Intermediate Accounting

Cover Page......Page 1
Half Title Page......Page 2
Title Page......Page 4
Copyright Page......Page 5
Dedication......Page 6
About the Authors......Page 8
What’s New in the Seventh Edition?......Page 23
Acknowledgments......Page 25
We Are Grateful......Page 29
Contents in Brief......Page 30
Contents......Page 31
CHAPTER 1 Environment and Theoretical Structure of Financial Accounting......Page 41
PART A FINANCIAL ACCOUNTING ENVIRONMENT......Page 42
The Economic Environment and Financial Reporting......Page 44
Cash versus Accrual Accounting......Page 45
Historical Perspective and Standards......Page 47
The Establishment of Accounting Standards......Page 52
The Role of the Auditor......Page 54
Financial Reporting Reform......Page 55
A Move Away from Rules-Based Standards?......Page 56
Ethics in Accounting......Page 57
PART B THE CONCEPTUAL FRAMEWORK......Page 58
Qualitative Characteristics of Financial Reporting Information......Page 60
Fundamental Qualitative Characteristics......Page 61
Enhancing Qualitative Characteristics......Page 62
Elements of Financial Statements......Page 63
Economic Entity Assumption......Page 64
Monetary Unit Assumption......Page 65
Recognition......Page 66
Measurement......Page 68
Evolving GAAP......Page 71
Questions For Review of Key Topics......Page 75
Brief Exercises......Page 76
Exercises......Page 77
CPA and CMA Exam Questions......Page 81
Broaden Your Perspective......Page 83
Air France–KLM Case......Page 87
CHAPTER 2 Review of the Accounting Process......Page 89
The Accounting Equation......Page 91
Account Relationships......Page 93
The Accounting Processing Cycle......Page 94
Concept Review Exercise:Journal Entries for External Transactions......Page 103
Adjusting Entries......Page 105
Prepayments......Page 106
Accruals......Page 109
Estimates......Page 111
Concept Review Exercise: Adjusting Entries......Page 113
The Income Statement......Page 114
The Balance Sheet......Page 115
The Statement of Cash Flows......Page 117
The Closing Process......Page 118
Concept Review Exercise: Financial Statement Preparation and Closing......Page 120
Conversion from Cash Basis to Accrual Basis......Page 122
Appendix 2A Use of a Worksheet......Page 126
APPENDIX 2B Reversing Entries......Page 127
APPENDIX 2C Subsidiary Ledgers and Special Journals......Page 129
Brief Exercises......Page 132
Exercises......Page 133
CPA Review Questions......Page 140
Problems......Page 141
Broaden Your Perspective......Page 148
CHAPTER 3 The Balance Sheet and Financial Disclosures......Page 151
Usefulness and Limitations......Page 154
Assets......Page 155
Liabilities......Page 159
Shareholders’ Equity......Page 160
Concept Review Exercise: Balance Sheet Classification......Page 162
PART B FINANCIAL DISCLOSURES......Page 163
Subsequent Events......Page 164
Noteworthy Events and Transactions......Page 165
Management Discussion and Analysis......Page 167
Management’s Responsibilities......Page 168
Auditors’ Report......Page 169
Compensation of Directors and Top Executives......Page 170
Using Financial Statement Information......Page 171
Liquidity Ratios......Page 173
Financing Ratios......Page 174
APPENDIX 3 Reporting Segment Information......Page 179
Questions For Review of Key Topics......Page 182
Brief Exercises......Page 183
Exercises......Page 184
CPA and CMA Review Questions......Page 192
Problems......Page 193
Broaden Your Perspective......Page 199
Air France–KLM Case......Page 207
CHAPTER 4 The Income Statement, Comprehensive Income, and the Statement of Cash Flows......Page 209
Income from Continuing Operations......Page 211
Revenues, Expenses, Gains, and Losses......Page 212
Operating versus Nonoperating Income......Page 213
Income Statement Formats......Page 214
Manipulating Income and Income Smoothing......Page 216
Operating Income and Earnings Quality......Page 217
Nonoperating Income and Earnings Quality......Page 220
Intraperiod Income Tax Allocation......Page 221
Discontinued Operations......Page 223
Extraordinary Items......Page 227
Unusual or Infrequent Items......Page 228
Change in Accounting Principle......Page 229
Prior Period Adjustments......Page 230
Comprehensive Income......Page 231
Flexibility in Reporting......Page 232
Accumulated Other Comprehensive Income......Page 234
Concept Review Exercise: Income Statement Presentation; Comprehensive Income......Page 235
Operating Activities......Page 237
Investing Activities......Page 241
Noncash Investing and Financing Activities......Page 242
Concept Review Exercise: Statement of Cash Flows......Page 243
Brief Exercises......Page 247
Exercises......Page 249
CPA and CMA Review Questions......Page 255
Problems......Page 257
Broaden Your Perspective......Page 262
CPA Simulation 4–1......Page 268
CHAPTER 5 Income Measurement and Profitability Analysis......Page 269
PART A REVENUE RECOGNITION......Page 271
Service Revenue......Page 275
Is the Seller a Principal or an Agent?......Page 276
Revenue Recognition after Delivery......Page 277
Installment Sales......Page 278
Concept Review Exercise: Installment Sales......Page 281
Right of Return......Page 282
Revenue Recognition Prior to Delivery......Page 283
A Comparison of the Completed Contract and Percentage-of-Completion Methods......Page 290
Concept Review Exercise: Long-Term Construction Contracts......Page 295
Software and Other Multiple-Element Arrangements......Page 297
Franchise Sales......Page 299
Activity Ratios......Page 302
Profitability Ratios......Page 303
Profitability Analysis—An Illustration......Page 306
APPENDIX 5: Interim Reporting......Page 309
Brief Exercises......Page 312
Exercises......Page 314
CPA and CMA Review Questions......Page 321
Problems......Page 324
Broaden Your Perspective......Page 331
Air France–KLM Case......Page 338
Where We’re Headed A Chapter Supplement: REVENUE RECOGNITION......Page 339
Concept Review Exercise: Accounting for Revenue In Single-Period Contracts......Page 352
Brief Exercises......Page 354
Exercises......Page 355
Problems......Page 356
CHAPTER 6 Time Value of Money Concepts......Page 359
Simple versus Compound Interest......Page 361
Future Value of a Single Amount......Page 362
Present Value of a Single Amount......Page 363
Solving for Other Values When FV and PV are Known......Page 365
Concept Review Exercise: Valuing a Single Cash Flow Amount......Page 366
Preview of Accounting Applications of Present Value Techniques—Single Cash Amount......Page 367
Expected Cash Flow Approach......Page 369
PART B BASIC ANNUITIES......Page 370
Future Value of an Ordinary Annuity......Page 371
Future Value of an Annuity Due......Page 372
Present Value of an Ordinary Annuity......Page 373
Present Value of an Annuity Due......Page 375
Present Value of a Deferred Annuity......Page 376
Financial Calculators and Excel......Page 377
Solving for Unknown Values in Present Value Situations......Page 378
Concept Review Exercise: Annuities......Page 380
Valuation of Long-Term Bonds......Page 381
Valuation of Long-Term Leases......Page 382
Valuation of Pension Obligations......Page 383
Summary of Time Value of Money Concepts......Page 384
Brief Exercises......Page 386
Exercises......Page 387
CPA and CMA Review Questions......Page 390
Problems......Page 392
Broaden Your Perspective......Page 395
CHAPTER 7 Cash and Receivables......Page 397
PART A CASH AND CASH EQUIVALENTS......Page 398
Internal Control......Page 399
Internal Control Procedures—Cash Disbursements......Page 400
Restricted Cash and Compensating Balances......Page 401
Decision Makers’ Perspective......Page 402
Initial Valuation of Accounts Receivable......Page 403
Subsequent Valuation of Accounts Receivable......Page 405
Concept Review Exercise: Uncollectible Accounts Receivable......Page 412
Notes Receivable......Page 413
Noninterest-Bearing Notes......Page 414
Subsequent Valuation of Notes Receivable......Page 416
Secured Borrowing......Page 418
Sale of Receivables......Page 419
Transfers of Notes Receivable......Page 421
Deciding Whether to Account for a Transfer as a Sale or a Secured Borrowing......Page 422
Disclosures......Page 425
Concept Review Exercise: Financing with Receivables......Page 426
Decision Makers’ Perspective......Page 427
APPENDIX 7A Cash Controls......Page 431
Appendix 7B: Accounting For Impairment of a Receivable and a Troubled Debt Restructuring......Page 434
Questions For Review of Key Topics......Page 437
Brief Exercises......Page 438
Exercises......Page 440
CPA and CMA Review Questions......Page 446
Problems......Page 448
Broaden Your Perspective......Page 454
Air France–KLM Case......Page 458
CHAPTER 8 Inventories: Measurement......Page 459
Manufacturing Inventories......Page 461
Perpetual Inventory System......Page 463
Periodic Inventory System......Page 464
Physical Quantities Included in Inventory......Page 465
Expenditures Included in Inventory......Page 466
Inventory Cost Flow Assumptions......Page 469
Average Cost......Page 470
First-In, First-Out (FIFO)......Page 472
Last-In, First-Out (LIFO)......Page 473
Comparison of Cost Flow Methods......Page 475
Decision Makers’ Perspective—Factors Influencing Method Choice......Page 476
Concept Review Exercise: Inventory Cost Flow Methods......Page 479
Decision Makers’ Perspective......Page 482
LIFO Inventory Pools......Page 485
Dollar-Value LIFO......Page 486
The DVL Inventory Estimation Technique......Page 487
Concept Review Exercise: Dollar-Value LIFO......Page 488
Questions For Review of Key Topics......Page 490
Brief Exercises......Page 491
Exercises......Page 492
CPA and CMA Review Questions......Page 498
Problems......Page 500
Broaden Your Perspective......Page 507
CPA Simulation 8–1......Page 511
CHAPTER 9 Inventories: Additional Issues......Page 513
PART A REPORTING—LOWER OF COST OR MARKET......Page 515
Determining Market Value......Page 516
Applying Lower of Cost or Market......Page 518
Adjusting Cost to Market......Page 519
Concept Review Exercise: Lower of Cost or Market......Page 521
PART B INVENTORY ESTIMATION TECHNIQUES......Page 522
The Gross Profit Method......Page 523
A Word of Caution......Page 524
The Retail Inventory Method......Page 525
Retail Terminology......Page 526
Cost Flow Methods......Page 527
Other Issues Pertaining to the Retail Method......Page 530
Concept Review Exercise: Retail Inventory Method......Page 531
PART C DOLLAR-VALUE LIFO RETAIL......Page 533
Concept Review Exercise: Dollar-Value LIFO Retail Method......Page 535
Most Inventory Changes......Page 536
Change to the LIFO Method......Page 538
Inventory Errors......Page 539
Concept Review Exercise: Inventory Errors......Page 541
Earnings Quality......Page 542
Appendix 9: Purchase Commitments......Page 544
Questions For Review of Key Topics......Page 545
Brief Exercises......Page 546
Exercises......Page 548
CPA and CMA Review Questions......Page 555
Problems......Page 557
Broaden Your Perspective......Page 563
CPA Simulation 9–1......Page 566
CHAPTER 10 Property, Plant, and Equipment and Intangible Assets: Acquisition and Disposition......Page 567
Types of Assets......Page 569
Property, Plant, and Equipment......Page 571
Intangible Assets......Page 576
Lump-Sum Purchases......Page 579
Noncash Acquisitions......Page 580
Deferred Payments......Page 581
Issuance of Equity Securities......Page 582
Donated Assets......Page 583
Decision Makers’ Perspective......Page 584
Dispositions......Page 585
Exchanges......Page 586
Fair Value Not Determinable......Page 587
Exchange Lacks Commercial Substance......Page 588
Concept Review Exercise: Exchanges......Page 589
Interest Capitalization......Page 590
Research and Development (R&D)......Page 595
APPENDIX 10 Oil And Gas Accounting......Page 603
Questions For Review of Key Topics......Page 604
Brief Exercises......Page 605
Exercises......Page 607
CPA and CMA Review Questions......Page 613
Problems......Page 616
Broaden Your Perspective......Page 620
Air France–KLM Case......Page 624
CPA Simulation 10–1......Page 625
CHAPTER 11 Property, Plant, and Equipment and Intangible Assets: Utilization and Impairment......Page 627
Cost Allocation—an Overview......Page 629
Allocation Base......Page 630
Time-Based Depreciation Methods......Page 631
Activity-Based Depreciation Methods......Page 633
Decision Makers’ Perspective—Selecting A Depreciation Method......Page 634
Concept Review Exercise: Depreciation Methods......Page 636
Group and Composite Depreciation Methods......Page 637
Depletion of Natural Resources......Page 641
Amortization of Intangible Assets......Page 642
Intangible Assets Subject to Amortization......Page 643
Intangible Assets Not Subject to Amortization......Page 644
Concept Review Exercise: Depletion and Amortization......Page 646
Partial Periods......Page 647
Changes in Estimates......Page 648
Change in Depreciation, Amortization, or Depletion Method......Page 649
Error Correction......Page 650
Assets to Be Held and Used......Page 652
Assets to Be Sold......Page 659
Impairment Losses and Earnings Quality......Page 660
Expenditures Subsequent to Acquisition......Page 661
Improvements......Page 662
Costs of Defending Intangible Rights......Page 663
APPENDIX 11B Retirement And Replacement Methods Of Depreciation......Page 666
Brief Exercises......Page 668
Exercises......Page 670
CPA and CMA Review Questions......Page 677
Problems......Page 680
Broaden Your Perspective......Page 685
CPA Simulation 11–1......Page 690
CHAPTER 12 Investments......Page 691
PART A INVESTOR LACKS SIGNIFICANT INFLUENCE......Page 693
Securities to Be Held to Maturity......Page 695
Trading Securities......Page 698
Securities Available-for-Sale......Page 702
Comparison of HTM, TS, and AFS Approaches......Page 708
Transfers between Reporting Categories......Page 710
Fair Value Option......Page 711
Impairment of Investments......Page 712
Concept Review Exercise: Various Investment Securities......Page 713
Financial Statement Presentation and Disclosure......Page 716
How the Equity Method Relates to Consolidated Financial Statements......Page 718
A Single Entity Concept......Page 719
Further Adjustments......Page 721
Reporting the Investment......Page 723
What If Conditions Change?......Page 725
Comparison of Fair Value and the Equity Method......Page 726
Fair Value Option......Page 727
Concept Review Exercise: The Equity Method......Page 728
Decision Makers’ Perspective......Page 730
Financial Instruments and Investment Derivatives......Page 731
APPENDIX 12A Other Investments (Special Purpose Funds, Investments in Life Insurance Policies)......Page 733
APPENDIX 12B Impairment of Investments......Page 735
Questions For Review of Key Topics......Page 741
Brief Exercises......Page 742
Exercises......Page 744
CPA and CMA Review Questions......Page 751
Problems......Page 754
Broaden Your Perspective......Page 760
CPA Simulation 12–1......Page 764
Where We’re Headed A Chapter Supplement: Investments......Page 765
Concept Review Exercise: Identifying the Accounting Approach Used for Investments......Page 771
Brief Exercises......Page 772
Problem......Page 773
CHAPTER 13 Current Liabilities and Contingencies......Page 775
Characteristics of Liabilities......Page 777
What Is a Current Liability?......Page 778
Accounts Payable and Trade Notes Payable......Page 779
Short-Term Notes Payable......Page 780
Commercial Paper......Page 782
Salaries, Commissions, and Bonuses......Page 783
Deposits and Advances from Customers......Page 785
A Closer Look at the Current and Noncurrent Classification......Page 787
When Short-Term Obligations Are Expected to Be Refinanced......Page 788
Concept Review Exercise: Current Liabilities......Page 790
Loss Contingencies......Page 791
Product Warranties and Guarantees......Page 793
Premiums......Page 796
Litigation Claims......Page 798
Subsequent Events......Page 799
Unasserted Claims and Assessments......Page 801
Concept Review Exercise: Contingencies......Page 803
Decision Makers’ Perspective......Page 805
APPENDIX 13 Payroll-Related Liabilities......Page 808
Questions For Review of Key Topics......Page 810
Brief Exercises......Page 811
Exercises......Page 812
CPA and CMA Review Questions......Page 819
Problems......Page 821
Broaden Your Perspective......Page 826
Air France–KLM Case......Page 833
CHAPTER 14 Bonds and Long-Term Notes......Page 835
The Nature of Long-Term Debt......Page 836
The Bond Indenture......Page 837
Determining the Selling Price......Page 838
Determining Interest—Effective Interest Method......Page 841
Zero-Coupon Bonds......Page 842
Bonds Sold at a Premium......Page 843
When Financial Statements Are Prepared between Interest Dates......Page 845
The Straight-Line Method—A Practical Expediency......Page 846
Concept Review Exercise: Issuing Bonds and Recording Interest......Page 847
Debt Issue Costs......Page 848
Note Issued for Cash......Page 849
Note Exchanged for Assets or Services......Page 850
Installment Notes......Page 852
Financial Statement Disclosures......Page 853
Decision Makers’ Perspective......Page 854
Concept Review Exercise: Note with an Unrealistic Interest Rate......Page 857
Early Extinguishment of Debt......Page 858
Convertible Bonds......Page 859
When the Conversion Option Is Exercised......Page 861
Bonds with Detachable Warrants......Page 862
Concept Review Exercise: Issuance and Early Extinguishment of Debt......Page 863
PART D OPTION TO REPORT LIABILITIES AT FAIR VALUE......Page 864
Reporting Changes in Fair Value......Page 865
Counterintuitive Effect......Page 867
APPENDIX 14A Bonds Issued Between Interest Dates......Page 869
APPENDIX 14B Troubled Debt Restructuring......Page 870
Questions For Review of Key Topics......Page 874
Brief Exercises......Page 875
Exercises......Page 877
CPA and CMA Review Questions......Page 883
Problems......Page 885
Broaden Your Perspective......Page 891
Air France–KLM Case......Page 895
CPA Simulation 14–1......Page 896
CHAPTER 15 Leases......Page 897
PART A ACCOUNTING BY THE LESSOR AND LESSEE......Page 898
Decision Makers’ Perspective—Advantages of Leasing......Page 899
Capital Leases and Installment Notes Compared......Page 900
Classification Criteria......Page 901
Additional Lessor Conditions......Page 903
Operating Leases......Page 905
Advance Payments......Page 906
Capital Leases—Lessee and Lessor......Page 907
Depreciation......Page 909
Accrued Interest......Page 910
Concept Review Exercise: Direct Financing Lease......Page 911
Sales-Type Leases......Page 912
Bargain Purchase Options......Page 915
Residual Value......Page 917
Effect on the Lessee of a Residual Value......Page 918
Effect on the Lessor of a Residual Value......Page 919
Executory Costs......Page 922
Discount Rate......Page 923
When the Lessor’s Implicit Rate is Unknown......Page 924
Lessor’s Initial Direct Costs......Page 925
Lease Disclosures......Page 926
Balance Sheet and Income Statement......Page 929
Statement of Cash Flow Impact......Page 930
Concept Review Exercise: Various Lease Accounting Issues......Page 931
Sale-Leaseback Arrangements......Page 933
Capital Leases......Page 934
Operating Leases......Page 935
Real Estate Leases......Page 936
Leases of Only Part of a Building......Page 937
Brief Exercises......Page 939
Exercises......Page 941
CPA and CMA Review Questions......Page 948
Problems......Page 951
Broaden Your Perspective......Page 958
CPA Simulation 15–1......Page 961
Where We’re Headed A Chapter Supplement: Leases......Page 962
Questions For Review of Key Topics......Page 977
Brief Exercises......Page 978
Exercises......Page 979
Problems......Page 983
CHAPTER 16 Accounting for Income Taxes......Page 985
Conceptual Underpinning......Page 987
Deferred Tax Liabilities......Page 988
The FASB’s Balance Sheet Approach......Page 990
Types of Temporary Differences......Page 991
Deferred Tax Assets......Page 995
Valuation Allowance......Page 998
Permanent Differences......Page 999
Concept Review Exercise: Temporary and Permanent Differences......Page 1002
When Enacted Tax Rates Differ......Page 1003
Changes in Tax Laws or Rates......Page 1004
Multiple Temporary Differences......Page 1005
Net Operating Losses......Page 1007
Operating Loss Carryforward......Page 1008
Operating Loss Carryback......Page 1009
Balance Sheet Classification......Page 1010
Disclosure Notes......Page 1011
Coping with Uncertainty in Income Taxes......Page 1013
Intraperiod Tax Allocation......Page 1015
Decision Makers’ Perspective......Page 1017
Concept Review Exercise: Multiple Differences and Operating Loss......Page 1018
Questions For Review of Key Topics......Page 1021
Brief Exercises......Page 1022
Exercises......Page 1024
CPA and CMA Review Questions......Page 1031
Problems......Page 1033
Broaden Your Perspective......Page 1040
Air France–KLM Case......Page 1044
CPA Simulation 16–1......Page 1045
CHAPTER 17 Pensions and Other Postretirement Benefits......Page 1047
PART A THE NATURE OF PENSION PLANS......Page 1049
Defined Contribution Pension Plans......Page 1051
Defined Benefit Pension Plans......Page 1052
Pension Expense—An Overview......Page 1053
Accumulated Benefit Obligation......Page 1054
Projected Benefit Obligation......Page 1055
Pension Plan Assets......Page 1060
The Relationship between Pension Expense and Changes in the PBO and Plan Assets......Page 1062
Components of Pension Expense......Page 1064
Income Smoothing......Page 1066
Recording Gains and Losses......Page 1068
Recording the Pension Expense......Page 1070
Recording the Funding of Plan Assets......Page 1071
Comprehensive Income......Page 1072
Income Tax Considerations......Page 1073
Putting the Pieces Together......Page 1074
Settlement or Curtailment of Pension Plans......Page 1075
Concept Review Exercise: Pension Plans......Page 1076
PART E POSTRETIREMENT BENEFITS OTHER THAN PENSIONS......Page 1078
Postretirement Health Benefits and Pension Benefits Compared......Page 1079
Determining the Net Cost of Benefits......Page 1080
Measuring the Obligation......Page 1081
Accounting for Postretirement Benefit Plans Other Than Pensions......Page 1082
A Comprehensive Illustration......Page 1084
Decision Makers’ Perspective......Page 1085
Concept Review Exercise: Other Postretirement Benefits......Page 1086
APPENDIX 17 Service Method of Allocating Prior Service Cost......Page 1089
Questions For Review of Key Topics......Page 1090
Brief Exercises......Page 1091
Exercises......Page 1092
CPA and CMA Review Questions......Page 1101
Problems......Page 1103
Broaden Your Perspective......Page 1110
Air France–KLM Case......Page 1115
CHAPTER 18 Shareholders’ Equity......Page 1117
PART A THE NATURE OF SHAREHOLDERS’ EQUITY......Page 1118
Financial Reporting Overview......Page 1119
Retained Earnings......Page 1120
Accumulated Other Comprehensive Income......Page 1121
Reporting Shareholders’ Equity......Page 1122
The Corporate Organization......Page 1124
Types of Corporations......Page 1125
The Model Business Corporation Act......Page 1126
Distinguishing Classes of Shares......Page 1127
Typical Rights of Preferred Shares......Page 1128
Is It Equity or Is It Debt?......Page 1129
Shares Issued For Cash......Page 1130
More Than One Security Issued for a Single Price......Page 1131
Share Issue Costs......Page 1132
Concept Review Exercise: Expansion of Corporate Capital......Page 1133
Decision Maker’s Perspective......Page 1134
Shares Formally Retired or Viewed as Treasury Stock......Page 1135
Accounting for Retired Shares......Page 1136
Accounting for Treasury Stock......Page 1137
Concept Review Exercise: Treasury Stock......Page 1138
Liquidating Dividend......Page 1141
Cash Dividends......Page 1142
Stock Dividends......Page 1143
Stock Splits Effected in the Form of Stock Dividends (Large Stock Dividends)......Page 1145
Decision Maker’s Perspective......Page 1147
Concept Review Exercise: Changes in Retained Earnings......Page 1148
APPENDIX 18 Quasi Reorganizations......Page 1152
Brief Exercises......Page 1154
Exercises......Page 1156
CPA and CMA Review Questions......Page 1163
Problems......Page 1165
Broaden Your Perspective......Page 1170
CPA Simulation 18–1......Page 1176
CHAPTER 19 Share-Based Compensation and Earnings Per Share......Page 1177
PART A SHARE-BASED COMPENSATION......Page 1178
Stock Award Plans......Page 1179
Expense—The Great Debate......Page 1180
Recognizing the Fair Value of Options......Page 1182
When Unexercised Options Expire......Page 1184
Plans with Graded Vesting......Page 1186
Plans with Performance or Market Conditions......Page 1188
Employee Share Purchase Plans......Page 1189
Concept Review Exercise: Share-Based Compensation Plans......Page 1190
PART B EARNINGS PER SHARE......Page 1191
Issuance of New Shares......Page 1192
Stock Dividends and Stock Splits......Page 1193
Reacquired Shares......Page 1194
Earnings Available to Common Shareholders......Page 1195
Options, Rights, and Warrants......Page 1196
Convertible Securities......Page 1198
Options, Warrants, Rights......Page 1201
Convertible Securities......Page 1202
Order of Entry for Multiple Convertible Securities......Page 1203
Concept Review Exercise: Basic and Diluted EPS......Page 1204
Components of the “Proceeds” in the Treasury Stock Method......Page 1205
Contingently Issuable Shares......Page 1207
Summary of the Effect of Potential Common Shares on Earnings Per Share......Page 1208
Financial Statement Presentation of Earnings Per Share Data......Page 1209
Decision Makers’ Perspective......Page 1212
Concept Review Exercise: Additional EPS Issues......Page 1213
APPENDIX 19A Option-Pricing Theory......Page 1216
APPENDIX 19B Stock Appreciation Rights......Page 1218
Questions For Review of Key Topics......Page 1220
Brief Exercises......Page 1221
Exercises......Page 1222
CPA and CMA Review Questions......Page 1228
Problems......Page 1230
Broaden Your Perspective......Page 1236
Air France–KLM Case......Page 1243
CPA Simulation 19–1......Page 1244
CHAPTER 20 Accounting Changes and Error Corrections......Page 1245
PART A ACCOUNTING CHANGES......Page 1247
Decision Makers’ Perspective—Motivation for Accounting Choices......Page 1248
The Retrospective Approach: Most Changes in Accounting Principle......Page 1249
The Prospective Approach......Page 1253
Change in Accounting Estimate......Page 1255
Changing Depreciation, Amortization, and Depletion Methods......Page 1256
Change in Reporting Entity......Page 1258
Error Correction......Page 1259
Concept Review Exercise: Accounting Changes......Page 1260
Prior Period Adjustments......Page 1261
Error Affecting Previous Financial Statements, but Not Net Income......Page 1263
Error Affecting a Prior Year’s Net Income......Page 1264
Concept Review Exercise: Correction of Errors......Page 1268
Questions For Review of Key Topics......Page 1270
Brief Exercises......Page 1271
Exercises......Page 1272
CPA and CMA Review Questions......Page 1279
Problems......Page 1281
Broaden Your Perspective......Page 1289
CPA Simulation 20–1......Page 1293
CHAPTER 21 The Statement of Cash Flows Revisited......Page 1295
Cash Inflows and Outflows......Page 1297
Role of the Statement of Cash Flows......Page 1298
Cash and Cash Equivalents......Page 1300
Primary Elements of the Statement of Cash Flows......Page 1301
Preparation of the Statement of Cash Flows......Page 1307
Using a Spreadsheet......Page 1310
Income Statement Accounts......Page 1312
Balance Sheet Accounts......Page 1319
Concept Review Exercise: Comprehensive Review......Page 1328
Getting There through the Back Door......Page 1332
Components of Net Income That Do Increase or Decrease Cash......Page 1333
Comparison with the Direct Method......Page 1334
Reconciliation of Net Income to Cash Flows from Operating Activities......Page 1335
Decision Makers’ Perspective—Cash Flow Ratios......Page 1337
APPENDIX 21A Spreadsheet for the Indirect Method......Page 1339
APPENDIX 21B The T-Account Method of Preparing the Statement of Cash Flows......Page 1343
Questions For Review of Key Topics......Page 1345
Brief Exercises......Page 1346
Exercises......Page 1347
CPA and CMA Review Questions......Page 1357
Problems......Page 1359
Broaden Your Perspective......Page 1372
CPA Simulation 21–1......Page 1378
APPENDIX A Derivatives......Page 1379
APPENDIX B Dell Annual Report (selected pages)......Page 1400
APPENDIX C IFRS Comprehensive Case......Page 1424
Glossary......Page 1429
Photo Credits......Page 1438
Subject Index......Page 1440
Accounting Standards Index......Page 1470
Present and Future Value Tables......Page 1476