About the Authors xi

About the Financial Accounting Professors xiii

Welcome to Financial Accounting and Reporting xv

Conceptual Framework and Financial Reporting Financial Accounting Standards Board (FASB) 2

Overview of U.S. 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 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 48

IFRS--General-Purpose Financial Statements 51

Income Statement 58

Balance Sheet/Statement of Financial Position 64

Statement of Comprehensive Income 72

Statement of Changes in Equity 76

Statement of Cash Flows 79

Sources and Uses of Cash 79

Operating, Investing, and Financing Activities 82

Operating Cash Flows--Indirect Method 90

Notes to Financial Statements 98

Notes to Financial Statements 98

Risks and Uncertainties 104

Subsequent Events 109

Exit or Disposal Activities and Discontinued Operations 112

Evaluating Financial Statements 117

Ratios--Liquidity/Solvency and Operational 117

Ratios--Profitability and Equity 121

Consolidated Financial Statements 124

Introduction to Consolidated Financial Statements 124

Consolidating Process 128

Consolidation at Acquisition 128

Consolidation Subsequent to Acquisition 135

Consolidation Less than 100% Ownership 140

Intercompany (I/C) Transactions and Balances 145

Intercompany I/C Transactions and Balances--Introduction 145

Intercompany (I/C) Inventory Transactions 148

Intercompany (I/C) Fixed Asset Transactions 157

Intercompany (I/C) Bond Transactions 168

IFRS--Consolidations 176

Combined Financial Statements 181

Variable Interest Entities (VIEs) 183

Public Company Reporting Topics (SEC, EPS, Interim, and Segment) 185

U.S. Securities and Exchange Commission (SEC) 185

SEC--Role and Standard-Setting Process 185

SEC Reporting Requirements 188

Earnings Per Share 193

Introduction to Earnings per Share 193

Basic Earnings per Share 197

Diluted Earnings per Share 201

Earnings per Share and IFRS 211

Segment Reporting 212

Interim Financial Reporting 216

Interim Reporting Principles 216

Interim Reporting--Details and IFRS 220

Special Purpose Frameworks 225

Cash, Modified Cash, Income Tax 225

Private Company Council 229

Select Financial Statement Accounts 233

Cash and Cash Equivalents 234

Cash 234

Bank Reconciliations 237

Receivables 240

Accounts Receivable--Accounting and Reporting 240

Uncollectible--Direct Write-Off and Allowance 243

Allowance--Income Statement and Balance Sheet Approach 245

Notes Receivable 249

Criteria for Sale of Receivables 253

Factoring, Assignment, and Pledging 256

Notes Receivable--Impairment 259

Inventory 261

Introduction to Inventory 261

Periodic Inventory System and Cost-Flow Assumption 265

Perpetual Inventory System and Cost-Flow Assumption 272

Comparison: FIFO, LIFO, and Weighted Average 276

Dollar-Value LIFO 279

Gross Margin and Relative Sales ValueMethod 283

Retail Inventory Method 286

Dollar-Value LIFO Retail 290

Subsequent Measurement of Inventory 292

Inventory Errors 296

Losses on Purchase Commitments 298

Inventory and IFRS 300

Property, Plant, and Equipment 302

Categories and Presentation 302

Capitalized Costs 303

Valuation 305

Interest Capitalization Basics 308

Interest Capitalization Limits 311

Post-Acquisition Expenditures 316

Non-Accelerated Depreciation Methods 318

Accelerated Depreciation Methods 321

Natural Resources 325

Impairment--Assets and Assets Held-for-Sale 329

Impairment and IFRS 333

PPE and IFRS 335

Nonmonetary Exchange 338

Commercial Substance 338

No Commercial Substance 341

Nonmonetary Exchanges and IFRS 344

Investments 345

Introduction--Investments in Equity and Debt Securities 345

Investments in Equity Securities 350

Equity Investments at Fair Value 350

Equity Investments at Cost 354

Equity Investments using Equity Method Accounting 358

Investments in Debt Securities 366

Debt Investments at Fair Value 366

Debt Investments at Amortized Cost 375

Investor Stock Dividends, Splits, and Rights 379

Comparison and Transfers of Investments 382

IFRS--Investments in Equity and Debt 390

Intangible Assets--Goodwill and Other 395

Introduction to Intangible Assets 395

Goodwill 400

Research and Development Costs 407

Software Costs 410

Intangibles and IFRS 414

Payables and Accrued Liabilities 417

Introduction to Current Liabilities 417

Specific Current Liabilities 420

Asset Retirement Obligations and Environmental Liabilities 422

Payroll and Compensated Absences 425

Contingencies, Commitments, and Guarantees (Provisions) 429

Contingent Liability Principles 429

Examples of Contingent Liabilities 432

IFRS--Contingencies 435

Long-Term Debt (Financial Liabilities) 437

Notes Payable 437

Bonds Payable 443

Bond Accounting Principles 443

Bond Complications 447

Bond Fair Value Option, International 450

Modification and Debt Retirement 453

Refinancing Short-Term Obligations 453

Debt Retirement 455

Troubled Debt 457

Debt Covenant Compliance 464

Distinguishing Liabilities from Equity 469

Equity 473

Owners'' Equity Basics 473

Stock Issuance 482

Preferred Stock 487

Treasury Stock 490

Dividends 495

Stock Dividends and Splits 499

Dividend Allocation 502

Stock Rights, Retained Earnings 506

Book Value per Share 510

Select Transactions 513

Revenue Recognition 514

Five Steps of Revenue Recognition 514

Determining Transaction Price 519

Allocating Transaction Price 524

Special Issues in Revenue Recognition 527

Contract Modifications and Other Considerations 533

Accounting for Construction Contracts 541

Employee/Retiree Benefit Plans 548

Pension Principles, Reporting 548

Pension Expense Basics 553

Pension Expense, Delayed Recognition 556

Pension Plan Reporting, International 565

Postretirement Benefits 568

Share-Based Payments 574

Stock Options 574

Stock Awards 582

Stock Appreciation Rights 586

Income Taxes 589

Income Tax Basics 589

Permanent Differences 592

Temporary Differences 594

Tax Accrual Entry 600

Interperiod Tax Allocation Process 604

Valuation Allowance for Deferred Tax Assets 608

Uncertain Tax Positions 611

Net Operating Losses 614

Accounting Changes and Error Corrections 621

Types of Changes and Accounting Approaches 621

Retrospective Application 625

Prospective Application 628

Accounting Errors--Restatement 631

Business Combinations 635

Introduction to Business Combinations 635

AcquisitionMethod of Accounting 639

Introduction to Acquisition Method of Accounting 639

Determining the Cost of the Business Acquired 643

Recognizing/Measuring Assets, Liabilities, and Noncontrolling Interest 647

Recognizing/Measuring Goodwill or Bargain Purchase Amount 652

Post-Acquisition Issues 655

Disclosure Requirements--Acquisition Method 659

Recording Business Combinations 661

IFRS--Business Combinations 672

Financial Instruments 675

Financial Instruments Introduction 675

IFRS--Financial Instruments 678

Financial Instruments Disclosures 683

Derivatives and Hedging 686

Derivatives Introduction 686

Hedging Introduction 691

Fair Value Hedges 696

Cash-Flow Hedges 699

Foreign Currency Hedges 704

Effectiveness and Disclosure 706

IFRS--Hedging 710

Foreign Currency Denominated Transactions 713

Introduction and Definitions 713

Import Transactions 718

Export Transactions 721

Foreign Currency Hedges 723

Introduction to Forward and Option Contracts 723

Natural (Economic) Hedge 728

Hedging Forecasted Transactions and Firm Commitment 732

Hedging Asset/Liability, Available for Sale, and Foreign Operations 736

Speculation and Summary 739

Conversion of Foreign Financial Statements 741

Introduction to Conversion of Foreign Financial Statements 741

Conversion Using Translation 743

Conversion Using Remeasurement 746

Remeasurement, Translation, and IFRS 750

Leases 752

Background, Short-Term Leases, and Operating Leases 752

Finance Lease Basics 758

Finance Lease--Lessee 763

Sales-Type Leases--Lessor 769

Direct Financing Leases--Lessor 774

Sale-Leasebacks and Disclosures 780

Additional Aspects of Leases 785

Not-for-Profit Organizations 790

Introduction to Types of N