51A Middle Street Newburyport MA Phone: Fax: Course Information

Transcription

1 51A Middle Street Newburyport MA Phone: Fax: Course Information Course Title: GAAP Guidebook 2018 # Number of continuing education credit hours recommended for this course: In accordance with the standards of the National Registry of CPE Sponsors, CPE credits have been granted based on a 50-minute hour. CPA: 29 (All states) National Registry of CPE Sponsors ID Number: Sponsor numbers for states requiring sponsor registration Florida Division of Certified Public Accountancy: 4761 (Ethics #11467) Hawaii Board of Accountancy: New York State Board of Accountancy: Ohio State Board of Accountancy: M0021 Texas State Board of Accountancy: Course Description The GAAP Guidebook discusses the key elements of Generally Accepted Accounting Principles (GAAP), as well as how to record and disclose accounting information. Program Delivery Method: NASBA QAS Self-Study (interactive) Subject Codes/Field of Study NASBA (CPA): Accounting Course Level, Prerequisites, and Advance Preparation Requirements Program level: Overview Prerequisites: Basic familiarity with accounting practices. Advance Preparation: None Course Content Publication/Revision date: 11/17/2017. Author: Steven M. Bragg, CPA. Final exam (online): One-hundred forty-five questions (multiple-choice). ii

2 Instructions for taking this course You must complete this course within one year of the date of purchase (if you do not complete the course within one year, contact us to determine whether an updated edition of the course is available, in which case we will provide you with a PDF of the updated course and the online exam at no charge). A passing grade of at least 70% is required on the final exam for this course. You may retake the exam if you do not pass it on the first attempt (no charge). Complete the course by following the learning objectives listed below, studying the text, and studying the review questions at the end of each major section (or at the end of the course). Once you have completed studying the course and you are confident that the learning objectives have been met, answer the final exam questions (online). Instructions for Taking the Final Exam Online Login to your account online at Go to My Account and view your course. Select Take Exam for this course and follow instructions. Additional Information The exam may be started, stopped, then resumed at a later date. The exam is "open book," it is not timed, and it may be retaken if not passed on the first attempt (no charge). Results (correct, incorrect answers) and certificate appear immediately upon passing the exam. Have a question? Call us at or us at contact@bhfe.com. Learning Objectives: Cite the accounting principles that underlie Generally Accepted Accounting Principles. Note the transactions related to discontinued operations, as well as the disclosures required for certain accounting transactions. Identify the account classifications used in the balance sheet, as well as the structure of the balance sheet. State the transactions included in and excluded from other comprehensive income. Note the different formats in which the income statement can be presented. Cite the contents of the sections of the statement of cash flows, and the differences in presentation for the different types of statements of cash flows. Recognize the disclosures required by the Securities and Exchange Commission Identify the situations in which accounting changes are allowed, and note the mechanics of retrospective application of changes. State the methods used to derive current cost. Note the calculations for basic earnings per share and diluted earnings per share. Identify the assumptions that underlie the integral view and discrete view of interim reporting. Recognize the situations that can cause reportable risks and uncertainties. State the segment test rules used to determine reportable segments. Note the accounting treatment for lending arrangements and loan origination fees. Identify the accounting for impairment losses on equity and debt securities, as well as the accounting for these investments in the different investment classifications. iii

3 Recognize how the equity method is formulated and updated. Cite how the periodic and perpetual inventory methods are used to derive the cost of goods sold, and how the gross profit method and retail method are used to estimate ending inventory. Recognize the rules for recognizing and disclosing deferred advertising costs, as well as the accounting for insurance contracts. Identify the situations in which goodwill is associated with reporting units, and note the rules for conducting impairment testing. Note the valuation method used for acquired fixed assets, as well as the calculations for the various depreciation methods. Identify the assessments and surcharges associated with insurance activities. State the accounting rules for deferring and recognizing asset retirement obligations. Note the circumstances under which the cost of employee and other contractual terminations can be recognized. Cite the characteristics of and reporting obligations associated with commitments. State the circumstances under which loss contingencies are recognized, and when they are only disclosed. Identify the methods used to place valuations on guarantees. State the components of debt, as well as the circumstances under which a debt arrangement is considered to be a troubled debt restructuring. Note the circumstances under which a spinoff occurs, and when a dividend is in arrears. Identify the evaluation criteria for a contract, the components of the transaction price, and when a contract modification triggers treatment as a new contract. Recognize the circumstances under which the costs of compensated absences are recognized. State the key elements of net periodic pension cost, and the accounting for defined benefit and defined contribution plans. Note how costs are derived for exercised and unexercised stock options. Identify the proper expense recognition for insurance contracts and business process reengineering. State the types of activities classified as research and development, and how research and development costs are to be recognized. Recognize which tax rate to apply to a reporting period. Identify the types of acquisitions, and the types of intangible assets that can be recognized as part of an acquisition. Identify the situations in which a controlling financial interest cannot be determined, as well as the types of eliminations used when conducting a consolidation. Note the accounting for derivative speculation and the classifications for hedges and investments. Recognize the methods used to measure hedge effectiveness. State the concepts upon which fair value measurements are derived. Cite the circumstances in which the fair value option can be applied, and the disclosures related to financial instruments. Note the accounting for payments to suppliers in foreign currencies, as well as how to identify a functional currency. Identify the situations in which interest capitalization can be used, and when an interest rate should be imputed. Note the leasing rules related to asset substitution. Recall the circumstances under which a separate lease component is considered to exist. Note the different types of lease payments. Recall how the 12-month lease exception works. Identify the unique characteristics of sales-type and direct financing leases. iv

4 Note the restrictions on the use of the risk-free discount rate when deriving a lease present value. Note the valuation alternatives in a nonmonetary exchange, and the usage rules for boot. Cite the types of entities considered to be related parties, and what information should be disclosed about them. State the types of events classified as subsequent events, and note which of these events can alter the financial statements. v

5 About the Author Steven Bragg, CPA, has been the chief financial officer or controller of four companies, as well as a consulting manager at Ernst & Young. He received a master s degree in finance from Bentley College, an MBA from Babson College, and a Bachelor s degree in Economics from the University of Maine. He has been a two-time president of the Colorado Mountain Club, and is an avid alpine skier, mountain biker, and certified master diver. Mr. Bragg resides in Centennial, Colorado. Published by AccountingTools Inc, Centennial, Colorado. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the Publisher. Requests to the Publisher for permission should be addressed to Steven M. Bragg, 6727 E. Fremont Place, Centennial, CO Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. vi

6 Table of Contents Chapter 1 - Introduction... 1 What is GAAP?... 1 How this Book is Organized... 3 How to Use this Book... 3 Accounting Principles... 4 Chapter 2 - Presentation of Financial Statements... 7 Overview of the Presentation of Financial Statements... 7 Presentation Disclosures... 7 Liquidation Basis of Accounting... 8 Liquidation Basis Disclosures... 9 Going Concern Disclosures... 9 Discontinued Operations Discontinued Operations Disclosures Chapter 3 - Balance Sheet Overview of the Balance Sheet The Common Size Balance Sheet The Comparative Balance Sheet How to Construct the Balance Sheet Offsetting Treatment of Negative Cash Balance Sheet Disclosures Chapter 4 - Comprehensive Income Overview of Comprehensive Income Comprehensive Income Disclosures Chapter 5 - Income Statement Overview of the Income Statement The Single-Step Income Statement The Multi-Step Income Statement The Condensed Income Statement The Contribution Margin Income Statement The Multi-Period Income Statement How to Construct the Income Statement Income Statement Disclosures Chapter 6 - Statement of Cash Flows Overview of the Statement of Cash Flows The Direct Method The Indirect Method How to Prepare the Statement of Cash Flows Disclosures for the Statement of Cash Flows Chapter 7 - Notes to Financial Statements Overview of Notes to Financial Statements Chapter 8 - Accounting Changes and Error Corrections Changes in Accounting Principle Changes in Accounting Estimate Changes in Reporting Entity Correction of an Error in Previously Issued Financial Statements Corrections Related to Prior Interim Periods The Materiality of an Error Accounting Changes and Error Corrections Disclosures Change in Accounting Principle Change in Accounting Estimate vii

7 Change in Reporting Entity Error Corrections Historical Summaries Chapter 9 - Changing Prices Overview of Changing Prices Inventory and Fixed Assets Specialized Assets Recoverable Amounts Income from Continuing Operations Restatement of Current Cost Information Translation Adjustments Purchasing Power Gains and Losses Restatement Steps Changing Prices Disclosures Five-Year Summary Other Current Year Disclosures Other Disclosures for Mineral Resources Assets Chapter 10 - Earnings per Share Basic Earnings per Share Diluted Earnings per Share Treasury Stock and Reverse Treasury Stock Methods Treasury Stock Method Reverse Treasury Stock Method Disclosure of Earnings per Share Chapter 11 - Interim Reporting Overview of Interim Reporting General Interim Reporting Rule Variations from the Interim Reporting Rule Changes in Accounting Principle in Interim Periods Changes in Accounting Estimate in Interim Periods Error Correction in Interim Periods Adjustments to Prior Interim Periods The Integral View The Discrete View Comparison of the Integral and Discrete Views Disclosures for Interim Reporting Chapter 12 - Risks and Uncertainties Overview of Risks and Uncertainties Risks and Uncertainties Disclosures Chapter 13 - Segment Reporting Overview of Segment Reporting Segment Disclosure Segment Disclosure Products, Services, and Customer Disclosure Geographic Area Disclosure Chapter 14 - Receivables Notes Receivable Acquisition, Development, and Construction Arrangements Nonrefundable Fees and Other Costs Loans and Debt Securities Acquired with Deteriorated Credit Quality Troubled Debt Restructurings by Creditors Classification of Government-Guaranteed Loans Receivables Presentation Receivables Disclosures viii

8 Chapter 15 - Investments Debt and Equity Securities Overview of Investments Debt and Equity Securities Accounting for Investments Impairment of Investments Equity Securities without Readily Determinable Fair Values Dividend and Interest Income Investment Disclosures Chapter 16 - Investments Equity Method and Joint Ventures The Equity Method Partnerships, Joint Ventures, and Limited Liability Entities Investment Disclosures Chapter 17 - Inventory Overview of Inventory The Periodic Inventory System The Perpetual Inventory System Inventory Costing The First In, First Out Method The Last In, First Out Method The Weighted Average Method Standard Costing The Retail Inventory Method The Gross Profit Method Overhead Allocation The Lower of Cost or Market Rule Work in Process Accounting Accounting for Obsolete Inventory Consignment Accounting Goods in Transit Inventory Disclosures Chapter 18 - Other Assets and Deferred Costs Overview of Other Assets and Deferred Costs Prepaid Expenses Preproduction Costs for Long-Term Supply Arrangements Capitalized Advertising Costs Insurance Contracts that Do Not Transfer Insurance Risk Other Assets and Deferred Costs Disclosures Preproduction Costs for Long-Term Supply Arrangements Capitalized Advertising Costs Insurance Contracts that Do Not Transfer Insurance Risk Chapter 19 - Intangibles Goodwill and Other Goodwill Goodwill Amortization General Intangibles Other than Goodwill Internal-Use Software Website Development Costs Intangibles Disclosures Chapter 20 - Property, Plant, and Equipment Overview of Fixed Assets Initial Fixed Asset Recognition Fixed Assets Acquired through a Business Combination Nonmonetary Exchanges Depreciation and Amortization Straight-Line Method Sum-of-the-Years Digits Method Double-Declining Balance Method ix

9 Depletion Method Units of Production Method Land Depreciation Land Improvement Depreciation Depreciation Accounting Entries Fixed Asset Impairment Fixed Asset Disposal Assets Held for Sale Abandoned Assets Idle Assets Fixed Asset Disposal Accounting Fixed Asset Disclosures General Fixed Asset Disclosures Change in Estimate Disclosures Intangible Asset Impairment Disclosures Intangible Asset Disclosures Not-for-Profit Fixed Asset Accounting Initial Recognition of Fixed Assets Restrictions on Contributed Assets Valuation of Contributed Assets Valuation of Contributed Services Valuation of Art, Historical Treasures, and Similar Items Depreciation of Fixed Assets Chapter 21 - Liabilities Extinguishments of Liabilities Joint and Several Liability Arrangements Insurance-Related Assessments Prepaid Stored-Value Products Liabilities Disclosures Chapter 22 - Asset Retirement and Environmental Obligations Overview of Asset Retirement Obligations The Initial Measurement of an Asset Retirement Obligation Subsequent Measurement of an Asset Retirement Obligation Settlement of an Asset Retirement Obligation Overview of Environmental Obligations Measurement of Environmental Obligations Recoveries Related to Environmental Obligations Asset Retirement and Environmental Obligations Disclosures Asset Retirement Obligations Environmental Obligations Chapter 23 - Exit or Disposal Cost Obligations Overview of Exit or Disposal Cost Obligations Exit or Disposal Cost Obligation Disclosures Chapter 24 - Commitments Overview of Commitments Chapter 25 - Contingencies Loss Contingencies Gain Contingencies Contingency Disclosures Chapter 26 - Guarantees Overview of Guarantees Guarantee Disclosures Chapter 27 - Debt General Debt Topics x

10 Sales of Future Revenues Increasing Rate Debt Debt with Conversion and Other Options Debt Instruments with Detachable Warrants Convertible Securities Beneficial Conversion Features Interest Forfeiture Induced Conversions Conversion by Exercise of Call Option Convertible Instruments Issued to Nonemployees as Payment Contingent Conversion Option Own-Share Lending Arrangements Participating Mortgage Loans Product Financing Arrangements Debt Modifications and Extinguishments Troubled Debt Restructurings by Debtors Debt Presentation Callable Debt Classification of Debt that Includes Covenants Debt Issuance Costs Due on Demand Loans Increasing-Rate Debt Revolving Debt Agreements Short-Term Obligations to be Refinanced Subjective Acceleration Clauses Own-Share Lending Arrangements Participating Mortgage Loans Troubled Debt Restructurings by Debtors Debt Disclosures Long-Term Obligations Short-Term Obligations to be Refinanced Own-Share Lending Arrangements Participating Mortgage Loans Other Debt Disclosures Troubled Debt Restructurings by Debtors Chapter 28 - Equity Overview of Equity The Sale of Stock Dividend Payments Stock Dividends and Stock Splits Stock Dividend Stock Split Treasury Stock Purchase of Treasury Stock Resale of Treasury Stock Cost Method Constructive Retirement Method Equity-Based Payments to Non-Employees Initial Recognition Spinoffs and Reverse Spinoffs Equity Disclosures Rights and Privileges Preferred Stock Contingently Convertible Securities Redeemable Securities Treasury Stock xi

11 Changes in Shareholders Equity Equity-Based Payments to Non-Employees Spinoffs and Reverse Spinoffs Chapter 29 - Revenue Recognition The Nature of a Customer Steps in Revenue Recognition Step One: Link Contract to Customer Step Two: Note Performance Obligations Step Three: Determine Prices Variable Consideration Possibility of Reversal Sales Taxes Time Value of Money Noncash Consideration Payments to Customers Refund Liabilities Step Four: Allocate Prices to Obligations Allocation of Price Discounts Allocation of Variable Consideration Subsequent Price Changes Step Five: Recognize Revenue Measurement of Progress Completion Output Methods Input Methods Change in Estimate Progress Measurement Right of Return Consistency Contract Modifications Treatment as Separate Contract Treatment as Continuing Contract Entitlement to Payment Bill-and-Hold Arrangements Consideration Received from a Supplier Customer Acceptance Customer Options for Additional Purchases Licensing Nonrefundable Upfront Fees Principal versus Agent Repurchase Agreements Unexercised Rights of Customers Warranties Contract-Related Costs Costs to Obtain a Contract Costs to Fulfill a Contract Amortization of Costs Impairment of Costs Exclusions Revenue Disclosures Chapter 30 - Compensation General Overview of Compensation Compensated Absences Deferred Compensation Arrangements Lump-Sum Payments under Union Contracts Compensation Disclosures xii

12 Chapter 31 - Compensation Retirement Benefits Overview of Retirement Benefits Defined Benefit Plans Expense Attribution for Delayed Vesting Discount Rates Settlements and Curtailments Termination Benefits Combined Pension Plans Defined Contribution Plans Presentation of Retirement Benefit Information Retirement Benefit Disclosures Defined Benefit Plan Disclosures for Public Companies Defined Benefit Plan Disclosures for Private Companies Disclosures for Defined Benefit Plans in Interim Periods Disclosures for Defined Contribution Plans Chapter 32 - Compensation Stock Compensation Overview of Stock Compensation The Volatility Concept Fair Value Calculation Alternatives Awards Classified as Equity Award Measurement Problems Contingent Features Award Modifications Income Tax Effects Awards Classified as Liabilities Employee Share Purchase Plans Stock-Based Compensation Disclosures Chapter 33 - Other Expenses Startup Costs Insurance Costs Retroactive Contracts Claims-Made Contracts Multiple-Year Retrospectively Rated Contracts Contributions Made Real and Personal Property Taxes Advertising Costs Electronic Equipment Waste Obligations Business and Technology Reengineering Other Expenses Disclosures Insurance Cost Disclosures Real and Personal Property Tax Disclosures Advertising Cost Disclosures Chapter 34 - Research and Development Overview of Research and Development Research and Development Disclosures Chapter 35 - Income Taxes Overview of Income Taxes Accounting for Income Taxes Tax Positions Deferred Tax Expense Applicable Tax Rate Interest and Penalties Intraperiod Tax Allocation Taxes Related to Undistributed Earnings Interim Reporting xiii

13 Income Taxes Presentation Income Taxes Disclosure Balance Sheet Income Statement Other Chapter 36 - Business Combinations Overview of Business Combinations Identifiable Assets and Liabilities, and Noncontrolling Interests Goodwill or Gain from Bargain Purchase Goodwill Calculation Bargain Purchase Reverse Acquisitions Related Issues Acquisition of Assets Transactions between Entities under Control of Same Parent Pushdown Accounting Income Taxes Business Combination Disclosures General Disclosures Identifiable Assets and Liabilities, and any Noncontrolling Interest Goodwill or Gain from Bargain Purchase Reverse Acquisitions Transactions between Entities under Control of Same Parent Income Taxes Chapter 37 - Financial Statement Consolidation Overview of Consolidations Recognition of a Consolidation Consolidation Examples Recognition of Noncontrolling Interest Sale of Shares by Subsidiary Share of Accumulated Other Comprehensive Income Full Consolidation Example Consolidation of Variable Interest Entities Initial Consolidation Subsequent Consolidation Consolidation of Leasing Entities by Private Companies Consolidation of Contractually-Controlled Entities Control of Partnerships Termination of a Consolidation Consolidation Presentation Consolidation Disclosures Chapter 38 - Derivatives and Hedging Other Comprehensive Income Derivative Accounting Hedge Accounting - General Hedge Accounting Fair Value Hedges Hedge Accounting Cash Flow Hedges Hedge Accounting Net Investment Hedges Embedded Derivatives Derivative and Hedging Disclosures General Disclosures Fair Value Hedge Disclosures Cash Flow Hedge Disclosures Chapter 39 - Fair Value Measurement The Fair Value Concept xiv

14 Fair Value Differences from Actual Prices Paid Fair Value Measurement Approaches The Net Asset Value Variation Fair Value Measurements for Liabilities Use of Multiple Measurements Fair Value Disclosures Chapter 40 - Financial Instruments Off-Balance Sheet Credit Risk Fair Value Option Registration Payment Arrangements Financial Instruments Disclosures Fair Value of Financial Instruments Concentrations of Credit Risk of Financial Instruments Market Risk of Financial Instruments Fair Value Option Registration Payment Arrangements Separate Presentation of Financial Assets and Financial Liabilities Chapter 41 - Foreign Currency Matters Foreign Currency Transactions Financial Statement Translation Determination of Functional Currency Translation of Financial Statements Use of Average Exchange Rates Hyperinflationary Effects Derecognition of a Foreign Entity Investment Foreign Currency Disclosures Chapter 42 - Interest Overview of Capitalized Interest Assets on Which to Capitalize Interest Assets on Which Interest is not Capitalized The Interest Capitalization Period The Capitalization Rate Calculating Interest Capitalization Overview of Imputed Interest Interest Disclosures Capitalized Interest Disclosures Imputed Interest Disclosures Chapter 43 - Leases The Nature of a Lease Lease Components (Lessee) Lease Components (Lessor) Initial Direct Costs Lease Consideration The Lease Term Initial Measurement of Lease Payments Subsequent Measurement of Lease Payments Types of Leases Asset and Liability Recognition (Lessee) Initial Measurement Short-Term Leases Finance Leases Operating Leases Optional Lease Payments Right-of-Use Asset Impairment Leasehold Improvement Amortization xv

15 Subleases Maintenance Deposits Derecognition Lease Recognition Topics (Lessor) Sales-Type Leases Direct Financing Leases Operating Leases Variable Lease Payments Lease Modifications Lessee Impact Lessor Impact Elections Discount Rate Separation of Non-Lease Components Sale and Leaseback Transactions Lease Presentation Lease Disclosures Lessee Disclosures Lessor Disclosures Sale and Leaseback Transactions Chapter 44 - Nonmonetary Transactions Overview of Nonmonetary Transactions Purchases and Sales of Inventory with the Same Counterparty Barter Transactions Exchanges Involving Monetary Consideration Exchanges of a Nonfinancial Asset for a Noncontrolling Ownership Interest Nonmonetary Transaction Disclosures Chapter 45 - Related Party Disclosures Overview of Related Parties Related Party Disclosures Chapter 46 - Subsequent Events Overview of Subsequent Events Subsequent Event Disclosures Answers to Chapter Questions Glossary Index xvi

16 Preface The accounting by businesses in the United States is largely governed by Generally Accepted Accounting Principles (GAAP). The source documents for GAAP cover multiple thousands of pages, so their heft alone makes them difficult to research. The GAAP Guidebook lightens the research chore by presenting the essential elements of GAAP in a single volume, with an emphasis on key accounting requirements and disclosures. These essential elements are closely supported by several hundred examples and tips. Following an introduction to GAAP in Chapter 1, the Guidebook covers in Chapters 2 through 13 all aspects of the presentation of financial statements, including accounting changes and error corrections, earnings per share, interim reporting, and segment reporting. We then move on to the accounting for assets in Chapters 14 through 20, which encompasses receivables, investments, inventory, intangible assets, and fixed assets. Chapters 21 through 28 cover a broad range of liability and equity issues, while Chapters 29 through 35 address a number of income statement topics revenue recognition, compensation expense, income taxes, and more. Finally, Chapters 36 through 46 delve into a number of major transaction types, including business combinations, consolidations, derivatives, fair value, foreign currency, leases, and subsequent events. The chapters include tips, podcast references, and a variety of illustrations. You can find the answers to many accounting questions in the Guidebook that might otherwise require extensive research in the original GAAP source documents, such as: What is the proper presentation of a balance sheet? What does an indirect method statement of cash flows look like? How do I calculate diluted earnings per share? What information must be included in interim financial statements? How do I use the equity method to account for investments? How do I use a cost layering system to account for inventory? What is the process for testing intangible assets for impairment? How do I account for fixed assets acquired in a business combination? What is the correct accounting for a stock split? When can I recognize revenue? How do I account for a defined benefit pension plan? How do I account for a business combination? The GAAP Guidebook is designed for both professionals and students. Professionals can use it as a handy reference tool that reduces research time, while students will find that it clarifies many of the more arcane accounting topics. Given its ability to present summarized GAAP information, the GAAP Guidebook may earn a permanent place on your book shelf. Centennial, Colorado November 2017 xvii