Description
1 Financial Reporting and Accounting Standards 1-1 Continuing Evolution of International Financial Reporting 1-1 Global Markets 1-3 Financial Statements and Financial Reporting 1-4 Accounting and Capital Allocation 1-4 High-Quality Standards 1-5 Objective of Financial Reporting 1-6 General-Purpose Financial Statements 1-6 Equity Investors and Creditors 1-6 What Do the Numbers Mean? Don’t Forget Management Stewardship 1-6 Entity Perspective 1-6 Decision-Usefulness 1-7 Standard-Setting Organizations 1-7 International Organization of Securities Commissions (IOSCO) 1-8 What Do the Numbers Mean? What About the Little Guy? 1-8 International Accounting Standards Board (IASB) 1-9 Hierarchy of IFRS 1-11 Financial Reporting Challenges 1-12 IFRS in a Political Environment 1-12 What Do the Numbers Mean? Fair Consequences? 1-13 The Expectations Gap 1-13 Significant Financial Reporting Issues 1-14 Ethics in the Environment of Financial Accounting 1-14 International Convergence 1-15 What Do the Numbers Mean? Can You Do That? 1-15 Conclusion 1-16 Global Accounting Insights 1-24 2 Conceptual Framework for Financial Reporting 2-1 What is It? 2-1 Conceptual Framework 2-3 Need for a Conceptual Framework 2-3 What Do the Numbers Mean? What’s Your Principle? 2-4 Development of a Conceptual Framework 2-4 Overview of the Conceptual Framework 2-5 Basic Objective 2-5 Fundamental Concepts 2-6 Qualitative Characteristics of Accounting Information 2-6 What Do the Numbers Mean? Unfaithful–For 20 Years 2-10 What Do the Numbers Mean? Show Me the Earnings! 2-12 Basic Elements 2-12 Assumptions 2-13 Economic Entity Assumption 2-14 Going Concern Assumption 2-14 Monetary Unit Assumption 2-14 Periodicity Assumption 2-15 Accrual Basis of Accounting 2-15 Measurement, Recognition, and Disclosure Concepts 2-16 Basic Principles of Accounting 2-16 Cost Constraint 2-21 What Do the Numbers Mean? Let’s Be Prudent 2-22 Summary of the Structure 2-23 Global Accounting Insights 2-39 3 The Accounting Information System 3-1 Working on the Chain Gang 3-2 Accounting Information System 3-2 Basic Terminology 3-3 Debits and Credits 3-4 The Accounting Equation 3-4 Financial Statements and Ownership Structure 3-6 The Accounting Cycle 3-8 Record and Summarize Basic Transactions 3-9 Journalizing 3-9 Posting 3-10 Chart of Accounts 3-11 The Recording Process Illustrated 3-11 Trial Balance 3-17 What Do the Numbers Mean? Change Management 3-18 Identify and Prepare Adjusting Entries 3-18 Types of Adjusting Entries 3-19 Adjusting Entries for Deferrals 3-19 Adjusting Entries for Accruals 3-24 Adjusted Trial Balance 3-29 Preparing Financial Statements 3-29 Closing 3-30 Post-Closing Trial Balance 3-33 Reversing Entries–An Optional Step 3-33 What Do the Numbers Mean? Hey, It’s Complicated 3-34 The Accounting Cycle Summarized 3-34 Financial Statements for a Merchandising Company 3-34 Income Statement 3-35 Retained Earnings Statement 3-35 Statement of Financial Position 3-36 Closing Entries 3-37 Appendix 3A Cash-Basis Accounting versus Accrual-Basis Accounting 3-37 Conversion from Cash Basis to Accrual Basis 3-39 Service Revenue Computation 3-39 Operating Expense Computation 3-40 Theoretical Weaknesses of the Cash Basis 3-41 Appendix 3B Using Reversing Entries 3-42 Illustration of Reversing Entries–Accruals 3-42 Illustration of Reversing Entries–Deferrals 3-43 Summary of Reversing Entries 3-44 Appendix 3C Using a Worksheet: The Accounting Cycle Revisited 3-44 Worksheet Columns 3-46 Trial Balance Columns 3-46 Adjustments Columns 3-46 Adjustments Entered on the Worksheet 3-46 Adjusted Trial Balance 3-47 Income Statement and Statement of Financial Position Columns 3-47 Preparing Financial Statements from a Worksheet 3-47 Global Accounting Insights 3-70 4 Income Statement and Related Information 4-1 Financial Statements Are Changing 4-2 Income Statement 4-3 Usefulness of the Income Statement 4-3 Limitations of the Income Statement 4-4 Quality of Earnings 4-4 What Do the Numbers Mean? Four: The Loneliest Number 4-5 Content and Format of the Income Statement 4-5 Elements of the Income Statement 4-5 Intermediate Components of the Income Statement 4-6 Condensed Income Statements 4-8 What Do the Numbers Mean? You May Need a Map 4-8 Reporting Various Income Items 4-9 Gross Profit 4-9 Income from Operations 4-9 Income Before Income Tax 4-12 Net Income 4-13 Earnings per Share 4-13 Discontinued Operations 4-14 Allocation to Non-Controlling Interest 4-16 Summary 4-17 What Do the Numbers Mean? Different Income Concepts 4-17 Accounting Changes and Errors 4-18 Changes in Accounting Principle 4-18 Changes in Accounting Estimates 4-19 Corrections of Errors 4-20 Summary 4-20 Related Equity Statements 4-21 Retained Earnings Statement 4-21 Comprehensive Income Statement 4-21 Statement of Changes in Equity 4-23 Global Accounting Insights 4-43 5 Statement of Financial Position and Statement of Cash Flows 5-1 Hey, It Doesn’t Balance! 5-2 Statement of Financial Position 5-3 Usefulness of the Statement of Financial Position 5-3 Limitations of the Statement of Financial Position 5-4 Classification in the Statement of Financial Position 5-5 What Do the Numbers Mean? What Comes First? 5-6 What Do the Numbers Mean? Warning Signals 5-14 Preparation of the Statement of Financial Position 5-14 Statement of Cash Flows 5-16 Purpose of the Statement of Cash Flows 5-16 Content of the Statement of Cash Flows 5-16 What Do the Numbers Mean? Watch That Cash Flow 5-18 Preparation of the Statement of Cash Flows 5-18 Usefulness of the Statement of Cash Flows 5-21 Additional Information 5-24 Notes to the Financial Statements 5-24 Techniques of Disclosure 5-27 Other Guidelines 5-28 Evolving Issue Statement of Financial Position Reporting: Gross or Net? 5-29 Appendix 5A Ratio Analysis–A Reference 5-30 Using Ratios to Analyze Performance 5-30 Global Accounting Insights 5-56 6 Accounting and the Time Value of Money 6-1 How Do I Measure That? 6-2 Basic Time Value Concepts 6-3 Applications of Time Value Concepts 6-3 The Nature of Interest 6-4 Simple Interest 6-5 Compound Interest 6-5 What Do the Numbers Mean? A Pretty Good Start 6-6 Fundamental Variables 6-8 Single-Sum Problems 6-9 Future Value of a Single Sum 6-9 Present Value of a Single Sum 6-11 Solving for Other Unknowns in Single-Sum Problems 6-13 Annuities (Future Value) 6-14 Future Value of an Ordinary Annuity 6-14 Future Value of an Annuity Due 6-17 Examples of Future Value of Annuity Problems 6-18 Annuities (Present Value) 6-20 Present Value of an Ordinary Annuity 6-20 What Do the Numbers Mean? Up in Smoke 6-22 Present Value of an Annuity Due 6-22 Examples of Present Value of Annuity Problems 6-23 Other Time Value of Money Issues 6-25 Deferred Annuities 6-25 Valuation of Long-Term Bonds 6-27 Effective-Interest Method of Amortization of Bond Discount or Premium 6-28 Present Value Measurement 6-29 7 Cash and Receivables 7-1 Is Your Cash Trapped? 7-1 Cash 7-2 Reporting Cash 7-3 Summary of Cash-Related Items 7-5 Evolving Issue What Counts for Cash? 7-5 Receivables 7-6 Recognition of Accounts Receivable 7-7 Measurement of the Transaction Price 7-8 Variable Consideration 7-8 Valuation of Accounts Receivable 7-10 Direct Write-Off Method for Uncollectible Accounts 7-11 Allowance Method for Uncollectible Accounts 7-11 Notes Receivable 7-15 Recognition of Notes Receivable 7-15 Valuation of Notes Receivable 7-19 Other Issues Related to Receivables 7-19 Derecognition of Receivables 7-19 Presentation and Analysis 7-23 What Do the Numbers Mean? Securitizations–Good or Bad? 7-26 Appendix 7A Cash Controls 7-26 Using Bank Accounts 7-26 The Imprest Petty Cash System 7-27 Physical Protection of Cash Balances 7-28 Reconciliation of Bank Balances 7-29 Global Accounting Insights 7-56 8 Valuation of Inventories: A Cost-Basis Approach 8-1 It Should Be Easy, but It Isn’t! 8-1 Inventory Issues 8-3 Classification 8-3 Inventory Cost Flow 8-4 Inventory Control 8-6 Determining Cost of Goods Sold 8-7 What Do the Numbers Mean? Staying Lean 8-7 Goods and Costs Included in Inventory 8-7 Goods Included in Inventory 8-7 What Do the Numbers Mean? A Retail Apocalypse! 8-10 Costs Included in Inventory 8-10 Which Cost Flow Assumption to Adopt? 8-12 Specific Identification 8-12 Average-Cost 8-13 First-In, First-Out (FIFO) 8-14 Inventory Valuation Methods–Summary Analysis 8-16 Effect of Inventory Errors 8-17 Ending Inventory Misstated 8-17 Purchases and Inventory Misstated 8-18 Appendix 8A LIFO Cost Flow Assumption 8-19 Last-In, First-Out (LIFO) 8-19 Inventory Valuation Methods–Summary Analysis 8-20 9 Inventories: Additional Valuation Issues 9-1 Not What It Seems to Be 9-2 Lower-of-Cost-or-Net Realizable Value (LCNRV) 9-3 Net Realizable Value 9-3 Illustration of LCNRV 9-4 Methods of Applying LCNRV 9-4 Recording Net Realizable Value Instead of Cost 9-5 Use of an Allowance 9-6 Recovery of Inventory Loss 9-6 Evaluation of the LCNRV Rule 9-7 Valuation Bases 9-7 Net Realizable Value 9-7 Relative Standalone Sales Value 9-10 Purchase Commitments–A Special Problem 9-11 The Gross Profit Method of Estimating Inventory 9-12 Computation of Gross Profit Percentage 9-13 Evaluation of Gross Profit Method 9-15 What Do the Numbers Mean? I’ll Trade You 9-15 Retail Inventory Method 9-15 Retail-Method Concepts 9-16 Retail Inventory Method with Markups and Markdowns–Conventional Method 9-17 Special Items Relating to Retail Method 9-19 Evaluation of Retail Inventory Method 9-20 Presentation and Analysis 9-20 Presentation of Inventories 9-21 Analysis of Inventories 9-22 Global Accounting Insights 9-42 10 Acquisition and Disposition of Property, Plant, and Equipment 10-1 Watch Your Spending 10-1 Property, Plant, and Equipment 10-2 Acquisition of Property, Plant, and Equipment 10-3 Cost of Land 10-4 Cost of Buildings 10-4 Cost of Equipment 10-5 Self-Constructed Assets 10-5 Borrowing Costs During Construction 10-6 Qualifying Assets 10-7 Capitalization Period 10-7 Amount to Capitalize 10-7 Disclosures 10-10 Valuation of Property, Plant, and Equipment 10-11 Cash Discounts 10-11 Deferred-Payment Contracts 10-11 Lump-Sum Purchases 10-12 Issuance of Shares 10-13 Exchanges of Non-Monetary Assets 10-13 Government Grants 10-16 Costs Subsequent to Acquisition 10-20 Additions 10-20 Improvements and Replacements 10-21 Rearrangement and Reorganization 10-21 Repairs 10-22 What Do the Numbers Mean? Disconnected 10-22 Summary of Costs Subsequent to Acquisition 10-23 Disposition of Property, Plant, and Equipment 10-23 Sale of Plant Assets 10-23 Involuntary Conversion 10-24 11 Depreciation, Impairments, and Depletion 11-1 Here Come the Write-Offs 11-2 Depreciation–A Method of Cost Allocation 11-3 Factors Involved in the Depreciation Process 11-3 Methods of Depreciation 11-4 Other Depreciation Issues 11-8 Component Depreciation 11-8 Depreciation and Partial Periods 11-9 Depreciation and Replacement of Property, Plant, and Equipment 11-10 Revision of Depreciation Rates 11-10 What Do the Numbers Mean? Depreciation Choices 11-11 Impairments 11-12 Recognizing Impairments 11-12 Impairment Illustrations 11-13 Reversal of Impairment Loss 11-14 Cash-Generating Units 11-15 Impairment of Assets to Be Disposed Of 11-15 Depletion 11-16 Establishing a Depletion Base 11-17 Write-Off of Resource Cost 11-18 Estimating Recoverable Reserves 11-19 Liquidating Dividends 11-19 Presentation on the Financial Statements 11-20 Revaluations 11-21 Recognizing Revaluations 11-21 Revaluation Issues 11-22 What Do the Numbers Mean? To Revalue or Not 11-23 Presentation and Analysis 11-23 Presentation of Property, Plant, Equipment, and Mineral Resources 11-23 Analysis of Property, Plant, and Equipment 11-25 Appendix 11A Revaluation of Property, Plant, and Equipment 11-26 Revaluation of Land 11-27 Revaluation–2022: Valuation Increase 11-27 Revaluation–2023: Decrease below Historical Cost 11-27 Revaluation–2024: Recovery of Impairment Loss 11-28 Revaluation of Depreciable Assets 11-29 Revaluation–2022: Valuation Increase 11-29 Revaluation–2023: Decrease below Historical Cost 11-30 Revaluation–2024: Recovery of Impairment Loss 11-31 Global Accounting Insights 11-55 12 Intangible Assets 12-1 Is This Sustainable? 12-1 Intangible Asset Issues 12-2 Characteristics 12-2 Valuation 12-3 Amortization of Intangibles 12-4 Types of Intangible Assets 12-6 Marketing-Related Intangible Assets 12-6 Customer-Related Intangible Assets 12-6 Artistic-Related Intangible Assets 12-7 Contract-Related Intangible Assets 12-8 Technology-Related Intangible Assets 12-8 What Do the Numbers Mean? Patent Battles 12-9 What Do the Numbers Mean? Patents–Strategic Lifeblood 12-10 Goodwill 12-10 Recording Goodwill 12-11 Goodwill Write-Off 12-13 Bargain Purchase 12-13 Impairment and Presentation of Intangible Assets 12-13 Impairment of Limited-Life Intangibles 12-14 Reversal of Impairment Loss 12-14 Impairment of Indefinite-Life Intangibles Other Than Goodwill 12-15 Impairment of Goodwill 12-15 Presentation of Intangible Assets 12-17 Research and Development Costs 12-18 What Do the Numbers Mean? Global R&D Incentives 12-18 Identifying R&D Activities 12-19 Accounting for R&D Activities 12-20 Evolving Issue Recognition of R&D and Internally Generated Intangibles 12-21 Costs Similar to R&D Costs 12-21 What Do the Numbers Mean? Branded 12-22 Presentation of Research and Development Costs 12-23 Global Accounting Insights 12-42 13 Current Liabilities, Provisions, and Contingencies 13-1 Now You See It, Now You Don’t 13-2 Current Liabilities 13-3 Accounts Payable 13-4 Notes Payable 13-4 Current Maturities of Long-Term Debt 13-6 Short-Term Obligations Expected to Be Refinanced 13-6 What Do the Numbers Mean? Going, Going, Gone 13-7 Dividends Payable 13-8 Customer Advances and Deposits 13-8 Unearned Revenues 13-8 What Do the Numbers Mean? SAP’s Liabilities–Good or Bad? 13-9 Sales and Value-Added Taxes Payable 13-9 Income Taxes Payable 13-11 Employee-Related Liabilities 13-12 Provisions 13-15 Recognition of a Provision 13-15 Measurement of Provisions 13-17 Common Types of Provisions 13-17 What Do the Numbers Mean? Frequent Flyers 13-21 Evolving Issue Greenhouse Gases: Let’s Be Standard-Setters 13-23 Disclosures Related to Provisions 13-26 Contingencies 13-27 Contingent Liabilities 13-27 Contingent Assets 13-28 Presentation and Analysis 13-29 Presentation of Current Liabilities 13-29 Analysis of Current Liabilities 13-30 14 Non-Current Liabilities 14-1 Going Long 14-1 Bonds Payable 14-3 Types of Bonds 14-3 Issuing Bonds 14-4 What Do the Numbers Mean? All About Bonds 14-4 Valuation and Accounting for Bonds Payable 14-4 What Do the Numbers Mean? How About a 100-Year Bond? 14-7 Effective-Interest Method 14-7 Long-Term Notes Payable 14-12 Notes Issued at Face Value 14-12 Notes Not Issued at Face Value 14-12 What Do the Numbers Mean? Negative Interest Rates–Is That Even Possible? 14-14 Special Notes Payable Situations 14-15 Mortgage Notes Payable 14-17 Extinguishment of Non-Current Liabilities 14-18 Extinguishment with Cash Before Maturity 14-18 Extinguishment by Exchanging Assets or Securities 14-19 Extinguishment with Modification of Terms 14-20 Presentation and Analysis 14-22 Fair Value Option 14-22 Off-Balance-Sheet Financing 14-23 Evolving Issue Off-and-On Reporting 14-25 Presentation of Non-Current Liabilities 14-25 Analysis of Non-Current Liabilities 14-26 Global Accounting Insights 14-45 15 Equity 15-1 It’s a Global Market 15-1 Corporate Capital 15-3 Corporate Form 15-3 What Do the Numbers Mean? A Class (B) Act 15-5 Components of Equity 15-5 Issuance of Shares 15-6 Preference Shares 15-9 Reacquisition of Shares 15-11 Purchase of Treasury Shares 15-12 Sale of Treasury Shares 15-14 Retiring Treasury Shares 15-15 What Do the Numbers Mean? Signals to Buy? 15-15 Dividend Policy 15-15 Financial Condition and Dividend Distributions 15-16 Types of Dividends 15-16 What Do the Numbers Mean? Dividends Up, Dividends Down 15-18 Share Dividends and Share Splits 15-20 Presentation and Analysis of Equity 15-22 Presentation of Equity 15-22 Analysis 15-24 Appendix 15A Dividend Preferences and Book Value per Share 15-26 Dividend Preferences 15-26 Book Value per Share 15-27 Global Accounting Insights 15-48 16 Dilutive Securities and Earnings per Share 16-1 Breaking the Options Habit 16-2 Dilutive Securities 16-3 Debt and Equity 16-3 Convertible Debt 16-3 Convertible Preference Shares 16-8 What Do the Numbers Mean? How Low Can You Go? 16-9 Share Warrants 16-9 Share Warrants Issued with Other Securities 16-10 Rights to Purchase Additional Shares 16-11 Share Compensation Plans 16-12 Measurement–Share Compensation 16-13 Recognition–Share Compensation 16-14 Restricted Shares 16-16 Employee Share-Purchase Plans 16-17 Disclosure of Compensation Plans 16-18 Debate over Share-Option Accounting 16-18 Basic Earnings per Share 16-20 Earnings per Share–Simple Capital Structure 16-20 Comprehensive Example 16-23 Diluted Earnings per Share 16-24 Diluted EPS–Convertible Securities 16-25 Diluted EPS–Options and Warrants 16-27 Contingently Issuable Shares 16-28 Antidilution Revisited 16-28 EPS Presentation and Disclosure 16-29 Summary of EPS Computation 16-30 Appendix 16A Accounting for Share-Appreciation Rights 16-31 SARS–Share-Based Equity Awards 16-32 SARS–Share-Based Liability Awards 16-32 Share-Appreciation Rights Example 16-33 Appendix 16B Comprehensive Earnings per Share Example 16-34 Diluted Earnings Per Share 16-35 Global Accounting Insights 16-59 17 Investments 17-1 Winners and Losers 17-1 Debt Investments 17-3 Classification and Measurement of Financial Assets 17-3 A Closer Look at Debt Investments 17-4 What Do the Numbers Mean? What is Fair Value? 17-12 Equity Investments 17-13 Holdings of Less Than 20% 17-14 What Do the Numbers Mean? The Fair Value Challenge 17-18 Holdings Between 20% and 50% 17-19 Holdings of More Than 50% 17-21 What Do the Numbers Mean? Who’s in Control Here? 17-21 Summary of Reporting Treatment of Investments 17-21 Other Reporting Issues 17-22 Impairment of Value 17-22 What Do the Numbers Mean? Will We Be Ready the Next Time Around? 17-23 Recycling Adjustments 17-27 Transfers Between Categories 17-30 Evolving Issue Fair Value Controversy 17-31 Appendix 17A Accounting for Derivative Instruments 17-32 Defining Derivatives 17-32 Who Uses Derivatives, and Why? 17-33 Producers and Consumers 17-33 Speculators and Arbitrageurs 17-33 Basic Principles in Accounting for Derivatives 17-34 Derivative Financial Instrument (Speculation) 17-35 Differences between Traditional and Derivative Financial Instruments 17-37 Derivatives Used for Hedging 17-37 What Do the Numbers Mean? Risky Business 17-38 Fair Value Hedge 17-38 Cash Flow Hedge 17-40 Other Reporting Issues 17-42 Embedded Derivatives 17-42 Qualifying Hedge Criteria 17-43 Summary of Derivatives Accounting 17-44 Comprehensive Hedge Accounting Example 17-45 Fair Value Hedge 17-45 Financial Statement Presentation of an Interest Rate Swap 17-47 Controversy and Concluding Remarks 17-48 Appendix 17B Fair Value Disclosures 17-48 Disclosure of Fair Value Information: Financial Instruments 17-49 Disclosure of Fair Values: Impaired Assets or Liabilities 17-51 Conclusion 17-52 Global Accounting Insights 17-77 18 Revenue Recognition 18-1 It’s Back 18-1 Fundamentals of Revenue Recognition 18-3 Background 18-3 Revenue Recognition Standard 18-4 Overview of the Five-Step Process–Airbus 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 What Do the Numbers Mean? Boomerang Sales! 18-22 Repurchase Agreements 18-23 Bill-and-Hold Arrangements 18-24 Principal-Agent Relationships 18-24 Consignments 18-25 Warranties 18-26 Non-refundable Upfront Fees 18-28 Summary 18-29 Presentation and Disclosure 18-29 Presentation 18-29 Disclosure 18-33 Evolving Issue Converged, Converging or Diverging? 18-34 Appendix 18A Long-Term Construction Contracts 18-34 Revenue Recognition over Time 18-34 Percentage-of-Completion Method 18-35 Cost-Recovery (Zero-Profit) Method 18-40 Long-Term Contract Losses 18-42 Appendix 18B Revenue Recognition for Franchises 18-44 Franchise Accounting 18-45 Recognition of Franchise Rights Revenue over Time 18-47 19 Accounting for Income Taxes 19-1 Safe (Tax) Haven? 19-1 Fundamentals of Accounting for Income Taxes 19-3 Future Taxable Amounts and Deferred Taxes 19-5 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 (Non-Recognition) 19-11 Additional Issues 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 Accounting for Net Operating Losses 19-18 Loss Carryforward 19-18 Loss Carryforward Example 19-19 Evolving Issue Uncertain Tax Positions 19-22 Financial Statement Presentation 19-22 Statement of Financial Position 19-22 Income Statement 19-23 Tax Reconciliation 19-25 What Do the Numbers Mean? The Tax Twist 19-26 Review of the Asset-Liability Method 19-27 Appendix 19A Comprehensive Example of Interperiod Tax Allocation 19-28 First Year–2021 19-28 Taxable Income and Income Taxes Payable–2021 19-29 Computing Deferred Income Taxes–End of 2021 19-29 Deferred Tax Expense (Benefit) and the Journal Entry to Record Income Taxes–2021 19-30 Financial Statement Presentation–2021 19-31 Second Year–2022 19-32 Taxable Income and Income Taxes Payable–2022 19-32 Computing Deferred Income Taxes–End of 2022 19-33 Deferred Tax Expense (Benefit) and the Journal Entry to Record Income Taxes–2022 19-33 Financial Statement Presentation–2022 19-34 Appendix 19B Accounting for Net Operating Loss Carrybacks 19-34 Loss Carryback 19-35 Loss Carryback Example 19-35 Loss Carryback with Carryforward 19-36 Global Accounting Insights 19-58 20 Accounting for Pensions and Postretirement Benefits 20-1 Pension Peril 20-2 Fundamentals of Pension Plan Accounting 20-3 Defined Contribution Plan 20-4 Defined Benefit Plan 20-4 What Do the Numbers Mean? Which Plan is Right for You? 20-5 The Role of Actuaries in Pension Accounting 20-6 Measures of the Liability 20-6 Reporting Changes in the Defined Benefit Obligation (Asset) 20-8 Plan Assets and Actual Return 20-10 Using a Pension Worksheet 20-11 2022 Entries and Worksheet 20-12 Funded Status 20-13 Past Service Cost 20-13 2023 Entries and Worksheet 20-14 Remeasurements 20-15 Asset Gains and Losses 20-16 Liability Gains and Losses 20-16 2024 Entries and Worksheet 20-16 What Do the Numbers Mean? Roller Coaster 20-19 Reporting Pension Plans in Financial Statements 20-19 Within the Financial Statements 20-20 Within the Notes to the Financial Statements 20-22 Other Postretirement Benefits 20-23 Concluding Observations 20-24 What Do the Numbers Mean? How’s Your Volatility? 20-24 Global Accounting Insights 20-45 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 Lessee Accounting 21-6 Measurement of the Lease Liability and Lease Asset 21-7 Subsequent Lessee Accounting 21-9 Summary of Lessee Accounting 21-17 What Do the Numbers Mean? Your Lease is Killing My Income 21-18 Lessor Accounting 21-18 Economics of Leasing 21-18 Classification of Leases by the Lessor 21-19 What Do the Numbers Mean? Not So Fast 21-21 Accounting Measurement and Presentation 21-21 Lessor Accounting for Operating Leases 21-26 Special Lease Accounting Problems 21-28 Other Lease Adjustments 21-28 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 21-36 Sale Transaction 21-36 Financing Transaction (Failed Sale) 21-37 Sale-Leaseback Example 21-37 Appendix 21B Comprehensive Example 21-39 Lease Terms: Scenario 1 21-39 Lease Classification 21-40 Lessee/Lessor Accounting 21-40 Lease Terms: Scenario 2 21-42 Lease Classification 21-42 Lessee Accounting 21-43 Lessor Accounting–Operating Lease 21-44 Global Accounting Insights 21-69 22 Accounting Changes and Error Analysis 22-1 Needed: Valid Comparisons 22-2 Accounting Changes 22-3 Background 22-3 Changes in Accounting Policy 22-3 What Do the Numbers Mean? Comparison Challenges–Squared 22-5 Impracticability 22-14 Changes in Accounting Estimates 22-14 Prospective Reporting 22-15 What Do the Numbers Mean? A Change for the Better? 22-16 Disclosures 22-17 Accounting Errors 22-17 Example of Error Correction 22-18 What Do the Numbers Mean? Guard the Financial Statements! 22-20 Summary of Accounting Changes and Correction of Errors 22-21 What Do the Numbers Mean? What’s Your Motivation? 22-22 Error Analysis 22-23 Statement of Financial Position Errors 22-23 Income Statement Errors 22-23 Statement of Financial Position and Income Statement Errors 22-24 Comprehensive Example: Numerous Errors 22-27 Preparation of Financial Statements with Error Corrections 22-30 Global Accounting Insights 22-54 23 Statement of Cash Flows 23-1 Show Me the Money! 23-1 The Statement of Cash Flows 23-2 Usefulness of the Statement of Cash Flows 23-3 Classification of Cash Flows 23-3 What Do the Numbers Mean? How’s My Cash Flow? 23-5 Cash and Cash Equivalents 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 Sources of Information for the Statement of Cash Flows 23-16 Net Cash Flow from Operating Activities–Direct Method 23-16 Evolving Issue Direct versus Indirect 23-21 Special Problems in Statement Preparation 23-22 Adjustments to Net Income 23-22 Accounts Receivable (Net) 23-25 Other Working Capital Changes 23-27 Net Losses 23-27 Disclosures 23-28 What Do the Numbers Mean? Better than ROA? 23-29 Use of a Worksheet 23-30 Preparation of the Worksheet 23-31 Analysis of Transactions 23-31 Preparation of Final Statement 23-38 Global Accounting Insights 23-65 24 Presentation and Disclosure in Financial Reporting 24-1 We Need Better, Not More 24-1 Full Disclosure Principle 24-3 Increase in Reporting Requirements 24-4 Differential Disclosure 24-5 Notes to the Financial Statements 24-5 What Do the Numbers Mean? Footnote Secrets 24-8 Disclosure Issues 24-8 Disclosure of Special Transactions or Events 24-8 Events after the Reporting Period (Subsequent Events) 24-10 Reporting for Diversified (Conglomerate) Companies 24-12 Interim Reports 24-17 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 24-26 Management’s Reports 24-26 Current Reporting Issues 24-31 Reporting on Financial Forecasts and Projections 24-31 What Do the Numbers Mean? Global Forecasts 24-32 Intern
