Wiley GAAP Policies and Procedures Second Edition Steven M Bragg JOHN WILEY & SONS, INC 1/2 Title Page Wiley GAAP Policies and Procedures Second Edition BECOME A SUBSCRIBER! Did you purchase this product from a bookstore? 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visit our Web site at www.wiley.com Library of Congress Cataloging-in-Publication Data: Bragg, Steven M GAAP policies and procedures / Steven M Bragg – 2nd ed p cm Title of 1st ed.: GAAP implementation guide “Published simultaneously in Canada.” ISBN 978-0-470-08183-9 (pbk : alk paper) Accounting—Standards—United States Corporations—Accounting I Bragg, Steven M GAAP implementation guide II Title III Title: Generally Accepted Accounting Principles implementation guide HF5616 U5B7 2007 657.02’1873—dc22 2007006578 Printed in the United States of America 10 To Mom, who fulfilled the role wonderfully—a hug when I needed it, warm cookies at dinner, a lunchbox for school every day, and a sympathetic listener CONTENTS Page Chapter Title No Researching GAAP Implementation Problems Cash, Receivables, and Prepaid Expenses Short-Term Investments and Financial Instruments 37 Inventory 45 Revenue Recognition 85 Long-Lived Assets 137 Investments 179 Business Combinations and Consolidated Financial Statements 211 Current Liabilities and Contingencies 229 10 Long-Term Debt 255 11 Leases 289 12 Pensions and Other Postretirement Benefits 315 13 Stockholders’ Equity 323 14 Interim Reporting 369 15 Segment Reporting 375 16 Foreign Currency 383 Index 397 390 Wiley GAAP Policies and Procedures US dollar, the subsidiary’s gain is recorded as a gain in US dollars of $30,660 ($42,000 Canadian × 0.73 exchange rate) on the books of the parent DECISION TREES The decision tree shown in Exhibit 16-5 can be used to determine whether one should use the current rate method or remeasurement method when translating the financial statements of a foreign subsidiary into the currency of the corporate parent Exhibit 16-5: Type of Translation Method Decision Tree Financing in parent company’s currency Operations closely linked to parent company? No Highly inflationary economy? Cash flows easily remitted to parent? Largely “yes” answers Yes Most revenue/ expense transactions in parent company currency? Yes Functional currency = reporting currency No Functional currency = local currency Use remeasurement method Use current rate method POLICIES Translation of Foreign Currency Financial Statements • Periodically review the status of highly inflationary economies where subsidiaries are located This policy is designed to determine the date when a local economy either becomes highly inflationary or is no longer defined as such under accounting rules This is of importance in determining what type of translation method to use Chapter 16 / Foreign Currency 391 Translation of Foreign Currency Transactions • Maintain or have access to a database of daily exchange rates for all currencies in which the company conducts transactions This policy allows the accounting staff to have ready access to exchange rates for its translation and currency transaction activities PROCEDURES Financial Statement Translation—Highly Inflationary Economy Determination Use this procedure to determine status changes for highly inflationary economies Establish the three-year date range over which inflation will be measured Determine the data source containing inflationary information for the selected time periods Locate the data source and extract the inflation information Add together the inflation information for the designated three years The period over which the inflation is measured in the source document may be different from the corporate fiscal year If so, also obtain the inflation rate for the year in which any portion of the company’s fiscal year falls, and construct a weighted-average inflation rate based on the number of months in each measured year For example, if a company’s fiscal year ends in October, then multiply the inflation rate for year by 2/12 (to address the two beginning months of the fiscal year falling into year 1) and multiply the inflation rate for year by 10/12 (to address the ten final months of the fiscal year falling into year 2) Then add these two calculations together to determine the inflation rate for the first year Perform the same calculation for years and If the cumulative inflation rate for the three-year period exceeds 100%, use the parent company’s currency as the functional currency for the subject subsidiary Application of the Current Rate Method Use the following steps to translate a subsidiary’s financial results under the current rate method: Identify the subsidiary’s functional currency Measure all parts of the subsidiary’s financial statements in its functional currency Use exchange rates to translate the subsidiary’s financial statements from its functional currency to the currency of the corporate parent The following items note the different exchange rates to be used for different accounts: a Use historical exchange rates All stockholders’ equity accounts, with the single exception noted in the next point 392 Wiley GAAP Policies and Procedures b Use the weighted-average exchange rate All revenues and expenses, as well as changes to retained earnings within the current reporting period c Use current exchange rates All assets and liabilities Record any translation gain or loss in a translation adjustment account within the equity section of the balance sheet Footnote any changes in the translation adjustment account that arose during the reporting period, including the amount of income taxes allocated to the changes Application of the Remeasurement Method Use the following steps to translate a subsidiary’s financial results under the current rate method: Verify that the subsidiary’s functional currency is the US dollar Use exchange rates to translate the subsidiary’s financial statements into the currency of the corporate parent The following items note the different exchange rates to be used for different accounts: a Use historical exchange rates All asset and liability accounts that will not be settled in cash, such as depreciation, intangibles, and inventories carried at cost, as well as stockholders’ equity b Use the weighted-average exchange rate All revenues and expenses, except those for which historical exchange rates have already been used c Use current exchange rates All cash accounts, as well as any account, such as accounts receivable or payable, that will be settled in cash Record any remeasurement gains or losses in the corporate parent’s consolidated income statement Translation of Foreign Currency Transactions Use the following steps to record gains or losses on foreign currency transactions at the end of each reporting period: Obtain a list of all accounts receivable, accounts payable, notes receivable, and notes payable that are outstanding at the end of the reporting period Obtain the spot exchange rate at the end of the reporting period for the currencies in which all transactions listed in the first step are denominated Determine the settlement amount of each transaction, assuming that the spot exchange rate will be the exchange rate on the date of settlement Print out all measurement calculations and attach them to a journal entry form Note on the form the amount of each spot exchange rate used, as well as the source document and date of the source document for each spot exchange rate If there is a transaction gain, credit the Gain on Foreign Exchange Transactions account and debit the offsetting asset or liability account associated with the transaction If there is a loss, then debit the loss Chapter 16 / Foreign Currency 393 on Foreign Exchange Transactions account and credit the offsetting asset or liability account associated with the transaction Have the assistant controller verify the calculations and sign off on the journal entry form Submit the form to the general ledger accountant for entry into the general ledger CONTROLS Translation of Foreign Currency Financial Statements The following controls should be used to ensure that translation methods are not arbitrarily switched in order to show or avoid translation gains or losses • Gain external auditor approval of any changes in translation method A key difference between the current rate and remeasurement methods of translation is that translation adjustments under the current rate method are placed in the balance sheet, whereas adjustments under the remeasurement method are recognized on the income statement as gains or losses The accounting staff could be tempted to shift between the two methods in order to show specific financial results on the corporate income statement For example, if there were a translation gain, one would be more likely to use the remeasurement method in order to recognize it on the income statement This problem is especially likely when the criteria for using one method over the other could be construed either way The best way to avoid this problem is to have a disinterested third party (i.e., the auditors) approve any change in method over what was used in the preceding year • Require management approval of calculations for the status of inflationary economies It is possible to alter the translation method based on the inflationary status of a foreign economy, possibly resulting in the recognition (or not) of translation gains or losses on the income statement If one were inclined to shift the translation method, a defensible basis for doing so is the inflationary status of the economy in which a foreign entity does business The inflationary status could be altered by either using incorrect inflation data or shifting the beginning and ending dates of the calculation to correspond to inflation data more in line with one’s required result This issue can be resolved by requiring management or internal audit reviews of these calculations, especially when a change in inflationary status has recently occurred Translation of Foreign Currency Transactions • Verify that all gains and losses on incomplete currency transactions are updated in the periodic financial statements If there have been unusually large fluctuations in the exchange rates of those currencies in which a company has outstanding transactions, there may be a temptation to avoid recording any interim gains or losses prior to settlement of the transactions, on the grounds that the temporary fluctuations will even out prior to settlement However, this ongoing delay in recognition of gains and losses not only mis- 394 Wiley GAAP Policies and Procedures states financial statements, but also can build over time into much larger gains or losses, which can come as quite a shock to the users of the financial statements when the changes are eventually recognized Accordingly, the standard checklist for completing financial statements should itemize the recognition of interim gains and losses on incomplete foreign exchange transactions FORMS AND REPORTS Translation of Foreign Currency Financial Statements When creating journal entries that include calculations based on a specific exchange rate, it is useful to itemize in the entry not only the exchange rate being used, but also the source and date of this information Accordingly, the journal entry form shown in Exhibit 16-6 has been modified to include the additional information Exhibit 16-6: Modified Journal Entry Form Journal Entry Form Date: Approval: Account No Account Name Debit Credit Reason for journal entry: Exchange rate used: Exchange rate source document: Date of source document: FOOTNOTES Aggregate transaction gains or losses related to foreign exchange must be disclosed either within the financial statements, or in the attached footnotes If the latter option is chosen, a sample footnote would be as follows: The company conducts business with companies in several South American countries as part of its ongoing fruit import business This results in a number of payables denominated in the currencies of those countries, with about $250,000 to $500,000 of such payables being outstanding at any one time The company does not engage in hedging activities to offset the risk of exchange rate fluctuations on these payables During the reporting period, the company benefited from foreign exchange gains on these accounts payable totaling approximately $7,500 If the translation of financial statements using the current rate method results in a gain or loss, the cumulative amount of the gain or loss is shown in the equity section of the balance sheet In addition, the accompanying footnotes should describe Chapter 16 / Foreign Currency 395 changes in the amount of this balance, the amount of income taxes allocated to it, and any amounts shifted out of this account and recognized as part of the sale or termination of a company’s investment in a foreign entity An example is shown in the following footnote: The company summarizes in the equity section of the balance sheet all gains and losses from the translation of the financial statements of its three foreign subsidiaries into the consolidated corporate statements During the reporting period, the balance in this account declined by $42,500 to a new balance of $108,250, reflecting the cumulative impact of translation losses incurred during the period Approximately 20% of this decline was attributable to the sale of the company’s travel subsidiary located in Indonesia In addition, 50% of this decline was attributable to the partial write-down on the company’s investment in its Peruvian trekking subsidiary If there has been a significant change in a foreign currency in which a company has significant outstanding transactions, and this change has occurred subsequent to the financial statement date, then the impact of this change should be reported as a footnote to the statements An example follows: About 40% of the company’s revenue is earned from sales to Mexico On January 14, subsequent to the date of these financial statements, the exchange rate of the Mexican peso dropped 12% from its value on the financial statement date Since all of the company’s sales to Mexico are denominated in pesos, this represents a potential loss of 12% when those revenues are eventually paid by customers in pesos At this time, the drop in value would represent a foreign exchange loss to the company of approximately $412,000 As of the release date of these statements, no accounts receivable related to the sales had been paid by customers All receivables related to the sales should be collected by the end of February, and so are subject to further fluctuations in the exchange rate until that time JOURNAL ENTRIES Translation of Foreign Currency Financial Statements Financial statement translation adjustment To record the difference between the exchange rate at the end of the reporting period and the exchange rate applicable to individual transactions The sample entry shows credit adjustments to several accounts, but these entries could easily be debits instead, depending on changes in applicable exchange rates during the reporting period Accumulated translation adjustments Various noncash asset accounts Net income Dividends declared xxx xxx xxx xxx Translation of Foreign Currency Transactions Translation of foreign currency transactions To record any changes in the spot rate of exchange at which transactions denominated in a foreign currency would be recorded at the date when financial statements are issued The first journal entry records a loss on a decline in the spot rate on an account receivable (resulting in a reduction in the amount of the receivable in US dollars), while the second entry 396 Wiley GAAP Policies and Procedures does the same for an account payable (resulting in an increase in the payable in US dollars), and the third entry does so for an outstanding loan payable (resulting in an increase in the loan payable in US dollars) For gains on these transactions, the second line of each entry would be reversed, while a credit to a gain account would be substituted for the loss account Loss on foreign exchange transaction Accounts receivable xxx Loss on foreign exchange transaction Accounts payable xxx Loss on foreign exchange transaction Loans payable xxx xxx xxx xxx Recognition of the sale of a foreign subsidiary To recognize any accumulated translation gains or losses as the result of the sale or write-down of a company’s investment in a foreign subsidiary The entry can be reversed if a gain is to be recognized Loss on sale of business entity Accumulated translation adjustments xxx xxx RECORDKEEPING The key recordkeeping issue for foreign currency transactions is to keep a continuing record of the exchange rates used to derive transactions This record should include the exchange rate, the source of this information, and the date of the source document For example, the exchange rate for transactions used as of the March 31 financial statements might be the New York Times on March 31 This information will be used by the external auditors to determine whether the correct exchange rates were used to derive accounting transactions 397 Index A Accounting Principles Board, Accounts payable procedure, 236 Accounts receivable Aging report, 30 Concepts, 11-15 Controls, 25-26 Disclosures, 33 Journal entries, 33-35 Ownership decision tree, 15-16 Policies, 17 Recordkeeping, 36 Terminology, 9-10 Accrual method, 88 Acquisitions, see Business Combinations Advances, 230, 252, 253 American Institute of Certified Public Accountants, 1-2 Asset impairment, 150, 162, 170, 172 Asset retirement obligation Concepts, 143-144 Controls, 162 Journal entry, 172 Assets, donated, 144-145, 172 Assets, long-lived see Long-lived assets Assignments, 11-12 Available for sale securities, 181, 190, 193, 203-204, 208 B Bad debt Authorization form, 29 Concepts, 14-15 Disclosure, 32 Journal entry, 35 Reserve calculation, 21-22 Bank account Reconciliation procedure, 19-20 Reconciliation report, 27 Barter Controls, 113-114 Disclosure, 125 Policies, 103 Recordkeeping, 135 Bill and hold Acknowledgment form, 121 Concepts, 89 Disclosure, 124-125 Journal entry, 132 Policy, 103 Procedure, 107-108 Recordkeeping, 136 Billing procedure, 105-107 Bond Ledger sheet, 196, 208 Status report, 276-278 Bonus liability, 230-231, 251, 253 Borrowing procedure, 269 Building form, 167 Business combinations Concepts, 212-219 Controls, 222 Decision trees, 219-220 Disclosures, 223-227 Forms, 223 Journal entries, 227-228 Policies, 220-221 Procedures, 221-222 Terminology, 211-212 C Callable obligation disclosure, 279-280 Capital investment proposal form, 163 Capital lease, 290-291 Cash Concepts, 10-11 Controls, 22-24 Deposits disclosure, 198 Footnotes, 31-32 Forecasting model, 28 Journal entries, 33 Policies, 16 Procedures, 17-20 Recordkeeping, 35 Terminology, 10 Collateral, 11-12 Collection activity report, 30 Collection method, 94 Collection procedure, 109 Collective bargaining agreement disclosure, 243 Commission Calculation spreadsheet, 239-241 Journal entry, 251 Liability, 231 Recordkeeping, 253 Compensated absence liability, 231 Compensating balance disclosure, 32 398 Index Completed contract method, 91 Completed performance method, 94 Consignment disclosure, 126 Construction contract Controls, 114-116 Journal entries, 133 Policies, 103 Revenue recognition, 91-93 Construction in progress, 145-146 Constructive retirement method, 332 Contingencies, see Liabilities Contingent asset purchase obligation disclosure, 243-244 Contingent consideration, 216, 222 Contingent liability, 234, 239, 244 Controls Accounts receivable, 25-26 Business combination, 222 Cash, 22-24 Debt, 272-275 Foreign currency, 393-394 Hedging, 40-41 Interim reporting, 373 Inventory, 69-73 Investment, 193-195 Lease, 305-306 Liability-related, 236-239 Long-lived asset, 160-163 Pension, 317 Prepaid expenses, 24-25 Revenue recognition, 111-118 Segment reporting, 379 Stockholders’ equity, 346-349 Cost method, 331-332 Cost recovery method, 88 Cost-to-cost method, 92-93 Credit application, 118 Credit card processing procedure, 18-19 Credit rating procedure, 104-105 Current rate method, 384-386, 391-392 Current liabilities, see Liabilities Customers, disclosure of, 128-129 Cycle counting Procedure, 66 Report, 74 D Debt Concepts, 256-267 Controls, 272-275 Covenant liability, 234 Convertible, 264-266 Decision tree, 267 Disclosures, 278-281 Extinguishment, 262-263 Forms, 276 Guarantee, 235, 246 Journal entries, 282-286 Liability, 231 Policies, 268 Procedures, 269-272 Recordkeeping, 286-287 Reports, 276-278 Terminology, 256 Debt securities, 183-184, 190-191, 193, 205 Decision tree Asset capitalization, 154 Bond decision points, 267 Dividend entries, 339 Foreign currency translation, 390 Inventory tracking system, 60 Inventory valuation system, 61 Investment gains or losses, 188 Lease type, 298-299 Leveraged buyout control, 219-220 Nonmonetary exchanges, 155 Ownership of inventory in transit, 59 Receivable ownership, 15-16 Reportable segment, 377 Revenue recognition, 101 Service revenue recognition, 102 Derivative terminology, 37 Depreciation Base, 146-147 Calculation of, 147-150 Controls, 161 Journal entry, 171 Recordkeeping, 173-174 Report, 170 Direct financing lease, 295-296, 310 Disclosures, see Footnotes Discrete view of interim reporting, 370 Dividend Concepts, 330-331 Controls, 347 Disclosures, 353-354 Journal entries, 362-363 Policies, 340 399 Index Dollar value inventory valuation method, 53-54 Double declining balance depreciation, 148-149 Double extension method, 54-55 E Early payment discounts, 13-14, 35 Effective interest method, 259-260, 270, 274, 283 Employee stock ownership plans, 337-338, 342, 354-355, 366-367, 368 Employee terminations, 232, 253 Employment contract disclosure, 244-245 Equity method, 185-187, 191, 194, 202, 207, 209 Emerging Issues Task Force, Equipment form, 168 Excess material usage report, 77 Expected present value form, 224 Expense reimbursement, 95 F Factoring, 11-12, 34 Fair value method, 333-334 Financial Accounting Standards Board, First in, first out inventory method, 50-52 Fixed assets, see long-lived assets Footnotes Accounts receivable, 32-33 Business combination, 223-227 Cash, 31-32 Debt, 278-281 Derivatives, 42-43 Foreign currency, 394-395 Interim reporting, 373-374 Inventory, 77-78 Investments, 41-43, 198-203 Lease, 307-310 Liability, 243-251 Long-lived assets, 170-171 Pension, 317-320 Research of, Revenue recognition, 123-132 Segment reporting, 379-381 Stockholders’ equity, 351-360 Foreign currency Concepts, 384-390 Controls, 393-394 Decision tree, 390 Disclosures, 394-395 Forms, 394 Journal entries, 395-396 Policies, 390-391 Procedures, 391-393 Recordkeeping, 396 Terminology, 383-384 Forms Bad debt authorization, 29 Bill and hold, 121 Borrowing/paydown, 276 Commission calculation, 239-241 Credit application, 120 Expected present value, 224 Inventory sign-out and return, 75 Inventory tag, 74 Investment approval, 195 Journal entry, 394 Long-lived asset, 163-169 Mailroom remittance sheet, 26 Research of, 6-7 Royalty calculation, 241-242 Sales return authorization, 122 Sales return credit calculation, 123 Scrap/rework transaction, 75 Stock appreciation rights calculation, 351 Vacation accrual, 243 Wage accrual, 241 Franchise revenue recognition, 99, 104, 118, 130-131 G Gain contingency disclosure, 245 Generally accepted accounting principles Hierarchy, 1-3 Research sources, 3-4 Source pyramid, Geographic risk disclosure, 245 Goods in transit Concepts, 46-47 Controls, 69 Policies, 61-62 Procedures, 63-64 Recordkeeping, 80-81 Goods repossession Journal entry, 134-135 Procedure, 110-111 400 Index Goodwill Disclosure, 171, 226-227 Impairment testing, 214-216 Journal entry, 173, 228 Policy, 221 Government investigation disclosure, 246 Greenmail disclosure, 356 Gross revenue recordation, 89-90, 114 Guaranteed minimum option price, 235 H Hedging Cash flow, 38-39 Concepts, 37-40 Controls, 40-41 Disclosure, 42-43 Foreign currency, 39-40 Policies, 40 Recordkeeping, 43-44 Terminology, 37 Held to maturity securities, 181, 200, 203 Hierarchy of GAAP, 1-3 I Industry risk disclosure, 246 Initiation fee revenue recognition, 95 Installment method, 88, 129, 134 Intangible assets, 150-152, 156-157, 162, 171, 173, 213, 222 Integral view of interim reporting, 369 Interest capitalization, 142-143, 172 Interim reporting Concepts, 369-371 Controls, 373 Disclosures, 373-374 Policies, 372 Procedures, 372-373 Recordkeeping, 374 Terminology, 369 Intrinsic value method, 333 Inventory Accuracy report, 74 Concepts, 47-59 Consigned, 48 Controls, 69-73 Disclosures, 77-78 In-transit ownership, 59 Journal entries, 78-80 Policies, 61-63 Procedures, 63-68 Recordkeeping, 80-84 Reports, 73-77 Sign-out and return form, 75 Tag, 74 Terminology, 45-46 Tracking systems, 60 Valuation system, 61 Investment Concepts, 181-187 Controls, 193-195 Decision trees, 188 Disclosure, 41-42, 198-203 Forms, 195 Journal entries, 203-208 Policies, 188-191 Procedures, 191-193 Recordkeeping, 208-209 Reports, 196-198 Terminology, 180 Invoice printing procedure, 20-21 J Journal entries Accounts receivable, 33-35 Business combination, 227-228 Cash, 33 Controls over, 111 Debt, 282-286 Foreign currency, 395-396 Inventory, 78-80 Investment, 203-208 Lease, 311-313 Liability-related, 251-253 Long-lived assets, 171-173 Pensions, 320-321 Research of, Revenue recognition, 132-135 Stockholders’ equity, 361-367 L Land Accounting for, 146 Improvement form, 166 Record form, 165 Recordkeeping, 174-175 Last in, first out inventory method, 52-53 Lease Concepts, 290-298 401 Index Controls, 305-306 Decision tree, 298 Disclosures, 307-310 Journal entries, 311-313 Policies, 299-300 Procedures, 300-305 Record form, 169 Reports, 306-307 Terminology, 289-290 Leasehold improvements, 146, 176-177 Lessor accounting, 292-296 Leveraged buyouts, 217-218, 219-220 Liabilities Concepts, 230-235 Controls, 236-239 Disclosures, 243-251 Forms, 240-243 Journal entries, 251-253 Policies, 235 Procedures, 235-236 Recordkeeping, 253-254 Terminology, 230 Life insurance proceeds disclosure, 126 Link-chain method, 55-57 Litigation disclosure, 247-248 Loan Borrowing/paydown form, 275-276 Collateralization report, 31, 276 Disclosure, 278, 281 Long-lived asset Concepts, 138-153 Controls, 160-163 Decision trees, 153-155 Disclosures, 170-171 Forms, 163-169 Journal entries, 171-173 Policies, 155-157 Procedures, 157-160 Recordkeeping, 173-177 Reports, 170 Terminology, 137-138 Lower of cost or market Concepts, 49-50 Procedure, 68 M Mailroom remittance sheet, 26 Membership fee disclosure, 127 Mergers, see Business combinations Motion picture revenue recognition Concepts, 100 Disclosure, 132 Multiple deliverables Controls over, 117-118 Disclosure, 130 Revenue recognition, 98 N Net revenue recordation, 89-90, 114 O Obsolete inventory Controls, 72 Procedure, 67 Report, 77 Operating lease, 290 Options, see Stock options Overhead allocation Concepts, 48-49 Controls, 73 P Pension Concepts, 315-316 Controls, 317 Disclosures, 317-320 Journal entries, 320-321 Policies, 316 Terminology, 315-316 Percentage of completion method, 91-92, 109-110 Periodic inventory system, 47 Perpetual inventory system, 47-48 Petty cash procedures, 19 Physical count procedure, 64-65 Policies Business combination, 220-221 Cash, 16 Debt, 268-269 Hedging, 40 Foreign currency, 390-391 Interim reporting, 372 Inventory, 61-63 Investment, 188-191 Lease, 299-300 Liability, 235 Long-lived assets, 155-157 Pension, 316 402 Prepaid expenses, 16-17 Receivables, 17 Research of, Revenue recognition, 102-104 Segment reporting, 378 Stockholders’ equity, 339-342 Postemployment benefit disclosure, 247248 Preferred stock concepts, 326-327 Prepaid expense Concepts, 11 Controls, 24-25 Policies, 16-17 Recordkeeping, 35-36 Pricing error review, 107 Procedures Accounts payable, 235-236 Bad debt reserve calculation, 21-23 Bank account reconciliation, 19-20 Bill and hold, 107-108 Billing, 105-107 Borrowing, 269 Capital lease accounting, 300-302 Capital purchase evaluation, 158-159 Cash application, 17-18 Cash receipt, 18 Collection, 109 Credit card processing, 18-19 Credit rating, 104-105 Debt conversion, 271-272 Debt extinguishment, 270-271 Debt issuance with warrants, 272 Depreciation, 157 Direct financing lease, 303-305 Effective interest calculation, 270 Equity method, 192 Fixed asset count, 157-158 Foreign currency translation, 391-393 Funds investment, 191 Gain/loss on asset sale, 159 Goods repossession, 110-111 Goodwill impairment testing, 221-222 Impairment testing, 159-160 Interim reporting, 372-373 Inventory, 63-68 Investment transfers, 191-192 Invoice printing, 20-21 Loss recognition, 110 Major customer reporting, 378-379 Option measurement, 345-346 Index Percentage-of-completion, 109-110 Petty cash, 19 Pricing review, 107 Property dividend issuance, 344 Research of, Sales return, 108 Sales-type lease accounting, 302-303 Segment determination, 378 Shipping, 105 Stock issuance, 342-343 Stock repurchase, 245 Stock subscription management, 343344 Treasury stock management, 344 Project cost sheet, 164 Property tax liability, 232-233, 251 Proportional performance method, 94 Purchasing commitment disclosure, 248 R Receivables, see Accounts receivable Receiving log, 73 Recordkeeping requirements Accounts receivable, 36 Cash, 35 Debt, 286-287 Foreign currency, 396 Hedging, 43-44 Interim reporting, 374 Inventory, 80-84 Investment, 208-209 Lease, 313 Liability-related, 253-254 Long-lived assets, 173-177 Prepaid expense, 35-36 Research of, Revenue recognition, 135-136 Stockholders’ equity, 367-368 Recourse obligation, 34 Remeasurement method, 386-388, 392 Reports Accounts receivable aging, 30 Bank reconciliation, 27 Bond status, 276-278 Cash forecasting, 28 Collection actions, 30 Depreciation, 170 Fixed asset audit, 170 Investment position, 197 403 Index Lease payments, 306-307 Lease termination, 307 Loan collateralization, 31, 276-277 Research of, 6-7 Stock option detail, 350 Stock record, 349 Stock subscription statement, 350 Research and development costs, 152-153, 157, 163, 227 Reseller liability disclosure, 248 Retained earnings, 328-329, 347, 355-356 Revenue recognition Concepts, 87-100 Controls, 111-118 Decision trees, 101-102 Disclosures, 123-132 Journal entries, 132-135 Policies, 102-104 Procedures, 104-111 Recordkeeping, 135-136 Terminology, 86-87 Reverse acquisitions, 218 Right of return, 97-98, 102, 104, 111, 117, 129-130, 135 Royalty Calculation spreadsheet, 241-242 Journal entry, 252 Liability, 233 Payment disclosure, 248-249 Recordkeeping, 253-254 S Sales return Authorization form, 122 Concepts, 13 Credit calculation form, 123 Disclosure, 127-128 Journal entry, 35, 132, 135 Procedure, 108 Recordkeeping, 135 Sale-leaseback transactions, 298, 308-309, 312-313 Scrap/rework transaction form, 75 Segment reporting Concepts, 375-377 Controls, 379 Decision trees, 377 Disclosures, 379-381 Policies, 378 Procedures, 378 Terminology, 375 Self-insurance liability disclosure, 249 Service revenue recognition, 93-95, 116 Shipping procedure, 105 Specific identification inventory valuation, 50 Specific performance method, 94 Spin-off transactions, 218, 228 Standard cost reports, 76 Stock Appreciation rights, 336-337, 342, 348, 351, 360, 365-366 Ledger sheet, 196-197, 208 Options, 333-336, 340-341, 348-349, 350, 358-360, 364-365, 368 Record, 349 Redemption, 357-358 Splits, 327-328, 358 Subscriptions, 328, 340, 346-347, 350, 352-353, 361-362 Warrants, 266-267, 272, 281, 286, 287, 329, 360, 362 Stockholders’ equity Concepts, 325-338 Controls, 346-349 Decision trees, 338-339 Disclosures, 351-360 Journal entries, 361-367 Policies, 339-342 Procedures, 342-346 Recordkeeping, 367-368 Reports, 349-351 Terminology, 324-325 Straight-line depreciation, 148 Subleases, 298, 309 Sum-of-the-years’ digits depreciation, 149 Supplier concentration disclosure, 249 T Taxation dispute disclosure, 249-250 Trading securities, 181 Treasury stock, 331-332, 340, 347-348, 356-357, 363-364 U Unasserted claim disclosure, 250 Units of production depreciation method, 149-150 404 Index Unused credit facility disclosure, 278-279 V Vacation Accrual spreadsheet, 242-243 Journal entry, 252 Liability disclosure, 250 Recordkeeping, 253 Variable interest entities, 219 W Wage Accrual spreadsheet, 241 Journal entry, 252 Liability, 233 Recordkeeping, 254 Warrants, see Stock warrants Warranty Claim liability, 233-234 Expense disclosure, 128 Journal entry, 252 Liability disclosure, 250-251 Recordkeeping, 254 Revenue recognition, 127 Weighted-average inventory valuation method, 57-59 ...Wiley GAAP Policies and Procedures Second Edition Steven M Bragg JOHN WILEY & SONS, INC 1/2 Title Page Wiley GAAP Policies and Procedures Second Edition BECOME A SUBSCRIBER! Did... at www.stevebragg.com, or access the podcast through iTunes 1/2 Title Page Wiley GAAP Policies and Procedures Second Edition RESEARCHING GAAP IMPLEMENTATION PROBLEMS Overview The GAAP Hierarchy... Controls Itemizes specific controls allowing a company to retain the maximum level of control over its accounting systems while remaining in compliance with GAAP Forms and Reports Gives templates