Intermediate Accounting Volume 2

This is the unbound, loose-leaf version of Intermediate Accounting, 17th Edition, Volume 2. This book is written by industry thought leaders, Kieso, Weygandt, and Warfield and is developed around one simple proposition: create great accountants. Upholding industry standards, this edition incorporates new data analytics content and up-to-date coverage of leases, revenue recognition, financial instruments, and US GAAP & IFRS. While maintaining its reputation for accuracy, comprehensiveness, and accessibility, Intermediate Accounting drives results by helping students build professional competencies through reliable problem material.

15 Stockholders’ Equity 15-1

It’s a Global Market 15-1

Corporate Capital 15-3

Corporate Form 15-3

What Do the Numbers Mean? 1209 North Orange Street 15-3

Components of Stockholders’ Equity 15-5

Issuance of Stock 15-6

What Do the Numbers Mean? The Case of the Disappearing Receivable 15-9

Preferred Stock 15-10

What Do the Numbers Mean? A Class (B) Act 15-12

Reacquisition of Shares 15-12

Purchase of Treasury Stock 15-14

Sale of Treasury Stock 15-15

Retiring Treasury Stock 15-16

What Do the Numbers Mean? Buybacks—Good or Bad? 15-16

Dividend Policy 15-17

Financial Condition and Dividend Distributions 15-17

Types of Dividends 15-18

Stock Dividends and Stock Splits 15-21

What Do the Numbers Mean? Splitsville 15-23

Presentation and Analysis of Stockholders’ Equity 15-25

Presentation 15-25

Analysis 15-27

Appendix 15A: Dividend Preferences and Book Value per Share 15-29

Dividend Preferences 15-29

Book Value per Share 15-30

Analytics in Action 15-51

FAS B Codification and Exercises 15-52

IFRS Insights 15-52

16 Dilutive Securities and Earnings per Share 16-1

Kicking the Habit 16-1

Dilutive Securities 16-3

Debt and Equity 16-3

Accounting for Convertible Debt 16-3

Convertible Preferred Stock 16-5

What Do the Numbers Mean? How Low Can You Go? 16-6

Stock Warrants 16-6

Stock Warrants Issued with Other Securities 16-7

Rights to Subscribe to Additional Shares 16-9

Evolving Issue is That All Debt? 16-9

Stock Compensation Plans 16-10

Measurement—Stock Compensation 16-11

What Do the Numbers Mean? What’s the Debate About? 16-12

Recognition—Stock Compensation 16-13

Restricted Stock 16-14

Employee Stock-Purchase Plans 16-16

Disclosure of Compensation Plans 16-16

Basic Earnings per Share 16-18

Earnings per Share—Simple Capital Structure 16-19

Comprehensive Example 16-21

Diluted Earnings per Share 16-22

Diluted EPS—Convertible Securities 16-23

Diluted EPS—Options and Warrants 16-25

Contingent Issue Agreement 16-26

Antidilution Revisited 16-26

EPS Presentation and Disclosure 16-27

Summary of EPS Computation 16-29

What Do the Numbers Mean? Pro Forma EPS Confusion 16-30

Appendix 16A: Accounting for Stock-Appreciation Rights 16-30

SARs—Share-Based Equity Awards 16-31

SARs—Share-Based Liability Awards 16-31

Stock-Appreciation Rights Example 16-32

Appendix 16B: Comprehensive Earnings per Share Example 16-33

Diluted Earnings per Share 16-34

FAS B Codification and Exercises 16-57

IFRS Insights 16-58

17 Investments 17-1

Winners and Losers 17-1

Investments in Debt Securities 17-2

Debt Investment Classifications 17-3

Held-to-Maturity Securities (Amortized Cost) 17-4

Available-for-Sale Securities (Fair Value Through Other Comprehensive Income) 17-6

Trading Securities (Fair Value Through Net Income) 17-10

What Do the Numbers Mean? To Have and to Hold 17-11

Investments in Equity Securities 17-11

Holdings of Less Than 20% 17-12

Holdings Between 20% and 50% (Equity Method) 17-14

Holdings of More Than 50% (Consolidation) 17-16

What Do the Numbers Mean? Who’s in Control Here? 17-16

Other Financial Reporting Issues 17-17

Fair Value Option 17-17

Evolving Issue Fair Value Controversy 17-18

Impairment of Value 17-18

Reclassification Adjustments 17-21

Transfers Related to Debt Securities 17-24

Summary of Reporting Treatment of Securities 17-25

What Do The Numbers Mean? So You Think It is Easy? 17-26

Appendix 17A: Accounting for Derivative Instruments 17-26

Defining Derivatives 17-27

Who Uses Derivatives, and Why? 17-27

Producers and Consumers 17-27

Speculators and Arbitrageurs 17-28

Basic Principles in Accounting for Derivatives 17-29

Example of Derivative Financial Instrument—Speculation 17-29

Differences Between Traditional and Derivative Financial Instruments 17-31

Derivatives Used for Hedging 17-32

What Do the Numbers Mean? Risky Business 17-33

Fair Value Hedge 17-33

Cash Flow Hedge 17-35

Other Reporting Issues 17-37

Embedded Derivatives 17-37

Qualifying Hedge Criteria 17-38

Summary of Derivatives Accounting 17-39

Comprehensive Hedge Accounting Example 17-40

Fair Value Hedge 17-40

Financial Statement Presentation of an Interest Rate Swap 17-42

Controversy and Concluding Remarks 17-43

Appendix 17B: Fair Value Disclosures 17-43

Disclosure of Fair Value Information: Financial Instruments 17-44

Disclosure of Fair Values: Impaired Assets or Liabilities 17-46

Conclusion 17-47

FAS B Codification and Exercises 17-70

IFRS Insights 17-71

18 Revenue Recognition 18-1

It’s Back 18-1

Fundamentals of Revenue Recognition 18-3

Background 18-3

New Revenue Recognition Standard 18-4

Overview of the Five-Step Process: Boeing 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

Repurchase Agreements 18-22

Bill-and-Hold Arrangements 18-24

Principal-Agent Relationships 18-24

Consignments 18-25

What Do the Numbers Mean? Grossed Out 18-27

Warranties 18-27

Nonrefundable Upfront Fees 18-29

Summary 18-29

Presentation and Disclosure 18-30

Presentation 18-30

Disclosure 18-34

Evolving Issue Revenue: “It’s Like An Octopus” 18-35

Appendix 18A: Long-Term Construction Contracts 18-36

Revenue Recognition over Time 18-36

Percentage-of-Completion Method 18-37

Completed-Contract Method 18-42

Long-Term Contract Losses 18-43

Appendix 18B: Revenue Recognition for Franchises 18-46

Franchise Accounting 18-47

Recognition of Franchise Rights Revenue over Time 18-49

FAS B Codification and Exercises 18-76

19 Accounting for Income Taxes 19-1

Taxes Are A-Changing 19-1

Fundamentals of Accounting for Income Taxes 19-3

Future Taxable Amounts and Deferred Taxes 19-4

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—Valuation Allowance 19-11

Additional Considerations 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

What Do the Numbers Mean? Lower Tax Rate—Good or Bad? 19-18

Accounting for Net Operating Losses 19-18

Loss Carryforward 19-19

Loss Carryforward Example 19-19

What Do the Numbers Mean? NOLs: Good News or Bad? 19-23

Financial Statement Presentation 19-23

Balance Sheet 19-23

Note Disclosure 19-24

What Do the Numbers Mean? Imagination at Work 19-25

Income Statement 19-26

Evolving Issue Uncertain Tax Positions 19-28

The Asset-Liability Method 19-28

Appendix 19A: Comprehensive Example of Interperiod Tax Allocation 19-30

First Year—2019 19-30

Taxable Income and Income Taxes Payable—2019 19-31

Computing Deferred Income Taxes—End of 2019 19-31

Deferred Tax Expense (Benefit) and the Journal Entry to Record Income Taxes—2019 19-32

Financial Statement Presentation—2019 19-33

Second Year—2020 19-34

Taxable Income and Income Taxes Payable—2020 19-34

Computing Deferred Income Taxes—End of 2020 19-35

Deferred Tax Expense (Benefit) and the Journal Entry to Record Income Taxes—2020 19-35

Financial Statement Presentation—2020 19-36

Appendix 19B: Accounting for Net Operating Loss Carrybacks 19-36

Loss Carryback 19-37

Loss Carryback Example 19-37

Loss Carryback with Carryforward 19-38

FAS B Codification and Exercises 19-59

IFRS Insights 19-60

20 Accounting for Pensions and Postretirement Benefits 20-1

Where Have All the Pensions Gone? 20-2

Fundamentals of Pension Plan Accounting 20-3

Defined Contribution Plan 20-4

Defined Benefit Plan 20-5

What Do the Numbers Mean? Which Plan is Right for You? 20-6

The Role of Actuaries in Pension Accounting 20-6

Measures of the Liability 20-7

What Do the Numbers Mean? Roller Coaster 20-8

Components of Pension Expense 20-9

Using a Pension Worksheet 20-11

2020 Entries and Worksheet 20-12

Funded Status 20-13

Prior Service Cost (PSC) 20-13

Amortization 20-14

2021 Entries and Worksheet 20-15

Gains and Losses 20-17

Smoothing Unexpected Gains and Losses on Plan Assets 20-17

What Do the Numbers Mean? Pension Costs Ups and Downs 20-18

Smoothing Unexpected Gains and Losses on the Pension Liability 20-18

Corridor Amortization 20-18

Evolving Issue Bye Bye Corridor 20-21

2022 Entries and Worksheet 20-21

2023 Entries and Worksheet—A Comprehensive Example 20-23

Reporting Pension Plans in Financial Statements 20-25

Assets and Liabilities 20-25

Net Income 20-26

Comprehensive Income 20-27

Within the Notes to the Financial Statements 20-28

Special Issues 20-31

What Do the Numbers Mean? Who Guarantees the Guarantor? 20-32

Concluding Observations 20-34

Appendix 20A: Accounting for Postretirement Benefits 20-34

Accounting Guidance 20-34

Differences Between Pension Benefits and Healthcare Benefits 20-35

What Do the Numbers Mean? OPEBs—How Big Are They? 20-36

Postretirement Benefits Accounting Provisions 20-36

Obligations Under Postretirement Benefits 20-36

Postretirement Expense 20-37

Illustrative Accounting Entries 20-38

2020 Entries and Worksheet 20-38

Recognition of Gains and Losses 20-39

2021 Entries and Worksheet 20-40

Amortization of Net Gain or Loss in 2022 20-41

Disclosures in Notes to the Financial Statements 20-41

Actuarial Assumptions and Conceptual Issues 20-43

What Do the Numbers Mean? Want Some Bad News? 20-43

FAS B Codification and Exercises 20-67

IFRS Insights 20-68

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

Conceptual Nature of a Lease 21-6

Finance and Operating Leases (Lessee) 21-7

Lease Classification 21-7

Accounting for Finance Leases 21-11

Lessee Accounting for Finance Leases: An Example 21-11

Lessor Accounting for Sales-Type Leases 21-14

What Do the Numbers Mean? Not So Fast 21-15

Sales-Type Lease Example 21-16

Accounting for Operating Leases 21-18

Lessee Accounting for Operating Leases 21-18

Lessor Accounting for Operating Leases 21-21

Special Lease Accounting Problems 21-22

Residual Values 21-23

Other Lease Adjustments 21-27

Bargain Purchase Options 21-29

Short-Term Leases 21-30

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 21-35

Sale Transaction 21-36

Financing Transaction (Failed Sale) 21-36

Sale-Leaseback Example 21-37

Appendix 21B: Direct Financing Lease (Lessor) 21-39

Direct Finance Lease Accounting 21-39

Direct Financing Lease Example 21-40

Appendix 21C: Comprehensive Examples 21-44

Lease Terms: Scenario 1 21-44

Lease Classification 21-44

Accounting for Finance Lease 21-45

Lease Terms: Scenario 2 21-46

Lease Classification 21-47

Lessee Accounting—Operating Lease 21-47

Lessor Accounting—Operating Lease 21-50

FAS B Codification and Exercises 21-79

IFRS Insights 21-80

22 Accounting Changes and Error Analysis 22-1

In the Dark 22-2

Accounting Changes 22-3

Background 22-3

Changes in Accounting Principle 22-4

What Do the Numbers Mean? Quite a Change 22-5

What Do the Numbers Mean? Change Management 22-7

Impracticability 22-14

Other Accounting Changes 22-15

Changes in Accounting Estimates 22-16

What Do the Numbers Mean? Why Now? 22-18

Changes in Reporting Entity 22-18

Accounting Errors 22-19

What Do the Numbers Mean? Can I Get My Money Back? 22-20

Example of Error Correction 22-20

Summary of Accounting Changes and Correction of Errors 22-22

What Do the Numbers Mean? What’s Your Motivation? 22-24

Error Analysis 22-24

Balance Sheet Errors 22-25

Income Statement Errors 22-25

Balance Sheet and Income Statement Errors 22-25

Comprehensive Example: Numerous Errors 22-28

What Do the Numbers Mean? Guard the Financial Statements! 22-30

Preparation of Financial Statements with Error Corrections 22-31

Appendix 22A: Changing from or to the Equity Method 22-33

Change from the Equity Method 22-33

Dividends in Excess of Earnings 22-33

Change to the Equity Method 22-34

FAS B Codification and Exercises 22-60

IFRS Insights 22-61

23 Statement of Cash Flows 23-1

Show Me the Money! 23-1

Statement of Cash Flows 23-3

Usefulness of the Statement of Cash Flows 23-3

Classification of Cash Flows 23-4

What Do the Numbers Mean? How’s My Cash Flow? 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

What Do the Numbers Mean? Earnings and Cash Flow Management? 23-9

Sources of Information for the Statement of Cash Flows 23-17

Net Cash Flow from Operating Activities—Direct Method 23-17

Evolving Issue Direct versus Indirect 23-22

Special Problems in Statement Preparation 23-24

Adjustments to Net Income 23-24

Accounts Receivable (Net) 23-27

What Do the Numbers Mean? Not What It Seems 23-29

Other Working Capital Changes 23-29

Net Losses 23-30

Significant Noncash Transactions 23-31

What Do the Numbers Mean? Better Than ROA? 23-32

Use of a Worksheet 23-32

Preparation of the Worksheet 23-34

Analysis of Transactions 23-37

Preparation of Final Statement 23-40

FAS B Codification and Exercises 23-69

IFRS Insights 23-70

24 Full Disclosure in Financial Reporting 24-1

High-Quality Financial Reporting—Always in Fashion 24-2

Full Disclosure Principle 24-3

Increase in Reporting Requirements 24-4

Differential Disclosure 24-5

Evolving Issue Disclosure—Quantity and Quality 24-6

Notes to the Financial Statements 24-6

What Do the Numbers Mean? Footnote Secrets 24-8

Disclosure Issues 24-8

Related Parties 24-8

Post-Balance-Sheet Events (Subsequent Events) 24-9

Reporting for Diversified (Conglomerate) Companies 24-11

Interim Reports 24-15

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 24-24

Management’s Reports 24-24

Current Reporting Issues 24-26

Fraudulent Financial Reporting 24-26

Internet Financial Reporting 24-29

Reporting on Financial Forecasts and Projections 24-30

What Do the Numbers Mean? Global Forecasts 24-31

Criteria for Making Accounting and Reporting Choices 24-31

Appendix 24A: Basic Financial Statement Analysis 24-32

Perspective on Financial Statement Analysis 24-32

Ratio Analysis 24-33

Limitations of Ratio Analysis 24-35

Comparative Analysis 24-36

Percentage (Common-Size) Analysis 24-37

FAS B Codification and Exercises 24-58

IFRS Insights 24-59

Appendix A Private Company Accounting A-1

The Private Company Council (PCC) A-1

Background on the PCC A-1

Private Company Decision-Making Framework A-1

PCC Accomplishments A-2

Private Company Alternatives for Intangible Assets and Goodwill A-2

Accounting for Identifiable Intangible Assets A-2

Accounting for Goodwill A-4

Summary A-6

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

Time Value of Money Tables TVM-1

Index I-1

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