book

Intermediate Accounting, Thirteenth Edition

Name: Intermediate Accounting, Thirteenth Edition
ISBN: 9780470374948

by Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

March 2009

Intermediate to advanced

1442 pages

49h 53m

English

Wiley

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Copyright
ABOUT THE AUTHORS
PREFACE
THE ACCOUNTING ENVIRONMENTA New Way of Looking at Generally Accepted Principles (GAAP)Convergence of U.S. GAAP and International GAAP (iGAAP)A Fair Value MovementFEATURES OF THE 13TH EDITIONMajor Content RevisionsCodificationUnderlying ConceptsConvergence Corner/IFRSNew AppendicesUpdated SupplementsENHANCED FEATURES OF THE 13TH EDITIONWhat do the numbers mean? Real-World EmphasisCurrency and AccuracyInternational CoverageStreamlined PresentationAdditional ExercisesUsing Your Judgment SectionCONTENT CHANGESEND-OF-CHAPTER ASSIGNMENT MATERIALWileyPLUSBook's Companion WebsiteContent of the Gateway to the Profession PortalAnalyst's ToolkitProfessional ToolkitStudent ToolkitGateway to the Profession TopicsSUPPLEMENTARY MATERIALSInstructor Teaching AidsStudent Learning AidsACKNOWLEDGMENTS
Preface
FASB Codification—The New View of Generally Accepted Accounting PrinciplesUsing the FASB CodificationUsing the FASB Codification in this Textbook
1. FINANCIAL ACCOUNTING AND ACCOUNTING STANDARDS
1.1. FINANCIAL STATEMENTS AND FINANCIAL REPORTING1.1.1. Accounting and Capital Allocation1.1.2. What do the numbers mean? IT'S THE ACCOUNTING1.1.3. The Challenges Facing Financial Accounting1.1.4. Objectives of Financial Reporting1.1.5. The Need to Develop Standards1.2. PARTIES INVOLVED IN STANDARD-SETTING1.2.1. Securities and Exchange Commission (SEC)1.2.1.1. Public/Private Partnership1.2.1.2. SEC Oversight1.2.1.3. Enforcement1.2.2. American Institute of Certified Public Accountants (AICPA)1.2.2.1. Committee on Accounting Procedure1.2.2.2. Accounting Principles Board1.2.3. Financial Accounting Standards Board (FASB)1.2.3.1. Due Process1.2.3.2. Types of Pronouncements1.2.4. Changing Role of the AICPA1.3. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES1.3.1. FASB Codification1.3.2. What do the numbers mean? YOU HAVE TO STEP BACK1.4. ISSUES IN FINANCIAL REPORTING1.4.1. GAAP in a Political Environment1.4.2. What do the numbers mean? THE ECONOMIC CONSEQUENCES OF GOODWILL1.4.3. The Expectations Gap1.4.4. International Accounting Standards1.4.5. Ethics in the Environment of Financial Accounting1.4.6. Conclusion1.5. CONVERGENCE CORNER: INTERNATIONAL FINANCIAL REPORTING1.5.1. RELEVANT FACTS1.5.2. ABOUT THE NUMBERS1.5.3. ON THE HORIZON1.6. SUMMARY OF LEARNING OBJECTIVES1.7. FASB CODIFICATION1.8. QUESTIONS1.9. CONCEPTS FOR ANALYSIS1.10. USING YOUR JUDGMENT1.10.1. FINANCIAL REPORTING1.10.1.1. Financial Reporting Problem1.10.1.2. International Reporting Case1.10.2. BRIDGE TO THE PROFESSION1.10.2.1. Professional Research1.10.2.2. Professional Simulation
2. CONCEPTUAL FRAMEWORK UNDERLYING FINANCIAL ACCOUNTING
2.1. CONCEPTUAL FRAMEWORK2.1.1. The Need for a Conceptual Framework2.1.2. What do the numbers mean? WHAT'S YOUR PRINCIPLE?2.1.3. Development of a Conceptual Framework2.2. FIRST LEVEL: BASIC OBJECTIVES2.3. SECOND LEVEL: FUNDAMENTAL CONCEPTS2.3.1. Qualitative Characteristics of Accounting Information2.3.1.1. Decision Makers (Users) and Understandability2.3.1.2. Primary Qualities: Relevance and Reliability2.3.2. What do the numbers mean? SHOW ME THE EARNINGS!2.3.2.1. Secondary Qualities: Comparability and Consistency2.3.3. Basic Elements2.4. THIRD LEVEL: RECOGNITION AND MEASUREMENT CONCEPTS2.4.1. Basic Assumptions2.4.1.1. Economic Entity Assumption2.4.2. What do the numbers mean? WHOSE COMPANY IS IT?2.4.2.1. Going Concern Assumption2.4.2.2. Monetary Unit Assumption2.4.2.3. Periodicity Assumption2.4.3. Basic Principles of Accounting2.4.3.1. Measurement Principle2.4.3.2. Revenue Recognition Principle2.4.3.3. Expense Recognition Principle2.4.3.4. Full Disclosure Principle2.4.4. Constraints2.4.5. What do the numbers mean? YOU MAY NEED A MAP2.4.5.1. Cost-Benefit Relationship2.4.5.2. Materiality2.4.6. What do the numbers mean? LIVING IN A MATERIAL WORLD2.4.6.1. Industry Practices2.4.6.2. Conservatism2.4.7. Summary of the Structure2.5. CONVERGENCE CORNER: THE CONCEPTUAL FRAMEWORK2.5.1. RELEVANT FACTS2.5.2. ABOUT THE NUMBERS2.5.3. ON THE HORIZON2.6. SUMMARY OF LEARNING OBJECTIVES2.7. FASB CODIFICATION2.8. QUESTIONS2.9. BRIEF EXERCISES2.10. EXERCISES2.11. CONCEPTS FOR ANALYSIS2.12. USING YOUR JUDGMENT2.12.1. FINANCIAL REPORTING2.12.1.1. Financial Reporting Problem2.12.1.1.1. The Procter & Gamble Company (P&G)2.12.1.2. Comparative Analysis Case2.12.1.2.1. The Coca-Cola Company and PepsiCo, Inc.2.12.1.3. Financial Statement Analysis Case2.12.1.3.1. Wal-Mart2.12.1.4. International Reporting Case2.12.2. BRIDGE TO THE PROFESSION2.12.2.1. Professional Research2.12.2.2. Professional Simulation
3. THE ACCOUNTING INFORMATION SYSTEM
3.1. ACCOUNTING INFORMATION SYSTEM3.1.1. Basic Terminology3.1.2. Debits and Credits3.1.3. The Accounting Equation3.1.4. Financial Statements and Ownership Structure3.2. THE ACCOUNTING CYCLE3.2.1. Identifying and Recording Transactions and Other Events3.2.2. Journalizing3.2.3. Posting3.2.4. Trial Balance3.2.5. Adjusting Entries3.2.5.1. Types of Adjusting Entries3.2.5.2. Adjusting Entries for Deferrals3.2.5.3. Adjusting Entries for Accruals3.2.6. What do the numbers mean? AM I COVERED?3.2.7. Adjusted Trial Balance3.2.8. Preparing Financial Statements3.2.9. What do the numbers mean? 24/7 ACCOUNTING3.2.10. Closing3.2.10.1. Basic Process3.2.10.2. Closing Entries3.2.10.3. Posting Closing Entries3.2.11. Post-Closing Trial Balance3.2.12. Reversing Entries3.2.13. The Accounting Cycle Summarized3.2.14. What do the numbers mean? STATEMENTS, PLEASE3.3. FINANCIAL STATEMENTS FOR A MERCHANDISING COMPANY3.3.1. Income Statement3.3.2. Statement of Retained Earnings3.3.3. Balance Sheet3.3.4. Closing Entries3.4. CONVERGENCE CORNER: ACCOUNTING INFORMATION SYSTEMS3.4.1. RELEVANT FACTS3.4.2. ABOUT THE NUMBERS3.4.3. ON THE HORIZON3.5. SUMMARY OF LEARNING OBJECTIVES3A. CASH-BASIS ACCOUNTING VERSUS ACCRUAL-BASIS ACCOUNTING3.7. CONVERSION FROM CASH BASIS TO ACCRUAL BASIS3.7.1. Service Revenue Computation3.7.2. Operating Expense Computation3.8. THEORETICAL WEAKNESSES OF THE CASH BASIS3.9. SUMMARY OF LEARNING OBJECTIVE FOR APPENDIX 3A3B. USING REVERSING ENTRIES3.11. ILLUSTRATION OF REVERSING ENTRIES—ACCRUALS3.12. ILLUSTRATION OF REVERSING ENTRIES—DEFERRALS3.13. SUMMARY OF REVERSING ENTRIES3.14. SUMMARY OF LEARNING OBJECTIVE FOR APPENDIX 3B3C. USING A WORKSHEET: THE ACCOUNTING CYCLE REVISITED3.16. WORKSHEET COLUMNS3.16.1. Trial Balance Columns3.16.2. Adjustments Columns3.17. ADJUSTMENTS ENTERED ON THE WORKSHEET3.17.1. Adjusted Trial Balance3.17.2. Income Statement and Balance Sheet Columns3.18. PREPARING FINANCIAL STATEMENTS FROM A WORKSHEET3.19. SUMMARY OF LEARNING OBJECTIVE FOR APPENDIX 3C3.20. QUESTIONS3.21. BRIEF EXERCISES3.22. EXERCISES3.23. PROBLEMS3.24. USING YOUR JUDGMENT3.24.1. FINANCIAL REPORTING3.24.1.1. Financial Reporting Problem3.24.1.1.1. The Procter & Gamble Company (P&G)3.24.1.2. Comparative Analysis Case3.24.1.2.1. The Coca-Cola Company and PepsiCo, Inc.3.24.1.3. Financial Statement Analysis Case3.24.1.3.1. Kellogg Company3.24.2. BRIDGE TO THE PROFESSION3.24.2.1. Professional Research3.24.2.2. Professional Simulation
4. INCOME STATEMENT AND RELATED INFORMATION
4.1. INCOME STATEMENT4.1.1. Usefulness of the Income Statement4.1.2. Limitations of the Income Statement4.1.3. Quality of Earnings4.1.4. What do the numbers mean? MANAGE UP, MANAGE DOWN4.2. FORMAT OF THE INCOME STATEMENT4.2.1. Elements of the Income Statement4.2.2. Single-Step Income Statements4.2.3. Multiple-Step Income Statements4.2.4. Condensed Income Statements4.3. REPORTING IRREGULAR ITEMS4.3.1. What do the numbers mean? ARE ONE-TIME CHARGES BUGGING YOU?4.3.2. Discontinued Operations4.3.3. Extraordinary Items4.3.4. What do the numbers mean? EXTRAORDINARY TIMES4.3.5. Unusual Gains and Losses4.3.6. Changes in Accounting Principle4.3.7. Changes in Estimates4.3.8. Corrections of Errors4.3.9. Summary of Irregular Items4.4. SPECIAL REPORTING ISSUES4.4.1. Intraperiod Tax Allocation4.4.1.1. Extraordinary Gains4.4.1.2. Extraordinary Losses4.4.2. Earnings per Share4.4.3. Retained Earnings Statement4.4.3.1. Restrictions of Retained Earnings4.4.4. Comprehensive Income4.4.4.1. Second Income Statement4.4.4.2. Combined Statement of Comprehensive Income4.4.4.3. Statement of Stockholders' Equity4.4.4.4. Balance Sheet Presentation4.5. CONVERGENCE CORNER: INCOME STATEMENT4.5.1. RELEVANT FACTS4.5.2. ABOUT THE NUMBERS4.5.3. ON THE HORIZON4.6. SUMMARY OF LEARNING OBJECTIVES4.7. FASB CODIFICATION4.8. QUESTIONS4.9. BRIEF EXERCISES4.10. EXERCISES4.11. PROBLEMS4.12. CONCEPTS FOR ANALYSIS4.13. USING YOUR JUDGMENT4.13.1. FINANCIAL REPORTING4.13.1.1. Financial Reporting Problem4.13.1.1.1. The Procter & Gamble Company (P&G)4.13.1.2. Comparative Analysis Case4.13.1.2.1. The Coca-Cola Company and PepsiCo, Inc.4.13.1.3. Financial Statement Analysis Cases4.13.1.3.1. Case 1 Bankruptcy Prediction4.13.1.3.2. Case 2 Dresser Industries4.13.1.3.3. Case 3 P/E Ratios4.13.1.4. International Reporting Case4.13.2. BRIDGE TO THE PROFESSION4.13.2.1. Professional Research: FASB Codification4.13.2.2. Professional Simulation
5. BALANCE SHEET AND STATEMENT OF CASH FLOWS
5.1. SECTION 1 • BALANCE SHEET5.2. USEFULNESS OF THE BALANCE SHEET5.2.1. What do the numbers mean? GROUNDED5.3. LIMITATIONS OF THE BALANCE SHEET5.4. CLASSIFICATION IN THE BALANCE SHEET5.4.1. Current Assets5.4.1.1. Cash5.4.1.2. Short-Term Investments5.4.1.3. Receivables5.4.1.4. Inventories5.4.1.5. Prepaid Expenses5.4.2. Noncurrent Assets5.4.2.1. Long-Term Investments5.4.2.2. Property, Plant, and Equipment5.4.2.3. Intangible Assets5.4.2.4. Other Assets5.4.3. Liabilities5.4.3.1. Current Liabilities5.4.4. What do the numbers mean? "SHOW ME THE ASSETS!"5.4.4.1. Long-Term Liabilities5.4.5. Owners' Equity5.4.6. Balance Sheet Format5.4.7. What do the numbers mean? WARNING SIGNALS5.5. ADDITIONAL INFORMATION REPORTED5.5.1. Contingencies5.5.2. Accounting Policies5.5.3. Contractual Situations5.5.4. What do the numbers mean? WHAT ABOUT YOUR COMMITMENTS?5.5.5. Fair Values5.6. TECHNIQUES OF DISCLOSURE5.6.1. Parenthetical Explanations5.6.2. Notes5.6.3. Cross-Reference and Contra Items5.6.4. Supporting Schedules5.6.5. Terminology5.7. SECTION 2 • STATEMENT OF CASH FLOWS5.8. PURPOSE OF THE STATEMENT OF CASH FLOWS5.8.1. What do the numbers mean? WATCH THAT CASH FLOW5.9. CONTENT AND FORMAT OF THE STATEMENT OF CASH FLOWS5.10. OVERVIEW OF THE PREPARATION OF THE STATEMENT OF CASH FLOWS5.10.1. Sources of Information5.10.2. Preparing the Statement of Cash Flows5.10.3. Significant Noncash Activities5.11. USEFULNESS OF THE STATEMENT OF CASH FLOWS5.11.1. What do the numbers mean? CASH IS KING?5.11.2. Financial Liquidity5.11.3. Financial Flexibility5.11.4. Free Cash Flow5.12. CONVERGENCE CORNER: BALANCE SHEET AND STATEMENT OF CASH FLOWS5.12.1. RELEVANT FACTS5.12.2. ABOUT THE NUMBERS5.12.3. ON THE HORIZON5.13. SUMMARY OF LEARNING OBJECTIVES5A. RATIO ANALYSIS—A REFERENCE5.15. USING RATIOS TO ANALYZE PERFORMANCE5.16. SUMMARY OF LEARNING OBJECTIVE FOR APPENDIX 5A5B. SPECIMEN FINANCIAL STATEMENTS: THE PROCTER & GAMBLE COMPANY5.17.1. Fellow Shareholders:5.17.1.1. Management's Responsibility for Financial Reporting5.17.1.2. Management's Report on Internal Control over Financial Reporting5.17.1.3. Report of Independent Registered Public Accounting Firm5.17.1.4. Report of Independent Registered Public Accounting Firm5.17.1.5. Consolidated Statements of Earnings5.17.1.6. Consolidated Balance Sheets5.17.1.6.1. Assets5.17.1.7. Consolidated Balance Sheets5.17.1.7.1. Liabilities and Shareholders' Equity5.17.1.8. Consolidated Statements of Shareholders' Equity5.17.1.9. Consolidated Statements of Cash Flows5.17.1.10. Notes to Consolidated Financial Statements5.17.1.10.1. NOTE 15.17.1.10.2. NOTE 25.17.1.10.3. NOTE 35.17.1.10.4. NOTE 45.17.1.10.5. NOTE 55.17.1.10.6. NOTE 65.17.1.10.7. NOTE 75.17.1.10.8. NOTE 85.17.1.10.9. NOTE 95.17.1.10.10. NOTE 105.17.1.10.11. NOTE 115.17.1.10.12. NOTE 125.17.1.10.13. NOTE 125.17.1.11. Financial Summary (Unaudited)5.17.1.12. Shareholder Return Performance Graphs5.18. FASB CODIFICATION5.19. QUESTIONS5.20. BRIEF EXERCISES5.21. EXERCISES5.22. PROBLEMS5.23. CONCEPTS FOR ANALYSIS5.24. USING YOUR JUDGMENT5.24.1. FINANCIAL REPORTING5.24.1.1. Financial Reporting Problem5.24.1.1.1. The Procter & Gamble Company (P&G)5.24.1.2. Comparative Analysis Case5.24.1.2.1. The Coca-Cola Company and PepsiCo, Inc.5.24.1.3. Financial Statement Analysis Cases5.24.1.3.1. Case 1 Uniroyal Technology Corporation5.24.1.3.2. Case 2 Sherwin-Williams Company5.24.1.3.3. Case 3 Deere & Company5.24.1.3.4. Case 4 Amazon.com5.24.1.4. International Reporting Case5.24.2. BRIDGE TO THE PROFESSION5.24.2.1. Professional Research: FASB Codification5.24.2.2. Professional Simulation
6. ACCOUNTING AND THE TIME VALUE OF MONEY
6.1. BASIC TIME VALUE CONCEPTS6.1.1. Applications of Time Value Concepts6.1.2. The Nature of Interest6.1.3. Simple Interest6.1.4. Compound Interest6.1.5. What do the numbers mean? A PRETTY GOOD START6.1.5.1. Compound Interest Tables (see pages 308–317)6.1.6. Fundamental Variables6.2. SINGLE-SUM PROBLEMS6.2.1. Future Value of a Single Sum6.2.2. Present Value of a Single Sum6.2.3. Solving for Other Unknowns in Single-Sum Problems6.2.3.1. Example—Computation of the Number of Periods6.2.3.2. Example—Computation of the Interest Rate6.3. ANNUITIES6.3.1. Future Value of an Ordinary Annuity6.3.2. Future Value of an Annuity Due6.3.3. Examples of Future Value of Annuity Problems6.3.3.1. Computation of Rent6.3.3.2. Computation of the Number of Periodic Rents6.3.3.3. Computation of the Future Value6.3.4. Present Value of an Ordinary Annuity6.3.5. What do the numbers mean? UP IN SMOKE6.3.6. Present Value of an Annuity Due6.3.7. Examples of Present Value of Annuity Problems6.3.7.1. Computation of the Present Value of an Ordinary Annuity6.3.7.2. Computation of the Interest Rate6.3.7.3. Computation of a Periodic Rent6.4. MORE COMPLEX SITUATIONS6.4.1. Deferred Annuities6.4.1.1. Future Value of a Deferred Annuity6.4.1.2. Present Value of a Deferred Annuity6.4.2. Valuation of Long-Term Bonds6.4.3. Effective-Interest Method of Amortization of Bond Discount or Premium6.5. PRESENT VALUE MEASUREMENT6.5.1. What do the numbers mean? HOW LOW CAN THEY GO?6.5.2. Choosing an Appropriate Interest Rate6.5.3. Example of Expected Cash Flow6.6. SUMMARY OF LEARNING OBJECTIVES6.7. FASB CODIFICATION6.8. QUESTIONS6.9. BRIEF EXERCISES6.10. EXERCISES6.11. PROBLEMS6.12. USING YOUR JUDGMENT6.12.1. FINANCIAL REPORTING6.12.1.1. Financial Reporting Problem6.12.1.1.1. The Procter & Gamble Company (P&G)6.12.1.2. Financial Statement Analysis Case6.12.1.2.1. Consolidated Natural Gas Company6.12.2. BRIDGE TO THE PROFESSION6.12.2.1. Professional Research6.12.2.2. Professional Simulation

7. CASH AND RECEIVABLES
7.1. SECTION 1 • CASH7.2. WHAT IS CASH?7.3. REPORTING CASH7.3.1. Cash Equivalents7.3.2. Restricted Cash7.3.3. Bank Overdrafts7.4. SUMMARY OF CASH-RELATED ITEMS7.4.1. What do the numbers mean? PILING UP CASH7.5. SECTION 2 • RECEIVABLES7.6. RECOGNITION OF ACCOUNTS RECEIVABLE7.6.1. Trade Discounts7.6.2. Cash Discounts (Sales Discounts)7.6.3. Nonrecognition of Interest Element7.7. VALUATION OF ACCOUNTS RECEIVABLE7.7.1. Uncollectible Accounts Receivable7.7.1.1. Percentage-of-Sales (Income Statement) Approach7.7.1.2. Percentage-of-Receivables (Balance Sheet) Approach7.7.2. What do the numbers mean? "TOO GENEROUS"?7.7.2.1. Collection of Accounts Receivable Written Off7.7.3. What do the numbers mean? COLLECTION IS A CLICK AWAY7.8. RECOGNITION OF NOTES RECEIVABLE7.8.1. Note Issued at Face Value7.8.2. Note Not Issued at Face Value7.8.2.1. Zero-Interest-Bearing Notes7.8.2.2. Interest-Bearing Notes7.8.2.3. Notes Received for Property, Goods, or Services7.8.3. Choice of Interest Rate7.9. VALUATION OF NOTES RECEIVABLE7.9.1. What do the numbers mean? ECONOMIC CONSEQUENCES AND WRITE-OFFS7.10. DISPOSITION OF ACCOUNTS AND NOTES RECEIVABLE7.10.1. Secured Borrowing7.10.2. Sales of Receivables7.10.2.1. Sale without Recourse7.10.2.2. Sale with Recourse7.10.3. Secured Borrowing versus Sale7.10.4. What do the numbers mean? RETURN TO LENDER7.11. PRESENTATION AND ANALYSIS7.11.1. Presentation of Receivables7.11.2. Analysis of Receivables7.11.2.1. Receivables Turnover Ratio7.12. CONVERGENCE CORNER: CASH AND RECEIVABLES7.12.1. RELEVANT FACTS7.12.2. ABOUT THE NUMBERS7.12.3. ON THE HORIZON7.13. SUMMARY OF LEARNING OBJECTIVES7A. CASH CONTROLS7.15. USING BANK ACCOUNTS7.16. THE IMPREST PETTY CASH SYSTEM7.17. PHYSICAL PROTECTION OF CASH BALANCES7.18. RECONCILIATION OF BANK BALANCES7.18.1. What do the numbers mean? BOUNCE A CHECK, GET BANNED7.19. SUMMARY OF LEARNING OBJECTIVE FOR APPENDIX 7A7B. IMPAIRMENTS OF RECEIVABLES7.21. BACKGROUND7.22. IMPAIRMENT MEASUREMENT AND REPORTING7.22.1. Impairment Loss Example7.22.2. Recording Impairment Losses7.22.3. What do the numbers mean? LOST IN TRANSLATION7.23. SUMMARY OF LEARNING OBJECTIVE FOR APPENDIX 7B7.24. FASB CODIFICATION7.25. QUESTIONS7.26. BRIEF EXERCISES7.27. EXERCISES7.28. PROBLEMS7.29. CONCEPTS FOR ANALYSIS7.30. USING YOUR JUDGMENT7.30.1. FINANCIAL REPORTING7.30.1.1. Financial Reporting Problem7.30.1.1.1. The Procter & Gamble Company (P&G)7.30.1.2. Comparative Analysis Case7.30.1.2.1. The Coca-Cola Company and PepsiCo, Inc.7.30.1.3. Financial Statement Analysis Cases7.30.1.3.1. Case I Occidental Petroleum Corporation7.30.1.3.2. Case 2 Microsoft Corporation7.30.1.3.3. Part 1 (Cash and Cash Equivalents)7.30.1.3.4. Part 2 (Accounts Receivables)7.30.2. BRIDGE TO THE PROFESSION7.30.2.1. Professional Research: FASB Codification7.30.2.2. Professional Simulation
8. VALUATION OF INVENTORIES: A COST-BASIS APPROACH
8.1. INVENTORY ISSUES8.1.1. Classification8.1.2. Inventory Cost Flow8.1.2.1. Perpetual System8.1.2.2. Periodic System8.1.2.3. Comparing Perpetual and Periodic Systems8.1.3. Inventory Control8.1.4. What do the numbers mean? STAYING LEAN8.2. BASIC ISSUES IN INVENTORY VALUATION8.3. PHYSICAL GOODS INCLUDED IN INVENTORY8.3.1. Goods in Transit8.3.2. Consigned Goods8.3.3. Special Sales Agreements8.3.3.1. Sales with Buyback Agreement8.3.3.2. Sales with High Rates of Return8.3.3.3. Sales on Installment8.3.4. What do the numbers mean? NO PARKING!8.3.5. Effect of Inventory Errors8.3.5.1. Ending Inventory Misstated8.3.5.2. Purchases and Inventory Misstated8.4. COSTS INCLUDED IN INVENTORY8.4.1. Product Costs8.4.2. Period Costs8.4.3. Treatment of Purchase Discounts8.4.4. What do the numbers mean? YOU MAY NEED A MAP8.5. WHICH COST FLOW ASSUMPTION TO ADOPT?8.5.1. Specific Identification8.5.2. Average Cost8.5.3. First-In, First-Out (FIFO)8.5.4. Last-In, First-Out (LIFO)8.6. SPECIAL ISSUES RELATED TO LIFO8.6.1. LIFO Reserve8.6.2. What do the numbers mean? COMPARING APPLES TO APPLES8.6.3. LIFO Liquidation8.6.4. Dollar-Value LIFO8.6.4.1. Dollar-Value LIFO Example8.6.4.2. Comprehensive Dollar-Value LIFO Example8.6.4.3. Selecting a Price Index8.6.5. What do the numbers mean? QUITE A DIFFERENCE8.6.6. Comparison of LIFO Approaches8.6.7. Major Advantages of LIFO8.6.7.1. Matching8.6.7.2. Tax Benefits/Improved Cash Flow8.6.7.3. Future Earnings Hedge8.6.8. Major Disadvantages of LIFO8.6.8.1. Reduced Earnings8.6.8.2. Inventory Understated8.6.8.3. Physical Flow8.6.8.4. Involuntary Liquidation/Poor Buying Habits8.7. BASIS FOR SELECTION OF INVENTORY METHOD8.7.1. Inventory Valuation Methods—Summary Analysis8.8. SUMMARY OF LEARNING OBJECTIVES8.9. FASB CODIFICATION8.10. QUESTIONS8.11. BRIEF EXERCISES8.12. EXERCISES8.13. PROBLEMS8.14. CONCEPTS FOR ANALYSIS8.15. USING YOUR JUDGMENT8.15.1. FINANCIAL REPORTING8.15.1.1. Financial Statement Analysis Cases8.15.1.1.1. Case 1 T J International8.15.1.1.2. Case 2 Noven Pharmaceuticals, Inc.8.15.1.1.3. Case 3 SUPERVALU8.15.2. BRIDGE TO THE PROFESSION8.15.2.1. Professional Research: FASB Codification8.15.2.2. Professional Simulation
9. INVENTORIES: ADDITIONAL VALUATION ISSUES
9.1. LOWER-OF-COST-OR-MARKET9.1.1. Ceiling and Floor9.1.2. How Lower-of-Cost-or-Market Works9.1.3. Methods of Applying Lower-of-Cost-or-Market9.1.4. Recording "Market" Instead of Cost9.1.5. What do the numbers mean? "PUT IT IN REVERSE"9.1.6. Evaluation of the Lower-of-Cost-or-Market Rule9.2. VALUATION BASES9.2.1. Valuation at Net Realizable Value9.2.2. Valuation Using Relative Sales Value9.2.3. Purchase Commitments—A Special Problem9.3. THE GROSS PROFIT METHOD OF ESTIMATING INVENTORY9.3.1. Computation of Gross Profit Percentage9.3.2. Evaluation of Gross Profit Method9.3.3. What do the numbers mean? THE SQUEEZE9.4. RETAIL INVENTORY METHOD9.4.1. Retail-Method Concepts9.4.2. Retail Inventory Method with Markups and Markdowns—Conventional Method9.4.3. Special Items Relating to Retail Method9.4.4. Evaluation of Retail Inventory Method9.5. PRESENTATION AND ANALYSIS9.5.1. Presentation of Inventories9.5.2. Analysis of Inventories9.5.2.1. Inventory Turnover Ratio9.5.2.2. Average Days to Sell Inventory9.6. CONVERGENCE CORNER: INVENTORIES9.6.1. RELEVANT FACTS9.6.2. ABOUT THE NUMBERS9.6.3. ON THE HORIZON9.7. SUMMARY OF LEARNING OBJECTIVES9A. LIFO RETAIL METHODS9.9. STABLE PRICES—LIFO RETAIL METHOD9.10. FLUCTUATING PRICES—DOLLAR-VALUE LIFO RETAIL METHOD9.11. SUBSEQUENT ADJUSTMENTS UNDER DOLLAR-VALUE LIFO RETAIL9.12. CHANGING FROM CONVENTIONAL RETAIL TO LIFO9.13. SUMMARY OF LEARNING OBJECTIVE FOR APPENDIX 9A9.14. FASB CODIFICATION9.15. QUESTIONS9.16. BRIEF EXERCISES9.17. EXERCISES9.18. PROBLEMS9.19. CONCEPTS FOR ANALYSIS9.20. USING YOUR JUDGMENT9.20.1. FINANCIAL REPORTING9.20.1.1. Financial Reporting Problem9.20.1.1.1. The Procter & Gamble Company (P&G)9.20.1.2. Comparative Analysis Case9.20.1.2.1. The Coca-Cola Company and PepsiCo, Inc.9.20.1.3. Financial Statement Analysis Cases9.20.1.3.1. Case 1 Prab Robots, Inc.9.20.1.3.2. Case 2 Barrick Gold Corporation9.20.2. BRIDGE TO THE PROFESSION9.20.2.1. Professional Research: FASB Codification9.20.2.2. Professional Simulation
10. ACQUISITION AND DISPOSITION OF PROPERTY, PLANT, AND EQUIPMENT
10.1. PROPERTY, PLANT, AND EQUIPMENT10.2. ACQUISITION OF PROPERTY, PLANT, AND EQUIPMENT10.2.1. Cost of Land10.2.2. Cost of Buildings10.2.3. Cost of Equipment10.2.4. Self-Constructed Assets10.2.5. Interest Costs During Construction10.2.5.1. Qualifying Assets10.2.5.2. Capitalization Period10.2.5.3. Amount to Capitalize10.2.5.4. Comprehensive Example of Interest Capitalization10.2.5.5. Special Issues Related to Interest Capitalization10.2.6. Observations10.2.7. What do the numbers mean? WHAT'S IN YOUR INTEREST?10.3. VALUATION OF PROPERTY, PLANT, AND EQUIPMENT10.3.1. Cash Discounts10.3.2. Deferred-Payment Contracts10.3.3. Lump-Sum Purchases10.3.4. Issuance of Stock10.3.5. Exchanges of Nonmonetary Assets10.3.5.1. Meaning of Commercial Substance10.3.5.2. Exchanges—Loss Situation10.3.5.3. Exchanges—Gain Situation10.3.6. What do the numbers mean? ABOUT THOSE SWAPS10.3.7. Accounting for Contributions10.3.8. Other Asset Valuation Methods10.4. COSTS SUBSEQUENT TO ACQUISITION10.4.1. What do the numbers mean? DISCONNECTED10.4.2. Additions10.4.3. Improvements and Replacements10.4.4. Rearrangement and Reinstallation10.4.5. Repairs10.4.6. Summary of Costs Subsequent to Acquisition10.5. DISPOSITION OF PROPERTY, PLANT, AND EQUIPMENT10.5.1. Sale of Plant Assets10.5.2. Involuntary Conversion10.5.3. Miscellaneous Problems10.6. SUMMARY OF LEARNING OBJECTIVES10.7. FASB CODIFICATION10.8. QUESTIONS10.9. BRIEF EXERCISES10.10. EXERCISES10.11. PROBLEMS10.12. CONCEPTS FOR ANALYSIS10.13. USING YOUR JUDGMENT10.13.1. FINANCIAL REPORTING10.13.1.1. Financial Statement Analysis Case10.13.1.1.1. Johnson & Johnson10.13.2. BRIDGE TO THE PROFESSION10.13.2.1. Professional Research: FASB Codification10.13.2.2. Professional Simulation
11. DEPRECIATION, IMPAIRMENTS, AND DEPLETION
11.1. DEPRECIATION—A METHOD OF COST ALLOCATION11.1.1. Factors Involved in the Depreciation Process11.1.1.1. Depreciable Base for the Asset11.1.1.2. Estimation of Service Lives11.1.2. What do the numbers mean? ALPHABET DUPE11.1.3. Methods of Depreciation11.1.3.1. Activity Method11.1.3.2. Straight-Line Method11.1.3.3. Decreasing-Charge Methods11.1.4. Special Depreciation Methods11.1.4.1. Group and Composite Methods11.1.4.2. Hybrid or Combination Methods11.1.5. What do the numbers mean? DECELERATING DEPRECIATION11.1.6. Special Depreciation Issues11.1.6.1. Depreciation and Partial Periods11.1.6.2. Depreciation and Replacement of Fixed Assets11.1.6.3. Revision of Depreciation Rates11.1.7. What do the numbers mean? DEPRECIATION CHOICES11.2. IMPAIRMENTS11.2.1. Recognizing Impairments11.2.2. Measuring Impairments11.2.2.1. Impairment—Example 111.2.2.2. Impairment—Example 211.2.3. Restoration of Impairment Loss11.2.4. Impairment of Assets to Be Disposed Of11.3. DEPLETION11.3.1. Establishing a Depletion Base11.3.1.1. Acquisition Costs11.3.1.2. Exploration Costs11.3.1.3. Development Costs11.3.1.4. Restoration Costs11.3.2. Write-Off of Resource Cost11.3.3. Estimating Recoverable Reserves11.3.4. What do the numbers mean? RAH-RAH SURPRISE11.3.5. Liquidating Dividends11.3.6. Continuing Controversy11.4. PRESENTATION AND ANALYSIS11.4.1. Presentation of Property, Plant, Equipment, and Natural Resources11.4.2. Analysis of Property, Plant, and Equipment11.4.2.1. Asset Turnover Ratio11.4.2.2. Profit Margin on Sales Ratio11.4.2.3. Rate of Return on Assets11.5. CONVERGENCE CORNER: PROPERTY, PLANT, AND EQUIPMENT11.5.1. RELEVANT FACTS11.5.2. ABOUT THE NUMBERS11.5.3. ON THE HORIZON11.6. SUMMARY OF LEARNING OBJECTIVES11A. INCOME TAX DEPRECIATION11.8. MODIFIED ACCELERATED COST RECOVERY SYSTEM11.8.1. Tax Lives (Recovery Periods)11.8.2. Tax Depreciation Methods11.8.3. Example of MACRS System11.9. OPTIONAL STRAIGHT-LINE METHOD11.10. TAX VERSUS BOOK DEPRECIATION11.11. SUMMARY OF LEARNING OBJECTIVE FOR APPENDIX 11A11.12. FASB CODIFICATION11.13. QUESTIONS11.14. BRIEF EXERCISES11.15. EXERCISES11.16. PROBLEMS11.17. CONCEPTS FOR ANALYSIS11.18. USING YOUR JUDGMENT11.18.1. FINANCIAL REPORTING11.18.1.1. Financial Reporting Problem11.18.1.1.1. The Procter & Gamble Company (P&G)11.18.1.2. Comparative Analysis Case11.18.1.2.1. The Coca-Cola Company and PepsiCo., Inc.11.18.1.3. Financial Statement Analysis Case11.18.1.3.1. McDonald's Corporation11.18.1.4. International Reporting Case11.18.2. BRIDGE TO THE PROFESSION11.18.2.1. Professional Research: FASB Codification11.18.2.2. Professional Simulation
12. INTANGIBLE ASSETS
12.1. INTANGIBLE ASSET ISSUES12.1.1. Characteristics12.1.2. Valuation12.1.2.1. Purchased Intangibles12.1.2.2. Internally Created Intangibles12.1.3. Amortization of Intangibles12.1.3.1. Limited-Life Intangibles12.1.3.2. Indefinite-Life Intangibles12.1.4. What do the numbers mean? DEFINITELY INDEFINITE12.2. TYPES OF INTANGIBLE ASSETS12.2.1. Marketing-Related Intangible Assets12.2.2. Customer-Related Intangible Assets12.2.3. Artistic-Related Intangible Assets12.2.4. Contract-Related Intangible Assets12.2.5. Technology-Related Intangible Assets12.2.6. What do the numbers mean? PATENT BATTLES12.2.7. What do the numbers mean? THE VALUE OF A SECRET FORMULA12.2.8. Goodwill12.2.8.1. Recording Goodwill12.2.8.2. Goodwill Write-off12.2.8.3. Bargain Purchase12.3. IMPAIRMENT OF INTANGIBLE ASSETS12.3.1. Impairment of Limited-Life Intangibles12.3.2. Impairment of Indefinite-Life Intangibles Other Than Goodwill12.3.3. Impairment of Goodwill12.3.4. Impairment Summary12.3.5. What do the numbers mean? WHAT? ME IMPAIRED?12.4. RESEARCH AND DEVELOPMENT COSTS12.4.1. Identifying R&D Activities12.4.2. Accounting for R&D Activities12.4.3. Costs Similar to R&D Costs12.4.3.1. Start-Up Costs12.4.3.2. Initial Operating Losses12.4.3.3. Advertising Costs12.4.4. What do the numbers mean? BRANDED12.4.4.1. Computer Software Costs12.4.5. Conceptual Questions12.5. PRESENTATION OF INTANGIBLES AND RELATED ITEMS12.5.1. Presentation of Intangible Assets12.5.2. Presentation of Research and Development Costs12.6. CONVERGENCE CORNER: INTANGIBLE ASSETS12.6.1. RELEVANT FACTS12.6.2. ABOUT THE NUMBERS12.6.3. ON THE HORIZON12.7. SUMMARY OF LEARNING OBJECTIVES12A. ACCOUNTING FOR COMPUTER SOFTWARE COSTS12.9. DIVERSITY IN PRACTICE12.10. THE PROFESSION'S POSITION12.11. ACCOUNTING FOR CAPITALIZED SOFTWARE COSTS12.12. REPORTING SOFTWARE COSTS12.13. SETTING STANDARDS FOR SOFTWARE ACCOUNTING12.14. SUMMARY OF LEARNING OBJECTIVE FOR APPENDIX 12A12.15. FASB CODIFICATION12.16. QUESTIONS12.17. BRIEF EXERCISES12.18. EXERCISES12.19. PROBLEMS12.20. CONCEPTS FOR ANALYSIS12.21. USING YOUR JUDGMENT12.21.1. FINANCIAL REPORTING12.21.1.1. Financial Reporting Problem12.21.1.1.1. The Procter & Gamble Company (P&G)12.21.1.2. Comparative Analysis Case12.21.1.2.1. The Coca-Cola Company and PepsiCo, Inc.12.21.1.3. Financial Statement Analysis Cases12.21.1.3.1. Case 1: Merck and Johnson & Johnson12.21.1.3.2. Case 2: Analysis of Goodwill12.21.1.4. International Reporting Case12.21.1.4.1. Bayer, Glaxo SmithKline, and Merck12.21.1.5. BRIDGE TO THE PROFESSION12.21.1.5.1. Professional Research: FASB Codification12.21.1.6. Professional Simulation
13. CURRENT LIABILITIES AND CONTINGENCIES
13.1. SECTION 1 • CURRENT LIABILITIES13.2. WHAT IS A LIABILITY?13.3. WHAT IS A CURRENT LIABILITY?13.3.1. Accounts Payable13.3.2. Notes Payable13.3.2.1. Interest-Bearing Note Issued13.3.2.2. Zero-Interest-Bearing Note Issued13.3.3. Current Maturities of Long-Term Debt13.3.4. Short-Term Obligations Expected to Be Refinanced13.3.4.1. Refinancing Criteria13.3.5. What do the numbers mean? WHAT ABOUT THAT SHORT-TERM DEBT?13.3.6. Dividends Payable13.3.7. Customer Advances and Deposits13.3.8. Unearned Revenues13.3.9. What do the numbers mean? MICROSOFT'S LIABILITIES—GOOD OR BAD?13.3.10. Sales Taxes Payable13.3.11. Income Taxes Payable13.3.12. Employee-Related Liabilities13.3.12.1. Payroll Deductions13.3.12.2. Compensated Absences13.3.12.3. Bonus Agreements13.4. SECTION 2 • CONTINGENCIES13.5. GAIN CONTINGENCIES13.6. LOSS CONTINGENCIES13.6.1. Likelihood of Loss13.6.2. Litigation, Claims, and Assessments13.6.3. Guarantee and Warranty Costs13.6.3.1. Cash Basis13.6.3.2. Accrual Basis13.6.4. Premiums and Coupons13.6.5. What do the numbers mean? FREQUENT FLYERS13.6.6. Environmental Liabilities13.6.6.1. Accounting Recognition of Asset Retirement Obligations13.6.7. What do the numbers mean? MORE DISCLOSURE, PLEASE13.6.8. Self-Insurance13.7. SECTION 3 • PRESENTATION AND ANALYSIS13.8. PRESENTATION OF CURRENT LIABILITIES13.9. PRESENTATION OF CONTINGENCIES13.10. ANALYSIS OF CURRENT LIABILITIES13.10.1. Current Ratio13.10.2. Acid-Test Ratio13.11. SUMMARY OF LEARNING OBJECTIVES13.12. FASB CODIFICATION13.13. QUESTIONS13.14. BRIEF EXERCISES13.15. EXERCISES13.16. PROBLEMS13.17. CONCEPTS FOR ANALYSIS13.18. USING YOUR JUDGMENT13.18.1. FINANCIAL REPORTING13.18.1.1. Financial Reporting Problem13.18.1.1.1. The Procter & Gamble Company (P&G)13.18.1.2. Comparative Analysis Case13.18.1.2.1. The Coca-Cola Company and PepsiCo, Inc.13.18.1.3. Financial Statement Analysis Cases13.18.1.3.1. Case 1 Northland Cranberries13.18.1.3.2. Case 2 Mohican Company13.18.1.3.3. Case 3 BOP Clothing Co.13.18.2. BRIDGE TO THE PROFESSION13.18.2.1. Professional Research: FASB Codification13.18.2.2. Professional Simulation
14. LONG-TERM LIABILITIES
14.1. SECTION 1 • BONDS PAYABLE14.2. ISSUING BONDS14.3. TYPES AND RATINGS OF BONDS14.3.1. What do the numbers mean? ALL ABOUT BONDS14.4. VALUATION OF BONDS PAYABLE—DISCOUNT AND PREMIUM14.4.1. What do the numbers mean? HOW'S MY RATING?14.4.2. Bonds Issued at Par on Interest Date14.4.3. Bonds Issued at Discount or Premium on Interest Date14.4.4. Bonds Issued Between Interest Dates14.5. EFFECTIVE-INTEREST METHOD14.5.1. Bonds Issued at a Discount14.5.2. Bonds Issued at a Premium14.5.3. Accruing Interest14.5.4. Classification of Discount and Premium14.6. COSTS OF ISSUING BONDS14.7. EXTINGUISHMENT OF DEBT14.7.1. What do the numbers mean? DEAD-WEIGHT DEBT14.8. SECTION 2 • LONG-TERM NOTES PAYABLE14.9. NOTES ISSUED AT FACE VALUE14.10. NOTES NOT ISSUED AT FACE VALUE14.10.1. Zero-Interest-Bearing Notes14.10.2. Interest-Bearing Notes14.11. SPECIAL NOTES PAYABLE SITUATIONS14.11.1. Notes Issued for Property, Goods, or Services14.11.2. Choice of Interest Rate14.12. MORTGAGE NOTES PAYABLE14.13. SECTION 3 • REPORTING AND ANALYZING LONG-TERM DEBT14.14. OFF-BALANCE-SHEET FINANCING14.14.1. Different Forms14.14.2. Rationale14.14.3. What do the numbers mean? OBLIGATED14.15. PRESENTATION AND ANALYSIS OF LONG-TERM DEBT14.15.1. Presentation of Long-Term Debt14.15.2. Analysis of Long-Term Debt14.15.2.1. Debt to Total Assets Ratio14.15.2.2. Times Interest Earned Ratio14.16. CONVERGENCE CORNER: LIABILITIES14.16.1. RELEVANT FACTS14.16.2. ABOUT THE NUMBERS14.16.3. ON THE HORIZON14.17. SUMMARY OF LEARNING OBJECTIVES14A. TROUBLED-DEBT RESTRUCTURINGS14.19. SETTLEMENT OF DEBT14.19.1. Transfer of Assets14.19.2. Granting of Equity Interest14.20. MODIFICATION OF TERMS14.20.1. Example 1—No Gain for Debtor14.20.1.1. Debtor Calculations14.20.1.2. Creditor Calculations14.20.2. Example 2—Gain for Debtor14.21. CONCLUDING REMARKS14.22. SUMMARY OF LEARNING OBJECTIVE14.23. FASB CODIFICATION14.24. QUESTIONS14.25. BRIEF EXERCISES14.26. EXERCISES14.27. PROBLEMS14.28. CONCEPTS FOR ANALYSIS14.29. USING YOUR JUDGMENT14.29.1. FINANCIAL REPORTING PROBLEM14.29.1.1. The Procter & Gamble Company (P&G)14.29.2. Comparative Analysis Case14.29.2.1. The Coca-Cola Company and PepsiCo, Inc.14.29.2.2. Financial Statement Analysis Cases14.29.2.2.1. Case 1 Commonwealth Edison Co.14.29.2.3. Case 2 PepsiCo, Inc.14.29.3. BRIDGE TO THE PROFESSION14.29.3.1. Professional Research: FASB Codification14.29.3.2. Professional Simulation
15. STOCKHOLDERS' EQUITY
15.1. THE CORPORATE FORM OF ORGANIZATION15.1.1. State Corporate Law15.1.2. Capital Stock or Share System15.1.3. Variety of Ownership Interests15.1.4. What do the numbers mean? A CLASS (B) ACT15.2. CORPORATE CAPITAL15.2.1. Issuance of Stock15.2.1.1. Par Value Stock15.2.1.2. No-Par Stock15.2.1.3. Stock Issued with Other Securities (Lump-Sum Sales)15.2.1.4. Stock Issued in Noncash Transactions15.2.1.5. Costs of Issuing Stock15.2.2. What do the numbers mean? THE CASE OF THE DISAPPEARING RECEIVABLE15.2.3. Reacquisition of Shares15.2.4. What do the numbers mean? SIGNALS TO BUY?15.2.4.1. Purchase of Treasury Stock15.2.4.2. Sale of Treasury Stock15.2.4.3. Retiring Treasury Stock15.3. PREFERRED STOCK15.3.1. Features of Preferred Stock15.3.1.1. Cumulative Preferred Stock15.3.1.2. Participating Preferred Stock15.3.1.3. Convertible Preferred Stock15.3.1.4. Callable Preferred Stock15.3.1.5. Redeemable Preferred Stock15.3.2. Accounting for and Reporting Preferred Stock15.4. DIVIDEND POLICY15.4.1. Financial Condition and Dividend Distributions15.4.2. Types of Dividends15.4.2.1. Cash Dividends15.4.2.2. Property Dividends15.4.2.3. Liquidating Dividends15.4.2.4. Stock Dividends15.4.3. Stock Split15.4.4. What do the numbers mean? SPLITSVILLE15.4.4.1. Stock Split and Stock Dividend Differentiated15.4.5. Disclosure of Restrictions on Retained Earnings15.5. PRESENTATION AND ANALYSIS OF STOCKHOLDERS' EQUITY15.5.1. Presentation15.5.1.1. Balance Sheet15.5.1.2. Statement of Stockholders' Equity15.5.2. Analysis15.5.2.1. Rate of Return on Common Stock Equity15.5.2.2. Payout Ratio15.5.2.3. Book Value per Share15.6. CONVERGENCE CORNER: STOCKHOLDERS' EQUITY15.6.1. RELEVANT FACTS15.6.2. ABOUT THE NUMBERS15.6.3. ON THE HORIZON15.7. SUMMARY OF LEARNING OBJECTIVES15A. DIVIDEND PREFERENCES AND BOOK VALUE PER SHARE15.9. DIVIDEND PREFERENCES15.10. BOOK VALUE PER SHARE15.11. SUMMARY OF LEARNING OBJECTIVE FOR APPENDIX 15A15.12. FASB CODIFICATION15.13. QUESTIONS15.14. BRIEF EXERCISES15.15. EXERCISES15.16. PROBLEMS15.17. CONCEPTS FOR ANALYSIS15.18. USING YOUR JUDGMENT15.18.1. FINANCIAL REPORTING15.18.1.1. Financial Reporting Problem15.18.1.1.1. The Procter & Gamble Company (P&G)15.18.1.2. Comparative Analysis Case15.18.1.2.1. The Coca-Cola Company and PepsiCo, Inc.15.18.1.3. Financial Statement Analysis Case15.18.1.3.1. Case 1 Kellogg Company15.18.1.3.2. Case 2 Wiebold, Incorporated15.18.2. BRIDGE TO THE PROFESSION15.18.2.1. Professional Research: FASB Codification15.18.3. Professional Simulation
16. DILUTIVE SECURITIES AND EARNINGS PER SHARE
16.1. SECTION 1 • DILUTIVE SECURITIES AND COMPENSATION PLANS16.2. DEBT AND EQUITY16.3. ACCOUNTING FOR CONVERTIBLE DEBT16.3.1. At Time of Issuance16.3.2. At Time of Conversion16.3.3. Induced Conversions16.3.4. Retirement of Convertible Debt16.4. CONVERTIBLE PREFERRED STOCK16.4.1. What do the numbers mean? HOW LOW CAN YOU GO?16.5. STOCK WARRANTS16.5.1. Stock Warrants Issued with Other Securities16.5.1.1. Proportional Method16.5.1.2. Incremental Method16.5.2. Conceptual Questions16.5.3. Rights to Subscribe to Additional Shares16.5.4. Stock Compensation Plans16.5.4.1. The Major Reporting Issue16.6. ACCOUNTING FOR STOCK COMPENSATION16.6.1. Stock-Option Plans16.6.1.1. Determining Expense16.6.1.2. Allocating Compensation Expense16.6.1.3. Stock Compensation Example16.6.2. Restricted Stock16.6.2.1. Restricted Stock Example16.6.3. Employee Stock-Purchase Plans16.6.4. Disclosure of Compensation Plans16.6.5. Debate over Stock-Option Accounting16.6.6. What do the numbers mean? A LITTLE HONESTY GOES A LONG WAY16.7. SECTION 2 • COMPUTING EARNINGS PER SHARE16.8. EARNINGS PER SHARE—SIMPLE CAPITAL STRUCTURE16.8.1. Preferred Stock Dividends16.8.2. Weighted-Average Number of Shares Outstanding16.8.2.1. Stock Dividends and Stock Splits16.8.3. Comprehensive Example16.9. EARNINGS PER SHARE—COMPLEX CAPITAL STRUCTURE16.9.1. Diluted EPS—Convertible Securities16.9.1.1. Comprehensive Example—If-Converted Method16.9.1.2. Other Factors16.9.2. Diluted EPS—Options and Warrants16.9.2.1. Comprehensive Example—Treasury-Stock Method16.9.3. Contingent Issue Agreement16.9.4. Antidilution Revisited16.9.5. EPS Presentation and Disclosure16.9.6. What do the numbers mean? PRO FORMA EPS CONFUSION16.9.7. Summary of EPS Computation16.10. CONVERGENCE CORNER: DILUTIVE SECURITIES AND EARNINGS PER SHARE16.10.1. RELEVANT FACTS16.10.2. ABOUT THE NUMBERS16.10.3. ON THE HORIZON16.11. SUMMARY OF LEARNING OBJECTIVES16A. ACCOUNTING FOR STOCK-APPRECIATION RIGHTS16.13. SARS—SHARE-BASED EQUITY AWARDS16.14. SARS—SHARE-BASED LIABILITY AWARDS16.15. STOCK-APPRECIATION RIGHTS EXAMPLE16.16. SUMMARY OF LEARNING OBJECTIVE FOR APPENDIX 16A16B. COMPREHENSIVE EARNINGS PER SHARE EXAMPLE16.18. DILUTED EARNINGS PER SHARE16.19. SUMMARY OF LEARNING OBJECTIVE FOR APPENDIX 16B16.20. FASB CODIFICATION16.21. QUESTIONS16.22. BRIEF EXERCISES16.23. EXERCISES16.24. PROBLEMS16.25. CONCEPTS FOR ANALYSIS16.26. USING YOUR JUDGMENT16.26.1. FINANCIAL REPORTING16.26.1.1. Financial Reporting Problem16.26.1.1.1. The Procter & Gamble Company (P&G)16.26.1.2. Comparative Analysis Case16.26.1.2.1. The Coca-Cola Company and PepsiCo, Inc.16.26.1.3. Financial Statement Analysis Case16.26.1.3.1. Kellogg Company16.26.1.4. International Reporting Case16.26.2. BRIDGE TO THE PROFESSION16.26.2.1. Professional Research: FASB Codification16.26.2.2. Professional Simulation
17. INVESTMENTS
17.1. INVESTMENT ACCOUNTING APPROACHES17.2. SECTION 1 • INVESTMENTS IN DEBT SECURITIES17.3. HELD-TO-MATURITY SECURITIES17.4. AVAILABLE-FOR-SALE SECURITIES17.4.1. Example: Single Security17.4.2. Example: Portfolio of Securities17.4.3. Sale of Available-for-Sale Securities17.4.4. Financial Statement Presentation17.4.5. What do the numbers mean? WHAT IS FAIR VALUE?17.5. TRADING SECURITIES17.6. SECTION 2 • INVESTMENTS IN EQUITY SECURITIES17.7. HOLDINGS OF LESS THAN 20%17.7.1. Available-for-Sale Securities17.7.2. Trading Securities17.8. HOLDINGS BETWEEN 20% AND 50%17.8.1. Equity Method17.8.1.1. Investee Losses Exceed Carrying Amount17.9. HOLDINGS OF MORE THAN 50%17.9.1. What do the numbers mean? CONSOLIDATE THIS!17.10. FAIR VALUE OPTION17.10.1. Available-for-Sale Securities17.10.2. Equity Method of Accounting17.10.3. Financial Liabilities17.11. SECTION 3 • OTHER REPORTING ISSUES17.12. IMPAIRMENT OF VALUE17.13. RECLASSIFICATION ADJUSTMENTS17.13.1. Comprehensive Example17.14. TRANSFERS BETWEEN CATEGORIES17.15. FAIR VALUE CONTROVERSY17.15.1. Measurement Based on Intent17.15.2. Gains Trading17.15.3. Liabilities Not Fairly Valued17.15.4. Fair Values—Final Comment17.16. SUMMARY OF REPORTING TREATMENT OF SECURITIES17.16.1. What do the numbers mean? MORE DISCLOSURE, PLEASE17.17. CONVERGENCE CORNER: INVESTMENTS17.17.1. RELEVANT FACTS17.17.2. ABOUT THE NUMBERS17.17.3. ON THE HORIZON17.18. SUMMARY OF LEARNING OBJECTIVES17A. ACCOUNTING FOR DERIVATIVE INSTRUMENTS17.20. DEFINING DERIVATIVES17.21. WHO USES DERIVATIVES, AND WHY?17.21.1. Producers and Consumers17.21.2. Speculators and Arbitrageurs17.22. BASIC PRINCIPLES IN ACCOUNTING FOR DERIVATIVES17.22.1. Example of Derivative Financial Instrument—Speculation17.22.2. Differences between Traditional and Derivative Financial Instruments17.23. DERIVATIVES USED FOR HEDGING17.23.1. What do the numbers mean? RISKY BUSINESS17.23.2. Fair Value Hedge17.23.3. Cash Flow Hedge17.24. OTHER REPORTING ISSUES17.24.1. Embedded Derivatives17.24.2. Qualifying Hedge Criteria17.24.3. Summary of Derivatives Accounting17.25. COMPREHENSIVE HEDGE ACCOUNTING EXAMPLE17.25.1. Fair Value Hedge17.25.2. Financial Statement Presentation of an Interest Rate Swap17.26. CONTROVERSY AND CONCLUDING REMARKS17.27. SUMMARY OF LEARNING OBJECTIVES FOR APPENDIX 17A17B. VARIABLE-INTEREST ENTITIES17.29. WHAT ABOUT GAAP?17.30. CONSOLIDATION OF VARIABLE-INTEREST ENTITIES17.30.1. Some Examples17.30.1.1. Example 117.30.1.2. Example 217.30.2. What Is Happening in Practice?17.31. SUMMARY OF LEARNING OBJECTIVE FOR APPENDIX 17B17C. FAIR VALUE MEASUREMENTS AND DISCLOSURES17.33. DISCLOSURE OF FAIR VALUE INFORMATION: FINANCIAL INSTRUMENTS—NO FAIR VALUE OPTION17.34. DISCLOSURE OF FAIR VALUE INFORMATION: FINANCIAL INSTRUMENTS—FAIR VALUE OPTION17.35. DISCLOSURE OF FAIR VALUES: IMPAIRED ASSETS OR LIABILITIES17.36. FASB CODIFICATION17.37. QUESTIONS17.38. BRIEF EXERCISES17.39. EXERCISES17.40. PROBLEMS17.41. CONCEPTS FOR ANALYSIS17.42. USING YOUR JUDGMENT17.42.1. FINANCIAL REPORTING17.42.1.1. Financial Reporting Problem17.42.1.1.1. The Procter & Gamble Company (P&G)17.42.1.2. Comparative Analysis Case17.42.1.2.1. The Coca-Cola Company and PepsiCo, Inc.17.42.1.3. Financial Statement Analysis Case17.42.1.3.1. Union Planters17.42.2. BRIDGE TO THE PROFESSION17.42.2.1. Professional Research: FASB Codification17.42.2.2. Professional Simulation
18. REVENUE RECOGNITION
18.1. THE CURRENT ENVIRONMENT18.1.1. What do the numbers mean? GROSSED OUT18.1.2. Guidelines for Revenue Recognition18.1.3. Departures from the Sale Basis18.2. REVENUE RECOGNITION AT POINT OF SALE (DELIVERY)18.2.1. Sales with Buyback Agreements18.2.2. Sales When Right of Return Exists18.2.3. Trade Loading and Channel Stuffing18.2.4. What do the numbers mean? NO TAKE-BACKS18.3. REVENUE RECOGNITION BEFORE DELIVERY18.3.1. Percentage-of-Completion Method18.3.1.1. Measuring the Progress toward Completion18.3.1.2. Example of Percentage-of-Completion Method—Cost-to-Cost Basis18.3.1.3. Financial Statement Presentation—Percentage-of-Completion18.3.2. Completed-Contract Method18.3.3. Long-Term Contract Losses18.3.4. Loss in Current Period18.3.4.1. Loss on an Unprofitable Contract18.3.5. Disclosures in Financial Statements18.3.6. What do the numbers mean? LESS CONSERVATIVE18.3.7. Completion-of-Production Basis18.4. REVENUE RECOGNITION AFTER DELIVERY18.4.1. Installment-Sales Method18.4.1.1. Acceptability of the Installment-Sales Method18.4.1.2. Procedure for Deferring Revenue and Cost of Sales of Merchandise18.4.1.3. Additional Problems of Installment-Sales Accounting18.4.1.4. Financial Statement Presentation of Installment-Sales Transactions18.4.2. Cost-Recovery Method18.4.3. What do the numbers mean? LIABILITY OR REVENUE?18.4.4. Deposit Method18.4.5. Summary of Product Revenue Recognition Bases18.5. CONCLUDING REMARKS18.6. CONVERGENCE CORNER: REVENUE RECOGNITION18.6.1. RELEVANT FACTS18.6.2. ABOUT THE NUMBERS18.6.3. ON THE HORIZON18.7. SUMMARY OF LEARNING OBJECTIVES18A. REVENUE RECOGNITION FOR SPECIAL SALES TRANSACTIONS18.9. FRANCHISES18.9.1. Initial Franchise Fees18.9.1.1. Example of Entries for Initial Franchise Fee18.9.2. Continuing Franchise Fees18.9.3. Bargain Purchases18.9.4. Options to Purchase18.9.5. Franchisor's Cost18.9.6. Disclosures of Franchisors18.10. CONSIGNMENTS18.11. SUMMARY OF LEARNING OBJECTIVE FOR APPENDIX 18A18.12. FASB CODIFICATION18.13. QUESTIONS18.14. BRIEF EXERCISES18.15. EXERCISES18.16. PROBLEMS18.17. CONCEPTS FOR ANALYSIS18.18. USING YOUR JUDGMENT18.18.1. FINANCIAL REPORTING18.18.1.1. Financial Reporting Problem18.18.1.1.1. The Procter & Gamble Company (P&G)18.18.1.2. Comparative Analysis Case18.18.1.2.1. The Coca-Cola Company and PepsiCo, Inc.18.18.1.3. Financial Statement Analysis Case18.18.1.3.1. Westinghouse Electric Corporation18.18.2. BRIDGE TO THE PROFESSION18.18.2.1. Professional Research: FASB Codification18.18.3. Professional Simulation
19. ACCOUNTING FOR INCOME TAXES
19.1. FUNDAMENTALS OF ACCOUNTING FOR INCOME TAXES19.1.1. Future Taxable Amounts and Deferred Taxes19.1.1.1. Deferred Tax Liability19.1.2. What do the numbers mean? "REAL LIABILITIES"19.1.2.1. Summary of Income Tax Accounting Objectives19.1.3. Future Deductible Amounts and Deferred Taxes19.1.3.1. Deferred Tax Asset19.1.4. What do the numbers mean? "REAL ASSETS"19.1.4.1. Deferred Tax Asset—Valuation Allowance19.1.5. Income Statement Presentation19.1.6. Specific Differences19.1.6.1. Temporary Differences19.1.6.2. Permanent Differences19.1.6.3. Examples of Temporary and Permanent Differences19.1.7. Tax Rate Considerations19.1.7.1. Future Tax Rates19.1.7.2. Revision of Future Tax Rates19.1.8. What do the numbers mean? SHELTERED19.2. ACCOUNTING FOR NET OPERATING LOSSES19.2.1. Loss Carryback19.2.2. Loss Carryforward19.2.3. Loss Carryback Example19.2.4. Loss Carryforward Example19.2.4.1. Carryforward without Valuation Allowance19.2.4.2. Carryforward with Valuation Allowance19.2.4.3. Valuation Allowance Revisited19.2.5. What do the numbers mean? READ THOSE NOTES19.3. FINANCIAL STATEMENT PRESENTATION19.3.1. Balance Sheet19.3.2. Income Statement19.3.3. What do the numbers mean? NOLs: GOOD NEWS OR BAD?19.3.4. Uncertain Tax Positions19.4. REVIEW OF THE ASSET-LIABILITY METHOD19.5. CONVERGENCE CORNER: INCOME TAXES19.5.1. RELEVANT FACTS19.5.2. ABOUT THE NUMBERS19.5.3. ON THE HORIZON19.6. SUMMARY OF LEARNING OBJECTIVES19A. COMPREHENSIVE EXAMPLE OF INTERPERIOD TAX ALLOCATION19.8. FIRST YEAR—200919.8.1. Taxable Income and Income Tax Payable—200919.8.2. Computing Deferred Income Taxes—End of 200919.8.3. Deferred Tax Expense (Benefit) and the Journal Entry to Record Income Taxes—200919.8.4. Financial Statement Presentation—200919.9. SECOND YEAR—201019.9.1. Taxable Income and Income Tax Payable—201019.9.2. Computing Deferred Income Taxes—End of 201019.9.3. Deferred Tax Expense (Benefit) and the Journal Entry to Record Income Taxes—201019.9.4. Financial Statement Presentation—201019.10. SUMMARY OF LEARNING OBJECTIVE FOR APPENDIX 19A19.11. FASB CODIFICATION19.12. QUESTIONS19.13. BRIEF EXERCISES19.14. EXERCISES19.15. PROBLEMS19.16. CONCEPTS FOR ANALYSIS19.17. USING YOUR JUDGMENT19.17.1. FINANCIAL REPORTING19.17.1.1. Financial Reporting Problem19.17.1.1.1. The Procter & Gamble Company (P&G)19.17.1.2. Comparative Analysis Case19.17.1.2.1. The Coca-Cola Company and PepsiCo, Inc.19.17.1.3. Financial Statement Analysis Case19.17.1.3.1. Homestake Mining Company19.17.2. BRIDGE TO THE PROFESSION19.17.2.1. Professional Research: FASB Codification19.17.2.2. Professional Simulation
20. ACCOUNTING FOR PENSIONS AND POSTRETIREMENT BENEFITS
20.1. NATURE OF PENSION PLANS20.1.1. Defined-Contribution Plan20.1.2. Defined-Benefit Plan20.1.3. What do the numbers mean? WHICH PLAN IS RIGHT FOR YOU?20.1.4. The Role of Actuaries in Pension Accounting20.2. ACCOUNTING FOR PENSIONS20.2.1. Alternative Measures of the Liability20.2.2. Recognition of the Net Funded Status of the Pension Plan20.2.3. Components of Pension Expense20.2.3.1. Service Cost20.2.3.2. Interest on the Liability20.2.3.3. Actual Return on Plan Assets20.3. USING A PENSION WORKSHEET20.3.1. 2010 Entries and Worksheet20.3.2. Amortization of Prior Service Cost (PSC)20.3.3. 2011 Entries and Worksheet20.3.4. Gain or Loss20.3.4.1. Smoothing Unexpected Gains and Losses on Plan Assets20.3.5. What do the numbers mean? PENSION COSTS UPS AND DOWNS20.3.5.1. Smoothing Unexpected Gains and Losses on the Pension Liability20.3.5.2. Corridor Amortization20.3.5.3. Example of Gains/Losses20.3.5.4. Summary of Calculations for Asset Gain or Loss20.3.6. 2012 Entries and Worksheet20.3.7. What do the numbers mean? BOUNCING BACK20.4. REPORTING PENSION PLANS IN FINANCIAL STATEMENTS20.4.1. Within the Financial Statements20.4.1.1. Recognition of the Net Funded Status of the Pension Plan20.4.1.2. Classification of Pension Asset or Pension Liability20.4.1.3. Aggregation of Pension Plans20.4.1.4. Actuarial Gains and Losses/Prior Service Cost20.4.2. Within the Notes to the Financial Statements20.4.3. Example of Pension Note Disclosure20.4.3.1. Components of Pension Expense20.4.3.2. Funded Status of Plan20.4.4. 2013 Entries and Worksheet—A Comprehensive Example20.4.4.1. Worksheet Explanations and Entries20.4.4.2. Note Disclosure20.4.5. Special Issues20.4.5.1. The Pension Reform Act of 197420.4.5.2. Pension Terminations20.4.6. What do the numbers mean? BAILING OUT20.4.7. Concluding Observations20.5. CONVERGENCE CORNER: POSTRETIREMENT BENEFITS20.5.1. RELEVANT FACTS20.5.2. ABOUT THE NUMBERS20.5.3. ON THE HORIZON20.6. SUMMARY OF LEARNING OBJECTIVES20A. ACCOUNTING FOR POSTRETIREMENT BENEFITS20.8. ACCOUNTING GUIDANCE20.9. DIFFERENCES BETWEEN PENSION BENEFITS AND HEALTHCARE BENEFITS20.9.1. What do the numbers mean? OPEBs—HOW BIG ARE THEY?20.10. POSTRETIREMENT BENEFITS ACCOUNTING PROVISIONS20.10.1. Obligations Under Postretirement Benefits20.10.2. Postretirement Expense20.11. ILLUSTRATIVE ACCOUNTING ENTRIES20.11.1. 2010 Entries and Worksheet20.11.2. Recognition of Gains and Losses20.11.2.1. The Corridor Approach20.11.2.2. Amortization Methods20.11.3. 2011 Entries and Worksheet20.11.4. Amortization of Net Gain or Loss in 201220.12. DISCLOSURES IN NOTES TO THE FINANCIAL STATEMENTS20.13. ACTUARIAL ASSUMPTIONS AND CONCEPTUAL ISSUES20.13.1. What do the numbers mean? GASB WHO?20.14. SUMMARY OF LEARNING OBJECTIVES FOR APPENDIX 20A20.15. FASB CODIFICATION20.16. QUESTIONS20.17. BRIEF EXERCISES20.18. EXERCISES20.19. PROBLEMS20.20. CONCEPTS FOR ANALYSIS20.21. USING YOUR JUDGMENT20.21.1. FINANCIAL REPORTING20.21.1.1. Financial Reporting Problem20.21.1.1.1. The Procter & Gamble Company (P&G)20.21.1.2. Comparative Analysis Case20.21.1.2.1. The Coca-Cola Company versus PepsiCo, Inc.20.21.1.3. *Financial Statement Analysis Case20.21.1.3.1. General Electric20.21.1.4. International Reporting Case20.21.2. BRIDGE TO THE PROFESSION20.21.2.1. Professional Research: FASB Codification20.21.2.2. Professional Simulation
21. ACCOUNTING FOR LEASES
21.1. THE LEASING ENVIRONMENT21.1.1. Who Are the Players?21.1.1.1. Banks21.1.1.2. Captive Leasing Companies21.1.1.3. Independents21.1.2. Advantages of Leasing21.1.3. What do the numbers mean? OFF–BALANCE-SHEET FINANCING21.1.4. Conceptual Nature of a Lease21.2. ACCOUNTING BY THE LESSEE21.2.1. Capitalization Criteria21.2.1.1. Transfer of Ownership Test21.2.1.2. Bargain-Purchase Option Test21.2.1.3. Economic Life Test (75% Test)21.2.1.4. Recovery of Investment Test (90% Test)21.2.2. Asset and Liability Accounted for Differently21.2.2.1. Asset and Liability Recorded21.2.2.2. Depreciation Period21.2.2.3. Effective-Interest Method21.2.2.4. Depreciation Concept21.2.3. Capital Lease Method (Lessee)21.2.4. Operating Method (Lessee)21.2.5. Comparison of Capital Lease with Operating Lease21.2.6. What do the numbers mean? ARE YOU LIABLE?21.3. ACCOUNTING BY THE LESSOR21.3.1. Economics of Leasing21.3.2. Classification of Leases by the Lessor21.3.3. Direct-Financing Method (Lessor)21.3.4. Operating Method (Lessor)21.4. SPECIAL ACCOUNTING PROBLEMS21.4.1. Residual Values21.4.1.1. Meaning of Residual Value21.4.1.2. Guaranteed versus Unguaranteed21.4.1.3. Lease Payments21.4.1.4. Lessee Accounting for Residual Value21.4.1.5. Lessor Accounting for Residual Value21.4.2. Sales-Type Leases (Lessor)21.4.3. What do the numbers mean? XEROX TAKES ON THE SEC21.4.4. Bargain-Purchase Option (Lessee)21.4.5. Initial Direct Costs (Lessor)21.4.6. Current versus Noncurrent21.4.7. Disclosing Lease Data21.5. LEASE ACCOUNTING—UNRESOLVED PROBLEMS21.5.1. What do the numbers mean? SWAP MEET21.6. CONVERGENCE CORNER: LEASE ACCOUNTING21.6.1. RELEVANT FACTS21.6.2. ABOUT THE NUMBERS21.6.3. ON THE HORIZON21.7. SUMMARY OF LEARNING OBJECTIVES21A. EXAMPLES OF LEASE ARRANGEMENTS21.9. EXAMPLE 1: HARMON, INC.21.10. EXAMPLE 2: ARDEN'S OVEN CO.21.11. EXAMPLE 3: MENDOTA TRUCK CO.21.12. EXAMPLE 4: APPLELAND COMPUTER21.13. SUMMARY OF LEARNING OBJECTIVE FOR APPENDIX 21A21B. SALE-LEASEBACKS21.15. DETERMINING ASSET USE21.15.1. Lessee21.15.2. Lessor21.16. SALE-LEASEBACK EXAMPLE21.17. SUMMARY OF LEARNING OBJECTIVE FOR APPENDIX 21B21.18. FASB CODIFICATION21.19. QUESTIONS21.20. BRIEF EXERCISES21.21. EXERCISES21.22. PROBLEMS21.23. CONCEPTS FOR ANALYSIS21.24. USING YOUR JUDGMENT21.24.1. FINANCIAL REPORTING21.24.1.1. Financial Reporting Problem21.24.1.1.1. The Procter & Gamble Company (P&G)21.24.1.2. Comparative Analysis Case21.24.1.2.1. UAL, Inc. and Southwest Airlines21.24.1.3. Financial Statement Analysis Case21.24.1.3.1. Tasty Baking Company21.24.1.4. International Reporting Case21.24.2. BRIDGE TO THE PROFESSION21.24.2.1. Professional Research: FASB Codification21.24.2.2. Professional Simulations
22. ACCOUNTING CHANGES AND ERROR ANALYSIS
22.1. SECTION 1 • ACCOUNTING CHANGES22.2. CHANGES IN ACCOUNTING PRINCIPLE22.2.1. What do the numbers mean? QUITE A CHANGE22.2.2. Retrospective Accounting Change Approach22.2.2.1. Retrospective Accounting Change: Long-Term Contracts22.2.3. What do the numbers mean? CHANGE MANAGEMENT22.2.3.1. Retrospective Accounting Change: Inventory Methods22.2.3.2. Direct and Indirect Effects of Changes22.2.4. Impracticability22.3. CHANGES IN ACCOUNTING ESTIMATE22.3.1. Prospective Reporting22.3.2. Disclosures22.4. CHANGE IN REPORTING ENTITY22.5. CORRECTION OF ERRORS22.5.1. Example of Error Correction22.5.1.1. Single-Period Statements22.5.1.2. Comparative Statements22.6. SUMMARY OF ACCOUNTING CHANGES AND CORRECTION OF ERRORS22.6.1. What do the numbers mean? CAN I GET MY MONEY BACK?22.7. MOTIVATIONS FOR CHANGE OF ACCOUNTING METHOD22.8. SECTION 2 • ERROR ANALYSIS22.9. BALANCE SHEET ERRORS22.10. INCOME STATEMENT ERRORS22.11. BALANCE SHEET AND INCOME STATEMENT ERRORS22.11.1. Counterbalancing Errors22.11.1.1. Failure to Record Accrued Wages22.11.1.2. Failure to Record Prepaid Expenses22.11.1.3. Understatement of Unearned Revenue22.11.1.4. Overstatement of Accrued Revenue22.11.1.5. Overstatement of Purchases22.11.2. Noncounterbalancing Errors22.11.2.1. Failure to Record Depreciation22.11.2.2. Failure to Adjust for Bad Debts22.12. COMPREHENSIVE EXAMPLE: NUMEROUS ERRORS22.13. PREPARATION OF FINANCIAL STATEMENTS WITH ERROR CORRECTIONS22.14. CONVERGENCE CORNER: ACCOUNTING CHANGES AND ERRORS22.14.1. RELEVANT FACTS22.14.2. ABOUT THE NUMBERS22.14.3. ON THE HORIZON22.15. SUMMARY OF LEARNING OBJECTIVES22A. CHANGING FROM OR TO THE EQUITY METHOD22.17. CHANGE FROM THE EQUITY METHOD22.17.1. Dividends in Excess of Earnings22.18. CHANGE TO THE EQUITY METHOD22.19. SUMMARY OF LEARNING OBJECTIVES FOR APPENDIX 22A22.20. FASB CODIFICATION22.21. QUESTIONS22.22. BRIEF EXERCISES22.23. EXERCISES22.24. PROBLEMS22.25. CONCEPTS FOR ANALYSIS22.26. USING YOUR JUDGMENT22.26.1. FINANCIAL REPORTING22.26.1.1. Financial Reporting Problem22.26.1.1.1. The Procter & Gamble Company (P&G)22.26.1.2. Comparative Analysis Case22.26.1.2.1. The Coca-Cola Company and PepsiCo, Inc.22.26.2. BRIDGE TO THE PROFESSION22.26.2.1. Professional Research: FASB Codification22.26.2.2. Professional Simulation
23. STATEMENT OF CASH FLOWS
23.1. SECTION 1 • PREPARATION OF THE STATEMENT OF CASH FLOWS23.2. USEFULNESS OF THE STATEMENT OF CASH FLOWS23.3. CLASSIFICATION OF CASH FLOWS23.3.1. What do the numbers mean? HOW'S MY CASH FLOW?23.4. FORMAT OF THE STATEMENT OF CASH FLOWS23.5. STEPS IN PREPARATION23.6. FIRST EXAMPLE—200923.6.1. Step 1: Determine the Change in Cash23.6.2. Step 2: Determine Net Cash Flow from Operating Activities23.6.2.1. Direct Method23.6.2.2. Indirect Method23.6.3. What do the numbers mean? PUMPING UP CASH23.6.4. Step 3: Determine Net Cash Flows from Investing and Financing Activities23.6.4.1. Statement of Cash Flows—200923.7. SECOND EXAMPLE—201023.7.1. Step 1: Determine the Change in Cash23.7.2. Step 2: Determine Net Cash Flow from Operating Activities—Indirect Method23.7.3. Step 3: Determine Net Cash Flows from Investing and Financing Activities23.7.4. Statement of Cash Flows—201023.8. THIRD EXAMPLE—201123.8.1. Step 1: Determine the Change in Cash23.8.2. Step 2: Determine Net Cash Flow from Operating Activities—Indirect Method23.8.3. Step 3: Determine Net Cash Flows from Investing and Financing Activities23.8.4. Statement of Cash Flows—201123.9. SOURCES OF INFORMATION FOR THE STATEMENT OF CASH FLOWS23.10. NET CASH FLOW FROM OPERATING ACTIVITIES—INDIRECT VERSUS DIRECT METHOD23.10.1. Indirect Method23.10.2. Direct Method—An Example23.10.2.1. Summary of Net Cash Flow from Operating Activities—Direct Method23.10.3. Direct versus Indirect Controversy23.10.3.1. In Favor of the Direct Method23.10.3.2. In Favor of the Indirect Method23.10.3.3. Special Rules Applying to Direct and Indirect Methods23.10.4. What do the numbers mean? NOT WHAT IT SEEMS23.11. SECTION 2 • SPECIAL PROBLEMS IN STATEMENT PREPARATION23.12. ADJUSTMENTS SIMILAR TO DEPRECIATION23.13. ACCOUNTS RECEIVABLE (NET)23.13.1. Indirect Method23.13.2. Direct Method23.14. OTHER WORKING CAPITAL CHANGES23.15. NET LOSSES23.16. GAINS23.17. STOCK OPTIONS23.18. POSTRETIREMENT BENEFIT COSTS23.19. EXTRAORDINARY ITEMS23.20. SIGNIFICANT NONCASH TRANSACTIONS23.20.1. What do the numbers mean? CASH FLOW TOOL23.21. SECTION 3 • USE OF A WORKSHEET23.22. PREPARATION OF THE WORKSHEET23.23. ANALYSIS OF TRANSACTIONS23.23.1. Change in Retained Earnings23.23.2. Accounts Receivable (Net)23.23.3. Inventories23.23.4. Prepaid Expense23.23.5. Investment in Stock23.23.6. Land23.23.7. Equipment and Accumulated Depreciation23.23.8. Building Depreciation and Amortization of Trademark23.23.9. Other Noncash Charges or Credits23.23.10. Common Stock and Related Accounts23.23.11. Final Reconciling Entry23.24. PREPARATION OF FINAL STATEMENT23.25. CONVERGENCE CORNER: STATEMENT OF CASH FLOWS23.25.1. RELEVANT FACTS23.25.2. ABOUT THE NUMBERS23.25.3. ON THE HORIZON23.26. SUMMARY OF LEARNING OBJECTIVES23.27. FASB CODIFICATION23.28. QUESTIONS23.29. BRIEF EXERCISES23.30. EXERCISES23.31. PROBLEMS23.32. CONCEPTS FOR ANALYSIS23.33. USING YOUR JUDGMENT23.33.1. FINANCIAL REPORTING23.33.1.1. Financial Reporting Problem23.33.1.1.1. The Procter & Gamble Company (P&G)23.33.1.2. Comparative Analysis Case23.33.1.2.1. The Coca-Cola Company and PepsiCo, Inc.23.33.1.3. Financial Statement Analysis Case23.33.1.3.1. Vermont Teddy Bear Co.23.33.1.4. International Reporting Case23.33.2. BRIDGE TO THE PROFESSION23.33.2.1. Professional Research: FASB Codification23.33.2.2. Professional Simulation
24. FULL DISCLOSURE IN FINANCIAL REPORTING
24.1. FULL DISCLOSURE PRINCIPLE24.1.1. Increase in Reporting Requirements24.1.2. Differential Disclosure24.1.3. What do the numbers mean? "THE HEART OF THE MATTER"24.2. NOTES TO THE FINANCIAL STATEMENTS24.2.1. Accounting Policies24.2.2. Common Notes24.2.3. What do the numbers mean? FOOTNOTE SECRETS24.3. DISCLOSURE ISSUES24.3.1. Disclosure of Special Transactions or Events24.3.2. Post-Balance-Sheet Events (Subsequent Events)24.3.3. Reporting for Diversified (Conglomerate) Companies24.3.3.1. Objective of Reporting Segmented Information24.3.3.2. Basic Principles24.3.3.3. Identifying Operating Segments24.3.3.4. Measurement Principles24.3.3.5. Segmented Information Reported24.3.3.6. Illustration of Disaggregated Information24.3.4. Interim Reports24.3.4.1. Interim Reporting Requirements24.3.4.2. Unique Problems of Interim Reporting24.3.5. What do the numbers mean? "I WANT IT FASTER"24.4. AUDITOR'S AND MANAGEMENT'S REPORTS24.4.1. Auditor's Report24.4.2. Management's Reports24.4.2.1. Management's Discussion and Analysis24.4.2.2. Management's Responsibilities for Financial Statements24.5. CURRENT REPORTING ISSUES24.5.1. Reporting on Financial Forecasts and Projections24.5.1.1. Experience in Great Britain24.5.1.2. Questions of Liability24.5.2. Internet Financial Reporting24.5.3. What do the numbers mean? NEW FORMATS, NEW DISCLOSURE24.5.4. Fraudulent Financial Reporting24.5.4.1. Causes of Fraudulent Financial Reporting24.5.5. What do the numbers mean? HERE'S A FRAUD24.5.6. Criteria for Making Accounting and Reporting Choices24.6. CONVERGENCE CORNER: DISCLOSURE24.6.1. RELEVANT FACTS24.6.2. ABOUT THE NUMBERS24.6.3. ON THE HORIZON24.7. SUMMARY OF LEARNING OBJECTIVES24A. BASIC FINANCIAL STATEMENT ANALYSIS24.9. PERSPECTIVE ON FINANCIAL STATEMENT ANALYSIS24.10. RATIO ANALYSIS24.10.1. Limitations of Ratio Analysis24.11. COMPARATIVE ANALYSIS24.12. PERCENTAGE (COMMON-SIZE) ANALYSIS24.13. SUMMARY OF LEARNING OBJECTIVES FOR APPENDIX 24A24B. INTERNATIONAL ACCOUNTING STANDARDS24.15. THE PRESENT ENVIRONMENT24.16. REASONS TO UNDERSTAND INTERNATIONAL ACCOUNTING STANDARDS24.17. THE CHALLENGE OF INTERNATIONAL ACCOUNTING24.18. WHO ARE THE KEY PLAYERS IN DEVELOPING INTERNATIONAL STANDARDS?24.18.1. IASB24.18.2. Other Organizations24.19. ACCOUNTING STANDARD-SETTING AND INTERNATIONAL CONVERGENCE24.19.1. Challenges to Convergence24.20. CONCLUDING REMARKS24.21. SUMMARY OF LEARNING OBJECTIVE FOR APPENDIX 24B24.22. FASB CODIFICATION24.23. QUESTIONS24.24. BRIEF EXERCISES24.25. EXERCISES24.26. PROBLEMS24.27. CONCEPTS FOR ANALYSIS24.28. USING YOUR JUDGMENT24.28.1. FINANCIAL REPORTING24.28.1.1. Financial Reporting Problem24.28.1.1.1. The Procter & Gamble Company (P&G)24.28.1.2. Comparative Analysis Case24.28.1.2.1. The Coca-Cola Company versus PepsiCo, Inc.24.28.1.3. *Financial Statement Analysis Case24.28.2. BRIDGE TO THE PROFESSION24.28.2.1. Professional Research: FASB Codification24.28.2.2. *Professional Simulation

Content preview from Intermediate Accounting, Thirteenth Edition

Chapter 2. CONCEPTUAL FRAMEWORK UNDERLYING FINANCIAL ACCOUNTING

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

Is It an Asset or Not?

Everyone agrees that accounting needs a framework—a conceptual framework, so to speak—that will help guide the development of standards. To understand the importance of developing this framework, let's see how you would respond in the following two situations.

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Intermediate Accounting, Thirteenth Edition

by Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

Chapter 2. CONCEPTUAL FRAMEWORK UNDERLYING FINANCIAL ACCOUNTING

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