Table of Contents

Chapter 1 - Introduction. 1

What is GAAP?. 1

How this Book is Organized. 3

How to Use this Book. 4

Accounting Principles. 4

Chapter 2 - Presentation of Financial Statements. 7

Overview of the Presentation of Financial Statements. 7

Presentation Disclosures. 7

Liquidation Basis of Accounting. 8

Liquidation Basis Disclosures. 9

Going Concern Disclosures. 9

Discontinued Operations. 10

Discontinued Operations Disclosures. 12

Chapter 3 - Balance Sheet 14

Overview of the Balance Sheet 14

The Common Size Balance Sheet 17

The Comparative Balance Sheet 18

How to Construct the Balance Sheet 19

Offsetting. 21

Treatment of Negative Cash. 21

Balance Sheet Disclosures. 22

Chapter 4 - Comprehensive Income. 25

Overview of Comprehensive Income. 25

Comprehensive Income Disclosures. 26

Chapter 5 - Income Statement 32

Overview of the Income Statement 32

The Single-Step Income Statement 35

The Multi-Step Income Statement 35

The Condensed Income Statement 36

The Contribution Margin Income Statement 36

The Multi-Period Income Statement 37

How to Construct the Income Statement 38

Income Statement Disclosures. 40

Chapter 6 - Statement of Cash Flows. 43

Overview of the Statement of Cash Flows. 43

The Direct Method. 44

The Indirect Method. 46

How to Prepare the Statement of Cash Flows. 47

Disclosures for the Statement of Cash Flows. 50

Chapter 7 - Notes to Financial Statements. 52

Overview of Notes to Financial Statements. 52

Chapter 8 - Accounting Changes and Error Corrections. 56

Changes in Accounting Principle. 56

Changes in Accounting Estimate. 57

Changes in Reporting Entity. 57

Correction of an Error in Previously Issued Financial Statements. 57

Corrections Related to Prior Interim Periods. 58

The Materiality of an Error. 58

Accounting Changes and Error Corrections Disclosures. 58

Change in Accounting Principle. 58

Change in Accounting Estimate. 59

Change in Reporting Entity. 59

Error Corrections. 59

Historical Summaries. 59

Chapter 9 - Changing Prices. 63

Overview of Changing Prices. 63

Inventory and Fixed Assets. 63

Specialized Assets. 64

Recoverable Amounts. 64

Income from Continuing Operations. 64

Restatement of Current Cost Information. 64

Translation Adjustments. 65

Purchasing Power Gains and Losses. 65

Restatement Steps. 65

Changing Prices Disclosures. 66

Five-Year Summary. 66

Other Current Year Disclosures. 67

Other Disclosures for Mineral Resources Assets. 68

Chapter 10 - Earnings per Share. 70

Basic Earnings per Share. 70

Diluted Earnings per Share. 71

Treasury Stock and Reverse Treasury Stock Methods. 75

Treasury Stock Method. 75

Reverse Treasury Stock Method. 76

Disclosure of Earnings per Share. 77

Chapter 11 - Interim Reporting. 80

Overview of Interim Reporting. 80

General Interim Reporting Rule. 80

Variations from the Interim Reporting Rule. 81

Changes in Accounting Principle in Interim Periods. 82

Changes in Accounting Estimate in Interim Periods. 83

Error Correction in Interim Periods. 83

Adjustments to Prior Interim Periods. 83

The Integral View.. 84

The Discrete View.. 85

Comparison of the Integral and Discrete Views. 85

Disclosures for Interim Reporting. 85

Chapter 12 - Risks and Uncertainties. 89

Overview of Risks and Uncertainties. 89

Risks and Uncertainties Disclosures. 90

Chapter 13 - Segment Reporting. 93

Overview of Segment Reporting. 93

Segment Disclosure. 95

Segment Disclosure. 96

Products, Services, and Customer Disclosure. 98

Geographic Area Disclosure. 98

Chapter 14 - Receivables. 101

Notes Receivable. 101

Acquisition, Development, and Construction Arrangements. 103

Nonrefundable Fees and Other Costs. 104

Loans and Debt Securities Acquired with Deteriorated Credit Quality. 106

Troubled Debt Restructurings by Creditors. 108

Classification of Government-Guaranteed Loans. 108

Treatment of Credit Losses. 109

Receivables Presentation. 109

Receivables Disclosures. 110

Chapter 15 - Investments  Debt and Equity Securities. 117

Overview of Investments  Debt and Equity Securities. 117

Accounting for Investments. 117

Credit Losses on Investments. 119

Equity Securities without Readily Determinable Fair Values. 119

Dividend and Interest Income. 119

Investment Disclosures. 120

Chapter 16 - Investments  Equity Method and Joint Ventures. 124

The Equity Method. 124

Partnerships, Joint Ventures, and Limited Liability Entities. 126

Investment Disclosures. 127

Chapter 17 - Inventory. 129

Overview of Inventory. 129

The Periodic Inventory System.. 131

The Perpetual Inventory System.. 132

Inventory Costing. 133

The First In, First Out Method. 133

The Last In, First Out Method. 134

The Weighted Average Method. 136

Standard Costing. 137

The Retail Inventory Method. 138

The Gross Profit Method. 139

Overhead Allocation. 140

The Lower of Cost or Market Rule. 143

Work in Process Accounting. 145

Accounting for Obsolete Inventory. 145

Consignment Accounting. 147

Goods in Transit 147

Inventory Disclosures. 148

Chapter 18 - Other Assets and Deferred Costs. 150

Overview of Other Assets and Deferred Costs. 150

Prepaid Expenses. 150

Preproduction Costs for Long-Term Supply Arrangements. 150

Capitalized Advertising Costs. 151

Insurance Contracts that Do Not Transfer Insurance Risk. 152

Other Assets and Deferred Costs Disclosures. 153

Preproduction Costs for Long-Term Supply Arrangements. 153

Capitalized Advertising Costs. 153

Insurance Contracts that Do Not Transfer Insurance Risk. 154

Chapter 19 - Intangibles  Goodwill and Other. 157

Goodwill 157

Goodwill Amortization. 161

General Intangibles Other than Goodwill 162

Internal-Use Software. 164

Website Development Costs. 165

Intangibles Disclosures. 166

Chapter 20 - Property, Plant, and Equipment 171

Overview of Fixed Assets. 171

Initial Fixed Asset Recognition. 173

Fixed Assets Acquired through a Business Combination. 173

Nonmonetary Exchanges. 174

Depreciation and Amortization. 177

Straight-Line Method. 178

Sum-of-the-Years Digits Method. 179

Double-Declining Balance Method. 180

Depletion Method. 181

Units of Production Method. 182

Land Depreciation. 183

Land Improvement Depreciation. 183

Depreciation Accounting Entries. 184

Fixed Asset Impairment 186

Fixed Asset Disposal 188

Assets Held for Sale. 188

Abandoned Assets. 192

Idle Assets. 192

Fixed Asset Disposal Accounting. 193

Fixed Asset Disclosures. 194

General Fixed Asset Disclosures. 194

Change in Estimate Disclosures. 195

Intangible Asset Impairment Disclosures. 195

Intangible Asset Disclosures. 196

Not-for-Profit Fixed Asset Accounting. 197

Initial Recognition of Fixed Assets. 197

Restrictions on Contributed Assets. 198

Valuation of Contributed Assets. 199

Valuation of Contributed Services. 199

Valuation of Art, Historical Treasures, and Similar Items. 200

Depreciation of Fixed Assets. 200

Chapter 21 - Liabilities. 203

Extinguishments of Liabilities. 203

Joint and Several Liability Arrangements. 203

Insurance-Related Assessments. 204

Prepaid Stored-Value Products. 205

Liabilities Disclosures. 206

Chapter 22 - Asset Retirement and Environmental Obligations. 208

Overview of Asset Retirement Obligations. 208

The Initial Measurement of an Asset Retirement Obligation. 209

Subsequent Measurement of an Asset Retirement Obligation. 210

Settlement of an Asset Retirement Obligation. 210

Overview of Environmental Obligations. 212

Measurement of Environmental Obligations. 213

Recoveries Related to Environmental Obligations. 215

Asset Retirement and Environmental Obligations Disclosures. 215

Asset Retirement Obligations. 215

Environmental Obligations. 216

Chapter 23 - Exit or Disposal Cost Obligations. 219

Overview of Exit or Disposal Cost Obligations. 219

Exit or Disposal Cost Obligation Disclosures. 221

Chapter 24 - Commitments. 223

Overview of Commitments. 223

Chapter 25 - Contingencies. 226

Loss Contingencies. 226

Gain Contingencies. 227

Contingency Disclosures. 227

Chapter 26 - Guarantees. 230

Overview of Guarantees. 230

Guarantee Disclosures. 231

Chapter 27 - Debt 234

General Debt Topics. 234

Sales of Future Revenues. 234

Increasing Rate Debt 234

Debt with Conversion and Other Options. 235

Debt Instruments with Detachable Warrants. 235

Convertible Securities. 235

Beneficial Conversion Features. 237

Interest Forfeiture. 239

Induced Conversions. 239

Conversion by Exercise of Call Option. 239

Convertible Instruments Issued to Nonemployees as Payment 239

Contingent Conversion Option. 239

Own-Share Lending Arrangements. 240

Participating Mortgage Loans. 240

Product Financing Arrangements. 241

Debt Modifications and Extinguishments. 242

Troubled Debt Restructurings by Debtors. 244

Debt Presentation. 245

Callable Debt 245

Classification of Debt that Includes Covenants. 245

Debt Issuance Costs. 245

Due on Demand Loans. 245

Increasing-Rate Debt 245

Revolving Debt Agreements. 245

Short-Term Obligations to be Refinanced. 246

Subjective Acceleration Clauses. 246

Own-Share Lending Arrangements. 246

Participating Mortgage Loans. 247

Troubled Debt Restructurings by Debtors. 247

Debt Disclosures. 247

Long-Term Obligations. 247

Short-Term Obligations to be Refinanced. 247

Own-Share Lending Arrangements. 248

Participating Mortgage Loans. 248

Other Debt Disclosures. 248

Troubled Debt Restructurings by Debtors. 249

Chapter 28 - Equity. 251

Overview of Equity. 251

The Sale of Stock. 251

Dividend Payments. 252

Stock Dividends and Stock Splits. 253

Stock Dividend. 253

Stock Split 253

Treasury Stock. 254

Purchase of Treasury Stock. 254

Resale of Treasury Stock. 255

Cost Method. 255

Constructive Retirement Method. 256

Equity-Based Payments to Non-Employees. 256

Initial Recognition. 256

Spinoffs and Reverse Spinoffs. 258

Equity Disclosures. 259

Rights and Privileges. 259

Preferred Stock. 259

Contingently Convertible Securities. 259

Redeemable Securities. 260

Treasury Stock. 260

Changes in Shareholders Equity. 260

Equity-Based Payments to Non-Employees. 261

Spinoffs and Reverse Spinoffs. 261

Chapter 29 - Revenue Recognition. 263

The Nature of a Customer. 263

Steps in Revenue Recognition. 263

Step One: Link Contract to Customer. 264

Step Two: Note Performance Obligations. 266

Step Three: Determine Prices. 268

Variable Consideration. 268

Possibility of Reversal 270

Sales Taxes. 271

Time Value of Money. 271

Noncash Consideration. 274

Payments to Customers. 274

Refund Liabilities. 275

Step Four: Allocate Prices to Obligations. 275

Allocation of Price Discounts. 276

Allocation of Variable Consideration. 278

Subsequent Price Changes. 278

Step Five: Recognize Revenue. 278

Measurement of Progress Completion. 280

Output Methods. 281

Input Methods. 281

Change in Estimate. 282

Progress Measurement 282

Right of Return. 283

Consistency. 284

Contract Modifications. 284

Treatment as Separate Contract 284

Treatment as Continuing Contract 284

Entitlement to Payment 286

Bill-and-Hold Arrangements. 287

Consideration Received from a Supplier. 288

Customer Acceptance. 290

Customer Options for Additional Purchases. 290

Licensing. 292

Nonrefundable Upfront Fees. 294

Principal versus Agent 294

Repurchase Agreements. 295

Unexercised Rights of Customers. 297

Warranties. 298

Contract-Related Costs. 299

Costs to Obtain a Contract 299

Costs to Fulfill a Contract 299

Amortization of Costs. 300

Impairment of Costs. 300

Exclusions. 301

Revenue Disclosures. 301

Chapter 30 - Compensation  General 307

Overview of Compensation. 307

Compensated Absences. 307

Deferred Compensation Arrangements. 308

Lump-Sum Payments under Union Contracts. 309

Compensation Disclosures. 309

Chapter 31 - Compensation  Retirement Benefits. 312

Overview of Retirement Benefits. 312

Defined Benefit Plans. 312

Expense Attribution for Delayed Vesting. 315

Discount Rates. 316

Settlements and Curtailments. 316

Termination Benefits. 318

Combined Pension Plans. 318

Defined Contribution Plans. 318

Presentation of Retirement Benefit Information. 318

Retirement Benefit Disclosures. 319

Defined Benefit Plan Disclosures for Public Companies. 319

Defined Benefit Plan Disclosures for Private Companies. 322

Disclosures for Defined Benefit Plans in Interim Periods. 323

Disclosures for Defined Contribution Plans. 323

Chapter 32 - Compensation  Stock Compensation. 326

Overview of Stock Compensation. 326

The Volatility Concept 330

Fair Value Calculation Alternatives. 330

Awards Classified as Equity. 333

Award Measurement Problems. 333

Contingent Features. 333

Award Modifications. 333

Income Tax Effects. 334

Awards Classified as Liabilities. 334

Employee Share Purchase Plans. 335

Stock-Based Compensation Disclosures. 336

Chapter 33 - Other Expenses. 341

Startup Costs. 341

Insurance Costs. 342

Retroactive Contracts. 342

Claims-Made Contracts. 342

Multiple-Year Retrospectively Rated Contracts. 343

Contributions Made. 344

Real and Personal Property Taxes. 344

Advertising Costs. 345

Electronic Equipment Waste Obligations. 345

Business and Technology Reengineering. 345

Other Expenses Disclosures. 346

Insurance Cost Disclosures. 346

Real and Personal Property Tax Disclosures. 346

Advertising Cost Disclosures. 346

Chapter 34 - Research and Development 348

Overview of Research and Development 348

Research and Development Disclosures. 350

Chapter 35 - Income Taxes. 352

Overview of Income Taxes. 352

Accounting for Income Taxes. 354

Tax Positions. 354

Deferred Tax Expense. 356

Applicable Tax Rate. 356

Interest and Penalties. 357

Intraperiod Tax Allocation. 357

Taxes Related to Undistributed Earnings. 358

Interim Reporting. 358

Income Taxes Presentation. 360

Income Taxes Disclosure. 361

Balance Sheet 361

Income Statement 362

Other. 362

Chapter 36 - Business Combinations. 365

Overview of Business Combinations. 365

Identifiable Assets and Liabilities, and Noncontrolling Interests. 367

Goodwill or Gain from Bargain Purchase. 369

Goodwill Calculation. 369

Bargain Purchase. 369

Reverse Acquisitions. 370

Related Issues. 372

Acquisition of Assets. 372

Transactions between Entities under Control of Same Parent 372

Pushdown Accounting. 373

Income Taxes. 373

Business Combination Disclosures. 374

General Disclosures. 374

Identifiable Assets and Liabilities, and any Noncontrolling Interest 376

Goodwill or Gain from Bargain Purchase. 376

Reverse Acquisitions. 377

Transactions between Entities under Control of Same Parent 378

Income Taxes. 378

Chapter 37 - Financial Statement Consolidation. 380

Overview of Consolidations. 380

Recognition of a Consolidation. 381

Consolidation Examples. 383

Recognition of Noncontrolling Interest 383

Sale of Shares by Subsidiary. 384

Share of Accumulated Other Comprehensive Income. 384

Full Consolidation Example. 385

Consolidation of Variable Interest Entities. 386

Initial Consolidation. 388

Subsequent Consolidation. 388

Consolidation of Leasing Entities by Private Companies. 388

Consolidation of Contractually-Controlled Entities. 389

Control of Partnerships. 390

Termination of a Consolidation. 390

Consolidation Presentation. 391

Consolidation Disclosures. 393

Chapter 38 - Derivatives and Hedging. 397

Other Comprehensive Income. 397

Derivative Accounting. 399

Hedge Accounting - General 400

Hedge Accounting  Fair Value Hedges. 401

Hedge Accounting  Cash Flow Hedges. 403

Hedge Accounting  Net Investment Hedges. 406

Embedded Derivatives. 407

Derivative and Hedging Disclosures. 408

General Disclosures. 408

Fair Value Hedge Disclosures. 409

Cash Flow Hedge Disclosures. 410

Chapter 39 - Fair Value Measurement 413

The Fair Value Concept 413

Fair Value Differences from Actual Prices Paid. 414

Fair Value Measurement Approaches. 415

The Net Asset Value Variation. 417

Fair Value Measurements for Liabilities. 417

Use of Multiple Measurements. 417

Fair Value Disclosures. 417

Chapter 40 - Financial Instruments. 421

Off-Balance Sheet Credit Risk. 421

Fair Value Option. 421

Registration Payment Arrangements. 422

Financial Instruments Disclosures. 423

Fair Value of Financial Instruments. 423

Concentrations of Credit Risk of Financial Instruments. 424

Market Risk of Financial Instruments. 424

Fair Value Option. 424

Registration Payment Arrangements. 425

Separate Presentation of Financial Assets and Financial Liabilities. 426

Chapter 41 - Foreign Currency Matters. 428

Foreign Currency Transactions. 428

Financial Statement Translation. 429

Determination of Functional Currency. 429

Translation of Financial Statements. 431

Use of Average Exchange Rates. 432

Hyperinflationary Effects. 433

Derecognition of a Foreign Entity Investment 433

Foreign Currency Disclosures. 434

Chapter 42 - Interest 436

Overview of Capitalized Interest 436

Assets on Which to Capitalize Interest 437

Assets on Which Interest is not Capitalized. 437

The Interest Capitalization Period. 437

The Capitalization Rate. 439

Calculating Interest Capitalization. 440

Overview of Imputed Interest 441

Interest Disclosures. 444

Capitalized Interest Disclosures. 444

Imputed Interest Disclosures. 444

Chapter 43 - Leases. 447

The Nature of a Lease. 447

Lease Components (Lessee) 449

Lease Components (Lessor) 450

Initial Direct Costs. 451

Lease Consideration. 451

The Lease Term.. 451

Initial Measurement of Lease Payments. 452

Subsequent Measurement of Lease Payments. 452

Types of Leases. 453

Asset and Liability Recognition (Lessee) 454

Initial Measurement 454

Short-Term Leases. 454

Finance Leases. 455

Operating Leases. 456

Optional Lease Payments. 457

Right-of-Use Asset Impairment 457

Leasehold Improvement Amortization. 457

Subleases. 457

Maintenance Deposits. 458

Derecognition. 458

Lease Recognition Topics (Lessor) 458

Sales-Type Leases. 458

Direct Financing Leases. 460

Operating Leases. 461

Variable Lease Payments. 462

Lease Modifications. 462

Lessee Impact 463

Lessor Impact 464

Elections. 466

Discount Rate. 466

Separation of Non-Lease Components. 466

Sale and Leaseback Transactions. 466

Lease Presentation. 468

Lease Disclosures. 469

Lessee Disclosures. 469

Lessor Disclosures. 471

Sale and Leaseback Transactions. 472

Chapter 44 - Nonmonetary Transactions. 474

Overview of Nonmonetary Transactions. 474

Purchases and Sales of Inventory with the Same Counterparty. 476

Barter Transactions. 477

Exchanges Involving Monetary Consideration. 477

Exchanges of a Nonfinancial Asset for a Noncontrolling Ownership Interest 480

Nonmonetary Transaction Disclosures. 480

Chapter 45 - Related Party Disclosures. 482

Overview of Related Parties. 482

Related Party Disclosures. 482

Chapter 46 - Subsequent Events. 485

Overview of Subsequent Events. 485

Subsequent Event Disclosures. 486

Answers to Chapter Questions. 488

Glossary. 540

Index. 552

 

Final Examination.560