mean? Splitsville
What Do the Numbers Mean? Dividends Up, Dividends Down
Disclosure of Restrictions on Retained Earnings
Presentation and Analysis of Stockholders’ Equity
APPENDIX 15A Dividend Preferences and Book Value per Share
Dilutive Securities and Earnings per Share
Accounting for Convertible Debt
What Do the Numbers Mean? How Low Can You Go?
Evolving Issue Is That All Debt?
Accounting for Stock Compensation
Disclosure of Compensation Plans
Debate over Stock-Option Accounting
What Do the Numbers Mean? A Little Honesty Goes a Long Way
Earnings per Share—Simple Capital Structure
Earnings per Share—Complex Capital Structure
What Do the Numbers Mean? Pro Forma EPS Confusion
APPENDIX 16A Accounting for Stock-Appreciation Rights
SARS—Share-Based Equity Awards
SARS—Share-Based Liability Awards
Stock-Appreciation Rights Example
APPENDIX 16B Comprehensive Earnings per Share Example
Investments in Debt Securities
Debt Investment Classifications
What Do the Numbers Mean? What Is Fair Value?
Investments in Equity Securities
What Do the Numbers Mean? More Disclosure, Please
What Do the Numbers Mean? Who's in Control Here?
Evolving Issue Fair Value Controversy
Reclassifications and Transfers
Summary of Reporting Treatment of Securities
Evolving Issue Classification and Measurement—The Long Road
APPENDIX 17A Accounting for Derivative Instruments
Who Uses Derivatives, and Why?
Basic Principles in Accounting for Derivatives
Example of Derivative Financial Instrument—Speculation
Differences Between Traditional and Derivative Financial Instruments
What Do the Numbers Mean? Risky Business
Summary of Derivatives Accounting
Comprehensive Hedge Accounting Example
Financial Statement Presentation of an Interest Rate Swap
Controversy and Concluding Remarks
APPENDIX 17B Variable-Interest Entities
Consolidation of Variable-Interest Entities
What Is Happening in Practice?
APPENDIX 17C Fair Value Disclosures
Disclosure of Fair Value Information: Financial Instruments
Disclosure of Fair Values: Impaired Assets or Liabilities
Overview of Revenue Recognition
Guidelines for Revenue Recognition
Departures from the Sale Basis
What Do the Numbers Mean? Liability or Revenue?
Revenue Recognition at Point of Sale (Delivery)
What Do the Numbers Mean? Grossed Out
Trade Loading and Channel Stuffing
What Do the Numbers Mean? No Take-Backs
Multiple-Deliverable Arrangements
Revenue Recognition before Delivery
Percentage-of-Completion Method
What Do the Numbers Mean? Less Conservative
Disclosures in Financial Statements
Completion-of-Production Basis
Revenue Recognition after Delivery
Summary and Concluding Remarks
APPENDIX 18A Revenue Recognition for Franchises
Example of Entries for Initial Franchise Fee
Fundamentals of Accounting for Income Taxes
Future Taxable Amounts and Deferred Taxes
What Do the Numbers Mean? “Real Liabilities”
Future Deductible Amounts and Deferred Taxes
What Do the Numbers Mean? “Real Assets”
Deferred Tax Asset—Valuation Allowance
What Do the Numbers Mean? Global Tax Rates
Accounting for Net Operating Losses
What Do the Numbers Mean? NOLs: Good News or Bad?
Financial Statement Presentation
What Do the Numbers Mean? Imagination at Work
Evolving Issue Uncertain Tax Positions
Review of the Asset-Liability Method
APPENDIX 19A Comprehensive Example of Interperiod Tax Allocation
Taxable Income and Income Taxes Payable—2013
Computing Deferred Income Taxes—End of 2013
Deferred Tax Expense (Benefit) and the Journal Entry to Record Income Taxes—2013
Financial Statement Presentation—2013
Taxable Income and Income Taxes Payable—2014
Computing Deferred Income Taxes—End of 2014
Deferred Tax Expense (Benefit) and the Journal Entry to Record Income Taxes—2014
Financial Statement Presentation—2014
Accounting for Pensions and Postretirement Benefits
Where Have All the Pensions Gone?
What Do the Numbers Mean? Which Plan Is Right for You?
The Role of Actuaries in Pension Accounting
Alternative Measures of the Liability
Recognition of the Net Funded Status of the Pension Plan
Amortization of Prior Service Cost (PSC)
What Do the Numbers Mean? Pension Costs Ups and Downs
Evolving Issue Bye Bye Corridor
What Do the Numbers Mean? Roller Coaster
Reporting Pension Plans in Financial Statements
Within the Financial Statements
Within the Notes to the Financial Statements
Example of Pension Note Disclosure
2017 Entries and Worksheet—A Comprehensive Example
What Do the Numbers Mean? Who Guarantees the Guarantor?
APPENDIX 20A Accounting for Postretirement Benefits
Differences Between Pension Benefits and Healthcare Benefits
What Do the Numbers Mean? OPEBs—How Big Are They?
Postretirement Benefits Accounting Provisions
Obligations Under Postretirement Benefits
Illustrative Accounting Entries
Recognition of Gains and Losses
Amortization of Net Gain or Loss in 2016
Disclosures in Notes to the Financial Statements
Actuarial Assumptions and Conceptual Issues
What Do the Numbers Mean? Want Some Bad News?
More Companies Ask, “Why Buy?”
What Do the Numbers Mean? Off-Balance-Sheet Financing
Asset and Liability Accounted for Differently
What Do the Numbers Mean? Restatements on the Menu
Comparison of Capital Lease with Operating Lease
Evolving Issue Are You Liable?
Classification of Leases by the Lessor
Direct-Financing Method (Lessor)
Special Lease Accounting Problems
What Do the Numbers Mean? Xerox Takes on the SEC
Bargain-Purchase Option (Lessee)
Unresolved Lease Accounting Problems
Evolving Issue Lease Accounting—If It Quacks Like a Duck
Accounting Changes and Error Analysis
Changes in Accounting Principle
What Do the Numbers Mean? Quite a Change
Retrospective Accounting Change Approach
What Do the Numbers Mean? Change Management
Direct and Indirect Effects of Changes
Changes in Accounting Estimates
Summary of Accounting Changes and Correction of Errors
What Do the Numbers Mean? Can I Get My Money Back?
Motivations for Change of Accounting Method
Balance Sheet and Income Statement Errors
Comprehensive Example: Numerous Errors
What Do the Numbers Mean? Guard the Financial Statements!
Preparation of Financial Statements with Error Corrections
APPENDIX 22A Changing from or to the Equity Method
Dividends in Excess of Earnings
Preparation of the Statement of Cash Flows
Usefulness of the Statement of Cash Flows
What Do the Numbers Mean? How's My Cash Flow?
Format of the Statement of Cash Flows
Illustrations—Tax Consultants Inc.
Step 1: Determine the Change in Cash
Step 2: Determine Net Cash Flow from Operating Activities
What Do the Numbers Mean? Earnings and Cash Flow Management?
Step 3: Determine Net Cash Flows from Investing and Financing Activities
Sources of Information for the Statement of Cash Flows
Net Cash Flow from Operating Activities—Direct Method
Evolving Issue Direct versus Indirect
Special Problems in Statement Preparation
What Do the Numbers Mean? Not What It Seems
Significant Noncash Transactions
What Do the Numbers Mean? Cash Flow Tool
Preparation of Final Statement
Full Disclosure in Financial Reporting
High-Quality Financial Reporting—Always in Fashion
Increase in Reporting Requirements
Evolving Issue Disclosure—Quantity and Quality
Notes to the Financial Statements
What Do the Numbers Mean? Footnote Secrets
Disclosure of Special Transactions or Events
Post-Balance-Sheet Events (Subsequent Events)
Reporting for Diversified (Conglomerate) Companies
Evolving Issue It's Faster but Is It Better?
Auditor's and Management's Reports
What Do the Numbers Mean? Heart of the Matter
Reporting on Financial Forecasts and Projections
What Do the Numbers Mean? Global Forecasts
What Do the Numbers Mean? New Formats, New Disclosure
Fraudulent Financial Reporting
What Do the Numbers Mean? Disclosure Overload
Criteria for Making Accounting and Reporting Choices
APPENDIX 24A Basic Financial Statement Analysis
Perspective on Financial Statement Analysis