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