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Table of contents:
1 The Financial Reporting Environment
Learning Objectives
Introduction
Overview of Financial Reporting
Financial Information
Demand for Financial Information.
Sources of Financial Information.
Economic Entity
Financial Statement User Groups
Equity Investors.
Creditors and Other Debt Investors.
Competitors.
Financial Analysts.
Employees and Labor Unions.
Suppliers and Customers.
Government Agencies.
Other Parties Involved in the Preparation and Use of Financial Information
Legal, Economic, Political, and Social Environment
Reactive Factors.
Proactive Factors.
Role of Standard Setters
The Importance of Understanding International Accounting Standards
The Standard-Setting Process
Standard Setting
History of Standard Setting.
The Standard-Setting Structure.
Standard-Setting Process.
History of Global Standard Setting: IFRS
Standard Setting as a Political Process
Trends in Standard Setting
Rules- versus Principles-Based Standards
Principles-Based Standards.
Rules-Based Standards.
Objectives-Oriented Standards.
U.S. GAAP and IFRS: Rules versus Principles.
Asset/Liability Approach
Fair Value Measurements
Summary by Learning Objectives
1 The Financial Reporting Environment
Questions
Brief Exercises
Exercises
2 Financial Reporting Theory
Learning Objectives
Introduction
Overview of the Conceptual Framework
Conceptual Framework Components
The Objective of Financial Reporting
The Qualitative Characteristics of Financial Information
Fundamental Characteristics
Relevance.
Faithful Representation.
Enhancing Characteristics
Comparability.
Verifiability.
Timeliness.
Understandability.
Cost Constraint
Elements of Financial Reporting
Elements
Point-in-Time Elements.
Period-of-Time Elements.
Point-in-Time Elements.
Period-of-Time Elements.
Principles of Recognition and Measurement
General Recognition Principles
Revenue and Expense Recognition
Bases of Measurement
Fair Value Measurement and the Fair Value Hierarchy.
General Recognition Principles.
Revenue and Expense Recognition.
Bases of Measurement.
Cash versus Accrual Accounting
Cash-Basis Accounting.
Accrual Accounting.
Assumptions in Financial Reporting
Going Concern Concept
Business or Economic Entity Concept
Monetary Unit Assumption
Periodicity Assumption
Summary by Learning Objectives
2 Financial Reporting Theory
Questions
Brief Exercises
Exercises
Required
Required:
3 Judgment and Applied Financial Accounting Research
Learning Objectives
Introduction
The Importance and Prevalence of Judgment in Financial Reporting
Judgment and the Accountant
Judgment: Use and Abuse
Judgment and Financial Statement Comparisons
The Role of Assumptions and Estimates
Assumptions and Estimates in the Financial Statements
Judgment-Related Disclosures
Accounting Policies Footnote.
Industry Comparisons.
IFRS-Specific Disclosures.
Key Judgment Areas in Practice
Judgment Obstacles in Preparing Financial Information
Factors Influencing Management Behavior
Cognitive Biases
Types of Cognitive Biases.
Techniques to Mitigate Cognitive Biases.
Complexity of the Business Environment and Transactions
Authoritative Literature Used in Applied Financial Accounting Research
Authoritative Literature
Codification Structure.
The U.S. GAAP Hierarchy.
Hierarchy: IFRS.
Basis for Conclusions
Steps in the Applied Financial Accounting Research Process
Step 1: Establish and Understand the Facts
Step 2: Identify the Issue: What is the Research Question?
Step 3: Search the Authoritative Literature
Step 4: Evaluate the Results of the Search
Step 5: Develop Conclusions
Step 6: Communicate the Results of the Research
Applying the Research Process
Summary by Learning Objectives
3 Judgment and Applied Financial Accounting Research
Questions
Brief Exercises
Exercises
Appendix A Structure of U.S. GAAP Codification
Topics in the Codification
Selected Subtopics in the Codification (excluding industries)
Sections in the Codification
Appendix B IFRS Standards
IFRS Current Standards and Interpretations
4 Review of the Accounting Cycle
Learning Objectives
Introduction
The Accounting Cycle
Step 1: Analyze the Transaction
The Accounting Equation
TRANSACTIONS ANALYSIS
Step 2: Journalize the Transactions
Accounts
Debits and Credits: A Review
Journal Entries
Step 3: Post to the General Ledger
The T-Account
Step 4: Prepare the Unadjusted Trial Balance
Step 5: Prepare Adjusting Journal Entries
Cash versus Accrual Bases of Accounting
Deferrals
Deferred Expenses.
Deferred Revenues.
Accruals
Accrued Revenues.
Accrued Expenses.
Step 6: Prepare the Adjusted Trial Balance
Step 7: Prepare Financial Statements
Step 8: Close Temporary Accounts
Step 9: Prepare Post-Closing Trial Balance
Comprehensive Example
Summary by Learning Objectives
4 Review of the Accounting Cycle
Questions
Multiple-Choice Questions
Brief Exercises
Exercises
Required:
Problems
Appendix A Alternative Treatment of Deferred Revenues and Expenses
Appendix B Using a Worksheet
Appendix C Reversing Entries
5 Statements of Net Income and Comprehensive Income
Learning Objectives
Introduction
Overview of the Income Statements
Income Statement Terminology
Reporting Income
Earnings Quality
Permanent and Transitory Earnings
Motivation for Earnings Management.
Earnings Management Techniques.
Earnings Management in Practice.
Statement of Net Income Elements and Classifications
Statement of Net Income Elements
Statement of Net Income Classifications
Statement of Net Income Presentation
Multiple-Step Net Income Statement
Condensed Statement of Net Income
Single-Step Statement of Net Income
Income from Continuing Operations
Operating Income
Non-Operating Income
Income Tax Provision
Discontinued Operations
Characteristics of a Discontinued Operation
Discontinued Operations Reporting Requirements
Characteristics of a Component of an Entity: IFRS.
Discontinued Operations Reporting Requirements: IFRS.
Net Income, Noncontrolling Interest and Earnings per Share
The Statement of Comprehensive Income
Statement of Comprehensive Income Elements
Statement of Comprehensive Income Format
The Statement of Stockholders’ Equity
Stockholders’ Equity Requirements
Statement of Stockholders’ Equity Accounts
Summary by Learning Objectives
5 Statements of Net Income and Comprehensive Income
Questions
Multiple-Choice Questions
Brief Exercises
Exercises
Problems
Appendix A Financial Statement Analysis
The Importance of Financial Statement Analysis
Horizontal Analysis and Vertical Analysis of Financial Statements
Horizontal Analysis
Vertical Analysis
Appendix B Profitability Analysis
Profitability
Profit Margin
Return on Assets
Return on Equity Ratio
6 Statements of Financial Position and Cash Flows and the Annual Report
Learning Objectives
Introduction
The Statement of Financial Position
Balance Sheet Classifications
Assets
Current Assets.
Long-Term Investments.
Property, Plant, and Equipment.
Intangible Assets.
Other Assets.
Liabilities
Current Liabilities.
Noncurrent Liabilities.
Stockholders’ Equity
Contributed Capital.
Retained Earnings.
Accumulated Other Comprehensive Income.
Noncontrolling Interest.
IFRS Balance Sheet Classification
Assets: IFRS.
Liabilities: IFRS.
Balance Sheet Presentation and Format
Asset Presentation
Liabilities Presentation
Balance Sheet Format
Balance Sheet Presentation: IFRS
Asset Presentation: IFRS.
Liabilities Presentation: IFRS.
Balance Sheet Format: IFRS.
Judgment and the Balance Sheet
The Statement of Cash Flows
Statement of Cash Flows Classifications
Operating Activities.
Investing Activities.
Financing Activities.
Classification of Dividends, Interest, and Taxes: IFRS
Format for Cash Flows from Operating Activities
Financial Statement Articulation
Notes to the Financial Statements
The Annual Report
Management Discussion and Analysis
Auditors’ Report
Management Report
Management’s Responsibility for the Financial Statements.
Management’s Report on Internal Control over Financial Reporting.
Board of Directors
Summary by Learning Objectives
6 Statements of Financial Position and Cash Flows and the Annual Report
Questions
Multiple-Choice Questions
Brief Exercises
Exercises
Problems
Required
Appendix A Overview of the Preparation of the Statement of Cash Flows
Reporting Cash Flows from Operating Activities: Indirect Method
Reporting Cash Flows from Operating Activities: Direct Method
Cash Collected from Customers
Cash Paid for Merchandise
Cash Paid to Employees and Cash Paid for Other Accrued Expenses, Including Interest and Taxes
Cash Paid for Other Operating Costs, Including Insurance and Other Prepaid Expenses
Reporting Cash Flows from Investing and Financing Activities
Appendix B Liquidity and Solvency Analysis
Liquidity
Working Capital
Current Ratio
Solvency
Debt-to-Equity Ratio
Interest Coverage Ratio
DuPont Analysis
7 Accounting and the Time Value of Money
Learning Objectives
Introduction
Time Value of Money Basic Concepts
Time Value of Money in Accounting
Simple Interest
Compound Interest
Effective Interest Rates
Types of Time Value of Money Problems
Single-Sum Problems
Future Value of a Single Sum
Formula Solution.
Factor Table Solution.
Spreadsheet Solution.
Financial Calculator Solution.
Present Value of a Single Sum
Formula Solution.
Factor Table Solution.
Spreadsheet Solution.
Financial Calculator Solution.
Other Single-Sum Problems
Solving for the Interest Rate.
Solving for the Number of Periods.
Annuities
Future Value of Ordinary Annuities
Formula Solution.
Factor Tables Solution.
Spreadsheet Solution.
Financial Calculator Solution.
Future Value of an Annuity Due
Formula Solution.
Factor Table Solution.
Spreadsheet Solution.
Financial Calculator Solution.
Present Value of Ordinary Annuities
Formula Solution.
Factor Table Solution.
Spreadsheet Solution.
Financial Calculator Solution.
Present Value of an Annuity Due
Formula Solution.
Factor Table Solution.
Spreadsheet Solution.
Financial Calculator Solution.
Other Annuity Problems
Solving for the Interest Rate.
Solving for the Number of Compounding Periods.
Solving for the Payment Amount.
Deferred Annuities
Future Value of a Deferred Ordinary Annuity
Present Value of a Deferred Ordinary Annuity
Time Value of Money Accounting Applications
Present Value of Future Cash Flows
Computing Bond Issue Proceeds
Summary by Learning Objectives
7 Accounting and the Time Value of Money
Questions
Brief Exercises
Exercises
Problems
Appendix A Time Value of Money Factor Tables
8 Revenue Recognition
Learning Objectives
Introduction
Revenue Recognition Overview
Step 1: Identify the Contract(s) with a Customer
Contract Criteria
Failure to Meet Contract Criteria
Multiple Contracts
Step 2: Identify the Performance Obligations in the Contract
Step 3: Determine the Transaction Price
Variable Consideration and Constraining Estimates of Variable Consideration
Expected-Value Approach.
Most-Likely-Amount Approach.
Constraining Estimates of Variable Consideration.
Significant Financing Component
Noncash Consideration
Consideration Payable to a Customer
Step 4: Allocate the Transaction Price to the Performance Obligations
Standalone Selling Price
Standalone Selling Price Estimation Methods
Standalone Selling Price Exceptions
Step 5: Recognize Revenue When, or As, Each Performance Obligation Is Satisfied
Transfer over Time
Transfer at a Point in Time
Summary of the Five-Step Revenue Recognition Process
Accounting for Long-Term Contracts
Percentage-of-Completion Method
Determining the Estimated Percentage of Completion.
Input Measures.
Determination of Revenue, Costs, and Gross Profit under the Percentage-of-Completion Method.
Output Measures.
Percentage-of-Completion Method Accounting Procedures
Completed-Contract Method
Special Issues in Revenue Recognition
Right-to-Return Sales
Consignment Sales
Other Principal-Agent Transactions
Bill-and-Hold Arrangements
Channel Stuffing
Disclosures Related to Revenue Recognition
Contracts with Customers
Disaggregation of Revenue.
Contract Balances.
Performance Obligations.
Transaction Price Allocated to the Remaining Performance Obligations.
Significant Judgments in Revenue Recognition
Summary by Learning Objectives
8 Recognition
Questions
Multiple-Choice Questions
Brief Exercises
Exercises
Problems
9 Short-Term Operating Assets: Cash and Receivables
Learning Objectives
Introduction
Accounting for Cash and Cash Equivalents
Review of Cash and Cash Equivalents
Restricted Cash and Compensating Balances
Restricted Cash.
Compensating Balances.
Cash and Cash Equivalents: IFRS
Required Disclosures for Restricted Cash and Cash Equivalents
Accounting for Accounts Receivable: Initial Measurement
Trade Discounts and Volume Discounts
Sales Discounts
Most-Likely-Amount Method.
Expected-Value Method.
Accounting for Accounts Receivable: Subsequent Measurement
The Allowance Method
Uncollectible Accounts Estimates
Aging of Accounts Receivable
Uncollectible Account Write-Off
Subsequent Recoveries
Financing with Accounts Receivable
Pledging and Assigning Accounts Receivable
Factoring Accounts Receivable
Sales versus Secured Borrowing.
Factoring without Recourse.
Factoring with Recourse.
Factoring Accounts Receivable: IFRS.
Securitizations
Accounting for Short-Term Notes Receivable
Basic Features of Notes Receivable
Stated Interest Rate Equal to the Market Rate
No Stated Interest Rate or Stated Interest Rate Less Than the Market Rate
Financing with Notes Receivable.
Disclosures for Accounts Receivable and Notes Receivable
Operating Cycle
Days Sales Outstanding
Days Inventory Is on Hand
Cash Operating Cycle
Days Accounts Payable Outstanding
Summary by Learning Objectives
9 Short-Term Operating Assets: Cash and Receivables
Questions
Multiple-Choice Questions
Brief Exercises
Exercises
Problems
Appendix A Internal Controls over Cash
Cash Control Guidelines
Controlling Cash by Use of a Bank Account
Bank Reconciliation
Deposits in Transit.
Outstanding Checks.
Bank Charges and Credits.
Errors.
Format for the Bank Reconciliation
Petty Cash
10 Short-Term Operating Assets: Inventory
Learning Objectives
Introduction
Types of Inventory and Inventory Systems
Types of Inventory
Inventory Systems
Periodic Inventory System.
Perpetual Inventory System.
Inventory Costing: Units and Costs Included
Goods Included in Inventory
Consigned Goods.
Costs Included in Inventory
Purchase Discounts
Gross Method.
Net Method.
Inventory Cost-Flow Assumptions
Inventory Allocation Methods
Specific Identification Method
Moving-Average Method
First-In, First-Out Method
Last-In, First-Out Method
Comparison of the Moving-Average, FIFO, and LIFO Methods
Inventory Allocation Methods: IFRS.
The LIFO Cost-Flow Assumption in Detail
The LIFO Reserve and LIFO Effect
LIFO Liquidations
Dollar-Value LIFO
Dollar-Value LIFO Computation.
The Lower-of-Cost-or-Market Rule
Lower-of-Cost-or-Market Rule Method
Determination of Market Value.
Cost-Flow Assumptions Other than LIFO or Retail Inventory.
LIFO or Retail Inventory Cost-Flow Assumption.
Comparing Cost to Market.
Recording the Write-Down.
Lower-of-Cost-or-Market Rule: IFRS
Determination of Market Value and Cost Comparison.
Reversal of Inventory Write-Downs.
The Retail Inventory Method
Basic Retail Method
Retail Method Terminology
The Conventional Retail Inventory Method
Gross Profit Method of Estimating Inventory
Inventory Disclosures
Summary by Learning Objectives
10 Short-Term Operating Assets—Inventory
Questions
Multiple-Choice Questions
Brief Exercises
Exercises
Problems
Appendix A LIFO Retail Inventory Method
Basic LIFO Retail Inventory Method
Dollar-Value LIFO Retail Inventory Method
11 Long-Term Operating Assets: Acquisition, Cost Allocation, and Derecognition
Learning Objectives
Introduction
Initial Measurement of Property, Plant, and Equipment
Overview of Initial Measurement
PPE Categories
Land.
Land Improvements.
Machinery and Equipment.
Buildings.
Initial Measurement of Basket Purchases
Basket Purchase: Homogeneous Assets.
Basket Purchase: Heterogeneous Assets.
Initial Measurement with Deferred Payment Arrangements
Asset Valuation: Determinable Market Value.
Asset Valuation: Nondeterminable Market Value.
Interest Capitalization
Qualifying Assets.
Expenditures.
Rate of Interest.
Period of Capitalization.
Computation of Capitalized Interest.
Constructed Assets and Overhead Costs.
IFRS Interest Capitalization.
Subsequent Measurement of Property, Plant, and Equipment
Subsequent Expenditures
Depreciation of Tangible Fixed Assets
Overview of the Depreciation Process for Property, Plant, and Equipment.
Depreciation Guidelines.
Depreciation Methods.
Partial-Year Depreciation.
IFRS Component Depreciation.
Derecognition of Property, Plant, and Equipment
Asset Derecognition: Sale
Asset Derecognition: Abandonment
Disclosures of Property, Plant, and Equipment
IFRS Disclosures
Intangible Assets: Characteristics and Types
Finite-Life Intangible Assets
Patents.
Copyrights.
Leaseholds.
Leasehold Improvements.
Customer Lists.
Franchises.
Indefinite-Life Intangibles Other than Goodwill
Renewable Licenses and Permits.
Trademarks and Trade Names.
Goodwill
Initial Measurement of Intangible Assets
Internally Generated Intangibles
Intangibles Acquired Individually or with a Group of Assets
Intangibles Acquired in a Business Acquisition
Goodwill
Bargain Purchase.
Research and Development Costs
Accounting for Research and Development Costs.
IFRS Research and Development Cost Accounting.
Acquired In-Process Research and Development Costs.
Subsequent Measurement and Derecognition of Intangible Assets
Amortization Method
Derecognition of Intangible Assets
Disclosures of Intangible Assets
IFRS Intangible Asset Disclosure
Summary by Learning Objectives
11 Long-Term Operating Assets: Acquisition, Cost Allocation, and Derecognition
Questions
Multiple-Choice Questions
Brief Exercises
Exercises
Problems
Appendix A Nonmonetary Exchanges
Exchanges with Commercial Substance
Exchanges without Commercial Substance and No Cash Received
Exchanges without Commercial Substance and Cash Received
IFRS Accounting for Nonmonetary Exchanges
Appendix B Natural Resources
Costs Included in Natural Resources
Exploration Costs
Depletion
IFRS Costs Included in Natural Resources
12 Long-Term Operating Assets: Departures from Historical Cost
Learning Objectives
Introduction
Overview: Impairment of Long-Term Operating Assets
Categories and Steps Associated with the Impairment of Long-Term Operating Assets
Accounting for Impairments: Property, Plant, and Equipment and Finite-Life Intangible Assets
Asset Grouping
When to Test for Impairment
Two-Step Impairment Test
Assess Recoverability.
Determine Any Impairment Loss.
Measurement Subsequent to Impairment
Accounting for Impairments: Indefinite-Life Intangible Assets
Asset Grouping
When to Test for Impairment
One-Step Impairment Test
Measurement Subsequent to Impairment
Accounting for Impairments: Goodwill
Asset Grouping
When to Test for Impairment
One-Step Impairment Test
Measurement Subsequent to Impairment
Accounting for Impairments: Property, Plant, and Equipment, Finite-Life Intangible Assets and Indefinite-Life Intangible Assets: IFRS
Asset Grouping
When to Test for Impairment
Impairment Test
Plant and Equipment
Broadcast License
Measurement Subsequent to Impairment.
Accounting for Impairments: Goodwill under IFRS
Asset Grouping
When to Test for Impairment
Impairment Test
Required Disclosures for Asset Impairments
Impaired Asset Disclosure Requirements
Impaired Asset Disclosure Requirements: IFRS
Long-Term Operating Assets Held for Sale or Disposal
Recording Long-Term Operating Assets Held for Sale or Disposal
Required Disclosures of Long-Term Operating Assets Held for Disposal
Summary by Learning Objectives
12 Long-Term Operating Assets: Departures from Historical Cost
Questions
Multiple-Choice Questions
Brief Exercises
Exercises
Problems
Appendix A Revaluation Model in IFRS Accounting for Certain Long-Term Operating Assets
The Revaluation Model
Measure Fair Value
Record the Revaluation
Compute New Depreciation Expense
Determine Treatment of Revaluation Surplus, if Any
Derecognition after a Revaluation
Required Disclosures for Revaluation of Long-Term Operating Assets
13 Operating Liabilities and Contingencies
Learning Objectives
Introduction
Operating Liabilities
Accounts Payable and Trade Notes Payable
Unearned Revenues
Gift Cards
Initial Sale and Redemption.
Breakage.
Deposits
Sales Taxes Payable
Income Taxes Payable
Compensated Absences
Vested versus Accumulated Benefits.
Current versus Estimated Future Compensation Rates.
Accrual of Sick Days.
Differences in Actual and Estimated Wage Rates.
Compensated Absences: IFRS.
Footnote Disclosures: Operating Liabilities
Asset Retirement Obligations
Accounting for Asset Retirement Obligations
Footnote Disclosures: Asset Retirement Obligations
Asset Retirement Obligations: IFRS
Gain and Loss Contingencies
Gain Contingency
Loss Contingency
Recognition and Measurement of Loss Contingencies
Accounting for Loss Contingencies
Accrue a Loss Contingency.
Disclose a Loss Contingency.
Do Not Recognize or Disclose a Loss Contingency.
Accounting for Contingencies: IFRS
Loss Contingencies: Litigation, Warranties, and Premiums
Accounting for Litigation
Accounting for Litigation: IFRS
Accounting for Warranty Costs
Assurance-Type Warranty.
Service-Type Warranty.
Warranty Accounting in Practice.
Accounting for Premiums
Required Disclosures for Contingencies
Loss Contingency Accruals.
Unrecognized Contingencies.
Gain Contingencies.
Required Disclosures for Contingencies: IFRS
Summary by Learning Objectives
13 Operating Liabilities and Contingencies
Questions
Multiple-Choice Questions
Brief Exercises
Exercises
Problems
Appendix A Payroll Taxes Payable
Social Security Taxes
Unemployment Taxes
Income Taxes Withheld
14 Financing Liabilities
Learning Objectives
Introduction
Notes Payable
Short-Term Notes Payable
Long-Term Notes Payable: Term Loans
Term Loan.
Long-Term Notes Payable: Installment Loans
Long-Term Notes Payable: Stated Rate Less than Market Rate
Overview of Bonds Payable
Credit Ratings
Bond Indenture
Bond Pricing
Stated Interest Rate versus Market Rate.
Bond Price Quotes.
Accounting for the Initial and Subsequent Measurement of Bonds Payable
Bonds Issued at Par
Overview of Bonds Payable Issued at a Discount or Premium
The Effective Interest Rate Method of Amortization
Accounting for Bonds Payable Issued at a Premium
Accounting for Bonds Payable Issued at a Discount
Interest Accrual.
Zero-Coupon Bonds.
Recording Bonds Payable: IFRS
Bonds Issued between Interest Dates
Bond Issue Costs
Early Retirement of Bonds Payable
Convertible Bonds
Accounting for Convertible Bonds
Beneficial Conversion Options
Accounting for Convertible Bonds: IFRS
Bonds with Stock Warrants
Accounting for Stock Warrants
Accounting for Stock Warrant: IFRS
Reclassifications of Financing Liabilities
Current Maturities of Long-Term Debt
Short-Term Debt Expected to Be Refinanced
Short-Term Debt Reclassification.
Short-Term Debt Reclassification: IFRS.
Obligations Callable by Creditor
Reclassification of Obligations Callable by Creditor.
Classification of Obligations Callable by Creditor: IFRS.
The Fair Value Option to Value Liabilities
Fair Value Option Accounting at Initial Recognition
Fair Value Option: IFRS
Disclosures for Financing Liabilities
Short-Term Debt Expected to Be Refinanced
Long-Term Debt
Convertible Debt
Fair Value Disclosures
Summary by Learning Objectives
14 Financing Liabilities
Questions
Multiple-Choice Questions
Brief Exercises
Exercises
Problems
Appendix A The Straight-Line Method of Amortization
Straight-Line Amortization: IFRS
15 Accounting for Stockholders’ Equity
Learning Objectives
Introduction
Overview of Stockholders’ Equity
Components of Stockholders’ Equity
Contributed Capital.
Retained Earnings.
Accumulated Other Comprehensive Income.
Stockholders’ Equity Terminology: IFRS.
Accounting for Common Stock
Overview of Common Stock
Legal Issues: Par and Stated Values
Accounting for Common Stock Issuances
Common Stock Issued for Cash.
Stock Issue Costs.
Common Stock Issued for Noncash Consideration.
Stock Splits
Accounting for Share Repurchase Transactions
Purpose of Share Repurchases
Accounting for Treasury Stock Transactions
Cost Method: Acquisition of Treasury Shares.
Cost Method: Reissuance of Treasury Shares.
Below-Cost Treasury Stock Reissue.
Accounting for Share Retirements
Accounting for Preferred Stock
Overview of Preferred Stock
Preferred Stock versus Debt Financing.
Preferred Stock Par Values.
Features of Preferred Shares
Cumulative Preferred Shares.
Participating Preferred Shares.
Convertible Preferred Shares.
Callable Preferred Shares.
Mandatorily Redeemable Preferred Shares.
Fixed-Dividend Preferred Shares.
Accounting for Preferred Shares: IFRS.
Accounting for Retained Earnings
Types of Dividends
Accounting for Cash Dividends
Accounting for Stock Dividends
Small (Ordinary) Stock Dividend.
Large Stock Dividend.
Prior-Period Adjustments
Accounting for Other Comprehensive Income
Components of Comprehensive Income
Reporting Other Comprehensive Income
Accumulated Other Comprehensive Income
Stockholders’ Equity Disclosures
Rights and Privileges of Classes of Stock
Preferred Shares and Liquidation Preferences
Convertible Equity Securities
Redeemable Preferred Shares
Changes in Stockholders’ Equity Accounts
Disclosures: IFRS
Summary by Learning Objectives
15 Accounting for Stockholders’ Equity
Questions
Multiple Choice Questions
Brief Exercises
Exercises
Problems
16 Investments in Financial Assets
Learning Objectives
Introduction
Overview of Investments in Debt and Equity
Investments in Debt Securities
Investments in Equity Securities
Key Questions for Investments in Debt and Equity Securities
Investments in Debt Securities
Classification of Debt Securities
Held-to-Maturity Debt Securities
Initial Valuation of Held-to-Maturity Debt Securities.
Subsequent Valuation of Held-to-Maturity Debt Securities.
Trading Debt Securities
Available-for-Sale Debt Securities
Presentation of Other Comprehensive Income: Reclassification Adjustments for Available-for-Sale Debt Investments
Transfers between Classifications
Accounting for Debt Investments under IFRS
Investments in Equity Securities: No Significant Influence
Equity Investments With No Significant Influence: Readily Determinable Fair Value
Equity Investments With No Significant Influence: No Readily Determinable Fair Values
Accounting for Equity Investments with No Significant Influence under IFRS
Investments in Equity Securities: Significant Influence
The Equity Method
Investee’s Net Assets Equal Fair Value.
Investee’s Net Assets Do Not Equal Fair Value.
Long-Term Notes Receivable
Stated Interest Rate Equal to the Market Rate
Stated Interest Rate Less than the Market Rate
IFRS Accounting for Note Receivable
The Fair Value Option for Reporting Investments
Fair Value Option: IFRS
Disclosures for Investments in Financial Assets
Debt Securities
Held-to-Maturity Debt Securities.
Available-for-Sale Debt Securities.
Trading Debt Securities.
Equity Securities with No Significant Influence
Equity Method Investments
Disclosures of Equity Method Investments: IFRS.
Notes Receivable
Fair Value Measurement Disclosures
Fair Value Disclosures
Summary by Learning Objectives
16 Investments in Financial Assets
Questions
Multiple-Choice Questions
Brief Exercises
Exercises
Problems
Appendix A Impairments of Investment Securities
Accounting for Impairments of Debt Investments Measured at Amortized Cost
Step 1. Compute the Expected Amount to Be Collected
Step 2. Compute an Allowance for Credit Loss
Step 3. Report the Change in the Allowance for Credit Loss in Net Income
Accounting for Impairments of Available-for-Sale Debt Investments
Step 1. Compute the Present Value of Expected Future Cash Flows
Step 2. Compute the Balance in the Allowance for Credit Loss and the Security Fair Value Adjustment Account
Step 3. Report the Impairment Loss in Other Comprehensive Income
Accounting for Impairments of Equity Securities with No Readily Determinable Fair Value
Step 1. Determine Whether There Is an Impairment Loss for the Asset
Step 2. Measure the Impairment Loss
Step 3. Report the Impairment Loss in Net Income
Accounting for Impairments: IFRS
Accounting for Impairments under IFRS: Debt Securities Reported at Amortized Cost or Fair Value through Other Comprehensive Income
17 Accounting for Income Taxes
Learning objectives
Introduction
No Differences between Book and Tax Reporting
Permanent Differences between Book and Tax Reporting
Accounting for Permanent Differences
Permanent Differences and Effective Tax Rates
Temporary Differences between Book and Tax Reporting
Accounting for Temporary Differences
Deferred Tax Assets and Liabilities
Scenario 1: Tax Basis of Asset Greater Than Book Basis of Asset.
Scenario 2: Book Basis of Asset Greater Than Tax Basis of Asset.
Scenario 3: Tax Basis of Liability Greater Than Book Basis of Liability.
Scenario 4: Book Basis of Liability Greater Than Tax Basis of Liability.
Temporary Difference Reversal
Temporary Differences and Tax Rates
Realizability of Deferred Tax Assets: Assessing and Reporting
Treatment of Deferred Tax Assets
Assessing Realizability.
Reporting Realizability.
Treatment of Deferred Tax Assets: IFRS
Change in Tax Rates
Accounting for Changes in Tax Rates
Effect of Tax Rate Changes on Deferred Tax Accounts
Accounting for Tax Rate Changes: IFRS
Accounting for Net Operating Losses
Carrybacks and Carryforwards under U.S. Tax Law
Accounting for an NOL Carryback
Accounting for an NOL Carryforward
Assessing NOL Carryforward Realizability
Assessing NOL Carryforward Realizability: IFRS
Uncertain Tax Positions
Accounting for Uncertain Tax Positions
Step 1: Recognition:
Step 2: Measurement:
Accounting for Uncertain Tax Positions: IFRS
Financial Statement Presentation
Balance Sheet Presentation
Income Statement Presentation
Income Tax Financial Statement Disclosures
Income Tax Expense and Income Taxes Paid
Tax Rate Reconciliation
Deferred Tax Liabilities and Deferred Tax Assets
Uncertain Tax Positions
Income Statement Disclosures: IFRS
Summary by Learning Objectives
17 Accounting for Income Taxes
Questions
Multiple-Choice Questions
Brief Exercises
Exercises
Problems
Appendix A Comprehensive Book-Tax Difference Problem
18 Acounting for Leases
Learning Objectives
Introduction
Leases: Overview
Advantages of Leasing for the Lessee
Complete Financing.
Lessor Bears the Risk of Obsolescence.
Business and Financial Flexibility.
Tax Benefits.
Disadvantages of Leasing for the Lessee
Overall Cost of the Asset.
Lack of Ownership.
Understanding the Basics of Lease Accounting
2016 Lease Standards.
Key Steps in Lease Transactions.
Lease Contracts, Lease Components, and Contract Consideration
Separating Components in a Lease Contract
Lease Components.
Land.
Allocating Consideration in a Lease Contract
Lessee Allocation Procedures.
Lessor Allocation Procedures.
Lease Classifications
Criteria for Classification
Group I Criteria.
Group II Criteria.
Lessee Classification.
Lessor Classification.
Lease Payments and Discount Rates
Lease Payments.
Discount Rates.
Accounting for Operating Leases: Lessee and Lessor
Initial Measurement of an Operating Lease: Lessee
Measuring the Lease Liability.
Measuring the Right-of-Use Asset.
Subsequent Measurement of an Operating Lease: Lessee
Operating Lease with Residual Values: Lessee Guaranteed Residual Value
Short-Term Policy Election: Lessee
Operating Lease: Lessor Accounting
Accounting for Finance Leases: Lessee
Initial and Subsequent Measurement of Finance Leases: Lessee
Finance Lease with Residual Values: Lessee
Accounting for Sales-Type Leases: Lessor
Initial Measurement of a Sales-Type Lease
Subsequent Measurement of a Sales-Type Lease
Residual Values in a Sales-Type Lease
Accounting for Direct Financing Leases: Lessor
Initial Measurement of a Direct Financing Lease
Subsequent Measurement of a Direct Financing Lease
Lease Disclosures
Lessee-Disclosure Requirements
Lessor-Disclosure Requirements
IFRS-Specific Lessee Disclosure Requirements.
Summary by Learning Objectives
18 Accounting for Leases
Questions
Brief Exercises
Exercises
Problems
Appendix A Complexities in Accounting for Lease Transactions (with a Comprehensive Problem)
Accruing Interest on Leases
Leasehold Improvements
Executory Costs
Purchase Options
Deferred Profit in Direct Financing Leases
Variable Lease Payments
Comprehensive Problem: Leasing Complexities
Williams Incorporated (Lessor)
19 Accounting for Employee Compensation and Benefits
Learning Objectives
Introduction
Overview of Stock-Based Compensation
Stock Option Terminology
Estimates in Accounting for Stock-Based Compensation
Fair Value Estimate.
Forfeiture Estimate.
Equity-Classified Stock-Based Compensation
Issuance of Equity-Classified Awards
Change in the Fair Value of Equity-Classified Awards
Change in the Estimated Forfeiture Rate
Exercise of Equity-Classified Awards
Expiration of Equity-Classified Awards
Equity-Classified Awards: IFRS
Liability-Classified Stock-Based Compensation
Issuance of Liability-Classified Awards
Fair Value Adjustments
Exercise of Liability-Classified Awards
Expiration of Liability-Classified Awards
Liability-Classified Awards: IFRS
Other Types of Stock-Based Compensation
Stock Appreciation Rights
Restricted Stock Plans
Employee Stock Purchase Plans
Stock-Based Compensation Disclosures
Overview of Pensions
Pension Plan Administration
Types of Pension Plans
Defined-Contribution Plans.
Defined-Benefit Plans.
Measures of the Actuarially Determined Defined-Benefit Pension Obligation
Vested Benefit Obligation.
Accumulated Benefit Obligation.
Projected Benefit Obligation.
Defined-Benefit Pension Plan Accounting
Factor 1: Service Cost
Factor 2: Prior Service Costs
Factor 3: Interest on the PBO
Factor 4: Expected Return on Pension Plan Assets
Factor 5: Current-Year Net Gains and Losses
Sources of Current-Year Net Gains and Losses.
The Corridor Approach.
Factor 6: Funding the Plan
Factor 7: Payments to Retirees
Summary: Accounting Effects of Defined-Benefit Pension Plans
Accounting for Defined-Benefit Pension Plans: IFRS
Factor 2: Prior Service Costs.
Factors 3 and 4: Interest on the PBO and Expected Return on Pension Plan Assets.
Factor 5: Current-Year Net Gains and Losses.
Summary: Accounting Effects of Defined-Benefit Pension Plan.
Defined-Benefit Pension Plan Disclosure Requirements
Summary by Learning Objectives
19 Accounting for Employee Compensation and Benefits
Questions
Multiple Choice Questions
Brief Exercises
Exercises
Problems
Appendix A Comprehensive Illustration of Accounting for Defined-Benefit Pension Plans
20 Earnings per Share
Learning Objectives
Introduction
Basic Earnings per Share
Basic EPS Numerator
Basic EPS Denominator
The Importance of the Weighted Average.
Stock Splits and Stock Dividends.
Diluted Earnings per Share
If-Converted Assumption
Convertible Debt
Diluted EPS Numerator.
Diluted EPS Denominator.
Convertible Debt Outstanding with Conversion.
Convertible Debt Issued during the Year.
Convertible Preferred Stock
Diluted EPS Numerator.
Diluted EPS Denominator.
Options and Warrants
Diluted EPS Denominator.
Treasury Stock Method.
Diluted Earnings per Share: IFRS
Antidilutive Securities
Antidilutive Convertible Securities
Antidilutive Options and Warrants
Antidilution Sequencing
Antidilution with a Net Loss from Continuing Operations
Earnings per Share Presentation and Disclosures
Comprehensive Example: EPS Calculation, Antidilution Sequencing, and Disclosures
Summary by Learning Objectives
20 Earnings per Share
Questions
Multiple-Choice Questions
Brief Exercises
Exercises
Problems
21 Accounting Changes and Error Analysis
Learning Objectives
Introduction
Overview of Accounting Changes
Types of Accounting Changes
Methods for Reporting Accounting Changes
Retrospective Change.
Prospective Change.
Changes in Accounting Principle
Reporting a Change in Accounting Principle
Direct and Indirect Effects
Retrospective Method Illustration
Prospective Method Illustration
Required Disclosures for a Change in Accounting Principle
Disclosures: IFRS.
Changes in Accounting Estimates
Prospective Method Illustration
Change in Accounting Estimate Effected by a Change in Accounting Principle
Disclosure of a Change in Accounting Estimate
Change in the Reporting Entity
Disclosure of a Change in the Reporting Entity
Errors and Error Analysis
Balance Sheet Errors
Income Statement Errors
Errors Affecting the Income Statement and the Balance Sheet
Self-Correcting Errors.
Errors That Do Not Self-Correct.
Summary by Learning objectives
21 Accounting Changes and Error Analysis
Questions
Multiple-Choice Questions
Brief Exercises
Exercises
Problems
22 The Statement of Cash Flows
Learning Objectives
Introduction
Overview of the Statement of Cash Flows
Purposes of the Cash Flow Statement
Cash and Cash Equivalents
Cash Equivalents under IFRS
Format of the Cash Flow Statement
Sections in the Statement of Cash Flows
Statement of Cash Flows Classifications
Classification of Dividends, Interest, and Taxes
IFRS Classification of Dividends, Interest, and Taxes.
Reconciliation of Cash and Cash Equivalents
IFRS Reconciliation of Cash and Cash Equivalents.
Significant Noncash Investing and Financing Transactions
Conceptual Model for the Statement of Cash Flows
Operating Cash Flows
The Indirect Method
The Indirect Method under IFRS.
The Direct Method
Cash Collected from Customers.
Cash Collected for Interest and Dividends.
Cash Paid for Merchandise.
Cash Paid to Employees and Cash Paid for Other Accrued Expenses Including Interest and Taxes.
Cash Paid for Other Operating Costs Including Insurance and Other Prepaid Expenses.
Investing Cash Flows
Financing Cash Flows
Illustration of the Statement of Cash Flows
Complexities in Determining Cash Flows
Acquisition and Disposition of Long-Term Assets
Deferred Income Taxes
Direct Method Deferred Income Taxes.
Indirect Method Deferred Income Taxes.
Net Accounts Receivable and Bad Debt Expense
Unrealized Gains and Losses on Fair Value Adjustments
Equity Method Investments
Share-Based Compensation
Pension Adjustments
Amortization of Bond Premiums and Discounts
Overview of Indirect Method Adjustments
Cash Flow Statement Disclosures
Cash Equivalents Policy: Direct and Indirect Methods
Noncash Investing and Financing Activities: Direct and Indirect Methods
Interest and Income Taxes Paid: Indirect Method Only
Reconciliation of Net Income to Net Cash Provided by Operating Activities: Direct Method Only
Restrictions on Cash and Cash Equivalents: Direct and Indirect Methods
Cash Flow Statement Disclosures under IFRS
Comprehensive Cash Flow Problem
Cash Coverage Ratios
Free Cash Flow
Summary by Learning Objectives
22 The Statement of Cash Flows
Questions
Multiple-Choice Questions
Brief Exercises
Exercises
Problems
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