Description
TABLE OF CONTENTS
1 Financial Reporting and Accounting Standards 1-1
Continuing Evolution of International Financial Reporting 1-1
Global Markets 1-3
Financial Statements and Financial Reporting 1-4
Accounting and Capital Allocation 1-4
High-Quality Standards 1-5
Objective of Financial Reporting 1-6
General-Purpose Financial Statements 1-6
Equity Investors and Creditors 1-6
What Do the Numbers Mean? Don’t Forget Management Stewardship 1-6
Entity Perspective 1-6
Decision-Usefulness 1-7
Standard-Setting Organizations 1-7
International Organization of Securities Commissions (IOSCO) 1-8
What Do the Numbers Mean? What About the Little Guy? 1-8
International Accounting Standards Board (IASB) 1-9
Hierarchy of IFRS 1-11
Financial Reporting Challenges 1-12
IFRS in a Political Environment 1-12
What Do the Numbers Mean? Fair Consequences? 1-13
The Expectations Gap 1-13
Significant Financial Reporting Issues 1-14
Ethics in the Environment of Financial Accounting 1-14
International Convergence 1-15
What Do the Numbers Mean? Can You Do That? 1-15
Conclusion 1-16
Global Accounting Insights 1-24
2 Conceptual Framework for Financial Reporting 2-1
What is It? 2-1
Conceptual Framework 2-3
Need for a Conceptual Framework 2-3
What Do the Numbers Mean? What’s Your Principle? 2-4
Development of a Conceptual Framework 2-4
Overview of the Conceptual Framework 2-5
Basic Objective 2-5
Fundamental Concepts 2-6
Qualitative Characteristics of Accounting Information 2-6
What Do the Numbers Mean? Unfaithful—For 20 Years 2-10
What Do the Numbers Mean? Show Me the Earnings! 2-12
Basic Elements 2-12
Assumptions 2-13
Economic Entity Assumption 2-14
Going Concern Assumption 2-14
Monetary Unit Assumption 2-14
Periodicity Assumption 2-15
Accrual Basis of Accounting 2-15
Measurement, Recognition, and Disclosure Concepts 2-16
Basic Principles of Accounting 2-16
Cost Constraint 2-21
What Do the Numbers Mean? Let’s Be Prudent 2-22
Summary of the Structure 2-23
Global Accounting Insights 2-39
3 The Accounting Information System 3-1
Working on the Chain Gang 3-2
Accounting Information System 3-2
Basic Terminology 3-3
Debits and Credits 3-4
The Accounting Equation 3-4
Financial Statements and Ownership Structure 3-6
The Accounting Cycle 3-8
Record and Summarize Basic Transactions 3-9
Journalizing 3-9
Posting 3-10
Chart of Accounts 3-11
The Recording Process Illustrated 3-11
Trial Balance 3-17
What Do the Numbers Mean? Change Management 3-18
Identify and Prepare Adjusting Entries 3-18
Types of Adjusting Entries 3-19
Adjusting Entries for Deferrals 3-19
Adjusting Entries for Accruals 3-24
Adjusted Trial Balance 3-29
Preparing Financial Statements 3-29
Closing 3-30
Post-Closing Trial Balance 3-33
Reversing Entries—An Optional Step 3-33
What Do the Numbers Mean? Hey, It’s Complicated 3-34
The Accounting Cycle Summarized 3-34
Financial Statements for a Merchandising Company 3-34
Income Statement 3-35
Retained Earnings Statement 3-35
Statement of Financial Position 3-36
Closing Entries 3-37
Appendix 3A Cash-Basis Accounting versus Accrual-Basis Accounting 3-37
Conversion from Cash Basis to Accrual Basis 3-39
Service Revenue Computation 3-39
Operating Expense Computation 3-40
Theoretical Weaknesses of the Cash Basis 3-41
Appendix 3B Using Reversing Entries 3-42
Illustration of Reversing Entries—Accruals 3-42
Illustration of Reversing Entries—Deferrals 3-43
Summary of Reversing Entries 3-44
Appendix 3C Using a Worksheet: The Accounting Cycle Revisited 3-44
Worksheet Columns 3-46
Trial Balance Columns 3-46
Adjustments Columns 3-46
Adjustments Entered on the Worksheet 3-46
Adjusted Trial Balance 3-47
Income Statement and Statement of Financial Position Columns 3-47
Preparing Financial Statements from a Worksheet 3-47
Global Accounting Insights 3-70
4 Income Statement and Related Information 4-1
Financial Statements Are Changing 4-2
Income Statement 4-3
Usefulness of the Income Statement 4-3
Limitations of the Income Statement 4-4
Quality of Earnings 4-4
What Do the Numbers Mean? Four: The Loneliest Number 4-5
Content and Format of the Income Statement 4-5
Elements of the Income Statement 4-5
Intermediate Components of the Income Statement 4-6
Condensed Income Statements 4-8
What Do the Numbers Mean? You May Need a Map 4-8
Reporting Various Income Items 4-9
Gross Profit 4-9
Income from Operations 4-9
Income Before Income Tax 4-12
Net Income 4-13
Earnings per Share 4-13
Discontinued Operations 4-14
Allocation to Non-Controlling Interest 4-16
Summary 4-17
What Do the Numbers Mean? Different Income Concepts 4-17
Accounting Changes and Errors 4-18
Changes in Accounting Principle 4-18
Changes in Accounting Estimates 4-19
Corrections of Errors 4-20
Summary 4-20
Related Equity Statements 4-21
Retained Earnings Statement 4-21
Comprehensive Income Statement 4-21
Statement of Changes in Equity 4-23
Global Accounting Insights 4-43
5 Statement of Financial Position and Statement of Cash Flows 5-1
Hey, It Doesn’t Balance! 5-2
Statement of Financial Position 5-3
Usefulness of the Statement of Financial Position 5-3
Limitations of the Statement of Financial Position 5-4
Classification in the Statement of Financial Position 5-5
What Do the Numbers Mean? What Comes First? 5-6
What Do the Numbers Mean? Warning Signals 5-14
Preparation of the Statement of Financial Position 5-14
Statement of Cash Flows 5-16
Purpose of the Statement of Cash Flows 5-16
Content of the Statement of Cash Flows 5-16
What Do the Numbers Mean? Watch That Cash Flow 5-18
Preparation of the Statement of Cash Flows 5-18
Usefulness of the Statement of Cash Flows 5-21
Additional Information 5-24
Notes to the Financial Statements 5-24
Techniques of Disclosure 5-27
Other Guidelines 5-28
Evolving Issue Statement of Financial Position Reporting: Gross or Net? 5-29
Appendix 5A Ratio Analysis—A Reference 5-30
Using Ratios to Analyze Performance 5-30
Global Accounting Insights 5-56
6 Accounting and the Time Value of Money 6-1
How Do I Measure That? 6-2
Basic Time Value Concepts 6-3
Applications of Time Value Concepts 6-3
The Nature of Interest 6-4
Simple Interest 6-5
Compound Interest 6-5
What Do the Numbers Mean? A Pretty Good Start 6-6
Fundamental Variables 6-8
Single-Sum Problems 6-9
Future Value of a Single Sum 6-9
Present Value of a Single Sum 6-11
Solving for Other Unknowns in Single-Sum Problems 6-13
Annuities (Future Value) 6-14
Future Value of an Ordinary Annuity 6-14
Future Value of an Annuity Due 6-17
Examples of Future Value of Annuity Problems 6-18
Annuities (Present Value) 6-20
Present Value of an Ordinary Annuity 6-20
What Do the Numbers Mean? Up in Smoke 6-22
Present Value of an Annuity Due 6-22
Examples of Present Value of Annuity Problems 6-23
Other Time Value of Money Issues 6-25
Deferred Annuities 6-25
Valuation of Long-Term Bonds 6-27
Effective-Interest Method of Amortization of Bond Discount or Premium 6-28
Present Value Measurement 6-29
7 Cash and Receivables 7-1
Is Your Cash Trapped? 7-1
Cash 7-2
Reporting Cash 7-3
Summary of Cash-Related Items 7-5
Evolving Issue What Counts for Cash? 7-5
Receivables 7-6
Recognition of Accounts Receivable 7-7
Measurement of the Transaction Price 7-8
Variable Consideration 7-8
Valuation of Accounts Receivable 7-10
Direct Write-Off Method for Uncollectible Accounts 7-11
Allowance Method for Uncollectible Accounts 7-11
Notes Receivable 7-15
Recognition of Notes Receivable 7-15
Valuation of Notes Receivable 7-19
Other Issues Related to Receivables 7-19
Derecognition of Receivables 7-19
Presentation and Analysis 7-23
What Do the Numbers Mean? Securitizations—Good or Bad? 7-26
Appendix 7A Cash Controls 7-26
Using Bank Accounts 7-26
The Imprest Petty Cash System 7-27
Physical Protection of Cash Balances 7-28
Reconciliation of Bank Balances 7-29
Global Accounting Insights 7-56
8 Valuation of Inventories: A Cost-Basis Approach 8-1
It Should Be Easy, but It Isn’t! 8-1
Inventory Issues 8-3
Classification 8-3
Inventory Cost Flow 8-4
Inventory Control 8-6
Determining Cost of Goods Sold 8-7
What Do the Numbers Mean? Staying Lean 8-7
Goods and Costs Included in Inventory 8-7
Goods Included in Inventory 8-7
What Do the Numbers Mean? A Retail Apocalypse! 8-10
Costs Included in Inventory 8-10
Which Cost Flow Assumption to Adopt? 8-12
Specific Identification 8-12
Average-Cost 8-13
First-In, First-Out (FIFO) 8-14
Inventory Valuation Methods—Summary Analysis 8-16
Effect of Inventory Errors 8-17
Ending Inventory Misstated 8-17
Purchases and Inventory Misstated 8-18
Appendix 8A LIFO Cost Flow Assumption 8-19
Last-In, First-Out (LIFO) 8-19
Inventory Valuation Methods—Summary Analysis 8-20
9 Inventories: Additional Valuation Issues 9-1
Not What It Seems to Be 9-2
Lower-of-Cost-or-Net Realizable Value (LCNRV) 9-3
Net Realizable Value 9-3
Illustration of LCNRV 9-4
Methods of Applying LCNRV 9-4
Recording Net Realizable Value Instead of Cost 9-5
Use of an Allowance 9-6
Recovery of Inventory Loss 9-6
Evaluation of the LCNRV Rule 9-7
Valuation Bases 9-7
Net Realizable Value 9-7
Relative Standalone Sales Value 9-10
Purchase Commitments—A Special Problem 9-11
The Gross Profit Method of Estimating Inventory 9-12
Computation of Gross Profit Percentage 9-13
Evaluation of Gross Profit Method 9-15
What Do the Numbers Mean? I’ll Trade You 9-15
Retail Inventory Method 9-15
Retail-Method Concepts 9-16
Retail Inventory Method with Markups
and Markdowns—Conventional Method 9-17
Special Items Relating to Retail Method 9-19
Evaluation of Retail Inventory Method 9-20
Presentation and Analysis 9-20
Presentation of Inventories 9-21
Analysis of Inventories 9-22
Global Accounting Insights 9-42
10 Acquisition and Disposition of Property, Plant, and Equipment 10-1
Watch Your Spending 10-1
Property, Plant, and Equipment 10-2
Acquisition of Property, Plant, and Equipment 10-3
Cost of Land 10-4
Cost of Buildings 10-4
Cost of Equipment 10-5
Self-Constructed Assets 10-5
Borrowing Costs During Construction 10-6
Qualifying Assets 10-7
Capitalization Period 10-7
Amount to Capitalize 10-7
Disclosures 10-10
Valuation of Property, Plant, and Equipment 10-11
Cash Discounts 10-11
Deferred-Payment Contracts 10-11
Lump-Sum Purchases 10-12
Issuance of Shares 10-13
Exchanges of Non-Monetary Assets 10-13
Government Grants 10-16
Costs Subsequent to Acquisition 10-20
Additions 10-20
Improvements and Replacements 10-21
Rearrangement and Reorganization 10-21
Repairs 10-22
What Do the Numbers Mean? Disconnected 10-22
Summary of Costs Subsequent to Acquisition 10-23
Disposition of Property, Plant, and Equipment 10-23
Sale of Plant Assets 10-23
Involuntary Conversion 10-24
11 Depreciation, Impairments, and Depletion 11-1
Here Come the Write-Offs 11-2
Depreciation—A Method of Cost Allocation 11-3
Factors Involved in the Depreciation Process 11-3
Methods of Depreciation 11-4
Other Depreciation Issues 11-8
Component Depreciation 11-8
Depreciation and Partial Periods 11-9
Depreciation and Replacement of Property, Plant, and Equipment 11-10
Revision of Depreciation Rates 11-10
What Do the Numbers Mean? Depreciation Choices 11-11
Impairments 11-12
Recognizing Impairments 11-12
Impairment Illustrations 11-13
Reversal of Impairment Loss 11-14
Cash-Generating Units 11-15
Impairment of Assets to Be Disposed Of 11-15
Depletion 11-16
Establishing a Depletion Base 11-17
Write-Off of Resource Cost 11-18
Estimating Recoverable Reserves 11-19
Liquidating Dividends 11-19
Presentation on the Financial Statements 11-20
Revaluations 11-21
Recognizing Revaluations 11-21
Revaluation Issues 11-22
What Do the Numbers Mean? To Revalue or Not 11-23
Presentation and Analysis 11-23
Presentation of Property, Plant, Equipment, and Mineral Resources 11-23
Analysis of Property, Plant, and Equipment 11-25
Appendix 11A Revaluation of Property, Plant, and Equipment 11-26
Revaluation of Land 11-27
Revaluation—2022: Valuation Increase 11-27
Revaluation—2023: Decrease below Historical Cost 11-27
Revaluation—2024: Recovery of Impairment Loss 11-28
Revaluation of Depreciable Assets 11-29
Revaluation—2022: Valuation Increase 11-29
Revaluation—2023: Decrease below Historical Cost 11-30
Revaluation—2024: Recovery of Impairment Loss 11-31
Global Accounting Insights 11-55
12 Intangible Assets 12-1
Is This Sustainable? 12-1
Intangible Asset Issues 12-2
Characteristics 12-2
Valuation 12-3
Amortization of Intangibles 12-4
Types of Intangible Assets 12-6
Marketing-Related Intangible Assets 12-6
Customer-Related Intangible Assets 12-6
Artistic-Related Intangible Assets 12-7
Contract-Related Intangible Assets 12-8
Technology-Related Intangible Assets 12-8
What Do the Numbers Mean? Patent Battles 12-9
What Do the Numbers Mean? Patents—Strategic Lifeblood 12-10
Goodwill 12-10
Recording Goodwill 12-11
Goodwill Write-Off 12-13
Bargain Purchase 12-13
Impairment and Presentation of Intangible Assets 12-13
Impairment of Limited-Life Intangibles 12-14
Reversal of Impairment Loss 12-14
Impairment of Indefinite-Life Intangibles Other Than Goodwill 12-15
Impairment of Goodwill 12-15
Presentation of Intangible Assets 12-17
Research and Development Costs 12-18
What Do the Numbers Mean? Global R&D Incentives 12-18
Identifying R&D Activities 12-19
Accounting for R&D Activities 12-20
Evolving Issue Recognition of R&D and Internally Generated Intangibles 12-21
Costs Similar to R&D Costs 12-21
What Do the Numbers Mean? Branded 12-22
Presentation of Research and Development Costs 12-23
Global Accounting Insights 12-42
13 Current Liabilities, Provisions, and Contingencies 13-1
Now You See It, Now You Don’t 13-2
Current Liabilities 13-3
Accounts Payable 13-4
Notes Payable 13-4
Current Maturities of Long-Term Debt 13-6
Short-Term Obligations Expected to Be Refinanced 13-6
What Do the Numbers Mean? Going, Going, Gone 13-7
Dividends Payable 13-8
Customer Advances and Deposits 13-8
Unearned Revenues 13-8
What Do the Numbers Mean? SAP’s Liabilities—Good or Bad? 13-9
Sales and Value-Added Taxes Payable 13-9
Income Taxes Payable 13-11
Employee-Related Liabilities 13-12
Provisions 13-15
Recognition of a Provision 13-15
Measurement of Provisions 13-17
Common Types of Provisions 13-17
What Do the Numbers Mean? Frequent Flyers 13-21
Evolving Issue Greenhouse Gases: Let’s Be Standard-Setters 13-23
Disclosures Related to Provisions 13-26
Contingencies 13-27
Contingent Liabilities 13-27
Contingent Assets 13-28
Presentation and Analysis 13-29
Presentation of Current Liabilities 13-29
Analysis of Current Liabilities 13-30
14 Non-Current Liabilities 14-1
Going Long 14-1
Bonds Payable 14-3
Types of Bonds 14-3
Issuing Bonds 14-4
What Do the Numbers Mean? All About Bonds 14-4
Valuation and Accounting for Bonds Payable 14-4
What Do the Numbers Mean? How About a 100-Year Bond? 14-7
Effective-Interest Method 14-7
Long-Term Notes Payable 14-12
Notes Issued at Face Value 14-12
Notes Not Issued at Face Value 14-12
What Do the Numbers Mean? Negative Interest Rates—Is That Even Possible? 14-14
Special Notes Payable Situations 14-15
Mortgage Notes Payable 14-17
Extinguishment of Non-Current Liabilities 14-18
Extinguishment with Cash Before Maturity 14-18
Extinguishment by Exchanging Assets or
Securities 14-19
Extinguishment with Modification of Terms 14-20
Presentation and Analysis 14-22
Fair Value Option 14-22
Off-Balance-Sheet Financing 14-23
Evolving Issue Off-and-On Reporting 14-25
Presentation of Non-Current Liabilities 14-25
Analysis of Non-Current Liabilities 14-26
Global Accounting Insights 14-45
15 Equity 15-1
It’s a Global Market 15-1
Corporate Capital 15-3
Corporate Form 15-3
What Do the Numbers Mean? A Class (B) Act 15-5
Components of Equity 15-5
Issuance of Shares 15-6
Preference Shares 15-9
Reacquisition of Shares 15-11
Purchase of Treasury Shares 15-12
Sale of Treasury Shares 15-14
Retiring Treasury Shares 15-15
What Do the Numbers Mean? Signals to Buy? 15-15
Dividend Policy 15-15
Financial Condition and Dividend Distributions 15-16
Types of Dividends 15-16
What Do the Numbers Mean? Dividends Up, Dividends Down 15-18
Share Dividends and Share Splits 15-20
Presentation and Analysis of Equity 15-22
Presentation of Equity 15-22
Analysis 15-24
Appendix 15A Dividend Preferences and Book Value per Share 15-26
Dividend Preferences 15-26
Book Value per Share 15-27
Global Accounting Insights 15-48
16 Dilutive Securities and Earnings per Share 16-1
Breaking the Options Habit 16-2
Dilutive Securities 16-3
Debt and Equity 16-3
Convertible Debt 16-3
Convertible Preference Shares 16-8
What Do the Numbers Mean? How Low Can You Go? 16-9
Share Warrants 16-9
Share Warrants Issued with Other Securities 16-10
Rights to Purchase Additional Shares 16-11
Share Compensation Plans 16-12
Measurement—Share Compensation 16-13
Recognition—Share Compensation 16-14
Restricted Shares 16-16
Employee Share-Purchase Plans 16-17
Disclosure of Compensation Plans 16-18
Debate over Share-Option Accounting 16-18
Basic Earnings per Share 16-20
Earnings per Share—Simple Capital Structure 16-20
Comprehensive Example 16-23
Diluted Earnings per Share 16-24
Diluted EPS—Convertible Securities 16-25
Diluted EPS—Options and Warrants 16-27
Contingently Issuable Shares 16-28
Antidilution Revisited 16-28
EPS Presentation and Disclosure 16-29
Summary of EPS Computation 16-30
Appendix 16A Accounting for Share-Appreciation Rights 16-31
SARS—Share-Based Equity Awards 16-32
SARS—Share-Based Liability Awards 16-32
Share-Appreciation Rights Example 16-33
Appendix 16B Comprehensive Earnings per Share Example 16-34
Diluted Earnings Per Share 16-35
Global Accounting Insights 16-59
17 Investments 17-1
Winners and Losers 17-1
Debt Investments 17-3
Classification and Measurement of Financial Assets 17-3
A Closer Look at Debt Investments 17-4
What Do the Numbers Mean? What is Fair Value? 17-12
Equity Investments 17-13
Holdings of Less Than 20% 17-14
What Do the Numbers Mean? The Fair Value Challenge 17-18
Holdings Between 20% and 50% 17-19
Holdings of More Than 50% 17-21
What Do the Numbers Mean? Who’s in Control Here? 17-21 Summary of Reporting Treatment of Investments 17-21
Other Reporting Issues 17-22
Impairment of Value 17-22
What Do the Numbers Mean? Will We Be Ready the Next Time Around? 17-23
Recycling Adjustments 17-27
Transfers Between Categories 17-30
Evolving Issue Fair Value Controversy 17-31
Appendix 17A Accounting for Derivative Instruments 17-32
Defining Derivatives 17-32
Who Uses Derivatives, and Why? 17-33
Producers and Consumers 17-33
Speculators and Arbitrageurs 17-33
Basic Principles in Accounting for Derivatives 17-34
Derivative Financial Instrument (Speculation) 17-35
Differences between Traditional and Derivative Financial Instruments 17-37
Derivatives Used for Hedging 17-37
What Do the Numbers Mean? Risky Business 17-38
Fair Value Hedge 17-38
Cash Flow Hedge 17-40
Other Reporting Issues 17-42
Embedded Derivatives 17-42
Qualifying Hedge Criteria 17-43
Summary of Derivatives Accounting 17-44
Comprehensive Hedge Accounting Example 17-45
Fair Value Hedge 17-45
Financial Statement Presentation of an Interest Rate Swap 17-47
Controversy and Concluding Remarks 17-48
Appendix 17B Fair Value Disclosures 17-48
Disclosure of Fair Value Information: Financial Instruments 17-49
Disclosure of Fair Values: Impaired Assets or Liabilities 17-51
Conclusion 17-52
Global Accounting Insights 17-77
18 Revenue Recognition 18-1
It’s Back 18-1
Fundamentals of Revenue Recognition 18-3
Background 18-3
Revenue Recognition Standard 18-4
Overview of the Five-Step Process—Airbus Example 18-4
Extended Example of the Five-Step Process: BEAN 18-5
The Five-Step Process Revisited 18-9
Identifying the Contract with Customers—Step 1 18-9
Identifying Separate Performance Obligations—Step 2 18-10
Determining the Transaction Price—Step 3 18-11
Allocating the Transaction Price to Separate Performance Obligations—Step 4 18-15
Recognizing Revenue When (or as) Each Performance Obligation is Satisfied—Step 5 18-17
Summary 18-18
Accounting for Revenue Recognition Issues 18-19
Sales Returns and Allowances 18-19
What Do the Numbers Mean? Boomerang Sales! 18-22
Repurchase Agreements 18-23
Bill-and-Hold Arrangements 18-24
Principal-Agent Relationships 18-24
Consignments 18-25
Warranties 18-26
Non-refundable Upfront Fees 18-28
Summary 18-29
Presentation and Disclosure 18-29
Presentation 18-29
Disclosure 18-33
Evolving Issue Converged, Converging or Diverging? 18-34
Appendix 18A Long-Term Construction Contracts 18-34
Revenue Recognition over Time 18-34
Percentage-of-Completion Method 18-35
Cost-Recovery (Zero-Profit) Method 18-40
Long-Term Contract Losses 18-42
Appendix 18B Revenue Recognition for Franchises 18-44
Franchise Accounting 18-45
Recognition of Franchise Rights Revenue over Time 18-47
19 Accounting for Income Taxes 19-1
Safe (Tax) Haven? 19-1
Fundamentals of Accounting for Income Taxes 19-3
Future Taxable Amounts and Deferred Taxes 19-5
What Do the Numbers Mean? “Real Liabilities” 19-8
Future Deductible Amounts and Deferred Taxes 19-8
What Do the Numbers Mean? “Real Assets” 19-11
Deferred Tax Asset (Non-Recognition) 19-11
Additional Issues 19-12
Income Statement Presentation 19-12
Specific Differences 19-13
Tax Rate Considerations 19-16
What Do the Numbers Mean? Global Tax Rates 19-17
Accounting for Net Operating Losses 19-18
Loss Carryforward 19-18
Loss Carryforward Example 19-19
Evolving Issue Uncertain Tax Positions 19-22
Financial Statement Presentation 19-22
Statement of Financial Position 19-22
Income Statement 19-23
Tax Reconciliation 19-25
What Do the Numbers Mean? The Tax Twist 19-26
Review of the Asset-Liability Method 19-27
Appendix 19A Comprehensive Example of Interperiod Tax Allocation 19-28
First Year—2021 19-28
Taxable Income and Income Taxes Payable—2021 19-29
Computing Deferred Income Taxes—End of 2021 19-29
Deferred Tax Expense (Benefit) and the Journal Entry to Record Income Taxes—2021 19-30
Financial Statement Presentation—2021 19-31
Second Year—2022 19-32
Taxable Income and Income Taxes Payable—2022 19-32
Computing Deferred Income Taxes—End of 2022 19-33
Deferred Tax Expense (Benefit) and the Journal Entry to Record Income Taxes—2022 19-33
Financial Statement Presentation—2022 19-34
Appendix 19B Accounting for Net Operating Loss Carrybacks 19-34
Loss Carryback 19-35
Loss Carryback Example 19-35
Loss Carryback with Carryforward 19-36
Global Accounting Insights 19-58
20 Accounting for Pensions and Postretirement Benefits 20-1
Pension Peril 20-2
Fundamentals of Pension Plan Accounting 20-3
Defined Contribution Plan 20-4
Defined Benefit Plan 20-4
What Do the Numbers Mean? Which Plan is Right for You? 20-5
The Role of Actuaries in Pension Accounting 20-6
Measures of the Liability 20-6
Reporting Changes in the Defined Benefit Obligation (Asset) 20-8
Plan Assets and Actual Return 20-10
Using a Pension Worksheet 20-11
2022 Entries and Worksheet 20-12
Funded Status 20-13
Past Service Cost 20-13
2023 Entries and Worksheet 20-14
Remeasurements 20-15
Asset Gains and Losses 20-16
Liability Gains and Losses 20-16
2024 Entries and Worksheet 20-16
What Do the Numbers Mean? Roller Coaster 20-19
Reporting Pension Plans in Financial Statements 20-19
Within the Financial Statements 20-20
Within the Notes to the Financial Statements 20-22
Other Postretirement Benefits 20-23
Concluding Observations 20-24
What Do the Numbers Mean? How’s Your Volatility? 20-24
Global Accounting Insights 20-45
21 Accounting for Leases 21-1
Times Are A-Changing 21-1
The Leasing Environment 21-3
A Look at the Lessee 21-3
Advantages of Leasing—Lessees 21-4
A Look at the Lessor 21-4
Advantages of Leasing—Lessors 21-5
What Do the Numbers Mean? Residual Value Regret 21-6
Lessee Accounting 21-6
Measurement of the Lease Liability and Lease Asset 21-7
Subsequent Lessee Accounting 21-9
Summary of Lessee Accounting 21-17
What Do the Numbers Mean? Your Lease is Killing My Income 21-18
Lessor Accounting 21-18
Economics of Leasing 21-18
Classification of Leases by the Lessor 21-19
What Do the Numbers Mean? Not So Fast 21-21
Accounting Measurement and Presentation 21-21
Lessor Accounting for Operating Leases 21-26
Special Lease Accounting Problems 21-28
Other Lease Adjustments 21-28
Presentation, Disclosure, and Analysis 21-30
Evolving Issue Bring It On! 21-34
Appendix 21A Sale-Leasebacks 21-35
Accounting Issues in Sale-Leaseback Transactions 21-36
Sale Transaction 21-36
Financing Transaction (Failed Sale) 21-37
Sale-Leaseback Example 21-37
Appendix 21B Comprehensive Example 21-39
Lease Terms: Scenario 1 21-39
Lease Classification 21-40
Lessee/Lessor Accounting 21-40
Lease Terms: Scenario 2 21-42
Lease Classification 21-42
Lessee Accounting 21-43
Lessor Accounting—Operating Lease 21-44
Global Accounting Insights 21-69
22 Accounting Changes and Error Analysis 22-1
Needed: Valid Comparisons 22-2
Accounting Changes 22-3
Background 22-3
Changes in Accounting Policy 22-3
What Do the Numbers Mean? Comparison Challenges—Squared 22-5
Impracticability 22-14
Changes in Accounting Estimates 22-14
Prospective Reporting 22-15
What Do the Numbers Mean? A Change for the Better? 22-16
Disclosures 22-17
Accounting Errors 22-17
Example of Error Correction 22-18
What Do the Numbers Mean? Guard the Financial Statements! 22-20
Summary of Accounting Changes and Correction of Errors 22-21
What Do the Numbers Mean? What’s Your Motivation? 22-22
Error Analysis 22-23
Statement of Financial Position Errors 22-23
Income Statement Errors 22-23
Statement of Financial Position and Income Statement Errors 22-24
Comprehensive Example: Numerous Errors 22-27
Preparation of Financial Statements with Error Corrections 22-30
Global Accounting Insights 22-54
23 Statement of Cash Flows 23-1
Show Me the Money! 23-1
The Statement of Cash Flows 23-2
Usefulness of the Statement of Cash Flows 23-3
Classification of Cash Flows 23-3
What Do the Numbers Mean? How’s My Cash Flow? 23-5
Cash and Cash Equivalents 23-5
Format of the Statement of Cash Flows 23-6
Preparing the Statement of Cash Flows 23-6
Illustrations—Tax Consultants Inc. 23-7
Sources of Information for the Statement of Cash Flows 23-16
Net Cash Flow from Operating Activities—Direct Method 23-16
Evolving Issue Direct versus Indirect 23-21
Special Problems in Statement Preparation 23-22
Adjustments to Net Income 23-22
Accounts Receivable (Net) 23-25
Other Working Capital Changes 23-27
Net Losses 23-27
Disclosures 23-28
What Do the Numbers Mean? Better than ROA? 23-29
Use of a Worksheet 23-30
Preparation of the Worksheet 23-31
Analysis of Transactions 23-31
Preparation of Final Statement 23-38
Global Accounting Insights 23-65
24 Presentation and Disclosure in Financial Reporting 24-1
We Need Better, Not More 24-1
Full Disclosure Principle 24-3
Increase in Reporting Requirements 24-4
Differential Disclosure 24-5
Notes to the Financial Statements 24-5
What Do the Numbers Mean? Footnote Secrets 24-8
Disclosure Issues 24-8
Disclosure of Special Transactions or Events 24-8
Events after the Reporting Period (Subsequent Events) 24-10
Reporting for Diversified (Conglomerate) Companies 24-12
Interim Reports 24-17
Evolving Issue It’s Faster But is It Better? 24-20
Auditor’s and Management’s Reports 24-21
Auditor’s Report 24-21
What Do the Numbers Mean? Heart of the Matter 24-26
Management’s Reports 24-26
Current Reporting Issues 24-31
Reporting on Financial Forecasts and Projections 24-31
What Do the Numbers Mean? Global Forecasts 24-32
Internet Financial Reporting 24-33
Fraudulent Financial Reporting 24-33
Criteria for Making Accounting and Reporting Choices 24-35
Evolving Issue Disclosure Overload? 24-36
Appendix 24A Basic Financial Statement Analysis 24-36
Perspective on Financial Statement Analysis 24-37
Ratio Analysis 24-37
Limitations of Ratio Analysis 24-39
Comparative Analysis 24-40
Percentage (Common-Size) Analysis 24-41
Appendix 24B First-Time Adoption of IFRS 24-42
General Guidelines 24-42
Relevant Dates 24-43
Implementation Steps 24-43
Opening IFRS Statement of Financial Position 24-43
Exemptions from Retrospective Treatment 24-45
Presentation and Disclosure 24-46
Summary 24-47
Global Accounting Insights 24-69
Appendix A Specimen Financial Statements: Marks and Spencer Group plc A-1
Appendix B Specimen Financial Statements: adidas AG B-1
Appendix C Specimen Financial Statements: Puma Group C-1
Company Index I-1
Subject Index I-3
