GAAP 2015 Interpretation and Application of GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Transcription

1 GAAP 2015 Interpretation and Application of GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

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3 GAAP 2015 Interpretation and Application of GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Joanne M. Flood

4 This edition first published John Wiley & Sons Ltd Copyright by the American Institute of Certified Public Accountants, Inc. Several items were quoted or referred to with permission. Portions of this book have their origin in copyrighted materials from the Financial Accounting Standards Board. These are noted by reference to the specific pronouncement except for the definitions introduced in bold type that appear in a separate section at the beginning of each chapter. Complete copies are available directly from the FASB. Copyright by the Financial Accounting Standards Board, 401 Merritt 7, PO Box 5116, Norwalk, Connecticut , USA. Registered office John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom For details of our global editorial offices, for customer services and for information about how to apply for permission to reuse the copyright material in this book please see our website at All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher. Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at For more information about Wiley products, visit Designations used by companies to distinguish their products are often claimed as trademarks. All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners. The publisher is not associated with any product or vendor mentioned in this book. 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 the 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. It is sold on the understanding that the publisher is not engaged in rendering professional services and neither the publisher nor the author shall be liable for damages arising herefrom. If professional advice or other expert assistance is required, the services of a competent professional should be sought. ISBN (paperback) ISBN (ebk) ISBN (ebk) ISBN (obk) Set in 10/12pt Times LT Std by Laserwords Private Limited, Chennai, India Printed in the United States of America by Bind Rite

5 CONTENTS Preface vii About the Author xi Codification Taxonomy xiii 1 ASC 105 Generally Accepted Accounting Principles 1 2 ASC 205 Presentation of Financial Statements 29 3 ASC 210 Balance Sheet 45 4 ASC 215 Statement of Shareholder Equity 61 5 ASC 220 Comprehensive Income 63 6 ASC 225 Income Statement 71 7 ASC 230 Statement of Cash Flows 83 8 ASC 235 Notes to Financial Statements ASC 250 Accounting Changes and Error Corrections ASC 255 Changing Prices ASC 260 Earnings Per Share ASC 270 Interim Reporting ASC 272 Limited Liability Entities ASC 274 Personal Financial Statements ASC 275 Risks and Uncertainties ASC 280 Segment Reporting ASC 305 Cash and Cash Equivalents ASC 310 Receivables ASC 320 Investments Debt and Equity Securities ASC 323 Investments Equity Method and Joint Ventures ASC 325 Investments Other ASC 330 Inventory ASC 340 Other Assets and Deferred Costs ASC 350 Intangibles Goodwill and Other ASC 360 Property, Plant, and Equipment ASC 405 Liabilities ASC 410 Asset Retirement and Environmental Obligations ASC 420 Exit or Disposal Cost Obligations 465 v

6 vi Contents 29 ASC 430 Deferred Revenue ASC 440 Commitments ASC 450 Contingencies ASC 460 Guarantees ASC 470 Debt ASC 480 Distinguishing Liabilities From Equity ASC 505 Equity ASC 605 Revenue Recognition ASC 705 Cost of Sales and Services ASC 710 Compensation General ASC 712 Compensation Nonretirement Postemployment Benefits ASC 715 Compensation Retirement Benefits ASC 718 Compensation Stock Compensation ASC 720 Other Expenses ASC 730 Research and Development ASC 740 Income Taxes ASC 805 Business Combinations ASC 808 Collaborative Arrangements ASC 810 Consolidations ASC 815 Derivatives and Hedging ASC 820 Fair Value Measurements ASC 825 Financial Instruments ASC 830 Foreign Currency Matters ASC 835 Interest ASC 840 Leases ASC 845 Nonmonetary Transactions ASC 850 Related-Party Disclosures ASC 852 Reorganizations ASC 853 Service Concession Arrangements ASC 855 Subsequent Events ASC 860 Transfers and Servicing ASC 900s Specialized Industry GAAP 1181 Appendix Disclosure Checklist for Commercial Businesses 1317 Index 1419

7 PREFACE Sign Up for Free Monthly GAAP Newsletter 2014 brought one of the most significant Accounting Standards Updates in years Revenue Recognition. The leases project continues to move forward, and FASB continues to make progress on its private company reporting initiative. Wiley's new free monthly newsletter will help you stay ahead in the face of growing challenges. Cutting through the complexity, the newsletter will give you, clearly and concisely, the latest information on critical technical developments and practical insights on the most recent standards setting activities of the FASB, AICPA, and others. Register today at /GAAP2014, using password floodgaap2014. Wiley GAAP 2015: Interpretation and Application provides analytical explanations, copious illustrations, and nearly 300 examples of all current generally accepted accounting principles. The book integrates principles promulgated by the FASB in its Accounting Standards Codification. TM This edition of Wiley GAAP is organized to align fully with the structure of the FASB Codification. Each chapter now begins with a list of the Subtopics included within the Topic, major scope and scope exceptions, technical alerts of FASB Updates, and an overview of the Topic. The remainder of each chapter contains a detailed discussion of the concepts and practical examples and illustrations. This organization facilitates the primary objective of the book to assist financial statement preparers and practitioners in resolving the myriad practical problems faced in applying GAAP. Meaningful, realistic examples abound, guiding users in the application of GAAP to complex fact situations that must be dealt with in the real world practice of accounting. In addition to this emphasis, a major strength of the book is that it explains the theory of GAAP in sufficient detail to serve as a valuable adjunct to accounting textbooks. Much more than merely a reiteration of currently promulgated GAAP, it provides the user with the underlying conceptual bases for the rules. It facilitates the process of reasoning by analogy that is so necessary in dealing with the complicated, fast-changing world of commercial arrangements and transaction structures. It is based on the author s belief that proper application of GAAP demands an understanding of the logical underpinnings of all its technical requirements. As a bonus, a comprehensive disclosure checklist, following the main text, offers practical guidance to preparing financial statements in accordance with GAAP. For easy reference and research, the checklist follows the order of the codification. The following FASB Accounting Standards Updates were issued since the Wiley GAAP Their requirements are incorporated in this edition of Wiley GAAP, as and where appropriate. Information on ASU is included in the chapter on ASC 605. vii

8 viii Preface Number Title Issue Date ASU Revenue from Contracts with Customers (Topic 606) 5/28/2014 ASU ASU ASU Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements (a consensus of the Private Company Council) Technical Corrections and Improvements Related to Glossary Terms 4/11/2014 3/20/2014 3/14/14 ASU Service Concession Arrangements (Topic 853) (a consensus of the FASB Emerging Issues Task Force) 01/23/14 ASU ASU ASU ASU ASU ASU Receivables Troubled Debt Restructurings by Creditors (Subtopic ): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force) Derivatives and Hedging (Topic 815): Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps Simplified Hedge Accounting Approach (a consensus of the Private Company Council) Intangibles Goodwill and Other (Topic 350): Accounting for Goodwill (a consensus of the Private Company Council) Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force) Definition of a Public Business Entity An Addition to the Master Glossary Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force) 01/17/14 01/16/14 01/16/14 01/15/14 12/23/13 07/18/13

9 Preface ix ASU ASU ASU Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes (a consensus of the FASB Emerging Issues Task Force) Fair Value Measurement (Topic 820): Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No Financial Services Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements 07/17/13 07/08/13 06/07/13 Significant accounting changes are on the horizon. In the next year, the FASB is expected to make strides on the following major projects and others: Consolidation Going Concern Insurance Contracts Financial Instruments Classification and Measurement Readers are encouraged to check the FASB website for status updates to the above and other FASB projects. In response to the 2011 report of the Blue Ribbon Panel on Standard Setting for Private Companies, the AICPA and the FASB began separate initiatives. In July 2013, the AICPA released its Financial Reporting Framework for Small- and Medium-sized Entities. The AICPA has positioned the Framework as an alternative to U.S. GAAP and one that will provide consistent, reliable information for small- and medium-sized entities that are not required to prepare financial statements in accordance with U.S. GAAP. The FASB created the Private Company Council to address the Blue Ribbon Panel s report. The FASB issued a framework for the FASB and the PCC to use in determining whether alternatives to existing and proposed U.S. GAAP are warranted for private companies. In 2014, FASB issued three ASUs that are consensuses of the PCC. Those are listed on the table above. The author s wish is that this book will serve preparers, practitioners, faculty, and students, as a reliable reference tool to facilitate their understanding of, and ability to apply, the complexities of the authoritative literature. Joanne M. Flood June 2014

10 ABOUT THE AUTHOR Joanne M. Flood, CPA, is an author and independent consultant on accounting and auditing technical topics and e-learning. She has experience as an auditor in both an international firm and a local firm and worked as a senior manager in the AICPA s Professional Development group. She received her MBA Summa Cum Laude in Accounting from Adelphi University and her Bachelor s degree in English from Molloy College. While in public accounting, Joanne worked on major clients in retail, manufacturing, and finance and on small business clients in construction, manufacturing, and professional services. At the AICPA, Joanne developed and wrote e-learning, text, and instructor-led training courses on US and International Standards. She also produced training materials in a wide variety of media, including print, video, and audio, and pioneered the AICPA s e-learning product line. Joanne resides on Long Island, New York with her daughter, Elizabeth. Joanne is the author of the following Wiley publications: Financial Disclosure Checklist Wiley GAAP 2014: Interpretation and Application of Generally Accepted Accounting Principles Wiley Practitioner s Guide to GAAS 2014: Covering all SASs, SSAEs, SSARSs, and Interpretations Wiley GAAP: Financial Statement Disclosures Manual (Wiley Regulatory Reporting) Wiley Revenue Recognition And the following AICPA online and live CPE programs: Audit Staff Essentials, Level 1 New Hire Audit Staff Essentials, Level 2 Experienced Staff Audit Staff Essentials, Level 3 Audit Senior/In-Charge xi

11 CODIFICATION TAXONOMY Topic # and title Subtopic # and title I. General Principles and Objectives 105 Generally Accepted Accounting Principles Overall II. Overall Financial Reporting, Presentation, and Display Matters A. Overall Presentation of Financial Statements 205 Presentation of Financial Statements Overall Discontinued Operations Liquidation Basis of Accounting 210 Balance Sheet Overall Offsetting 215 Statement of Shareholders Equity Overall 220 Comprehensive Income Overall 225 Income Statement Overall Extraordinary and Unusual Items Business Interruption Insurance 230 Statement of Cash Flows Overall 235 Notes to Financial Statements Overall B. Various Financial Reporting, Presentation, and Display Matters 250 Accounting Changes and Error Overall Corrections 255 Changing Prices Overall 260 Earnings Per Share Overall 270 Interim Reporting Overall 272 Limited Liability Entities Overall 274 Personal Financial Statements Overall 275 Risks and Uncertainties Overall 280 Segment Reporting Overall III. Transaction-Related Topics A. Financial Statement Accounts 305 Cash and Cash Equivalents Overall 310 Receivables Overall Nonrefundable Fees and Other Costs Loans and Debt Securities Acquired with Deteriorated Credit Quality Troubled Debt Restructurings by Creditors 320 Investments Debt and Equity Securities Overall 323 Investments Equity Method and Joint Overall Ventures Partnerships, Joint Ventures, and Limited Liability Entities 325 Investments Other Overall Cost Method Investments Investments in Insurance Contracts Beneficial Interests in Securitized Financial Assets xiii

12 xiv Codification Taxonomy Topic # and title Subtopic # and title 330 Inventory Overall 340 Other Assets and Deferred Costs Overall Capitalized Advertising Costs Insurance Contracts that Do Not Transfer Insurance Risk 350 Intangibles Goodwill and Other Overall Goodwill General Intangibles Other Than Goodwill Internal-Use Software Web Site Development Costs 360 Property, Plant, and Equipment Overall Real Estate Sales 405 Liabilities Overall Extinguishment of Liabilities Insurance-Related Assessments Obligations Resulting from Joint and Several Liabilities 410 Asset Retirement and Environmental Overall Obligations Asset Retirement Obligations Environmental Obligations 420 Exit or Disposal Cost Obligations Overall 430 Deferred Revenue Overall 440 Commitments Overall 450 Contingencies Overall Loss Contingencies Gain Contingencies 460 Guarantees Overall 470 Debt Overall Debt with Conversion and Other Options Participating Mortgage Loans Product Financing Arrangements Modifications and Extinguishments Troubled Debt Restructurings by Debtors 480 Distinguishing Liabilities from Equity Overall 505 Equity Overall Stock Dividends and Stock Splits Treasury Stock Equity-Based Payments to Non- Employees Spin-offs and Reverse Spin-offs 605 Revenue Recognition Overall Products Services Multiple-Element Arrangements Milestone Method Rights to Use Construction-Type and Production- Type Contracts Gains and Losses

13 Codification Taxonomy xv Topic # and title Subtopic # and title Principal Agent Considerations Customer Payments and Incentives 606 Revenue from Contracts with Overall 1 Customers 610 Other Income Overall Cost of Sales and Services Overall Accounting for Consideration Received from a Vendor Compensation General Overall 712 Compensation Nonretirement Overall Postemployment Benefits 715 Compensation Retirement Benefits Overall Defined Benefit Plans General Defined Benefit Plans Pensions Defined Benefit Plans Other Postretirement Defined Contribution Plans Multiemployer Plans 718 Compensation Stock Compensation Overall Awards Classified as Equity Awards Classified as Liabilities Employee Stock Ownership Plans Employee Share Purchase Plans 720 Other Expenses Overall Start-Up Costs Insurance Costs Contributions Made Real and Personal Property Taxes Advertising Costs Electronic Equipment Waste Obligations Business and Technology Reengineering Fees Paid to the Federal Government by Pharmaceutical Manufacturers and Health Insurers 730 Research and Development Overall Research and Development Arrangements 740 Income Taxes Overall Intraperiod Tax Allocation Other Considerations or Special Areas B. Broad Transactional Categories 805 Business Combinations Overall Identifiable Assets and Liabilities, and Any Noncontrolling Interest Goodwill or Gain from Bargain Purchase, Including Consideration Transferred Reverse Acquisitions Related Issues Income Taxes

14 xvi Codification Taxonomy Topic # and title Subtopic # and title 808 Collaborative Arrangements Overall 810 Consolidation Overall Control of Partnerships and Similar Entities Research and Development Arrangements 815 Derivatives and Hedging Overall Embedded Derivatives Hedging General Fair Value Hedges Cash Flow Hedges Net Investment Hedges Contracts in Entity s Own Equity Weather Derivatives 820 Fair Value Measurements Overall 825 Financial Instruments Overall Registration Payment Arrangements 830 Foreign Currency Matters Overall Foreign Currency Transactions Translation of Financial Statements Statement of Cash Flows Income Taxes 835 Interest Overall Capitalization of Interest Imputation of Interest 840 Leases Overall Operating Leases Capital Leases Sale-Leaseback Transactions 845 Nonmonetary Transactions Overall 850 Related-Party Disclosures Overall 852 Reorganizations Overall Quasi-Reorganizations Income Taxes 853 Service Concession Arrangements Overall 855 Subsequent Events Overall 860 Transfers and Servicing Overall Sales of Financial Assets Secured Borrowings and Collateral Transfers to Qualifying Special- Purpose Entities Servicing Assets and Liabilities IV. Industry/Unique Topics 905 Agriculture Overall 908 Airlines Overall 910 Contractors Construction Overall Contract Costs 912 Contractors Federal Government Overall Contract Costs 915 Development Stage Entities Overall 920 Entertainment Broadcasters Overall 922 Entertainment Cable Television Overall 924 Entertainment Casinos Overall

15 Codification Taxonomy xvii Topic # and title Subtopic # and title 926 Entertainment Films Overall Other Assets Film Costs 928 Entertainment Music Overall 930 Extractive Activities Mining Overall 932 Extractive Activities Oil and Gas Overall 940 Financial Services Brokers and Overall Dealers Broker Dealer Activities 942 Financial Services Depository and Overall Lending 944 Financial Services Insurance Overall Insurance Activities Acquisition Costs Claim Costs and Liabilities for Future Policy Benefits Policyholder Dividends Premium Deficiency and Loss Recognition Separate Accounts 946 Financial Services Investment Overall Companies Investment Company Activities 948 Financial Services Mortgage Banking Overall 950 Financial Services Title Plant 952 Franchisors Overall 954 Health Care Entities Overall 958 Not-for-Profit Entities Overall Financially Interrelated Entities 960 Plan Accounting Defined Benefit Pension Plans 962 Plan Accounting Defined Contribution Pension Plans 965 Plan Accounting Health and Welfare Benefit Plans Split-Interest Arrangements Overall Accumulated Plan Benefits Net Assets Available for Plan Benefits Terminating Plans Overall Terminating Plans Overall 970 Real Estate General Overall 972 Real Estate Common Interest Realty Overall Associations 974 Real Estate Real Estate Investment Overall Trusts 976 Real Estate Retail Land Overall 978 Real Estate Time-Sharing Activities Overall Net Assets Available for Plan Benefits Plan Benefits Obligations Terminating Plans

16 xviii Codification Taxonomy Topic # and title Subtopic # and title 980 Regulated Operations Overall Discontinuation of Rate-Regulated Accounting 985 Software Overall Costs of Software to Be Sold, Leased, or Marketed 995 US Steamship Entities V. Glossary 1 ASU added the Codification section. For more information on ASU , see the Preface.