2014 Wiley C PAexc e l ® EXAM REVIEW STUDY GUIDE 2014 Wiley C PA e xc e l EXAM REVIEW STUDY GUIDE FINANCIAL ACCOUNTING AND REPORTING O Ray Whittington, CPA, PhD ® Cover Design by David Riedy Cover image: © turtleteeth/iStockphoto The following items, copyright © by the American Institute of Certified Public Accountants, Inc., are reprinted (or adapted) with permission Material from Uniform CPA Examination Questions and Answers, 1978 through 2000 Information for Uniform CPA Examination Candidates, Board of Examiners, 2013 Example financial statements from Industry Audit Guides: Audits of Colleges and Universities, Audits of Voluntary Health and Welfare Organizations, and Audits of Providers of Health Care Services Example of Statement of Activity from SOP 78-10 Material from the Certified Internal Auditor Examination, Copyright © 1994 through 1997 by the Institute of Internal Auditors, Inc., are reprinted and/or adapted by permission Material from the Certified Management Accountant Examinations, Copyright © 1993 through 1997 by the Institute of Certified Management Accountants are reprinted and/or adapted by permission Reproduction and adaptation of pronouncements, copyright © Financial Accounting Standards Board, Norwalk, Connecticut 06856-5116, with permission Reproduction of “Combined Statement of Revenues, Expenditures, and Changes in Fund Balances–All Governmental Fund Types and Expendable Trust Funds,” copyright © Governmental Accounting Standards Board, Norwalk, Connecticut 06856-5116, with permission Statement of changes in fund balances for an educational institution from College and University Business Administration with permission of the National Association of College and University Business Officers Copyright © 2014 by John Wiley & Sons, Inc All rights reserved Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada 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, scanning or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600, or on the Web at www.copyright.com Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008, or online at http://www.wiley.com/go/ permissions 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 sales representatives or 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 For general information on our other products and services or for technical support, please contact our Customer Care Department within the US at 800-762-2974, outside the US at 317-572-3993 or fax 317-572-4002 Wiley also publishes its books in a variety of electronic formats Some content that appears in print may not be available in electronic books For more information about Wiley products, visit our Web site at www.wiley.com ISBN 978-1-118-73401-8 (paperback); 978-1-118-86365-7 (ebk); 978-1-118-86342-8 (ebk) Printed in the United States of America 10 CONTENTS Preface vii About the Author ix About the Contributor ix Chapter 1: Beginning Your CPA Review Program INTRODUCTION Chapter 2: Examination Grading 17 Chapter 3: The Solutions Approach 19 Chapter 4: Taking the Examination 27 Chapter 5: Exam Content Overview 31 FINANCIAL ACCOUNTING AND REPORTING Module 9: Basic Theory and Financial Reporting 41 Module 10: Inventory 217 Module 11: Fixed Assets 267 Module 12: Monetary Current Assets and Current Liabilities 329 Module 13: Present Value 395 Module 14: Deferred Taxes 537 Module 15: Stockholders’ Equity 577 Module 16: Investments 639 Module 17: Statement of Cash Flows 687 Module 18: Business Combinations and Consolidations 725 Module 19: Derivative Instruments and Hedging Activities 785 Module 20: Miscellaneous 825 Module 21: Governmental (State and Local) Accounting 897 Module 22: Not-for-Profit Accounting 983 Outlines of Accounting Pronouncements v 1017 APPENDICES Appendix A: Financial Accounting and Reporting Sample Examination 1125 Appendix B: Sample Financial Accounting and Reporting Testlet Released by AICPA 1159 Appendix C: 2013 Released AICPA Questions for Financial Accounting and Reporting 1167 INDEX 1187 vi PREFACE Passing the CPA exam upon your first attempt is possible! The Wiley CPAexcel Exam Review 2014 Study Guide: Financial Accounting and Reporting preparation materials provide you with the necessary materials (visit our website at www.wiley.com/cpa for more information) It’s up to you to add the hard work and commitment Together we can beat the pass rate on each section of about 50% All Wiley CPAexcel products are continuously updated to provide you with the most comprehensive and complete knowledge base Choose your products from the Wiley preparation materials and you can proceed confidently You can select support materials that are exam-based and user-friendly You can select products that will help you pass! Remaining current is one of the keys to examination success Here is a list of what’s new in this edition of the Wiley CPAexcel Exam Review 2014 Study Guide: Financial Accounting and Reporting text • DON’T FORGET TO VISIT OUR WEBSITE AT WWW.WILEY.COM/CPA FOR SUPPLEMENTS AND UPDATES The new AICPA Content Specification Outlines on Financial Accounting and Reporting for the computerized CPA Examination beginning in 2014 • AICPA questions released in 2013 • The new task-based simulations • Complete coverage of standards, especially • The newest FASB accounting standards • International accounting standards • SEC reporting requirements The objective of this work is to provide you with the knowledge to pass the Financial Accounting and Reporting portion of the Uniform Certified Public Accounting (CPA) Exam The text is divided up into fourteen areas of study called modules Each module contains written text with discussion, examples, and demonstrations of the key exam concepts Following each text area, actual American Institute of Certified Public Accountants (AICPA) unofficial questions and answers are presented to test your knowledge We are indebted to the AICPA for permission to reproduce and adapt examination materials from past examinations Author-constructed questions and simulations are provided for new areas or areas that require updating All author-constructed questions and simulations are modeled after AICPA question formats The multiple-choice questions are grouped into topical areas, giving candidates a chance to assess their areas of strength and weakness Selection and inclusion of topical content is based upon current AICPA Content Specification Outlines Only testable topics are presented If the CPA exam does not test it, this text does not present it The CPA exam is one of the toughest exams you will ever take It will not be easy But if you follow our guidelines and focus on your goal, you will be thrilled with what you can accomplish Ray Whittington November 2013 vii 1190 Contingencies business combinations and consolidations, 752 FASB Interpretation No 14, 1051 governmental nonexchange transactions, 921 SFAS 5, 1076 Contingent consideration, 751, 755 Contingent issuances (common stock), 593 Contingent liabilities, 343 compensated absences, 347 defined, 351 gain contingencies, 347 loss contingencies, 343 recording and disclosing, 342 Contingent rentals, 1097 Continuing franchise fee, 1110 Continuing operations current cost income from, 158 on income statement, 551 Contra accounts (APB 12), 1062, 1077 Contract losses, 230 Contributions of cash, 998 of services, 998 SFAS 116, 1111 Contributory plans, 474 Control(s), 726, 755, 1105 Convertible bonds, 423 Convertible debt APB 14, 1062, 1077 induced conversions (SFAS 84), 1056 Convertible stock, 579, 601 Corporate bankruptcy, 593 Correct balance (in cash basis to accrual basis conversion), 54 Correction of an error, 145, 169, See also error correction Corridor approach, 463 Cost adjusted for fair value method as alternative to equity method, 648 where significant influence does exist, 647 Cost apportionment by relative sales value, 226 Cost approach, 153, 169, 474 Cost flow assumptions (inventory), 217 cost apportionment by relative sales value, 226 direct (variable) costing, 226 dollar-value LIFO, 222 first-in, first-out, 222 gross profit, 225 last-in, first-out, 222 link-chain technique, 224 losses on purchase commitments, 221 Index lower of cost or market, 220 market, 226 moving average, 219 simple average, 219 specific identification, 218 standard costs, 226 weighted-average, 219 Cost method defined, 601 treasury stock transactions, 580 Cost model (intangible assets), 291 Cost of goods sold determining, 217 interim reporting of, 832 LIFO method, 222 Cost recovery method, 58 Cost reporting, interim, 832 Cost-sharing defined benefit plans, 941 Counterbalancing errors, 101 Credit risk, 798 Creditors (debt restructure) impairment, 449 modification of terms, 445 settlement of debt, 445 Cumulative dividends, 579, 601 Current assets ARB 43, 1017 defined, 169, 1017 monetary See monetary current assets and current liabilities on balance sheet, 149 US GAAP vs IFRS rules for, 65 Current balance (cash basis to accrual basis conversion), 54 Current cost, 47, 69 Current cost accounting, 158, 169 Current cost income, 158 Current cost net income, 158 Current cost/constant dollars, 159 Current financial resources measurement focus and basis of accounting, 920 Current liabilities, 341 ARB 43, 1017 contingencies, 343 compensated absences, 347 gain contingencies, 347 loss contingencies, 343 recording and disclosing, 343 defined, 169, 341, 351, 1022, 1036, 1053 monetary See monetary current assets and current liabilities on balance sheet, 149 types of, 341 US GAAP vs IFRS rules for, 65 Current market value, 47, 69 Current ratio, 348, 351 Current tax expense or benefit, 540, 555 Curtailment, 1068 Date of purchase, 329 Debt APB 26, 1027 bad debts expense, 332 defined, 450 extinguishment of, 424, 1027 issued with detachable purchase warrants, 424 Debt issued with stock warrants (APB 14), 1062, 1077 Debt restructure, 445 Accounting Standards Codification, 450 IFRS rules for, 450 impairment, 449 key terms, 450 modification of terms, 445 settlement of debt, 445 SFAS 15, 1100 Debt securities See also specific types of securities (e.g.: bonds) defined, 639, 655 investments in, 639, See also investments on balance sheets, 642 SFAS 115, 1039 Debt service funds (governmental) accounting for, 936 classification of, 908 defined, 951 GASB definition of, 909 Debt service payments, 945 Debt to equity ratio, 598, 601 Debtors (debt restructure) impairment, 449 modification of terms, 445 settlement of debt, 445 troubled debt restructurings (SFAS 15), 1100 Deductible amounts, 1091 Deferral(s) accounting theory, 53 defined, 69, 1119 Deferred compensation (pensions), 473 Deferred income taxes equity method and, 651 financial statement presentation of, 551 Deferred tax assets, 539 changing tax rates, 545 defined, 555 identification and measurement of, 539 Index scheduling and recording, 540 valuation allowance for, 547 Deferred tax expense or benefit, 540, 555 Deferred tax liabilities, 539 changing tax rates, 545 defined, 555 identification and measurement of, 539 on statement of cash flows, 694 scheduling and recording, 540 Deferred taxes, 537 Accounting Standards Codification, 553 deferred tax assets and liabilities, 539 changing tax rates, 545 identification and measurement of, 539 scheduling and recording, 540 valuation allowance for deferred tax assets, 547 equity method and, 651 financial statement presentation of income tax, 551 IFRS rules, 553 key terms, 555 loss carryforwards and carrybacks, 550 permanent differences, 537 related to business investments, 548 related to investments, 548 temporary differences, 537 treatment of temporary differences, 552 Defined benefit pension plan, 459, 475 defined, 475 governmental, 941 SFAS 88, 1068 SFAS 158, 1089 Defined contribution pension plan, 459 defined, 1113 governmental, 941 Denominated, 785 Depletion defined, 292 fixed assets, 284 Deposit method, 58 Depreciation accelerated, 278, 281 accumulated, 538 changes in, 282 composite (group), 281 defined, 278, 293 fixed assets, 278, 281 fractional year, 282 inventory, 281 of government infrastructure assets, 907 physical usage, 281 rational, 278 straight-line, 278, 281 systematic, 278 Depreciation expense, 696 Derivative instruments, 785, 787 Accounting Standards Codification, 799 as hedging instruments, 788 bifurcation, 790 defined, 800 disclosures, 798, 1084 distinguishing characteristics of, 788 embedded, 790 fair value measurement, 788 governmental accounting for, 922 IFRS rules for, 800 inclusions in and exclusions from, 789 key terms, 800 SFAS 133, 1085 SFAS 138, 1085 SFAS 149, 1050 SFAS 161, 1084 Derived tax revenues governmental exchange transactions, 921 measurement period for business combinations, 751 Detachable purchase warrants, debt issued with, 424 Determinable liabilities, 342, 351 Development stage enterprise accounting for, 156 defined, 289, 293 financial statements for, 289 SFAS 7, 1109 Differential, 648, 655 Diluted earnings per share, 587, 589, 601 Direct (variable) costing, 226, 233 Direct approach, 700 Direct effects (of new accounting principles), 118 Direct financing leases, 491, 495 Direct method (operating activities), 689 Direct write-off method defined, 351 Disclosure(s) accounting policies (APB 22), 1027 business combinations and consolidations, 730, 754 capital structure (SFAS 129), 1031 comprehensive income, 147 contingent liabilities, 343 depreciable assets (APB 12), 1062, 1077 derivative instruments and hedging, 797, 1084 1191 enterprise-wide, 841 fair value of financial instruments, 797, 1090 interim disclosures by publicly traded companies, 1033 leases, 508 long-term obligations, 1110 on financial statements, 151, 155 pensions, 464 present value, 405 receivables, 340 related-party transactions (SFAS 57), 1105 segment reporting, 841 servicing assets and liabilities, 338 SFAS 107, 1090 SFAS 161, 1084 share-based payments, 586 Discontinued operations defined, 145, 169 interim reporting of, 832 on financial statements, 146 Discount defined, 425 on forward contracts, 800 Discount rate adjustment technique, 169 Discounted value of future cash flows, 47 Discrete view defined, 833 interim reporting, 832 Discretely presented information (governments), 901 Disposal of fixed assets, 282 of liabilities (SFAS 146), 1049 of long-lived assets (SFAS 144), 1049 Dissolution defined, 861 of partnership (changes in ownership), 852 admission of new partners, 852 partner death or withdrawal, 855 transactions between partners, 855 Distributions to owners, 1119 Dividend payout, 598, 601 Dividend received deduction (DRD), 539 Dividends ARB 43, 1058 cumulative, 579, 601 defined, 1058 investments, 651 liquidating, 582, 601 property, 582, 601 scrip, 582, 601 stockholders’ equity, 582 1192 Dollar-value LIFO defined, 233 inventory, 222 Donated assets, 538 Double-extension technique, 223 Drawing account (partnerships), 851 DRD (dividend received deduction), 539 Earnings, 48 Earnings per share (EPS) basic, 587 diluted, 587, 589 on comprehensive income, 593 on other comprehensive income, 593 SFAS 128, 1112 Earnings process, 1120 Economic resources measurement focus and basis of accounting, 920, 947 Effective interest method, 422 Effective interest rate, 450 Eligibility requirements (governmental nonexchange transactions), 921 Embedded derivative instruments, 790, 800 Employee benefits business combinations and consolidations, 752 governmental trust funds for See pension (and other employee benefit) trust funds (governmental) Employee stock ownership plans (ESOPs), 597, 601 Enterprise funds (governmental), 908, 939, 951 Enterprise-wide disclosures, 841 Environmental remediation liabilities (SOP No 96-1), 1052 EPS See earnings per share Equity defined, 1117 share-based payments classified as, 585 Equity method defined, 655 for investments and deferred income taxes, 651 APB 18, 1042, 1104 changes to or from, 650 FASB Interpretation No 35, 1042, 1104 where significant influences does exist, 647 Equity securities See also specific types of securities defined, 639, 655 Index investments in, 639, See also investments on balance sheets, 642 SFAS 115, 1039 Error correction, 101 accounting errors, 102 as accounting changes, 125 counterbalancing errors, 101 in periods subsequent to periods when error occurred, 101 inventory errors, 103 on income and retained earnings statements, 145 SFAS 154, 1103 Escheat property, 943 ESOPs (employee stock ownership plans), 597, 601 Estimated economic life of lease property, 1097 Estimated income tax (on personal financial statements), 825 Estimated residual value of lease property, 1097 Estimated warranty liability, 538 Estimation changes in accounting estimates, 124 of contingent liabilities, 343 Events, defined, 1119 Excess of book value over cost, 648 Excess of book value over fair value, 648 Excess of cost over book value, 648 Excess of fair value over book value, 648 Excess of fair value over cost, 648 Exchange revenues defined, 952 government-wide financial statements, 903 Exchange transactions, government revenues from, 920 Exchange, defined, 1102 Executory costs, 1097 Expected cash flow, 169 Expected cash flow approach, 50 Expected future years of service method, 462 Expected return on plan assets, 475 Expendable trust funds, 942 Expenditure classification (governmental funds), 927 Expense(s) accrual of, 946 bad debts, 332 defined, 1118 depreciation, on statement of cash flows, 696 interim reporting of, 832 life insurance premium, 539 pension, 460 determination of, 460 gains and losses, 463 net pension expense, 1066 service cost, 460, 461 recognizing, 48 tax current tax, 540, 555 deferred tax, 540, 555 federal income tax, 539 income tax, 832 Extinguishment of debt, 424 APB 26, 1027 bonds, 424 Extinguishment of liabilities (SFAS 140), 1087 Extraordinary items defined, 145, 169 government-wide financial statements, 903 interim reporting of, 832 Factoring defined, 334, 351 of receivables, 335 Fair market values (partnership assets), 851 Fair value, 49 defined, 69, 169, 450, 800, 1120 estimates of, 63 in nonmonetary exchanges, 272 of leased property, 1097 of pension plan assets, 461 on nonrecurring basis, 155 on recurring basis, 155 SFAS 107, 1090 valuation techniques, 154 Fair value hedge(s), 788, 791, 795 Fair value measurement, 152 derivative instruments, 788 disclosures for, 155 SFAS 157, 1088 Fair value method defined, 351 servicing assets and liabilities, 338 Fair value option for reporting financial assets and financial liabilities, 154 bonds, 419 defined, 169, 655 investments, 651 monetary current assets and current liabilities, 347 present value, 405 SFAS 159, 1091 Faithful representation, 45 Index FASB See Financial Accounting Standards Board FASB ASC 958, 983, 984, 996 FASB Interpretations No 1, 1096 No 8, 1109 No 14, 1051 No 18, 1033 No 30, 1024 No 35, 1042, 1104 No 37, 1105 No 39, 1062, 1077 No 46, 1083 FASB Technical Bulletin 85-3, 1100 FD See regulation fair disclosure Federal income tax expense, 539 Fiduciary funds (governmental), 908 accounting for, 941 defined, 952 financial statements for, 915 FIFO (first-in, first-out), 222, 233 Financial Accounting Standards Board (FASB), 898 private sector nonprofit guidance, 983 references to materials from, 1017 Financial assets fair value option for reporting, 154 IFRS definition of, 349 servicing of receivables, 337 SFAS 140, 1087 SFAS 156, 1088 Financial capital, 48 Financial condition, statement of, 825 Financial forecasts, 161, 169 Financial guarantee insurance contracts (SFAS 163), 1114 Financial institutions, acquisition of (SFAS 147), 1050 Financial instruments defined, 800 disclosures about fair value of, 798, 1090 hybrid (SFAS 155), 1029 SFAS 107, 1090 SFAS 150, 1057 Financial instruments reporting changes, governmental accounting for, 924 Financial investments, US GAAP vs IFRS rules for, 66 Financial liabilities fair value option for reporting, 154 IFRS definition of, 350 Financial projections, 161, 169 Financial reporting, 42, See also reporting GASB Concepts Statement No 1, 898 SFAC 8, 1123 SFAS 89, 1030 Financial section (CAFR), 900 Financial statement presentation of deferred income tax, 551 US GAAP vs IFRS rules for, 64 Financial statements See also specific types of statements, See also under specific topics accounting policies, 151 Accounting Standards Codification, 165 balance sheets (statements of financial position), 149 comparative, 160 comprehensive income, 147 constant dollar accounting, 156 current cost accounting, 158 current cost/constant dollars, 159 development stage enterprise accounting, 156 disclosures, 151, 155 discountinued operations, 146 elements of, 46 fair value measurements, 152 disclosures for, 155 option for reporting financial assets and financial liabilities, 154 for development stage enterprises, 289 IFRS rules for, 166 income statement formats, 144 key terms, 169 of trusts, 164 other comprehensive bases of accounting, 160 prospective financial information, 161 retained earnings statement formats, 144 risks and uncertainties, 159 SEC reporting requirements, 162 SFAC 6, 1117 subsequent events, 151 unusual or infrequent items, 145 Financing activities defined, 687 on statement of cash flows, 687, 688 transactions included in, 688 Fine payments, 539 Firm commitment defined, 800 FC denominated, 795 unrecognized, 795 1193 First-in, first-out (FIFO), 222, 233 Fixed assets, 267 Accounting Standards Codification, 289 acquisition cost, 267 biological, 292 capital vs revenue expenditures, 278 capitalization of interest, 267 computer software costs, 288 defined, 267, 293 depletion, 284 depreciation, 278, 281 development stage enterprises, 289 disposal of, 282 gain on sale of, 695 goodwill, 284 IFRS rules for, 290 impairment of, 283, 292 insurance, 284 intangible, 284, 291 intercompany transactions, 739 investment property, 290 key terms, 292 nonmonetary exchanges, 271 plant, property, and equipment, 290 purchase groups of (basket purchase), 278 research and development costs, 288 start-up costs, 287 US GAAP vs IFRS rules for, 65 Floor defined, 220, 233 FOB destination, 233 FOB shipping point, 233 Forecasted transactions defined, 800 foreign currency denominated, 795 Foreign currency hedges, 788, 794 Foreign currency statements defined, 884 translation of See foreign currency translation Foreign currency transactions, 785, See also derivative instruments defined, 800, 1093 SFAS 48, 1093 Foreign currency translation, 877 Accounting Standards Codification, 883 defined, 884 FASB Interpretation No 37, 1105 financial statement translations, 877 IFRS rules for, 883 in highly inflationary economies, 883 key terms, 884 objective of, 877 SFAS 48, 1093 SFAS 52, 1051 1194 Foreign operations (segment reporting), 841 Form 8-K, 162 Form 8-K/6-K, 162, 169 Form 10-K, 163 Form 10-K/20-F, 162, 169 Form 10-Q, 162, 163, 169 Form S-1/F-1, 162, 169 Forward contract defined, 801 discount or premium on, 800 Forward exchange contracts, 796, 801, 1105 Four-column cash reconciliation, 331 Fractional year depreciation, 282 Franchise agreements, 58, 1110 Franchise fee revenue (SFAS 45), 1110 FranchiSee, 1110 Franchisor, 1110 Free rent (leases), 492 Fresh-start measurements, 1120 Full eligibility date, 1069 Full equity method, 649 Functional currency, 884, 1051, See also foreign currency translation Fund financial statements (governmental accounting) converting to government-wide financial statements, 908, 909, 945 fiduciary funds, 915 general fund, 931 proprietary funds, 913 Funded status of pension plans, 460 Funding of pension obligations, 459 Future revenues, governmental accounting for, 922 Future value (FV) defined, 406 of an amount, 396, 398 of an ordinary annuity, 396, 406 Futures contract, 801 GAAP See generally accepted accounting principles Gain contingencies, 347 Gain(s), 347 defined, 475, 1113, 1118 holding realized, 158, 170, 642 unrealized, 158 on sale of fixed assets, 695 pension expense, 463, 1113 realized, 158, 170, 642 recognizing, 48 transaction, 802 unrealized holding gains, 158 on trading securities, 694 unrecognized, 1066 Index GASB (Governmental Accounting Standards Board), 898, 997 GASB Concepts Statement No 1, 898 GASB Concepts Statements, 898, See also Governmental (state and local) accounting GASB Statement No 33, 933 GASB Statement No 35, 946 GASB Statement No 62, 898 General fund (governmental) accounting for, 928 budgetary accounting for, 925 classification of, 908 defined, 952 GASB definition of, 909 General long-term debt, issuance of, 945 Generally accepted accounting principles (GAAP) application to interim periods, 1032 SFAS 162, 1114 General-purpose governmental units, 900 General-use financial forecasts/ projections, 161 Geographic areas, enterprise-wide disclosures about, 841 Going concern assumption, 593 Going concern considerations (governmental accounting), 924 Goodwill, 284 acquisition of, 284 allocation to reporting units, 284, 286 amortization of, 538 defined, 728, 755 excess of cost over book value from, 648 impairment of, 287 in acquisition accounting, 728 in asset acquisitions, 726 SFAS 142, 1082 Goodwill method defined, 861 partnership dissolution, 853 Governmental (state and local) accounting, 897 expenditure classification for funds, 927 financial instruments reporting changes, 924 for budgetary accounts, 925 for capital projects funds, 933 for debt service funds, 936 for derivative instruments, 922 for fiduciary funds, 941 for general fund, 928 for intangible assets, 921 for investments, 945 for nonexchange transactions, 920 for permanent funds, 938 for pollution remediation obligations, 923 for proprietary funds, 939 for related-party transactions, 924 for sales and pledges of receivables and future revenues, 922 for service concession arrangements, 923 for special assessments, 939 for special revenue funds, 933 for subsequent events, 924 fund financial statements, 908, 909 GASB Concepts Statements, 898 going concern considerations in, 924 Governmental Accounting Standards Board, 898 government-wide financial statements, 901, 945 interfund activity reporting, 943 key terms, 951 management’s discussion and analysis, 901 measurement focus and basis of accounting, 920 notes to financial statements, 917 public college and university accounting, 946 reporting entity, 901 reporting model, 899 required supplementary information other than MD&A, 917 Governmental Accounting Standards Board (GASB), 898, 997 Governmental funds, 908, 909, 952, See also specific funds Governmental nonprofits, 983 examples of, 983 health care organization accounting, 997 Government-mandated nonexchange transactions, 921 Government-wide financial statements conversion from fund financial statements to, 945 governmental accounting for, 901 Statement of Activities, 901, 906 Statement of Net Assets, 901, 903 Gross method, 233 Gross profit (GP), 225 Guaranteed residual value (GRV), 496, 512 Health care cost trend rates, 1069 Health care organization accounting governmental nonprofits, 997 private sector nonprofits, 995 Hedging, 785, 791 Accounting Standards Codification, 799 Index cash flow hedges, 793 derivative instruments for, 788, 791 disclosures, 797, 1084 fair value hedges, 791, 795 foreign currency hedges, 794 forward exchange contracts, 796 IFRS rules for, 799 key terms, 800 SFAS 133, 1085 SFAS 138, 1085 SFAS 149, 1050 SFAS 161, 1084 Held-to-maturity securities (amortized cost) defined, 655 investments in which significant influence does not exist, 640 other securities transferred from/to, 646 Hierarchy of accounting qualities, 1124 Highest and best use, 153, 169 Highly effective hedges, 791 Highly inflationary economies, foreign currency translation in, 883 Historical cost (historical proceeds), 47, 69 Holding gains and losses, 642 Host contract, 790 Hybrid instruments defined, 790 SFAS 155, 1029 Identifiable assets, 727, 755 Immediate family, 1105 Impairment debt restructure, 449 defined, 293 fixed assets, 283 goodwill, 287 IFRS rules for, 292 intangible assets, 286 of governmental capital assets, 936 of loans (SFAS 114), 1064 of long-lived assets (SFAS 144), 1049 Implicit interest rate, 1096, 1097 Imposed nonexchange transactions, 921 Imputation, 402 Imputed interest rate, 1096 In the money, 801 Inception of the lease, 1097 Income comprehensive, 48 defined, 1119 earnings per share on, 593 IFRS rules for statement of, 168 on financial statements, 147 on income statement, 552 SFAS 130, 1031 determination of, 52 realized, 158 state and municipal bond interest income, 539 Income allocation (partnerships), 851 Income approach, 153, 169 Income statement continuing operations on, 551 formats for, 144 holding gains and losses on, 642 IFRS rules for, 167 investments in which significant influence does not exist on, 646 loss carrybacks and carryforwards on, 551 net income on, 551 other comprehensive income on, 552 realized gains on losses on, 642 Income tax expense federal, 539 interim reporting of, 832 Income tax payable, 694 Income taxes APB 23, 1027 business combinations and consolidations, 752 current, 537 deferred equity method and, 651 financial statement presentation of, 551 estimated, on personal financial statements, 825 interim reporting of, 832 SFAS 109, 1091 US GAAP vs IFRS rules for, 66 Incomplete information (business combinations and consolidations), 751 Incorporation (of partnerships), 860 Incremental borrowing rate, 1097 Incurred claims cost (by age), 1069 Indemnification contracts, 752 Indirect effects (of new accounting principles), 118 Indirect method defined, 700 for operating activities reporting, 690 Induced conversions of convertible debt (SFAS 84), 1056 Inflows of cash, 697 Infrastructure assets defined, 952 government-wide financial statements, 907 modified approach for reporting, 919 Infrequent items APB 30, 1024 defined, 145, 170, 1024 1195 on financial statements, 145 Initial direct costs defined, 512, 1097 leases, 493, 505 Initial franchise fee, 1110 Initial net investment, 801 Initial services (franchises), 1110 Installment Cash Distribution Schedule, 859 Installment liquidation (partnerships), 858 Installment method of accounting (APB 10), 1062, 1077 Installment sales, 56, 69 Insurance as fixed asset, 284 Insurance contracts financial guarantee (SFAS 163), 1114 Intangible assets, 284 acquisition of, 284 amortization of, 286 defined, 291, 293 governmental accounting for, 921 IFRS rules for, 291 impairment of, 286 SFAS 142, 1082 Integral view defined, 833 interim reporting, 832 Intercompany transactions and profit confirmation (business combinations and consolidations), 738 bond transactions, 739 fixed asset transactions, 739 inventory transactions, 738 Interest (financial) capitalization of fixed assets, 267 IFRS rules for, 232 on projected benefit obligation, 460 on receivables and payables (APB 21), 1096 on state and municipal bonds, 539 Interest (in companies) noncontrolling interest, 729, 744 acquisition accounting, 729 SFAS 160, 1092 variable interest entities, 730 defined, 755 FASB Interpretation No 46, 1062 Interest cost(s) capitalization of (SFAS 34), 1037, 1056 defined, 475 in net periodic pension cost, 1113 Interest method(s) of allocation, 63, 1120 Interest rate swaps, 790 1196 Interfund activity reporting (governmental accounting), 943 Interfund loans and advances, 943 Interfund reimbursements, 944 Interfund services provided and used, 944 Interfund transfers, 944 Interim reporting, 832 APB 28, 1032 defined, 833 FASB Interpretation No 18, 1033 key terms, 833 segment reporting, 841 Internal service funds (governmental), 908 accounting for, 939 defined, 952 International Financial Reporting Standards (IFRS), 63 accounting changes rules, 126 bonds, 425 business combinations and consolidations, 754 debt restructure, 450 deferred taxes, 553 derivative instruments and hedging, 799 error correction, 104 financial statements, 166 first-time adoption of, 69 foreign currency translation, 883 Framework for, 66 interim reporting, 833 inventory, 232 investments, 654 leases, 510 monetary current assets and current liabilities, 349 pensions, 473 present value, 406 revenue recognition, 68 segment reporting, 843 statement of cash flows, 168, 699 stockholders’ equity, 599 US GAAP vs., 63 Intersegment sales, 839 Intrinsic value, 601, 801 Introductory section (CAFR), 900 Inventory, 217 Accounting Standards Codification, 231 consignments, 226 cost of FASB Interpretation No 1, 1096 SFAS 151, 1057 determining, 217 Index determining cost of goods sold, 217 IFRS rules for, 232 intercompany transactions, 738 items to include in, 226 key terms, 233 long-term construction contracts, 227 completed-contract method, 227, 230 contract losses, 230 percentage-of-completion, 227, 230 on statement of cash flows, 694 pricing (ARB 43), 1043 ratios, 227 US GAAP vs IFRS rules for, 65 valuation and cost-flow methods, 218 cost apportionment by relative sales value, 226 direct (variable) costing, 226 dollar-value LIFO, 222 first-in, first-out, 222 gross profit, 225 last-in, first-out, 222 link-chain technique, 224 losses on purchase commitments, 221 lower of cost or market, 220 market, 226 moving average, 219 simple average, 219 specific identification, 218 standard costs, 226 weighted-average, 219 Inventory depreciation, 281 Inventory errors, correcting, 103 Inventory turnover, 227, 233, 348, 351 Investing activities defined, 687 on statement of cash flows, 687, 688 transactions included in, 688 Investment property defined, 290 IFRS rules for, 290 Investment trust funds (governmental), 908, 915 accounting for, 942 defined, 952 Investments, 639 Accounting Standards Codification, 653 available-for-sale securities (mark-tomarket), 641 cash surrender value of life insurance, 653 cost adjusted for fair value method when significant influence does exist, 647 debt securities, 639 deferred taxes related to, 548 equity method and deferred income taxes, 651 APB 18, 1042, 1104 changes to or from, 650 FASB Interpretation No 35, 1042, 1104 when significant influence does exist, 647 equity securities, 639 fair value option, 651 governmental accounting for, 945 held by not-for-profits (SFAS 124), 1112 IFRS rules, 654 in which significant influence does exist, 647 cost adjusted for fair value method, 647 equity method, 647 in which significant influence does not exist, 640 held-to-maturity securities (amortized cost), 640 income statement presentation, 646 trading securities (mark-to-market), 641, 642 transfers between categories, 646 key terms, 655 recording securities, 640 stock dividends and stock splits, 651 stock rights, 651 Investments by owners, defined, 1119 Involuntary conversion of assets, 538 Involuntary termination benefits, governmental accounting for, 942 Journal entries (bonds), 420 Last-in, first-out (LIFO) defined, 233 dollar-value, 222 inventory, 222 Lease bonus (fee), 493 Lease term, 1097 Lease(s), 491 Accounting Standards Codification, 509 business combinations and consolidations, 752 capital, 491, 501, 699 defined, 512 direct financing, 491, 495 disclosure requirements, 508 FASB Technical Bulletin 85-3, 1100 IFRS rules, 510 initial direct costs, 505 Index key terms, 512 operating, 491 sale-leaseback, 505 sales-type, 491, 499 SFAS 13, 1097 SFAS 91, 1030 SFAS 98, 1027 software developed for, 288 study program for, 492 US GAAP vs IFRS rules for, 66 Leasehold improvements, 493 Length of operating cycle, 348, 351 Level inputs, 152, 153, 170 Level inputs, 152, 153, 170 Level inputs, 152, 154, 170 Liability method (deferred taxes), 545 Liability(ies) contingent, 343 compensated absences, 347 defined, 351 gain contingencies, 347 loss contingencies, 343 recording and disclosing, 343 current, 341 ARB 43, 1017 contingencies, 343 defined, 169, 341, 351 defined, 1043 monetary See monetary current assets and current liabilities on balance sheet, 149 types of, 341 US GAAP vs IFRS rules for, 65 deferred tax, 539 changing tax rates, 545 defined, 555 identification and measurement of, 539 on statement of cash flows, 694 scheduling and recording, 540 defined, 555, 1117 determinable, 343, 351 disposal of (SFAS 146), 1049 environmental remediation, 1052 estimated warranty liability, 538 extinguishment of (SFAS 140), 1087 financial fair value option for reporting, 154 IFRS definition of, 350 monetary, 1033 nonmonetary, 1033 on personal financial statments, 826 SFAS 146, 1049 share-based payments classified as, 585 LIBOR (London Interbank Offered Rate), 801 Life insurance cash surrender value of, 653 premium expense, 539 LIFO See last-in, first-out LIFO conformity rule, 222, 233 LIFO reserve, 222, 233 Limited-use financial forecasts/ projections, 161 Link-chain technique (inventory), 224 Liquidating dividends, 582, 601 Liquidation(s) defined, 861 of partnership, 857 “safe payment” in, 858 installment method of cash distribution, 858 statement of partnership liquidation, 858 steps in, 857 Litigation, as loss contingency, 346 Loan origination costs and fees, 289 Loan participations, 334, 351 Loans impairment of (SFAS 114), 1064 interfund, 943 SFAS 91, 1030 Local governmental accounting See governmental (state and local) accounting Long-lived assets, impairment or disposal of, 1049 Long-term construction contracts, 227 ARB 43, 1061 completed-contract method, 227, 230 contract losses, 230 percentage-of-completion, 227, 230 Long-term obligations, disclosure of, 1050 Loss account for fixed assets, 284 Loss carrybacks deferred taxes, 550 defined, 555 Loss contingencies, 343 Loss sharing ratio (partnerships), 852 Loss(es) defined, 475, 1113, 1118 holding, 642 nonmonetary exchanges, 272 of operating segments, 839, 840, 843 on fixed assets to be disposed of, 283 on inventory purchase commitments, 221 pension expense, 463 realized, 642 transaction, 802 unrecognized, 1066 Lower of cost or market, 220 1197 Major customers, enterprise-wide disclosures about, 841 Major funds (governmental), 909 Management approach, 843, 1034 Management, defined, 1105 Management’s discussion and analysis (MD&A), 901 Market approach, 153, 170 Market inventory, 226 Market value of bonds, 419 of pension plan assets, 461 Market-related value of plan assets, 475, 1113 Matching, 1119 MD&A (management’s discussion and analysis), 901 Measurability, 1116 Measurement, 46 business combinations and consolidations, 752 for foreign currency financial statements, 881 in acquisition accounting, 727 in governmental accounting, 920 remeasurement, 882 SFAC 5, 1115 SFAC 7, 1120 Measurement focus and basis of accounting (MFBA), 920 Milestone method, 59 Minimum lease payments (MLP), 496, 512, 1097 Modification of terms (debt restructure), 445 Modified cash-basis financial statements, 160, 170 Monetary assets and liabilities, defined, 1033 Monetary current assets and current liabilities, 329 Accounting Standards Codification, 348 bank reconciliations, 329 cash, 329 current liabilities, 341 contingencies, 342 types of, 341 fair value option, 347 IFRS rules for, 349 key terms, 350 ratios for, 347 receivables, 331 anticipation of sales discounts, 331 bad debts expense, 332 disclosures, 340 1198 Monetary current assets and current liabilities (Continued ) transfers and servicing of financial assets, 334 US GAAP vs IFRS rules for, 65 Most advantageous market, 152, 170 Moving average, 219, 233 Multiple-deliverable revenue arrangements, 59 Multiple-employer plan, 475 Municipal bond interest income, 539 Net assets permanently restricted, 1117 Statement of Changes in Fiduciary Net Assets, 917 Statement of Fiduciary Net Assets, 917 Statement of Net Assets, 901, 903 for governmental proprietary funds, 914 public colleges and universities, 947, 949 Statement of Revenues, Expenditures, and Changes in Net Assets (or Fund Equity), 912, 913 Statement of Revenues, Expenses, and Changes in Net Assets, 947 temporarily restricted, 1118 unrestricted, 1118 Net carrying amount, 1027 Net cash flows, 689 Net income adjustments for indirect method, 691 on income statement, 551 Net investment, 790 in foreign operations, 795 initial, 801 Net method defined, 233 Net pension expense, 1066 Net periodic pension cost, 475, 1066 Net periodic postretirement benefit cost, 1069 Net realizable (settlement) value, 47, 69, 351 Net settlements, 801 Net worth, statement of changes in, 825 Noncontrolling interest acquisition accounting, 729 acquisitions, 744 SFAS 160, 1092 Nonexchange revenues defined, 952 government-wide financial statements, 903 Nonexchange transactions, governmental accounting for, 920 Index Nonexpendable trust funds, 942 Nonmonetary assets and liabilities, defined, 1033 Nonmonetary exchanges defined, 293 fixed assets, 271 SFAS 153, 1103 Nonmonetary transactions (APB 29), 1033 Nonprofit organizations See not-forprofit accounting Nonreciprocal transfer, 1102 Nonrefundable security deposits (leases), 493 Nonretirement postemployment benefits, 473, 1064 Nonspendable fund balances, 909 Notes payable and receivable exchanged for cash and unstated rights and privileges, 401 exchanged for cash only, 400 exchanged in a noncash transaction, 401 present value of, 400 Notes to financial statements changes in accounting principles, 118 governmental accounting, 917 Not-for-profit accounting, 983 governmental nonprofits GASB provisions for, 983 health care organizations, 997 key terms, 998 mergers and acquisitions, 1114 private sector nonprofits, 983, See also not-for-profit accounting college and university accounting, 993 FASB and AICPA standards for, 984 health care organization accounting, 995 SFAS 116, 1111 SFAS 117, 1111 SFAS 124, 1112 SFAS 164, 1114 Notional amount, 787, 788, 790, 801 Number of days’ sales in average receivables, 348, 351 Number of days’ supply in average inventory, 227, 233, 348, 351 Objectives (of financial reporting), 44 Observable inputs, 153, 170 OCBOA (other comprehensive basis of accounting), 160 OPEB See postretirement benefits other than pensions Operating activities defined, 687 on statement of cash flows, 687 transactions included in, 688 Operating cycle, 1022, 1036, 1053 Operating leases, 491 business combinations and consolidations, 752 defined, 512 Operating profit or loss (segment), 839, 841, 843 Operating segments defined, 839, 843, 1034 segment reporting, 839 Operation efficiency, 351 Operational efficiency ratios, 348 Operations, reporting results of APB 9, 1058 APB 30, 1024 Ordinary annuity future value of, 396 present value of, 398 Other comprehensive basis of accounting (OCBOA), 160 Other comprehensive income accumulated, 147, 149 earnings per share on, 593 on financial statements, 147 on income statement, 552 Other supplementary information (general-purpose governmental units), 900 Out of the money, 802 Outflows of cash, 697 Ownership of goods, 217 Par value method defined, 601 of stock dividends, 583 treasury stock transactions, 580 Partial equity method, 648 Participating interests accounting for transfers of, 334 receivables, 334 Participating share (preferred stock), 579, 601 Partnership accounting, 851 allocation of partnership income (loss), 851 dissolution of partnership (changes in ownership), 852 formation of partnership, 851 incorporation of partnerships, 860 key terms, 861 liquidation of partnership, 857 Payables, interest on (APB 21), 1096 PBO See projected benefit obligation Index PCs (purchase commitments), 221, 233 Penalty payments, 539 Pension (and other employee benefit) trust funds (governmental), 908, 915 accounting for, 941 defined, 952 Pension benefits defined, 475 SFAS 132 (revised), 1035 Pension cost (term), 461 Pensions, 458 Accounting Standards Codification, 473 deferred compensation, 473 determination of pension expense, 460 disclosures for, 464 employer sponsor’s vs plan’s accounting and reporting, 458 employer’s accounting for, 458 funded status of plans, 460 IFRS rules for, 473 key terms, 474 nonretirement postemployment benefits, 473 postretirement benefits other than pensions, 471 reconciling projected benefit obligation, 464 SFAS 87, 1113 Percentage-of-completion defined, 233 long-term construction contracts, 227, 230 Period costs, 53, 69 Periodic system, 218, 233 Period-specific effects, of new accounting principles, 118 Permanent differences (deferred taxes), 537 Permanent funds (governmental) accounting for, 938 classification of, 908 defined, 952 GASB definition of, 909 Permanently restricted net assets, 1117 Permanently restricted resources, 993, 998 Perpetual system, 218, 233 Personal financial statements, 825 assets and liabilities on, 825 business interests on, 826 Personal property taxes (ARB 43), 1076 Physical capital, 48 Physical usage depreciation, 281 Plan amendment, 475, 1069 Plan assets (pensions), 461 actual return on, 461, 475, 1113 defined, 475 fair value and market value of, 461 Plant assets, 538 Plant, property, and equipment (PPE) and first-time adoption of IFRS, 69 defined, 290 fixed assets, 290 Pledges of receivables, governmental accounting for, 922 Pollution remediation obligations, governmental accounting for, 923 Postemployment benefits (SFAS 112), 1064 Postretirement benefits other than pensions (OPEB), 471 governmental accounting for, 942 SFAS 106, 1027 SFAS 132 (revised), 1035 SFAS 158, 1089 PPE See plant, property, and equipment Predictive value, 45 Preferred stock IFRS rules, 599, 600 redeemable, 579 redemption of, 593 stockholders’ equity, 578 Premiums defined, 425 life insurance, 539 on forward contracts, 800 Prepaid insurance, 694 Present value (PV), 48, 396 Accounting Standards Codification, 405 bonds, 419 accounting for, 419 Accounting Standards Codification, 425 bonds payable and bond investments, 419 convertible, 423 debt issued with detachable purchase warrants, 424 effective interest vs straight-line amortization methods, 422 extinguishment of debt, 424 IFRS rules for, 425 journal entries, 420 key terms, 425 debt restructure, 445 Accounting Standards Codification, 450 IFRS rules for, 450 impairment, 449 key terms, 450 1199 modification of terms, 445 settlement of debt, 445 defined, 69, 170, 406 disclosures, 405 fair value option, 405 IFRS rules for, 406 key terms, 406 leases, 491 Accounting Standards Codification, 509 capital, 491, 501 direct financing, 491, 495 disclosure requirements, 508 IFRS rules, 510, 512 initial direct costs, 505 operating, 491 sale-leaseback, 505 sales-type, 491, 499 study program for, 492 loan origination costs and fees, 289 nonretirement postemployment benefits, 473 notes receivable and payable, 400 of a future amount, 396, 398 of an ordinary annuity, 398 of future cash flows, 47 partnership assets, 851 pensions, 458 Accounting Standards Codification, 473 deferred compensation, 473 determination of pension expense, 460 disclosures for, 464 employer sponsor’s vs plan’s accounting and reporting, 458 employer’s accounting for, 459 funded status of plans, 460 IFRS rules for, 473 key terms, 474 nonretirement postemployment benefits, 473 postretirement benefits other than pensions, 471 reconciling projected benefit obligation, 464 time value of money factors, 396 Present value of an ordinary annuity, 398, 406 Primary beneficiary defined, 755 of variable interest entities, 730 Primary government, 901, 952 Principal market, 152, 170 Principle owners, 1105 Prior period adjustments (SFAS 16), 1037, 1056 1200 Prior service costs or credit, 461, 475, 1066 Private sector nonprofits, 983 college and university accounting, 993 FASB and AICPA standards for, 984 financial statements for, 987 health care organization accounting, 995 illustrative transactions of, 990 Private-purpose trust funds (governmental), 908, 915 accounting for, 942 classification of, 908 defined, 952 Privileges, unstated, 1096 Probable events, 343, 346, 351, 450 Product costs, 53, 69 Productive assets, 1102 Products, enterprise-wide disclosures about, 841 Profit (of operating segments), 839, 841, 843 Profit centers, 839 Profit sharing ratio (partnerships), 852 Projected benefit obligation (PBO), 459 defined, 459, 475, 1066 interest on, 460 reconciling, 464 Proof of cash, 331 Property dividends, 582, 601 Property taxes (ARB 43), 1076 Proprietary funds (governmental), 908, 913 accounting for, 939 defined, 952 financial statements for, 913 Prospective application, 125, 126 Prospective financial information defined, 161, 170 on financial statements, 161 Public colleges and universities, governmental accounting for, 946 Purchase commitments (PCs), 221, 233 Purchase groups of (basket purchase), 278 Push-down accounting, 754 Put option, 802 PV See present value Quasi reorganizations ARB 43, 1105 defined, 601 stockholders’ equity, 595, 597 Quick ratio, 347, 350 R&D See research and development Index Rate of return on common stockholders’ equity, 598, 601 Rational depreciation, 278 Ratios for stockholders’ equity, 598 inventory, 227 monetary current assets and current liabilities, 347 RE (retained earnings), 583 Reacquired rights, 752 Reacquisition price, 1027 Real estate transactions, 58 sales (SFAS 66), 1105 time sharing (SFAS 152), 1057 Real property taxes (ARB 43), 1076 Realization, 1119 Realized gains holding gains, 158, 170 on income statement, 642 Realized income, 158 Realized loss on available-for-sale securities, 694 on income statement, 642 Reasonably possible events, 343 Receivables interest on (APB 21), 1096 monetary current assets and current liabilities, 331 anticipation of sales discounts, 331 bad debts expense, 332 disclosures, 340 transfers and servicing of, 334 pledges of, 922 Receivables turnover, 348, 351 Reclassification adjustments, 147, 946 Recognition, 52, See also revenue recognition accrual-basis, 52, 53 business combinations and consolidations, 752 cash-basis, 52 cost recovery method, 58 defined, 1119 franchise agreements, 58 IFRS, 68 in acquisition accounting, 727 installment sales, 56 of goodwill, 728 postretirement benefits, 1070 principles for, 46 real estate transactions, 58 research or development on milestone basis, 59 sales basis, 60 SFAC 5, 1115 US GAAP vs IFRS rules for, 64 Reconciliations (segment reporting), 841 Recorded investment, 450 Recording of contingent liabilities, 343 securities, 640 Redeemable preferred stock, 579 Redemption (of preferred stock), 593 Reduced profit method, 58 Refinancing (SFAS 6), 1052 Refunding, 1027 Regulation AB, 162, 170 Regulation Fair Disclosure (Reg FD), 162, 170 Regulation S-K, 162, 170 Regulation S-X, 162, 170 Regulatory-basis financial statements, 160, 170 Reimbursements governmental nonexchange transactions, 921 interfund, 944 Related parties, 1105 Related-party transactions disclosure of (SFAS 57), 1105 governmental accounting for, 924 Relative sales value, cost apportionment by, 226 Relevance, 1116 Reliability, 1116 Remainder (partnerships), 852 Remeasurement defined, 884 for foreign currency financial statements, 882 Remote events, 343 Reorganizations and stockholders’ equity, 595 quasi, 595, 597 Reportable segments, 840 Reporting See also International Financial Reporting Standards (IFRS) changes in, 125 fair value option for, 154 bonds, 419 defined, 169, 655 investments, 651 monetary current assets and current liabilities, 347 present value, 405 SFAS 159, 1091 financial, 42 GASB Concepts Statement No 1, 898 SFAC 8, 1123 SFAS 89, 1030 interim, 832 APB 28, 1032 defined, 833 FASB Interpretation No 18, 1033 Index key terms, 833 segment reporting, 841 of comprehensive income, 147 of start-up costs, 61, 287 results of operations APB 9, 1058 APB 30, 1024 SEC requirements, 162 financial statements, 162 Form 8-K, 162 Form 8-K/6-K, 162 Form 10-K, 163 Form 10-K/20-F, 162 Form 10-Q, 162, 163 Form S-1/F-1, 162 Regulation AB, 162 Regulation Fair Disclosure, 162 Regulation S-K, 162 Regulation S-X, 162 Schedule 14A, 162 segment, 839 Accounting Standards Codification, 842 disclosures, 841 enterprise-wide disclosures, 841 IFRS standards for, 843 operating segments, 839 restatement of previously reported segment information, 841 SFAS 131, 1034 Reporting currency, 884, See also foreign currency translation Reporting entities changes in, 125 GASB definition of, 901 governmental accounting, 901 Reporting model (governmental accounting), 899 Repurchase agreements, 334, 351 Required supplementary information (RSI), 917 Requisite service period (share-based payments), 584 Research and development (R&D), 288 costs of, 288 SFAS 2, 1024 Research or development accounted for on milestone basis, 59 Reserves, appropriations of, 583 Residual (partnerships), 852 Residual value, 496, 512, 1098 Responsible party, 161, 170 Restatements, 118, 126, 841 Restricted fund balances, 910 Restructuring, 170 Retained earnings (RE), 583 Retained earnings statement deferred taxes on, 552 formats for, 144 Retirement of stock, 581 Retroactive allowance (pensions), 461 Retrospective application, 118, 125, 126, 145 Revaluation model (intangible assets), 292 Revenue expenditures defined, 278, 293 fixed assets, 278 Revenue recognition, 52 accrual-basis, 52, 53 adjustment of, 946 cash-basis, 52 cost recovery method, 58 franchise agreements, 58 IFRS for, 68 installment sales, 56 multiple-deliverable revenue arrangements, 59 principles for, 46 real estate transactions, 58 research or development on milestone basis, 59 sales basis, 60 software revenue, 59 US GAAP vs IFRS rules for, 64 when right of return exists (SFAS 48), 1051 Revenue(s) consolidated, 841 defined, 1118 derived tax business combinations measurement period, 751 governmental exchange transactions, 921 exchange defined, 952 government revenues from, 920 government-wide financial statements, 903 franchise fee (SFAS 45), 1110 from major customers, 841 future, 922 governmental (state and local) accounting for sales and pledges of receivables and future revenues, 922 for special revenue funds, 933 for special revenue funds See also special revenue funds (governmental) interim reporting of, 832 multiple-deliverable revenue arrangements, 59 nonexchange, 903, 952 1201 recognizing, 48, 52 segment, 839, 840, 843, 1034 unearned rent (royalty), 538 Revenue-expense view, 46 Right of offset, 857, 861 Rights unstated, 1096 Risk adverse, 62, 69 Risk premiums, 62, 170 Risk(s) defined, 62 on financial statements, 159 RSI (required supplementary information), 917 Sa“safe payment” (liquidation of partnership), 859 Sale(s) governmental accounting for, 922 installment, 56 of fixed assets, gain on, 695 of real estate (SFAS 66), 1105 software developed for, 288 Sale-leaseback, 505, 511 Sales basis, 60 Sales discounts, anticipation of, 331 Sales-type leases, 491, 499 SAR (stock appreciation rights), 586, 601 Schedule 14A, 162, 170 Scrip dividends, 582, 601 SEA (service efforts and accomplishments) reporting, 899 SEC reporting requirements financial statements, 162 Form 8-K, 162 Form 8-K/6-K, 162 Form 10-K, 163 Form 10-K/20-F, 162 Form 10-Q, 162, 163 Form S-1/F-1, 162 Regulation AB, 162 Regulation Fair Disclosure, 162 Regulation S-K, 162 Regulation S-X, 162 Schedule 14A, 162 Secured borrowings defined, 351 receivables, 339 Securities See also specific types (e.g.: debt securities) on balance sheets, 642 recording, 640 Securitizations defined, 334, 351 receivables, 339 Security deposits (leases), 493 Segment assets, 839, 841, 843, 1034 1202 Segment operating profit or loss, 839, 841, 843, 1034 Segment reporting, 839 Accounting Standards Codification, 842 disclosures, 841 enterprise-wide disclosures, 841 IFRS standards for, 843 operating segments, 839 restatement of previously reported segment information, 841 SFAS 131, 1034 Segment revenues, 839, 840, 843, 1034 Separable, 755 Serial bonds, 425 Service concession arrangements, governmental accounting for, 923 Service cost defined, 475 of net periodic pension cost, 1066 pension expense, 460, 461 Service efforts and accomplishments (SEA) reporting, 899 Service inception date (share-based payments), 584 Services enterprise-wide disclosures about, 841 interfund services provided and used, 944 Servicing defined, 351 Servicing of financial assets receivables, 337 SFAS 140, 1087 SFAS 156, 1088 Settlement defined, 1068 in debt restructure, 445 SFAS 88, 1068 Settlement amount, 788 Settlement rate (projected benefit obligation), 460 SFAC See Statements of Financial Accounting Concepts SFAS See Statements of Financial Accounting Standards Share-based payments business combinations and consolidations, 753 defined, 601 IFRS rules, 599, 600 SFAS 123 (revised), 1059, 1074 stockholders’ equity, 584 accounting entries for, 585 diluted earnings per share, 589 Index earnings per share, 587 to employees, 584, 600 to nonemployees, 584, 600 Shareholder equity accounts (APB 12), 1062, 1077 Short-term obligations FASB Interpretation No 8, 1023, 1055 SFAS 6, 1052 Simple average, 219, 233 Simple liquidation, 858, 861 Single-employer plan, 475 Software costs of, 288, 1056 developed for internal use, 288 developed for sale or lease, 288 SFAS 86, 1056 Software revenue recognition, 59 Solvency, 351 Solvency ratios, 347 Special assessments, governmental accounting for, 939 Special items, on government-wide financial statements, 903 Special revenue funds (governmental) accounting for, 933 budgetary accounting for, 925 classification of, 908 defined, 952 GASB definition of, 909 Special-purpose entities, 730 Special-purpose governments, 900 Specific identification defined, 233 inventory, 218 Split, 1058, See also stock splits Split-interest agreements, 986, 998 Standard costs, 226, 233 Start-up costs defined, 69, 293 fixed assets, 287 reporting, 61 State bond interest income, 539 State governmental accounting See governmental (state and local) accounting Statement of Activities, 903, 906, 988 Statement of affairs, 594 Statement of cash flows, 687 Accounting Standards Codification, 699 capital leases, 699 classification of transactions, 688 defined, 700 example of, 692 financing activities on, 687, 688 for governmental proprietary funds, 913 for private sector nonprofits, 989 IFRS rules for, 168, 699 investing activities on, 687, 688 key terms, 700 objectives of, 687 operating activities on, 687 public colleges and universities, 947, 950 SFAC 5, 1116 SFAS 95, 1025 Statement of Changes in Fiduciary Net Assets, 917 Statement of changes in net worth, 825 Statement of comprehensive income, IFRS rules for, 168 Statement of Earnings and Comprehensive Income (SFAC 5), 1115 Statement of Fiduciary Net Assets, 917 Statement of financial condition, 825 Statement of Financial Position for private sector nonprofits, 987 SFAC 5, 1115 Statement of Investments by and Distributions to Owners (SFAC 5), 1116 Statement of Net Assets, 901, 903 for governmental proprietary funds, 913, 914 public colleges and universities, 947, 949 Statement of partnership liquidation, 858, 861 Statement of Revenues, Expenditures, and Changes in Fund Balances, 909, 919 Statement of Revenues, Expenditures, and Changes in Net Assets (or Fund Equity), 912, 913 Statement of Revenues, Expenses, and Changes in Net Assets, 947 Statements of Financial Accounting Concepts (SFAC), 42 SFAC 1, 1115 SFAC 2, 1115 SFAC 5, 1115 SFAC 6, 1117 SFAC 7, 1120 SFAC 8, 1123 Statements of Financial Accounting Standards (SFAS) for private sector nonprofits, 984 SFAS 2, 1024 SFAS 5, 1076 SFAS 6, 1052 SFAS 7, 1109 SFAS 13, 1097 SFAS 15, 1100 Index SFAS 16, 1037, 1056 SFAS 34, 1037, 1056 SFAS 43, 1095 SFAS 45, 1110 SFAS 47, 1110 SFAS 48, 1051 SFAS 52, 1051 SFAS 57, 1105 SFAS 66, 1105 SFAS 78, 1056 SFAS 84, 1056 SFAS 86, 1056 SFAS 87, 1113 SFAS 88, 1068 SFAS 89, 1030 SFAS 91, 1030 SFAS 94, 1030 SFAS 95, 1025 SFAS 98, 1027 SFAS 106, 1027 SFAS 107, 1090 SFAS 109, 1091 SFAS 112, 1064 SFAS 114, 1064 SFAS 115, 1039 SFAS 116, 1111 SFAS 117, 1111 SFAS 123, 1059, 1074 SFAS 124, 1112 SFAS 128, 1112 SFAS 129, 1031 SFAS 130, 1031 SFAS 131, 1034 SFAS 132 (revised), 1035 SFAS 133, 1085 SFAS 138, 1085 SFAS 140, 1087 SFAS 141(R), 1080 SFAS 142, 1082 SFAS 143, 1045 SFAS 144, 1049 SFAS 145, 1049 SFAS 146, 1049 SFAS 147, 1050 SFAS 149, 1050 SFAS 150, 1057 SFAS 151, 1057 SFAS 152, 1057 SFAS 153, 1103 SFAS 154, 1103 SFAS 155, 1029 SFAS 156, 1088 SFAS 157, 1088 SFAS 158, 1089 SFAS 159, 1091 SFAS 160, 1092 SFAS 161, 1084 SFAS 162, 1114 SFAS 163, 1114 SFAS 164, 1114 SFAS 165, 1114 SFAS 166, 1114 SFAS 167, 1114 SFAS 168, 1115 Statements of Financial Position, 149, 166, See also balance sheets Statements of Position (SOP) No 96-1, 1052 Statistical section (CAFR), 900 Step acquisition, 728 Stock See also dividends appreciation rights (SAR), 601 callable, 579 common book value of, 598, 601 contingent issuances of, 593 rate of return on common stockholders’ equity, 598, 601 stockholders’ equity, 578 convertible, 579, 601 employee stock ownership plans, 597, 601 preferred IFRS rules, 599, 600 redeemable, 579 redemption of, 593 stockholders’ equity, 578 retirement of, 581 stock appreciation rights, 586, 601 treasury ARB 43, 1017 defined, 601 stockholders’ equity, 580 Stock appreciation rights (SAR), 586, 601 Stock rights investments, 651 stockholders’ equity, 597 Stock splits ARB 43, 1058 defined, 601, 1058 investments, 651 stockholders’ equity, 583 Stock subscriptions, 579 Stockholders’ equity, 577 accounting standards codification, 598 appropriations of retained earnings (reserves), 583 common stock, 578 corporate bankruptcy, 593 defined, 577 dividends, 582 employee stock ownership plans, 597 IFRS rules, 599 1203 key terms, 601 preferred stock, 578 quasi reorganizations, 595, 597 ratios for, 598 reorganizations, 595 retirement of stock, 581 share-based payments, 584 accounting entries for, 585 diluted earnings per share, 589 earnings per share, 587 stock rights, 597, 651 stock splits, 583, 601, 651, 1058 stock subscriptions, 579 treasury stock transactions, 580 Straight-line amortization method bonds, 422 pensions, 462 Straight-line depreciation, 278, 281 Subsequent events defined, 170 governmental accounting for, 924 on financial statements, 151 SFAS 165, 1114 Substantive pension plans, 471 Summarized interim data, 1033 Summary of Significant Accounting Policies, 1027 Swap, 802 Swaption, 802 Systematic depreciation, 278 Systematic risk, 170 Tangible property, 267, 293 Tax loss carryforwards deferred taxes, 550 defined, 555 Tax rates for deferred tax assets and liabilities, 545 Taxable amounts (deferred taxes), 1091 Tax-basis financial statements, 160, 170 Taxes current tax expense or benefit, 540, 555 deferred See deferred taxes income See income taxes property (ARB 43), 1076 Temporarily restricted net assets, 1118 Temporarily restricted resources, 991, 998 Temporary differences deferred taxes, 538, 552 defined, 555 Term bonds, 425 Termination benefits, 474, 1068 Termination costs (operating leases), 494 Theor(ies) See also accountingtheory, 1124 1204 Theory, 41 Time requirements, for governmental nonexchange transactions, 921 Time value of money factors (TVMF), 396 annuities due, 398 applications of, 399 compounding, 396 future value of an amount, 396 future value of an ordinary annuity, 396 present value of a future amount, 396 present value of an ordinary annuity, 398 Time value of options, 802 Timelines, 46 Trade discounts, 233 Trading securities (mark-to-market) defined, 655 investments in which significant influence does not exist, 641, 642 other securities transferred from/to, 646 unrealized gain on, 694 Transaction gain or loss, 802 Transactions defined, 1119 of private sector nonprofits, 990 Transfer of assets business combinations and consolidations, 751 SFAS 140, 1087 SFAS 166, 1114 Transfer pricing (intersegment sales), 839 Transfers of receivables, 334 accounting for, 334 accounting for collateral, 340 factoring, 335 participating interests, 334 secured borrowings, 339 securitizations, 339 types of, 334 with recourse, 334, 336, 351 without recourse, 335, 351 Index Transfers, interfund, 944 Transition asset, 1069 Transition obligation, 1069 Translation adjustments, 884 Treasury stock ARB 43, 1017 defined, 601 stockholders’ equity, 580 Troubled debt restructuring, 450 Trusts financial statements of, 164 Unamortized prior service cost or credit, 1066 Unassigned fund balance, 910 Uncertainty(ies) and risk, 62 defined, 62 on financial statements, 159 Unconditional purchase obligations, 1110 Underlyings, 787, 788, 790, 802 Understandability, 46 Unearned rent (royalty) revenue, 538 Uneven payments (leases), 492 Unfunded projected benefit obligation, 475, 1066 Unguaranteed residual value, 496, 512, 1098 Uniform CPA Examination applying to take, attributes for success in taking, content of, Content Specification Outlines for, 31 grading of, 17 nondisclosure and computerization of, obtaining Notice to Schedule, planning for, 13 process for sitting for, purpose of, researching FASB accounting standards, 37 self-study program for, 10 Skill Specification Outlines for, 35 solutions approach to, 19 strategy for taking, 27 types of questions on, University accounting See college and university accounting Unrealized gains holding gains, 158, 170 on trading securities, 694 Unrecognized net gain or loss, 1066 Unrecognized transition asset, 1069 Unrecognized transition obligation, 1069 Unrestricted net assets, 1118 Unrestricted resources, 990, 998 Unstated rights or privileges (APB 21), 1096 Unsystematic risk, 170 Unusual items APB 30, 1024 defined, 145, 170, 1024 on financial statements, 145 US GAAP, 41, 64 US Securities and Exchange Commission See SEC reporting requirements Valuation allowances (business combinations and consolidations), 753 Variable interest entities (VIEs), 730 defined, 755 FASB Interpretation No 46, 1062 Verifiability, 45 Vested benefit obligation, 475 VIEs See variable interest entities Voluntary nonexchange transactions, 921 Voluntary termination benefits, 942 Warrant defined, 425 detachable, debt issued with, 424 Weighted-average, 219, 233 Working capital (APB 10), 1062, 1077 Worksheets (consolidated financial statements), 731 Written pension plans, 471