GAAP Guidebook Edition. Steven M. Bragg

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1 GAAP Guidebook 2014 Edition Steven M. Bragg

2 Chapter 1 Introduction... 1 Learning Objectives... 1 Introduction... 1 What is GAAP?... 1 How this Book is Organized... 3 How to Use this Book... 4 Accounting Principles... 4 Summary... 5 Review Questions... 6 Review Answers... 7 Chapter 2 Presentation of Financial Statements... 8 Learning Objectives... 8 Introduction... 8 Related Chapters... 8 Overview of the Presentation of Financial Statements... 8 Presentation Disclosures... 8 Liquidation Basis of Accounting... 9 Liquidation Basis Disclosures Discontinued Operations Discontinued Operations Disclosures Summary Review Questions Review Answers Chapter 3 Balance Sheet Learning Objectives Introduction 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 Summary Review Questions Review Answers Chapter 4 Comprehensive Income Learning Objectives Introduction Related Chapters Overview of Comprehensive Income Comprehensive Income Disclosures Summary Review Questions Review Answers Chapter 5 Income Statement Learning Objectives Introduction Related Chapters... 34

3 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 Extraordinary Items Income Statement Disclosures Summary Review Questions Review Answers Chapter 6 Statement of Cash Flows Learning Objectives Introduction 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 Summary Review Questions Review Answers Chapter 7 Notes to Financial Statements Learning Objectives Introduction Overview of Notes to Financial Statements Overview of Notes to Financial Statements Summary Review Questions Review Answers Chapter 8 Accounting Changes and Error Corrections Learning Objectives Introduction Related Chapters 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 Change in Reporting Entity Error Corrections Historical Summaries Summary Review Questions Review Answers Chapter 9 Changing Prices Learning Objectives vi

4 Introduction 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 Summary Review Questions Review Answers Chapter 10 Earnings per Share Learning Objectives Introduction Basic Earnings per Share Diluted Earnings per Share Disclosure of Earnings per Share Summary Review Questions Review Answers Chapter 11 Interim Reporting Learning Objectives Introduction Related Chapters 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 Summary Review Questions Review Answers Chapter 12 Risks and Uncertainties Learning Objectives Introduction Related Chapter Overview of Risks and Uncertainties Risks and Uncertainties Disclosures Summary Review Questions Review Answers vii

5 Chapter 13 Segment Reporting Learning Objectives Introduction Overview of Segment Reporting Segment Disclosure Segment Disclosure Products, Services, and Customer Disclosure Geographic Area Disclosure Summary Review Questions Review Answers Chapter 14 Receivables Learning Objectives Introduction Related Chapter 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 Receivables Presentation Receivables Disclosures Summary Review Questions Review Answers Chapter 15 Investments Debt and Equity Securities Learning Objectives Introduction Related Chapters Overview of Investments Debt and Equity Securities Accounting for Investments Impairment of Investments Restricted Stock Dividend and Interest Income Investment Disclosures Summary Review Questions Review Answers Chapter 16 Investments Equity Method and Joint Ventures Learning Objectives Introduction The Equity Method Partnerships, Joint Ventures, and Limited Liability Entities Investment Disclosures Summary Review Questions Review Answers Chapter 17 Inventory Learning Objectives Introduction Overview of Inventory The Periodic Inventory System viii

6 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 Summary Review Questions Review Answers Chapter 18 Other Assets and Deferred Costs Learning Objectives Introduction Related Chapters 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 Summary Review Questions Review Answers Chapter 19 Intangibles Goodwill and Other Learning Objectives Introduction Related Chapters Goodwill General Intangibles Other than Goodwill Internal-Use Software Website Development Costs Intangibles Disclosures Summary Review Questions Review Answers Chapter 20 Property, Plant, and Equipment Learning Objectives Introduction Related Chapters Overview of Fixed Assets Initial Fixed Asset Recognition Fixed Assets Acquired through a Business Combination ix

7 Nonmonetary Exchanges Depreciation and Amortization Straight-Line Method Sum-of-the-Years Digits Method Double-Declining Balance Method 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 Summary Review Questions Review Answers Chapter 21 Liabilities Learning Objectives Related Chapters Extinguishments of Liabilities Joint and Several Liability Arrangements Insurance-Related Assessments Liabilities Disclosures Summary Review Questions Review Answers Chapter 22 Asset Retirement and Environmental Obligations Learning Objectives Introduction 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 x

8 Summary Review Questions Review Answers Chapter 23 Exit or Disposal Cost Obligations Learning Objectives Introduction Overview of Exit or Disposal Cost Obligations Exit or Disposal Cost Obligation Disclosures Summary Review Questions Review Answers Chapter 24 Commitments Learning Objectives Introduction Overview of Commitments Summary Review Questions Review Answers Chapter 25 Contingencies Learning Objectives Introduction Loss Contingencies Gain Contingencies Contingency Disclosures Summary Review Questions Review Answers Chapter 26 Guarantees Learning Objectives Introduction Overview of Guarantees Guarantee Disclosures Summary Review Questions Review Answers Chapter 27 Debt Learning Objectives Introduction Related Chapter General Debt Topics 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 xi

9 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 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 Summary Review Questions Review Answers Chapter 28 Equity Learning Objectives Introduction Related Chapters Overview of Equity 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 Changes in Shareholders Equity Equity-Based Payments to Non-Employees Spinoffs and Reverse Spinoffs Summary Review Questions Review Answers xii

10 Chapter 29 Revenue Recognition Learning Objectives Introduction Related Chapter Overview of Revenue Recognition Public Company Revenue Recognition The Installment Method The Cost Recovery Method The Right of Return Extended Warranty Revenue Advertising Barter Transactions Management Fees Revenue Recognition for Multiple-Element Arrangements The Milestone Method Construction-Type and Production-Type Contracts Elements of Revenue Elements of Cost Back Charges Provisions for Losses Percentage of Completion Method Completed Contract Method Summary Gains and Losses Principal Agent Considerations Gross or Net Considerations Shipping and Handling Charges Expense Reimbursements Customer Payments and Incentives Accounting by the Supplier Accounting by the Customer Accounting by Service Providers for Payments to Equipment Producers or Resellers Presentation of Consideration Paid by Suppliers (Supplier Viewpoint) Presentation of Consideration Paid by Suppliers (Customer Viewpoint) Layaway Sales Arrangements Nonrefundable Up-Front Fee Arrangements Consignment Arrangements Contingent Rental Income Revenue Recognition Disclosures Private Company Disclosures Public Company Disclosures Summary Review Questions Review Answers Chapter 30 Compensation General Learning Objectives Introduction Related Chapters Overview of Compensation Compensated Absences Deferred Compensation Arrangements Lump-Sum Payments under Union Contracts Compensation Disclosures Summary Review Questions Review Answers xiii

11 Chapter 31 Compensation Retirement Benefits Learning Objectives Introduction Related Chapters 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 Summary Review Questions Review Answers Chapter 32 Compensation Stock Compensation Learning Objectives Introduction Related Chapters 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 Summary Review Questions Review Answers Chapter 33 Other Expenses Learning Objectives Introduction Related Chapter 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 xiv

12 Insurance Cost Disclosures Real and Personal Property Tax Disclosures Advertising Cost Disclosures Summary Review Questions Review Answers Chapter 34 Research and Development Learning Objectives Introduction Related Chapters Overview of Research and Development Research and Development Disclosures Summary Review Questions Review Answers Chapter 35 Income Taxes Learning Objectives Introduction Related Chapters 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 Income Taxes Presentation Income Taxes Disclosure Balance Sheet Income Statement Other Summary Review Questions Review Answers Chapter 36 Business Combinations Learning Objectives Introduction Related Chapters 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 xv

13 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 Summary Review Questions Review Answers Chapter 37 Fair Value Measurement Learning Objectives Introduction The Fair Value Concept 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 Summary Review Questions Review Answers Chapter 38 Financial Instruments Learning Objectives Introduction Related Chapters 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 Summary Review Questions Review Answers Chapter 39 Foreign Currency Matters Learning Objectives Introduction Related Chapters 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 Summary Review Questions Review Answers xvi

14 Chapter 40 Interest Learning Objectives Introduction Overview of Capitalized Interest Assets for Which You Must Capitalize Interest Assets for Which You Do Not Capitalize Interest The Interest Capitalization Period The Capitalization Rate Calculating Interest Capitalization Overview of Imputed Interest Interest Disclosures Capitalized Interest Disclosures Imputed Interest Disclosures Summary Review Questions Review Answers Chapter 41 Leases Learning Objectives Introduction Related Chapter Overview of Leases Capital Lease Criteria Lease Classification by Lessor Lease Reassessment Accounting for Leasehold Improvements Special Lease Terms Operating Leases Operating Lease Treatment by Lessee Operating Lease Treatment by Lessor Capital Leases Capital Lease Treatment by Lessee Capital Lease Treatment of Sublease by Lessee Capital Lease Treatment by Lessor (Sales-Type Lease) Capital Lease Treatment by Lessor (Direct Financing Lease) Capital Lease Treatment by Lessor (Leveraged Lease) Capital Lease Treatment by Lessor (Broadly Applicable) Sale-Leaseback Transactions Sale-Leaseback Treatment by Lessee Sale-Leaseback Treatment by Lessor Lease Disclosures Lessee Disclosures Lessor Disclosures Summary Review Questions Review Answers Chapter 42 Nonmonetary Transactions Learning Objectives Introduction Related Chapter 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 xvii

15 Nonmonetary Transaction Disclosures Summary Review Questions Review Answers Chapter 43 Related Party Disclosures Learning Objectives Introduction Overview of Related Parties Related Party Disclosures Summary Review Questions Review Answers Chapter 44 Subsequent Events Learning Objectives Introduction Overview of Subsequent Events Subsequent Event Disclosures Summary Review Questions Review Answers Glossary Index xviii

GAAP Guidebook Edition. Steven M. Bragg

GAAP Guidebook Edition. Steven M. Bragg GAAP Guidebook 2018 Edition Steven M. Bragg Chapter 1 Introduction... 1 Learning Objectives... 1 Introduction... 1 What is GAAP?... 1 How this Book is Organized... 3 How to Use this Book... 3 Accounting