Intermediate Accounting, 16th Edition [Rental Edition]

1 Financial Accounting and Accounting Standards 2

We Can Do Better 2

Financial Reporting Environment 4

Parties Involved in Standard-Setting 7

Generally Accepted Accounting Principles 13

Major Challenges in Financial Reporting 15

IFRS Insights 29

2 Conceptual Framework for Financial Reporting 36

What is It? 36

Conceptual Framework 38

First Level: Basic Objective 40

Second Level: Fundamental Concepts 41

Third Level: Recognition and Measurement Concepts 49

FASB Codification 73

IFRS Insights 74

3 The Accounting Information System 78

Needed: A Reliable Information System 78

Accounting Information System 80

Record and Summarize Basic Transactions 87

Adjusting Entries 92

Preparing Financial Statements 104

Financial Statements for a Merchandising Company 110

Appendix 3A: Cash-Basis Accounting versus Accrual-Basis Accounting 113

Conversion from Cash Basis to Accrual Basis 115

Theoretical Weaknesses of the Cash Basis 118

Appendix 3B: Using Reversing Entries 119

Illustration of Reversing Entries—Accruals 119

Illustration of Reversing Entries—Deferrals 120

Summary of Reversing Entries 121

Appendix 3C: Using a Worksheet: The Accounting Cycle Revisited 121

Worksheet Columns 121

Adjustments Entered on the Worksheet 123

Preparing Financial Statements from a Worksheet 124

IFRS Insights 147

4 Income Statement and Related Information 152

Financial Statements are Changing 152

Income Statement 154

Format of the Income Statement 156

Reporting Various Income Items 162

Other Reporting Issues 170

FASB Codification 194

IFRS Insights 195

5 Balance Sheet and Statement of Cash Flows 200

Hey, It Doesn’t Balance! 200

Balance Sheet 202

Statement of Cash Flows 216

Additional Information 224

Appendix 5A: Ratio Analysis—A Reference 231

Using Ratios to Analyze Performance 231

FASB Codification 257

IFRS Insights 258

6 Accounting and the Time Value of Money 266

How Do I Measure That? 266

Basic Time Value Concepts 268

Single-Sum Problems 274

Annuities (Future Value) 279

Annuities (Present Value) 286

Other Time Value of Money Issues 291

FASB Codification 312

7 Cash and Receivables 324

Luck of the Irish 324

Cash 32

Receivables 329

Notes Receivable 338

Special Issues 343

Appendix 7A: Cash Controls 352

Using Bank Accounts 353

The Imprest Petty Cash System 353

Physical Protection of Cash Balances 355

Reconciliation of Bank Balances 355

Appendix 7B: Collectability Assessment Based on Expected Cash Flows 358

Measurement of Collectibility 358

FASB Codification 382

IFRS Insights 383

8 Valuation of Inventories: A Cost-Basis Approach 386

To Switch or Not to Switch 386

Inventory Issues 388

Goods and Costs Included in Inventory 393

Which Cost Flow Assumption to Adopt? 398

Special Issues Related to LIFO 402

Effect of Inventory Errors 416

FASB Codification 441

9 Inventories: Additional Valuation Issues 442

Not What It Seems to Be 442

Lower-of-Cost-or-Net Realizable Value 444

Lower-of-Cost-or-Market 448

Other Valuation Approaches 452

The Gross Profit Method of Estimating Inventory 455

Retail Inventory Method 458

Presentation and Analysis 464

Appendix 9A: LIFO Retail Methods 466

Stable Prices—LIFO Retail Method 466

Fluctuating Prices—Dollar-Value LIFO Retail Method 467

Subsequent Adjustments Under Dollar-Value LIFO Retail 469

Changing from Conventional Retail to LIFO 470

FASB Codification 493

IFRS Insights 494

10 Acquisition and Disposition of Property, Plant, and Equipment 502

Watch Your Spending 502

Property, Plant, and Equipment 504

Valuation of Property, Plant, and Equipment 513

Costs Subsequent to Acquisition 522

Disposition of Property, Plant, and Equipment 526

FASB Codification 550

11 Depreciation, Impairments, and Depletion 552

Here Come the Write-Offs 552

Depreciation—A Method of Cost Allocation 554

Special Depreciation Methods and Other Issues 559

Impairments 565

Depletion 568

Presentation and Analysis 573

Appendix 11A: Income Tax Depreciation 576

Modified Accelerated Cost Recovery System 577

Optional Straight-Line Method 579

Tax versus Book Depreciation 579

FASB Codification 600

IFRS Insights 601

12 Intangible Assets 610

Is This Sustainable? 610

Intangible Asset Issues 612

Types of Intangible Assets 614

Impairment and Presentation of Intangible Assets 622

Research and Development Costs 628

FASB Codification 650

IFRS Insights 652

13 Current Liabilities and Contingencies 658

Now You See It, Now You Don’t 658

Current Liabilities 660

Contingencies 673

Presentation and Analysis 684

FASB Codification 708

IFRS Insights 710

14 Long-Term Liabilities 718

Going Long 718

Bonds Payable 720

Long-Term Notes Payable 731

Reporting and Analyzing Liabilities 739

Appendix 14A: Troubled-Debt Restructuring 743

Settlement of Debt 744

Modification of Terms 745

Concluding Remarks 749

FASB Codification 767

IFRS Insights 768

15 Stockholders’ Equity 774

It’s a Global Market 774

Corporate Capital 776

Reacquisition of Shares 786

Dividend Policy 791

Presentation and Analysis of Stockholders' Equity 800

Appendix 15A: Dividend Preferences and Book Value per Share 804

Dividend Preferences 804

Book Value per Share 805

FASB Codification 826

IFRS Insights 827

16 Dilutive Securities and Earnings per Share 834

Kicking the Habit 834

Dilutive Securities 836

Stock Warrants 839

Stock Compensation Plans 843

Basic Earnings per Share 851

Diluted Earnings per Share 855

Appendix 16A: Accounting for Stock-Appreciation Rights 863

SARS—Share-Based Equity Awards 864

SARS—Share-Based Liability Awards 864

Stock-Appreciation Rights Example 865

Appendix 16B: Comprehensive Earnings per Share Example 866

Diluted Earnings per Share 867

FASB Codification 889

IFRS Insights 890

17 Investments 898

What to Do? 898

Investments in Debt Securities 900

Investments in Equity Securities 908

Other Financial Reporting Issues 915

Appendix 17A: Accounting for Derivative Instruments 923

Defining Derivatives 924

Who Uses Derivatives, and Why? 924

Basic Principles in Accounting for Derivatives 926

Derivatives Used for Hedging 929

Other Reporting Issues 934

Comprehensive Hedge Accounting Example 937

Controversy and Concluding Remarks 940

Appendix 17B: Fair Value Disclosures 941

Disclosure of Fair Value Information: Financial Instruments 941

Disclosure of Fair Values: Impaired Assets or Liabilities 944

Conclusion 944

FASB Codification 965

IFRS Insights 966

18 Revenue Recognition 978

It’s Back 978

Fundamentals of Revenue Recognition 980

The Five-Step Process Revisited 986

Accounting for Revenue Recognition Issues 996

Presentation and Disclosure 1007

Appendix 18A: Long-Term Construction Contracts 1013

Revenue Recognition Over Time 1013

Appendix 18B: Revenue Recognition for Franchises 1023

Franchise Accounting 1024

Recognition of Franchise Rights Revenue Over Time 1026

FASB Codification 1050

19 Accounting for Income Taxes 1052

Hey–Let’s Pay More Income Taxes! 1052

Fundamentals of Accounting for Income Taxes 1054

Additional Considerations 1064

Accounting for Net Operating Losses 1069

Financial Statement Presentation 1076

Appendix 19A: Comprehensive Example of Interperiod Tax Allocation 1083

First Year—2016 1083

Second Year—2017 1087

FASB Codification 1109

IFRS Insights 1110

20 Accounting for Pensions and Postretirement Benefits 1116

Where Have All the Pensions Gone? 1116

Fundamentals of Pension Plan Accounting 1118

Using a Pension Worksheet 1126

Prior Service Cost (PSC) 1128

Gains and Losses 1131

Reporting Pension Plans in Financial Statements 1138

Appendix 20A: Accounting for Postretirement Benefits 1148

Accounting Guidance 1148

Differences Between Pension Benefits and Healthcare Benefits 1149

Postretirement Benefits Accounting Provisions 1150

Illustrative Accounting Entries 1152

Disclosures in Notes to the Financial Statements 1155

Actuarial Assumptions and Conceptual Issues 1157

FASB Codification 1179

IFRS Insights 1180

21 Accounting for Leases 1194

More Companies Ask, “Why Buy?” 1194

The Leasing Environment 1196

Accounting by the Lessee 1200

Accounting by the Lessor 1210

Special Lease Accounting Problems 1215

Appendix 21A: Sale-Leasebacks 1231

Determining Asset Use 1231

Sale-Leaseback Example 1232

FASB Codification 1254

IFRS Insights 1256

22 Accounting Changes and Error Analysis 1266

In the Dark 1266

Accounting Changes 1268

Other Accounting Changes 1281

Accounting Errors 1284

Error Analysis 1290

Appendix 22A: Changing from or to the Equity Method 1299

Change from the Equity Method 1299

Change to the Equity Method 1300

FASB Codification 1325

IFRS Insights 1326

23 Statement of Cash Flows 1330

Show Me the Money! 1330

Statement of Cash Flows 1332

Preparing the Statement of Cash Flows 1335

Special Problems in Statement Preparation 1353

Use of a Worksheet 1361

FASB Codification 1395

IFRS Insights 1396

24 Full Disclosure in Financial Reporting 1402

High-Quality Financial Reporting—Always in Fashion 1402

Full Disclosure Principle 1404

Disclosure Issues 1409

Auditor’s and Management’s Reports 1423

Current Reporting Issues 1428

Appendix 24A: Basic Financial Statement Analysis 1435

Perspective on Financial Statement Analysis 1436

Ratio Analysis 1437

Comparative Analysis 1439

Percentage (Common-Size) Analysis 1440

FASB Codification 1460

IFRS Insights 1461

Appendix A Private Company Accounting A-1

The Private company Council (PCC) A -1

Private Company Alternatives for Intangible Assets and Goodwill A -2

Appendix B Specimen Financial Statements: The Procter & Gamble Company B-1

Appendix C Specimen Financial Statements: The Coca-Cola Company C-1

Appendix D Specimen Financial Statements: PepsiCo, Inc. D-1

Appendix E Specimen Financial Statements: Marks and Spencer plc E-1

Index I-1

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