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• Copyright
• About The Authors
• Preface
• Acknowledgments
• Brief Contents
• Contents
• Chapter 1: FINANCIAL ACCOUNTING AND ACCOUNTING STANDARDS
• Financial Statements and Financial Reporting
• Accounting and Capital Allocation
• The Challenges Facing Financial Accounting
• Objectives of Financial Reporting
• The Need to Develop Standards
• Parties Involved in Standard Setting
• Securities and Exchange Commission (SEC)
• American Institute of Certified Public Accountants (AICPA)
• Financial Accounting Standards Board (FASB)
• Governmental Accounting Standards Board (GASB)
• Changing Role of the AICPA
• Generally Accepted Accounting Principles
• Issues in Financial Reporting
• Standard Setting in a Political Environment
• The Expectations Gap
• International Accounting Standards
• Ethics in the Environment of Financial Accounting
• Conclusion
• Chapter 2: CONCEPTUAL FRAMEWORK UNDERLYING FINANCIAL ACCOUNTING
• Conceptual Framework
• The Need for a Conceptual Framework
• Development of a Conceptual Framework
• First Level: Basic Objectives
• Second Level: Fundamental Concepts
• Qualitative Characteristics of Accounting Information
• Basic Elements
• Third Level: Recognition and Measurement Concepts
• Basic Assumptions
• Basic Principles of Accounting
• Constraints
• Summary of the Structure
• Chapter 3: THE ACCOUNTING INFORMATION SYSTEM
• Accounting Information System
• Basic Terminology
• Debits and Credits
• Basic Equation
• Financial Statements and Ownership Structure
• The Accounting Cycle
• Identifying and Recording Transactions and Other Events
• Journalizing
• Posting
• Trial Balance
• Adjusting Entries
• Adjusted Trial Balance
• Preparing Financial Statements
• Closing
• Post-Closing Trial Balance
• Reversing Entries
• The Accounting Cycle Summarized
• Financial Statements for a Merchandising Company
• Behind the Numbers: Appendix 3A
• Using Reversing Entries
• Example of Reversing Entries—Accruals
• Example of Reversing Entries—Prepayments
• Summary of Reversing Entries
• Behind the Numbers: Appendix 3B
• Using a Worksheet: The Accounting Cycle Revisited
• Worksheet Columns
• Adjustments Entered on the Worksheet
• Preparing Financial Statements from a Worksheet
• Chapter 4: BALANCE SHEET
• Use and Limitations
• Usefulness of the Balance Sheet
• Limitations of the Balance Sheet
• Classification in the Balance Sheet
• Current Assets
• Noncurrent Assets
• Liabilities
• Owners’ (Stockholders’) Equity
• Balance Sheet Format
• Additional Information Reported
• Contingencies
• Accounting Policies
• Contractual Situations
• Post–Balance-Sheet Events (Subsequent Events)
• Fair Values
• Techniques of Disclosure
• Parenthetical Explanations
• Notes
• Cross-Reference and Contra Items
• Supporting Schedules
• Terminology
• Chapter 5: INCOME STATEMENT AND RELATED INFORMATION
• Income Statement
• Usefulness of the Income Statement
• Limitations of the Income Statement
• Quality of Earnings
• Format of the Income Statement
• Elements of the Income Statement
• Single-Step Income Statements
• Multiple-Step Income Statements
• Condensed Income Statements
• Reporting Irregular Items
• Discontinued Operations
• Extraordinary Items
• Unusual Gains and Losses
• Changes in Accounting Principle
• Changes in Estimates
• Corrections of Errors
• Summary of Irregular Items
• Special Reporting Issues
• Intraperiod Tax Allocation
• Earnings per Share
• Retained Earnings Statement
• Comprehensive Income
• Chapter 6: STATEMENT OF CASH FLOWS
• The Statement of Cash Flows: Purpose and Format
• Purpose of the Statement of Cash Flows
• Classification of Cash Flows
• Significant Noncash Activities
• Format of the Statement of Cash Flows
• Preparing the Statement of Cash Flows
• Indirect and Direct Methods
• Preparation of the Statement of Cash Flows
• First Year of Operations—2008
• Second Year of Operations—2009
• Summary of Conversion to Net Cash Provided by Operating Activities—Indirect Method
• Using Cash Flows to Evaluate a Company
• Free Cash Flow
• Assessing Liquidity and Solvency Using Cash Flows
• Limitations of the Statement of Cash Flows
• Behind the Numbers: Appendix 6A
• Ratio Analysis—A Reference
• Using Ratios to Analyze Financial Performance
• Chapter 7: REVENUE RECOGNITION
• The Current Environment
• Guidelines for Revenue Recognition
• Departures from the Sale Basis
• Revenue Recognition at Point of Sale (Delivery)
• Sales with Buyback Agreements
• Sales When Right of Return Exists
• Trade Loading and Channel Stuffing
• Revenue Recognition before Delivery
• Percentage-of-Completion Method
• Completed-Contract Method
• Completion-of-Production Basis
• Revenue Recognition after Delivery
• Installment-Sales Method
• Cost-Recovery Method
• Deposit Method
• Summary of Revenue Recognition Bases
• Observations
• Behind the Numbers: Appendix 7A
• Revenue Recognition Procedures
• Long-Term Contracts
• Installment Sales
• Chapter 8: CASH AND RECEIVABLES
• Section 1 Cash
• What Is Cash?
• Management and Control of Cash
• Reporting Cash
• Restricted Cash
• Bank Overdrafts
• Cash Equivalents
• Summary of Cash-Related Items
• Section 2 Receivables
• Recognition of Accounts Receivable
• Trade Discounts
• Cash Discounts (Sales Discounts)
• Nonrecognition of Interest Element
• Valuation of Accounts Receivable
• Uncollectible Accounts Receivable
• Recognition of Notes Receivable
• Note Issued at Face Value
• Note Not Issued at Face Value
• Choice of Interest Rate
• Valuation of Notes Receivable
• Disposition of Accounts and Notes Receivable
• Secured Borrowing
• Sales of Receivables
• Secured Borrowing versus Sale
• Presentation and Analysis
• Presentation of Receivables
• Analysis of Receivables
• Behind the Numbers: Appendix 8A
• Cash Controls
• Using Bank Accounts
• The Imprest Petty Cash System
• Physical Protection of Cash Balances
• Reconciliation of Bank Balances
• Chapter 9: ACCOUNTING FOR INVENTORIES
• Inventory Classification and Systems
• Classification
• Inventory Systems
• Basic Issues in Inventory Valuation
• Physical Goods Included in Inventory
• Costs Included in Inventory
• Which Cost Flow Assumption to Adopt?
• Special Issues Related to LIFO
• LIFO Reserve
• LIFO Liquidation
• Dollar-Value LIFO
• Comparison of LIFO Approaches
• Basis for Selection of Inventory Method
• Lower-of-Cost-or-Market
• Lower-of-Cost-or-Market—Ceiling and Floor
• How Lower-of-Cost-or-Market Works
• Methods of Applying Lower-of-Cost-or-Market
• Evaluation of the Lower-of-Cost-or-Market Rule
• Presentation and Analysis
• Presentation of Inventories
• Analysis of Inventories
• Behind the Numbers: Appendix 9A
• Gross Profit Method
• Computation of Gross Profit Percentage
• Evaluation of Gross Profit Method
• Chapter 10: ACCOUNTING FOR PROPERTY, PLANT, AND EQUIPMENT
• Acquisition and Valuation of Property, Plant, and Equipment
• Cost of Land
• Cost of Buildings
• Cost of Equipment
• Self-Constructed Assets
• Interest Costs During Construction
• Other Valuation Issues
• Costs Subsequent to Acquisition
• Additions
• Improvements and Replacements
• Rearrangement and Reinstallation
• Repairs
• Summary of Costs Subsequent to Acquisition
• Use of Property, Plant, and Equipment: Depreciation
• Factors Involved in the Depreciation Process
• Methods of Depreciation
• Special Depreciation Issues
• Dispositions of Plant Assets
• Sale of Plant Assets
• Involuntary Conversion
• Exchanges
• Presentation and Analysis
• Presentation of Property, Plant, and Equipment
• Analysis of Property, Plant, and Equipment
• Behind the Numbers: Appendix 10A
• Interest-Capitalization Procedures
• Interest Capitalization
• Chapter 11: INTANGIBLE ASSETS
• Intangible Asset Issues
• Characteristics
• Valuation
• Amortization of Intangibles
• Types of Intangible Assets
• Marketing-Related Intangible Assets
• Customer-Related Intangible Assets
• Artistic-Related Intangible Assets
• Contract-Related Intangible Assets
• Technology-Related Intangible Assets
• Goodwill
• Impairments
• Impairment of Property, Plant, and Equipment
• Impairment of Limited-Life Intangibles
• Impairment of Indefinite-Life Intangibles Other Than Goodwill
• Impairment of Goodwill
• Restoration of Impairment Loss
• Impairment of Assets to Be Disposed of
• Research and Development Costs
• Identifying R&D Activities
• Accounting for R&D Activities
• Other Costs Similar to R&D Costs
• Conceptual Questions
• Presentation of Intangibles and Related Items
• Presentation of Intangible Assets
• Presentation of Research and Development Costs
• Chapter 12: ACCOUNTING FOR LIABILITIES
• Section 1 Current Liabilities
• What Is a Liability?
• What Is a Current Liability?
• Accounts Payable
• Notes Payable
• Current Maturities of Long-Term Debt
• Dividends Payable
• Unearned Revenues
• Section 2 Long-Term Debt
• Issuing Bonds
• Types of Bonds
• Valuation of Bonds Payable—Discount and Premium
• Bonds Issued at Par on Interest Date
• Bonds Issued at Discount or Premium on Interest Date
• Classification of Discount and Premium
• Costs of Issuing Bonds
• Extinguishment of Debt
• Section 3 Special Issues
• Contingencies
• Gain Contingencies
• Loss Contingencies
• Off–Balance-Sheet Financing
• Different Forms
• Rationale
• Presentation and Analysis
• Presentation of Current Liabilities
• Presentation of Long-Term Debt
• Presentation of Contingencies
• Analysis of Current Liabilities
• Analysis of Long-Term Debt
• Behind the Numbers: Appendix 12A
• Effective-Interest Amortization
• Bonds Issued at a Discount
• Bonds Issued at a Premium
• Accruing Interest
• Chapter 13: STOCKHOLDERS’ EQUITY
• The Corporate Form of Organization
• State Corporate Law
• Capital Stock or Share System
• Variety of Ownership Interests
• Corporate Capital
• Issuance of Stock
• Reacquisition of Shares
• Preferred Stock
• Features of Preferred Stock
• Accounting for and Reporting Preferred Stock
• Dividend Policy
• Financial Condition and Dividend Distributions
• Types of Dividends
• Stock Split
• Disclosure of Restrictions on Retained Earnings
• Presentation and Analysis of Stockholders’ Equity
• Presentation
• Analysis
• Behind the Numbers: Appendix 13A
• Accounting for Financial Instruments with Both Debt and Equity Characteristics
• Convertible Debt
• Stock Warrants Issued with Other Securities
• Conceptual Questions
• Chapter 14: INVESTMENTS
• Section 1 Investments in Debt Securities
• Held-to-Maturity Securities
• Available-for-Sale Securities
• Example: Single Security
• Example: Portfolio of Securities
• Sale of Available-for-Sale Securities
• Financial Statement Presentation
• Trading Securities
• Section 2 Investments in Equity Securities
• Holdings of Less Than 20%
• Available-for-Sale Securities
• Trading Securities
• Holdings Between 20% and 50%
• Equity Method
• Holdings of More Than 50%
• Section 3 Other Reporting Issues
• Financial Statement Presentation of Investments
• Disclosures Required Under the Equity Method
• Reclassification Adjustments
• Comprehensive Example
• Impairment of Value
• Transfers Between Categories
• Fair Value Controversy
• Measurement Based on Intent
• Gains Trading
• Liabilities Not Fairly Valued
• Subjectivity of Fair Values
• Summary of Reporting Treatment of Securities
• Chapter 15: ACCOUNTING FOR INCOME TAXES
• Fundamentals of Accounting for Income Taxes
• Future Taxable Amounts and Deferred Taxes
• Future Deductible Amounts and Deferred Taxes
• Income Statement Presentation
• Specific Differences
• Tax Rate Considerations
• Accounting for Net Operating Losses
• Loss Carryback
• Loss Carryforward
• Loss Carryback Example
• Loss Carryforward Example
• Financial Statement Presentation
• Balance Sheet
• Income Statement
• Review of the Asset–Liability Method
• Chapter 16: ACCOUNTING FOR COMPENSATION
• Salary and Bonuses
• Payroll Deductions
• Compensated Absences
• Bonuses
• Stock Compensation Plans
• The Major Reporting Issue
• Accounting for Stock Compensation
• Employee Stock Purchase Plans
• Disclosure of Compensation Plans
• Debate over Stock Option Accounting
• Postretirement Benefits
• Defined-Contribution Plan
• Defined-Benefit Plan
• Components of Pension Expense
• Using a Pension Worksheet
• Reporting Pension Amounts
• Other Postretirement Expenses
• Concluding Remarks
• Chapter 17: ACCOUNTING FOR LEASES
• The Leasing Environment
• Who Are the Players?
• Advantages of Leasing
• Conceptual Nature of a Lease
• Accounting by the Lessee
• Capitalization Criteria
• Asset and Liability Accounted for Differently
• Capital Lease Method (Lessee)
• Operating Method (Lessee)
• Comparison of Capital Lease with Operating Lease
• Accounting by the Lessor
• Economics of Leasing
• Classification of Leases by the Lessor
• Direct-Financing Method (Lessor)
• Operating Method (Lessor)
• Other Accounting Issues
• Sales-Type Leases (Lessor)
• Disclosing Lease Data
• Lease Accounting—Unresolved Problems
• Chapter 18: ADDITIONAL REPORTING ISSUES
• Section 1 Accounting Changes
• Changes in Accounting Principle
• Retrospective Accounting Change Approach
• Reporting a Change in Principle
• Retained Earnings Adjustment
• Direct and Indirect Effects of Changes
• Impracticability
• Changes in Accounting Estimate
• Disclosures
• Reporting a Correction of an Error
• Example
• Summary of Accounting Changes and Corrections of Errors
• Section 2 Reporting Earnings per Share
• Earnings per Share—Simple Capital Structure
• Preferred Stock Dividends
• Weighted-Average Number of Shares Outstanding
• Comprehensive Example
• Earnings per Share—Complex Capital Structure
• Diluted EPS—Convertible Securities
• Diluted EPS—Options and Warrants
• Antidilution Revisited
• EPS Presentation and Disclosure
• Summary of EPS Computation
• Appendix A: Accounting and the Time Value of Money
• The Nature of Interest
• Simple Interest
• Compound Interest
• Fundamental Variables
• Single-Sum Problems
• Future Value of a Single Sum
• Present Value of a Single Sum
• Solving for Other Unknowns in Single-Sum Problems
• Annuities
• Future Value of an Ordinary Annuity
• Future Value of an Annuity Due
• Examples of Future Value of Annuity Problems
• Present Value of an Ordinary Annuity
• Present Value of an Annuity Due
• Examples of Present Value of Annuity Problems
• More Complex Situations
• Deferred Annuities
• Valuation of Long-Term Bonds
• Effective-Interest Method of Amortization of BondDiscount or Premium
• Present Value Measurement
• Choosing an Appropriate Interest Rate
• Example of Expected Cash Flow
• Appendix B: Reporting Cash Flows
• Section 1 Indirect Method
• Preparing the Statement of Cash Flows
• Step 1: Determining the Net Increase/Decrease in Cash
• Step 2: Determining Net Cash Flow Provided/Used by Operating Activities
• Step 3: Determining Net Cash Flow Provided/Used by Investing and Financing Activities
• Statement of Cash Flows—2008
• Special Problems in Statement Preparation
• Adjustments Similar to Depreciation
• Accounts Receivable (Net)
• Other Working Capital Changes
• Net Losses
• Gains/Losses
• Stock Options
• Postretirement Benefit Costs
• Extraordinary Items
• Significant Noncash Transactions
• Section 2 Direct Method
• Indirect Method
• Direct Method—An Example
• Summary of Net Cash Flow from Operating Activities—Direct Method
• Company Index
• Subject Index
• Official Accounting Pronouncements
• Endpapers