Wiley CPAexcel Exam Review July 2020 Study Guide Financial Accounting and Reporting

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About the Authors xi

About the Financial Accounting Professors xiii

Welcome to Financial Accounting and Reporting xv

Conceptual Framework and Financial Reporting 1

Financial Accounting Standards Board (FASB) 2

Overview of US GAAP 2

FASB and Standard Setting 2

Accrual Accounting 7

Financial Accounting Standards Codification 13

Conceptual Framework of Financial Reporting by Business Enterprises 17

Objectives and Qualitative Characteristics 17

Assumptions and Accounting Principles 20

Constraints and Present Value 24

Fair Value Framework 27

Fair Value Framework—Introduction and Definitions 27

Recognition and Measurement 31

Inputs and Hierarchy 34

Disclosure Requirements 36

International Financial Reporting Standards (IFRS) 40

IASB Accounting Standards 40

IASB Framework 45

IFRS for SMEs 49

IFRS—General-Purpose Financial Statements 52

General-Purpose Financial Statements 59

Overview—General-Purpose Financial Statements 59

Income Statement 64

Balance Sheet/Statement of Financial Position 70

Statement of Comprehensive Income 77

Statement of Changes in Equity 81

Statement of Cash Flows 84

Sources and Uses of Cash 84

Operating, Investing, and Financing Activities 87

Operating Cash Flows—Indirect Method 95

Notes to Financial Statements 103

Notes to Financial Statements 103

Risks and Uncertainties 109

Subsequent Events 114

Exit or Disposal Activities and Discontinued Operations 117

Evaluating Financial Statements 122

Ratios—Liquidity/Solvency and Operational 122

Ratios—Profitability and Equity 126

Consolidated Financial Statements 129

Introduction to Consolidated Financial Statements 129

Consolidating Process 133

Consolidation at Acquisition 133

Consolidation Subsequent to Acquisition 140

Consolidation Less than 100% Ownership 145

Intercompany (I/C) Transactions and Balances 150

Intercompany (I/C) Transactions and Balances—Introduction 150

Intercompany (I/C) Inventory Transactions 153

Intercompany (I/C) Fixed Asset Transactions 163

Intercompany (I/C) Bond Transactions 175

IFRS—Consolidations 183

Combined Financial Statements 188

Variable Interest Entities (VIEs) 190

Public Company Reporting Topics (SEC, EPS, Interim, and Segment) 192

U.S. Securities and Exchange Commission (SEC) 192

SEC—Role and Standard-Setting Process 192

SEC Reporting Requirements 195

Earnings Per Share 200

Introduction to Earnings per Share 200

Basic Earnings per Share 203

Diluted Earnings per Share 207

Earnings per Share and IFRS 217

Segment Reporting 218

Interim Financial Reporting 222

Interim Reporting Principles 222

Interim Reporting—Details and IFRS 226

Special-Purpose Frameworks 231

Cash, Modified Cash, Income Tax 231

Private Company Council 235

Select Financial Statement Accounts 239

Cash and Cash Equivalents 240

Cash 240

Bank Reconciliations 243

Receivables 246

Accounts Receivable—Accounting and Reporting 246

Uncollectible—Direct Write-Off and Allowance 249

Allowance—Income Statement and Balance Sheet Approach 251

Notes Receivable 256

Criteria for Sale of Receivables 260

Factoring, Assignment, and Pledging 263

Notes Receivable—Impairment 266

Inventory 268

Introduction to Inventory 268

Periodic Inventory System and Cost-Flow Assumption 272

Perpetual Inventory System and Cost-Flow Assumption 279

Evaluation of FIFO and LIFO 283

Dollar-Value LIFO 286

Gross Margin and Relative Sales Value Method 290

Retail Inventory Method 293

Dollar-Value LIFO Retail 298

Subsequent Measurement of Inventory 300

Inventory Errors 304

Losses on Purchase Commitments 306

Inventory and IFRS 308

Property, Plant and Equipment 310

Categories and Presentation 310

Capitalized Costs 311

Valuation 313

Interest Capitalization Basics 316

Interest Capitalization Limits 319

Post-Acquisition Expenditures 324

Non-Accelerated Depreciation Methods 326

Accelerated Depreciation Methods 329

Natural Resources 333

Impairment—Assets for Use and Held-for-Sale 337

Impairment and IFRS 341

PPE and IFRS 343

Nonmonetary Exchange 346

Commercial Substance 346

No Commercial Substance 349

Nonmonetary Exchanges and IFRS 352

Investments 353

Introduction—Investments in Equity and Debt Securities 353

Investments in Equity Securities 358

Equity Investments at Fair Value 358

Equity Investments at Cost 362

Equity Investments Using Equity Method Accounting 366

Investments in Debt Securities 374

Debt Investments at Fair Value 374

Debt Investments at Amortized Cost 384

Investor Stock Dividends, Splits, and Rights 387

Comparison and Transfers of Investments 390

IFRS—Investments in Equity and Debt Securities 398

Intangible Assets—Goodwill and Other 402

Introduction to Intangible Assets 402

Goodwill 408

Research and Development Costs 413

Software Costs 416

Intangibles and IFRS 421

Payables and Accrued Liabilities 423

Current Liabilities 423

Specific Current Liabilities 426

Compensated Absences 428

Asset Retirement Obligations and Environmental Liabilities 432

Contingencies, Commitments, and Guarantees (Provisions) 435

Contingent Liability Principles 435

Examples of Contingent Liabilities and Additional Aspects 438

IFRS—Contingencies 441

Long-Term Debt (Financial Liabilities) 443

Notes Payable 443

Bonds Payable 449

Bond Accounting Principles 449

Bond Complications 453

Bond Fair Value Option, International 456

Modification and Debt Retirement 460

Refinancing Short-Term Obligations 460

Debt Retirement 462

Troubled Debt 464

Debt Covenant Compliance 471

Distinguishing Liabilities from Equity 476

Equity 480

Owners’ Equity Basics 480

Stock Issuance 489

Preferred Stock 494

Treasury Stock 497

Dividends 502

Stock Dividends and Splits 506

Dividend Allocation 509

Stock Rights, Retained Earnings 512

Book Value per Share 517

Select Transactions 521

Revenue Recognition 522

Five Steps of Revenue Recognition 522

Determining Transaction Price 527

Allocating Transaction Price 532

Special Issues in Revenue Recognition 535

Contract Modifications and Other Considerations 541

Accounting for Construction Contracts 549

Employee/Retiree Benefit Plans 557

Pension Principles, Reporting 557

Pension Expense Basics 562

Pension Expense, Delayed Recognition 566

Pension Plan Reporting, International 575

Postretirement Benefits 578

Share-Based Payments 584

Stock Options 584

Stock Awards 592

Stock Appreciation Rights 596

Income Taxes 599

Income Tax Basics 599

Permanent Differences 602

Temporary Differences 604

Tax Accrual Entry 610

Interperiod Tax Allocation Process 614

Valuation Allowance for Deferred Tax Assets 618

Uncertain Tax Positions 620

Net Operating Losses 623

Accounting Changes and Error Corrections 628

Types of Changes and Accounting Approaches 628

Retrospective Application 632

Prospective Application 635

Accounting Errors—Restatement 638

Business Combinations 643

Introduction to Business Combinations 643

Acquisition Method of Accounting 648

Introduction to Acquisition Method of Accounting 648

Determining the Cost of the Business Acquired 652

Recognizing/Measuring Assets, Liabilities, and Noncontrolling Interest 656

Recognizing/Measuring Goodwill or Bargain Purchase Amount 661

Post-Acquisition Issues 664

Disclosure Requirements—Acquisition Method 668

Recording Business Combinations 670

IFRS—Business Combinations 681

Financial Instruments 684

Financial Instruments Introduction 684

IFRS—Financial Instruments 687

Financial Instruments Disclosures 692

Derivatives and Hedging 695

Derivatives Introduction 695

Hedging Introduction 701

Fair Value Hedges 706

Cash-Flow Hedges 710

Foreign Currency Hedges 714

Effectiveness and Disclosure 716

IFRS—Hedging 720

Foreign Currency Denominated Transactions 723

Introduction and Definitions 723

Import Transactions 728

Export Transactions 731

Foreign Currency Hedges 734

Introduction to Forward and Option Contracts 734

Natural (Economic) Hedge 739

Hedging Forecasted Transactions and Firm Commitment 743

Hedging Asset/Liability, Available for Sale, and Foreign Operations 747

Speculation and Summary 750

Conversion of Foreign Financial Statements 752

Introduction to Conversion of Foreign Financial Statements 752

Conversion Using Translation 754

Conversion Using Remeasurement 757

Remeasurement, Translation, and IFRS 761

Leases 763

Background, Short-Term Leases, and Operating Leases 763

Finance Lease Basics 769

Finance Lease—Lessee 774

Sales-Type Leases 780

Direct Financing Leases—Lessor 785

Sale Leasebacks and Disclosures 791

Additional Aspects of Leases 796

Not-for-Profit Organizations 801

Introduction to Types of Not-for-Profit Entities and Standard Setting 801

Financial Reporting 803

Donations, Pledges, Contributions, and Net Assets 811

Special Issues—Recent Developments 818

Special Industries: Healthcare and Colleges 822

Healthcare Organizations 822

Colleges and Universities 828

State and Local Governments 833

State and Local Government Concepts 834

Introduction to Governmental Organizations 834

GASB Concepts Statements 837

Fund Accounting 843

Measurement Focus Basis of Accounting 849

Budgetary Accounting 854

Encumbrance Accounting 857

Deferred Outflows and Deferred Inflows of Resources 862

Net Position and Fund Balance 868

Governmental Funds 872

Proprietary Funds 889

Fiduciary Funds 894

Format and Content of Comprehensive Annual Financial Report (CAFR) 914

The Comprehensive Annual Financial Report 914

Determining the Financial Reporting Entity 929

Major Funds and Fund-Level Reporting 933

Deriving Government-Wide Financial Statements from Fund-Level Financial Statements 935

Typical Items and Specific Types of Transactions and Events 941

Interfund Transactions, Construction Projects, and Infrastructure 941

Long-Term Liabilities Other Than Bonded Debt 947

Terminology and Nonexchange Transactions 952

Special Items—Recent Developments 962

Index 965

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