About the Authors xi About the Financial Accounting Professors xiii Welcome to Financial Accounting and Reporting xv Conceptual Framework, Standard-Setting and Financial Reporting 1 Overview of US GAAP 2 FASB and Standard Setting 2 Accrual Accounting 7 Financial Accounting Standards Codification 13 Conceptual Framework of Financial Reporting by Business Enterprises 17 Objectives and Qualitative Characteristics 17 Assumptions and Accounting Principles 20 Constraints and Present Value 24 Fair Value Framework 27 Fair Value Framework--Introduction and Definitions 27 Recognition and Measurement 31 Inputs and Hierarchy 34 Disclosure Requirements 36 General-Purpose Financial Statements 39 Financial Statements 39 Income Statement 44 Balance Sheet/Statement of Financial Position 50 Statement of Comprehensive Income 57 Statement of Changes in Equity 61 Statement of Cash Flows 64 Sources and Uses of Cash 64 Operating, Investing, and Financing Activities 67 Operating Cash Flows--Indirect Method 74 Notes to Financial Statements 82 Notes to Financial Statements 82 Risks and Uncertainties 88 Subsequent Events 92 Exit or Disposal Activities and Discontinued Operations 95 Evaluating Financial Statements 99 Ratios--Liquidity/Solvency and Operational 99 Ratios--Profitability and Equity 103 Consolidated Financial Statements 106 Introduction to Consolidated Financial Statements 106 Consolidating Process 110 Consolidation at Acquisition 110 Consolidation Subsequent to Acquisition 117 Consolidation Less than 100% Ownership 122 Intercompany (I/C) Transactions and Balances 127 Intercompany I/C Transactions and Balances--Introduction 127 Intercompany (I/C) Inventory Transactions 130 Intercompany (I/C) Fixed Asset Transactions 140 Intercompany (I/C) Bond Transactions 152 Combined Financial Statements 160 Variable Interest Entities (VIEs) 162 Public Company Reporting Topics (SEC, EPS, Interim, and Segment) 164 U.S. Securities and Exchange Commission (SEC) 164 SEC--Role and Standard-Setting Process 164 SEC Reporting Requirements 167 Earnings Per Share 172 Introduction to Earnings per Share 172 Basic Earnings per Share 175 Diluted Earnings per Share 179 Segment Reporting 189 Interim Financial Reporting 193 Interim Reporting Principles 193 Interim Reporting--Details 197 Financial Statements of Employee Benefit Plans 200 Pension Plan Reporting 200 Special-Purpose Frameworks 203 Cash, Modified Cash, Income Tax 203 Private Company Council 206 Select Financial Statement Accounts 211 Cash and Cash Equivalents 212 Cash 212 Bank Reconciliations 215 Receivables 218 Accounts Receivable--Accounting and Reporting 218 Uncollectible--Direct Write-Off and Allowance 221 Allowance for Uncollectible 223 Notes Receivable 227 Criteria for Sale of Receivables 231 Factoring, Assignment, and Pledging 234 Inventory 237 Notes Receivable--Impairment 237 Inventory 239 Introduction to Inventory 239 Periodic Inventory System and Cost-Flow Assumption 243 Perpetual Inventory System and Cost-Flow Assumption 250 Evaluation of FIFO and LIFO 254 Dollar-Value LIFO 257 Gross Margin and Relative Sales Value Method 261 Retail Inventory Method 264 Dollar-Value LIFO Retail 269 Subsequent Measurement of Inventory 271 Inventory Errors 275 Losses on Purchase Commitments 277 Property, Plant and Equipment 279 Categories and Presentation 279 Capitalized Costs 280 Valuation 282 Interest Capitalization Basics 285 Interest Capitalization Limits 288 Post-Acquisition Expenditures 293 Non-Accelerated Depreciation Methods 295 Accelerated Depreciation Methods 298 Natural Resources 302 Impairment--Assets for Use and Assets Held-for-Sale 306 Nonmonetary Exchange 310 Commercial Substance 310 No Commercial Substance 313 Investments 316 Introduction--Investments in Equity and Debt Securities 316 Investments in Equity Securities 321 Equity Investments at Fair Value 321 Equity Investments at Cost 325 Equity Investments Using Equity Method Accounting 328 Investments in Debt Securities 336 Debt Investments at Fair Value 336 Debt Investments at Amortized Cost 346 Investor Stock Dividends, Splits, and Rights 349 Comparison and Transfers of Investments 352 Intangible Assets--Goodwill and Other 360 Introduction to Intangible Assets 360 Goodwill 366 Research and Development Costs 370 Software Costs 373 Payables and Accrued Liabilities 378 Current Liabilities 378 Specific Current Liabilities 381 Payroll and Compensated Absences 383 Asset Retirement Obligations and Environmental Liabilities 387 Contingencies, Commitments, and Guarantees 390 Contingent Liability Principles 390 Examples of Contingent Liabilities and Additional Aspects 393 Financial Liabilities and Long-Term Debt 396 Notes Payable 396 Bonds Payable 402 Bond Accounting Principles 402 Bond Complications 406 Bond Fair Value Option, International 409 Modification and Debt Retirement 412 Refinancing Short-Term Obligations 412 Debt Retirement 414 Troubled Debt 416 Debt Covenant Compliance 421 Distinguishing Liabilities from Equity 426 Equity 430 Owners'' Equity Basics 430 Stock Issuance 438 Preferred Stock 443 Treasury Stock 446 Dividends 451 Stock Dividends and Splits 455 Dividend Allocation 458 Stock Rights, Retained Earnings 461 Book Value per Share 466 Select Transactions 471 Revenue Recognition 472 Five Steps of Revenue Recognition 472 Determining Transaction Price 477 Allocating Transaction Price 482 Special Issues in Revenue Recognition 485 Contract Modifications and Other Considerations 491 Accounting for Construction Contracts 499 Share-Based Payments 505 Stock Options 505 Stock Awards 513 Stock Appreciation Rights 517 Income Taxes 520 Income Tax Basics 520 Permanent Differences 523 Temporary Differences 525 Tax Accrual Entry 531 Interperiod Tax Allocation Process 535 Valuation Allowance for Deferred Tax Assets 539 Uncertain Tax Positions 541 Net Operating Losses 544 Accounting Changes and Error Corrections 549 Types of Changes and Accounting Approaches 549 Retrospective Application 553 Prospective Application 556 Accounting Errors--Restatement 558 Business Combinations 562 Introduction to Business Combinations 562 Acquisition Method of Accounting 567 Introduction to the Acquisition Method of Accounting 567 Determining the Cost of the Business Acquired 571 Recognizing/Measuring Assets, Liabilities, and Noncontrolling Interest 575 Recognizing/Measuring Goodwill or Bargain Purchase 580 Post-Acquisition Issues 583 Disclosure Requirements--Acquisition Method 587 Recording Business Combinations 590 Financial Instruments 601 Financial Instruments Introduction 601 Financial Instruments Disclosures 604 Derivatives and Hedging 607 Derivatives Introduction 607 Hedging Introduction 613 Fair Value Hedges 618 Cash-Flow Hedges 622 Foreign Currency Hedges 625 Effectiveness and Disclosure 627 Foreign Currency Denominated Transactions 631 Introduction and Definitions 631 Import Transactions 636 Export Transactions 639 Foreign Currency Hedges 642 Introduction to Forward and Option Contracts 642 Natural (Economic) Hedge 647 Hedging Forecasted Transactions and Firm Commitment 650 Hedging Asset/Liability, Available-for-Sale, and Foreign Operations 653 Speculation and Summary 656 Conversion of Foreign Financial Statements 658 Introduction to Conversion of Foreign Financial Statements 658 Conversion Using Translation 660 Conversion Using Remeasurement 663 Remeasurement and Translation 667 Leases 668 Background, Short-Term Leases, and Operating Leases 668 Finance Lease Basics 674 Finance Leases--Lessee 679 Sales-Type Leases--Lessor 685 Direct Financing Leases--Lessor 690 Sale-Leasebacks and Disclosures 695 Additional Aspects of Leases 700 Not-for-Profit Organizations 705 Introduction to Types of Not-for-Profit Entities and Standard Setting 705 Financial Reporting 707 Donations, Pledges, Contributions, and Net Assets 716 Special Issues--Recent Developments 723 Special Industries: Healthcare and Colleges 727 Healthcare Organizations 727 Colleges and Universities 733 State and Local Governments 737 State and Local Government Concepts 738 Introduction to Governmental Organizations 738 GASB Concepts Statements 741 Fund Accounting 747 Measurement Focus Basis of Accounting 753 Budgetary Accounting 758 Encumbrance Accounting 761 Deferred Outflows and Deferred Inflows of Resources 766 Net Position and Fund Balance 772.