Intermediate Accounting

Chapter 15 Stockholders' Equity 842

It's a Global Market

The Corporate Form of Organization 844

State Corporate Law 844

Capital Stock or Share System 844

Variety of Ownership Interests 845

What Do the Numbers Mean? A Class (B) Act 846

Corporate Capital 846

Issuance of Stock 847

What Do the Numbers Mean? The Case of the Disappearing Receivable 851

Reacquisition of Shares 851

What Do the Numbers Mean? Signals to Buy? 852

What Do the Numbers Mean? Not So Good Anymore 855

Preferred Stock 856

Features of Preferred Stock 856

Accounting for and Reporting Preferred Stock 857

Dividend Policy 858

Financial Condition and Dividend Distributions 859

Types of Dividends 859

Stock Split 864

What Do the Numbers Mean? Splitsville 865

What Do the Numbers Mean? Dividends Up, Dividends Down 867

Disclosure of Restrictions on Retained Earnings 867

Presentation and Analysis of Stockholders' Equity 868

Presentation 868

Analysis 870

APPENDIX 15A Dividend Preferences and Book Value per Share 873

Dividend Preferences 873

Book Value per Share 874

FASB Codification 876

IFRS Insights 895

Chapter 16 Dilutive Securities and Earnings per Share 904

Kicking the Habit

SECTION 1 Dilutive Securities and Compensation Plans 906

Debt and Equity 906

Accounting for Convertible Debt 906

At Time of Issuance 907

At Time of Conversion 907

Induced Conversions 907

Retirement of Convertible Debt 908

Convertible Preferred Stock 908

What Do the Numbers Mean? How Low Can You Go? 909

Stock Warrants 909

Stock Warrants Issued with Other Securities 910

Rights to Subscribe to Additional Shares 913

Stock Compensation Plans 913

Accounting for Stock Compensation 915

Stock-Option Plans 915

Restricted Stock 917

Employee Stock-Purchase Plans 918

Disclosure of Compensation Plans 919

Debate over Stock-Option Accounting 919

What Do the Numbers Mean? A Little Honesty Goes a Long Way 921

SECTION 2 Computing Earnings per Share 921

Earnings per Share-Simple Capital Structure 922

Preferred Stock Dividends 922

Weighted-Average Number of Shares Outstanding 923

Comprehensive Example 925

Earnings per Share-Complex Capital Structure 926

Diluted EPS-Convertible Securities 927

Diluted EPS-Options and Warrants 929

Contingent Issue Agreement 930

Antidilution Revisited 931

EPS Presentation and Disclosure 932

What Do the Numbers Mean? Pro Forma EPS Confusion 933

Summary of EPS Computation 934

APPENDIX 16A Accounting for Stock-Appreciation Rights 936

SARS-Share-Based Equity Awards 936

SARS-Share-Based Liability Awards 936

Stock-Appreciation Rights Example 937

APPENDIX 16B Comprehensive Earnings per Share Example 939

Diluted Earnings per Share 940

FASB Codification 944

IFRS Insights 965

Chapter 17 Investments 974

What to Do?

Investment Accounting Approaches 976

SECTION 1 Investments in Debt Securities 976

Held-to-Maturity Securities 977

Available-for-Sale Securities 979

Example: Single Security 980

Example: Portfolio of Securities 981

Sale of Available-for-Sale Securities 981

Financial Statement Presentation 982

What Do the Numbers Mean? What Is Fair Value? 983

Trading Securities 983

SECTION 2 Investments in Equity Securities 984

Holdings of Less Than 20% 985

Available-for-Sale Securities 986

Trading Securities 988

Holdings Between 20% and 50% 988

Equity Method 988

What Do the Numbers Mean? Who's in Control Here? 990

Holdings of More Than 50% 991

SECTION 3 Other Reporting Issues 991

Fair Value Option 991

Available-for-Sale Securities 992

Equity Method of Accounting 992

Impairment of Value 992

Reclassification Adjustments 993

Comprehensive Example 995

Transfers Between Categories 997

Fair Value Controversy 998

Measurement Based on Intent 998

Gains Trading 998

Liabilities Not Fairly Valued 998

Fair Values-Final Comment 998

Summary of Reporting Treatment of Securities 998

What Do the Numbers Mean? More Disclosure, Please 999

APPENDIX 17A Accounting for Derivative Instruments 1001

Defining Derivatives 1001

Who Uses Derivatives, and Why? 1002

Producers and Consumers 1002

Speculators and Arbitrageurs 1002

Basic Principles in Accounting for Derivatives 1003

Example of Derivative Financial Instrument- Speculation 1004

Differences between Traditional and Derivative Financial Instruments 1006

What Do the Numbers Mean? Risky Business 1007

Derivatives Used for Hedging 1008

Fair Value Hedge 1008

Cash Flow Hedge 1010

Other Reporting Issues 1012

Embedded Derivatives 1012

Qualifying Hedge Criteria 1013

Summary of Derivatives Accounting 1014

Comprehensive Hedge Accounting Example 1015

Fair Value Hedge 1015

Financial Statement Presentation of an Interest Rate Swap 1017

Controversy and Concluding Remarks 1018

APPENDIX 17B Variable-Interest Entities 1020

What About GAAP? 1020

Consolidation of Variable-Interest Entities 1021

Some Examples 1022

What Is Happening in Practice? 1022

APPENDIX 17C Fair Value Measurements and Disclosures 1023

Disclosure of Fair Value Information: Financial Instruments-No Fair Value Option 1023

Disclosure of Fair Value Information: Financial Instruments-Fair Value Option 1025

Disclosure of Fair Values: Impaired Assets or Liabilities 1025

FASB Codification 1026

IFRS Insights 1048

Chapter 18 Revenue Recognition 1164

It's Back

Current Environment 1066

Guidelines for Revenue Recognition 1067

Departures from the Sale Basis 1068

What Do the Numbers Mean? Liability or Revenue? 1069

Revenue Recognition at Point of Sale (Delivery) 1069

Sales with Discounts 1070

Sales with Right of Return 1071

Sales with Buybacks 1073

Bill and Hold Sales 1074

Principal-Agent Relationships 1074

What Do the Numbers Mean? Grossed Out 1075

Trade Loading and Channel Stuffing 1077

What Do the Numbers Mean? No Take-Backs 1077

Multiple-Deliverable Arrangements 1078

Summary of Revenue Recognition Methods 1080

Revenue Recognition Before Delivery 1081

Percentage-of-Completion Method 1082

Completed-Contract Method 1087

Long-Term Contract Losses 1088

Disclosures in Financial Statements 1091

What Do the Numbers Mean? Less Conservative 1091

Completion-of-Production Basis 1092

Revenue Recognition after Delivery 1092

Installment-Sales Method 1092

Cost-Recovery Method 1101

Deposit Method 1102

Summary of Product Revenue Recognition Bases 1103

Concluding Remarks 1103

APPENDIX 18A Revenue Recognition for Franchises 1105

Initial Franchise Fees 1106

Example of Entries for Initial Franchise Fee 1106

Continuing Franchise Fees 1107

Bargain Purchases 1107

Options to Purchase 1108

Franchisor's Cost 1108

Disclosures of Franchisors 1108

FASB Codification 1109

IFRS Insights 1134

Chapter 19 Accounting for Income Taxes 1142

How Much Is Enough?

Fundamentals of Accounting for Income Taxes 1144

Future Taxable Amounts and Deferred Taxes 1145

What Do the Numbers Mean? "Real Liabilities" 1148

Future Deductible Amounts and Deferred Taxes 1149

What Do the Numbers Mean? "Real Assets" 1151

Income Statement Presentation 1152

Specific Differences 1153

Tax Rate Considerations 1156

What Do the Numbers Mean? Global Tax Rates 1157

Accounting for Net Operating Losses 1158

Loss Carryback 1158

Loss Carryforward 1158

Loss Carryback Example 1159

Loss Carryforward Example 1159

What Do the Numbers Mean? NOLs: Good News or Bad? 1163

Financial Statement Presentation 1164

Balance Sheet 1164

Income Statement 1165

Uncertain Tax Positions 1168

What Do the Numbers Mean? Sheltered 1169

Review of the Asset-Liability Method 1169

APPENDIX 19A Comprehensive Example of Interperiod Tax Allocation 1173

First Year-2011 1173

Taxable Income and Income Taxes Payable-2011 1174

Computing Deferred Income Taxes- End of 2011 1174

Deferred Tax Expense (Benefit) and the Journal Entry to Record Income Taxes-2011 1175

Financial Statement Presentation-2011 1176

Second Year-2012 1177

Taxable Income and Income Taxes Payable-2012 1178

Computing Deferred Income Taxes-End of 2012 1178

Deferred Tax Expense (Benefit) and the Journal Entry to Record Income Taxes-2012 1179

Financial Statement Presentation-2012 1179

FASB Codification 1180

IFRS Insights 1199

Chapter 20 Accounting for Pensions and Postretirement Benefits 1208

Where Have All the Pensions Gone?

Nature of Pension Plans 1210

Defined Contribution Plan 1211

Defined Benefit Plan 1211

What Do the Numbers Mean? Which Plan Is Right for You? 1212

The Role of Actuaries in Pension Accounting 1213

Accounting for Pensions 1213

Alternative Measures of the Liability 1213

Recognition of the Net Funded Status of the Pension Plan 1215

Components of Pension Expense 1215

Using a Pension Worksheet 1218

2012 Entries and Worksheet 1218

Amortization of Prior Service Cost (PSC) 1220

2013 Entries and Worksheet 1221

Gain or Loss 1223

What Do the Numbers Mean? Pension Costs Ups and Downs 1224

2014 Entries and Worksheet 1227

What Do the Numbers Mean? Roller Coaster 1229

Reporting Pension Plans in Financial Statements 1229

Within the Financial Statements 1230

Within the Notes to the Financial Statements 1232

Example of Pension Note Disclosure 1233

2015 Entries and Worksheet-A Comprehensive Example 1235

Special Issues 1236

What Do the Numbers Mean? Bailing Out 1239

Concluding Observations 1239

APPENDIX 20A Accounting for Postretirement Benefits 1241

Accounting Guidance 1241

Differences Between Pension Benefits and Healthcare Benefits 1242

What Do the Numbers Mean? OPEBs- How Big Are They? 1243

Postretirement Benefits Accounting Provisions 1243

Obligations Under Postretirement Benefits 1244

Postretirement Expense 1245

Illustrative Accounting Entries 1245

2012 Entries and Worksheet 1246

Recognition of Gains and Losses 1247

2013 Entries and Worksheet 1247

Amortization of Net Gain or Loss in 2014 1249

Disclosures in Notes to the Financial Statements 1249

Actuarial Assumptions and Conceptual Issues 1249

What Do the Numbers Mean? GASB Who? 1251

FASB Codification 1252

IFRS Insights 1274

Chapter 21 Accounting for Leases 1288

More Companies Ask, "Why Buy?"

The Leasing Environment 1290

Who Are the Players? 1290

Advantages of Leasing 1292

What Do the Numbers Mean? Off-Balance-Sheet Financing 1293

Conceptual Nature of a Lease 1293

Accounting by the Lessee 1294

Capitalization Criteria 1294

Asset and Liability Accounted for Differently 1298

Capital Lease Method (Lessee) 1298

Operating Method (Lessee) 1301

What Do the Numbers Mean? Restatements on the Menu 1301

Comparison of Capital Lease with Operating Lease 1302

What Do the Numbers Mean? Are You Liable? 1303

Accounting by the Lessor 1304

Economics of Leasing 1305

Classification of Leases by the Lessor 1305

Direct-Financing Method (Lessor) 1307

Operating Method (Lessor) 1309

Special Accounting Problems 1310

Residual Values 1310

Sales-Type Leases (Lessor) 1316

What Do the Numbers Mean? Xerox Takes On the SEC 1319

Bargain-Purchase Option (Lessee) 1319

Initial Direct Costs (Lessor) 1320

Current versus Noncurrent 1320

Disclosing Lease Data 1321

Lease Accounting-Unresolved Problems 1323

APPENDIX 21A Examples of Lease Arrangements 1327

Example 1: Harmon, Inc. 1328

Example 2: Arden's Oven Co. 1329

Example 3: Mendota Truck Co. 1329

Example 4: Appleland Computer 1330

APPENDIX 21B Sale-Leasebacks 1331

Determining Asset Use 1331

Lessee 1332

Lessor 1332

Sale-Leaseback Example 1332

FASB Codification 1334

IFRS Insights 1355

Chapter 22 Accounting Changes and Error Analysis 1366

In the Dark

SECTION 1 Accounting Changes 1368

Changes in Accounting Principle 1368

What Do the Numbers Mean? Quite a Change 1370

Retrospective Accounting Change Approach 1370

What Do the Numbers Mean? Change Management 1372

Impracticability 1379

Changes in Accounting Estimate 1381

Prospective Reporting 1381

Disclosures 1382

Change in Reporting Entity 1383

Correction of Errors 1383

Example of Error Correction 1385

Summary of Accounting Changes and Correction of Errors 1387

What Do the Numbers Mean? Can I Get My Money Back? 1388

Motivations for Change of Accounting Method 1389

SECTION 2 Error Analysis 1390

Balance Sheet Errors 1390

Income Statement Errors 1391

Balance Sheet and Income Statement Errors 1391

Counterbalancing Errors 1391

Noncounterbalancing Errors 1393

Comprehensive Example: Numerous Errors 1394

What Do the Numbers Mean? Guard the Financial Statements! 1396

Preparation of Financial Statements with Error Corrections 1397

APPENDIX 22A Changing from or to the Equity Method 1401

Change from the Equity Method 1401

Dividends in Excess of Earnings 1401

Change to the Equity Method 1402

FASB Codification 1404

IFRS Insights 1428

Chapter 23 Statement of Cash Flows 1434

Show Me the Money

SECTION 1 Preparation of the Statement of Cash Flows 1436

Usefulness of the Statement of Cash Flows 1436

Classification of Cash Flows 1437

What Do the Numbers Mean? How's My Cash Flow? 1438

Format of the Statement of Cash Flows 1439

Steps in Preparation 1439

First Example-2011 1440

Step 1: Determine the Change in Cash 1441

Step 2: Determine Net Cash Flow from Operating Activities 1441

What Do the Numbers Mean? Pumping Up Cash 1443

Step 3: Determine Net Cash Flows from Investing and Financing Activities 1443

Statement of Cash Flows-2011 1444

Second Example-2012 1445

Step 1: Determine the Change in Cash 1445

Step 2: Determine Net Cash Flow from Operating Activities-Indirect Method 1445

Step 3: Determine Net Cash Flows from Investing and Financing Activities 1446

Statement of Cash Flows-2012 1447

Third Example-2013 1447

Step 1: Determine the Change in Cash 1448

Step 2: Determine Net Cash Flow from Operating Activities-Indirect Method 1449

Step 3: Determine Net Cash Flows from Investing and Financing Activities 1450

Statement of Cash Flows-2013 1450

Sources of Information for the Statement of Cash Flows 1451

Net Cash Flow from Operating Activities- Indirect versus Direct Method 1452

Indirect Method 1452

Direct Method-An Example 1452

Direct versus Indirect Controversy 1457

What Do the Numbers Mean? Not What It Seems 1458

SECTION 2 Special Problems in Statement Preparation 1459

Adjustments to Net Income 1459

Depreciation and Amortization 1459

Postretirement Benefit Costs 1459

Change in Deferred Income Taxes 1459

Equity Method of Accounting 1459

Losses and Gains 1460

Stock Options 1461

Extraordinary Items 1461

Accounts Receivable (Net) 1462

Indirect Method 1463

Direct Method 1463

Other Working Capital Changes 1464

Net Losses 1465

Significant Noncash Transactions 1465

What Do the Numbers Mean? Cash Flow Tool 1467

SECTION 3 Use of a Worksheet 1467

Preparation of the Worksheet 1469

Analysis of Transactions 1471

Change in Retained Earnings 1471

Accounts Receivable (Net) 1471

Inventory 1472

Prepaid Expense 1472

Investment in Stock 1472

Land 1472

Equipment and Accumulated Depreciation 1473

Building Depreciation and Amortization of Trademarks 1473

Other Noncash Charges or Credits 1473

Common Stock and Related Accounts 1474

Final Reconciling Entry 1474

Preparation of Final Statement 1476

FASB Codification 1478

IFRS Insights 1505

Chapter 24 Full Disclosure in Financial Reporting 1512

High-Quality Financial Reporting-Always in Fashion Full Disclosure Principle 1514

Increase in Reporting Requirements 1515

Differential Disclosure 1515

What Do the Numbers Mean? "The Heart of the Matter" 1516

Notes to the Financial Statements 1516

Accounting Policies 1516

Common Notes 1517

What Do the Numbers Mean? Footnote Secrets 1519

Disclosure Issues 1519

Disclosure of Special Transactions or Events 1519

Post-Balance-Sheet Events (Subsequent Events) 1521

Reporting for Diversified (Conglomerate) Companies 1522

Interim Reports 1528

What Do the Numbers Mean? "I Want It Faster" 1533

Auditor's and Management's Reports 1533

Auditor's Report 1533

Management's Reports 1536

Current Reporting Issues 1538

Reporting on Financial Forecasts and Projections 1538

Internet Financial Reporting 1541

What Do the Numbers Mean? New Formats, New Disclosure 1542

Fraudulent Financial Reporting 1542

What Do the Numbers Mean? Disclosure Overload 1544

Criteria for Making Accounting and Reporting Choices 1545

APPENDIX 24A Basic Financial Statement Analysis 1547

Perspective on Financial Statement Analysis 1547

Ratio Analysis 1548

Limitations of Ratio Analysis 1549

Comparative Analysis 1551

Percentage (Common-Size) Analysis 1552

FASB Codification 1554

IFRS Insights 1573

Index I-1