Intermediate Accounting, 18th Edition
Donald E. Kieso PhD, CPA, Jerry J. Weygandt PhD, CPA and Terry D. Warfield, PhD
Table of Contents
1 The Environment and Conceptual
Framework of Financial
Reporting
1.1 Financial Reporting Environment 1-2
Importance of Accounting and Decision-Usefulness 1-2
The Need to Develop Standards 1-4
Securities and Exchange Commission (SEC) 1-4
Accounting Matters Global Markets 1-5
Accounting Matters Private Company Perspectives 1-6
Financial Accounting Standards Board (FASB) 1-6
Other Organizations Involved 1-8
FASB Codification 1-8
Accounting Matters Is There a Rule for That? 1-10
1.2 Conceptual Framework 1-11
Accounting Matters What’s Your Principle? 1-11
Objective 1-11
Qualitative Characteristics of Accounting Information 1-12
Accounting Matters Living in a Material World 1-14
Accounting Matters What’s in It for Me? 1-15
Elements 1-17
1.3 Assumptions and Principles 1-18
Assumptions 1-18
Principles of Accounting 1-20
Summary of the Structure 1-26
Accounting Matters Be Responsible 1-26
1.4 Major Challenges in Financial Reporting 1-27
GAAP in a Political Environment 1-28
The Expectations Gap 1-28
Financial Reporting Issues 1-29
Analytics in Action Big Data for Big Decisions 1-30
Ethics in the Environment of Financial Accounting 1-30
2 The Accounting Information System
2.1 Accounting Information System 2-2
Computerized Accounting Systems 2-2
Accounting Matters Accounting and Bots? 2-3
Manual Accounting Systems 2-3
Debits and Credits 2-4
The Accounting Equation 2-5
Financial Statements and Ownership Structure 2-6
The Accounting Cycle 2-7
2.2 Analyze and Record Business Transactions 2-8
The Recording Process 2-9
The Journal 2-9
The Ledger 2-10
Accounting Matters Working on the Chain
Gang 2-11
Chart of Accounts 2-12
The Recording Process Illustrated 2-12
Summary Illustration of Journalizing and Posting 2-18
Analytics in Action This System Is Full of Data 2-19
Trial Balance 2-20
2.3 Adjusting Entries 2-23
Types of Adjusting Entries 2-24
Adjusting Entries for Deferrals 2-24
Adjusting Entries for Accruals 2-29
Adjusted Trial Balance 2-34
2.4 Preparing Financial Statements 2-37
Closing 2-38
Post-Closing Trial Balance 2-40
Reversing Entries—An Optional Step 2-41
The Accounting Cycle Summarized 2-41
2.5 Financial Statements for a Merchandising
Company 2-45
Income Statement 2-45
Retained Earnings Statement 2-46
Balance Sheet 2-47
Closing Entries 2-48
Appendix 2A: Cash-Basis Accounting versus Accrual-Basis
Accounting 2-48
Conversion from Cash Basis to Accrual Basis 2-50
Theoretical Weaknesses of the Cash Basis 2-53
Appendix 2B: Using Reversing Entries 2-54
Illustration of Reversing Entries—Accruals 2-54
Illustration of Reversing Entries—Deferrals 2-55
Summary of Reversing Entries 2-56
Appendix 2C: Using a Worksheet:
The Accounting Cycle Revisited 2-56
Worksheet Columns 2-57
Adjustments Entered on the Worksheet 2-58
Analytics in Action Activities 2-82
3 Income Statement, Related
Information, and Revenue
Recognition
3.1 Income Statement 3-2
Usefulness of the Income Statement 3-2
Limitations of the Income Statement 3-3
Content of the Income Statement 3-3
Analytics in Action Income Statement Dashboards 3-8
Accounting Matters Top Line or Bottom Line? 3-9
3.2 Reporting Special Income Items 3-11
Discontinued Operations 3-12
Other Comprehensive Income 3-16
3.3 Stockholders’ Equity Statements 3-19
Retained Earnings 3-19
Statement of Stockholders’ Equity 3-20
Balance Sheet Presentation 3-20
3.4 Revenue Recognition—The Fundamentals 3-21
Revenue Recognition Principle 3-22
Overview of the Five-Step Model 3-22
Summary 3-28
3.5 Quality of Earnings 3-29
Earnings Management 3-30
Non-GAAP Reporting 3-30
Fraudulent Financial Reporting 3-32
Response by the Profession 3-32
Accounting Matters Good Accounting Does Matter 3-33
Appendix 3A: Accounting Changes and Errors 3-33
Changes in Accounting Principle 3-33
Changes in Accounting Estimates 3-34
Corrections of Errors 3-35
Analytics in Action Activities 3-56
4 Balance Sheet and Statement
of Cash Flows
4.1 Balance Sheet 4-1
Usefulness of the Balance Sheet 4-1
Limitations of the Balance Sheet 4-2
Accounting Matters Stuck in Port 4-3
Classification in the Balance Sheet 4-3
Analytics in Action Working Capital and Analytics? 4-8
Accounting Matters Cryptocurrency: Is It Cash? 4-10
Accounting Matters When Do I Get Paid? 4-11
Accounting Matters? Warning Signals 4-13
Format of the Balance Sheet 4-13
4.2 Statement of Cash Flows 4-16
Purpose of the Statement of Cash Flows 4-16
Accounting Matters Watch That Cash Flow 4-16
Content of the Statement of Cash Flows 4-17
Preparation of the Statement of Cash Flows 4-18
Usefulness of the Statement of Cash Flows 4-21
Accounting Matters Cash Flow Conundrum 4-22
Appendix 4A: Additional Information 4-26
Notes to the Financial Statements 4-27
Techniques of Disclosure 4-31
Appendix 4B: Ratio Analysis—A Reference 4-33
Analytics in Action Activities 4-57
5 Accounting and the Time
Value of Money
5.1 Basic Time Value Concepts 5-2
The Importance of Time Value Concepts 5-2
Understanding Interest 5-3
How to Solve Compound Interest Problems 5-4
Accounting Matters Don’t Put Off Your Taxes! 5-7
5.2 Single-Sum Problems 5-8
Future Value of a Single Sum 5-9
Present Value of a Single Sum 5-10
Solving for Other Unknowns in Single-Sum Problems 5-12
5.3 Annuities (Future Value) 5-14
Future Value of an Ordinary Annuity 5-14
Future Value of an Annuity Due 5-17
Solving for Unknowns in Future Value of Annuity
Problems 5-19
5.4 Annuities (Present Value) 5-21
Present Value of an Ordinary Annuity 5-21
Accounting Matters Up in Smoke 5-24
Present Value of an Annuity Due 5-24
Solving for Unknowns in Present Value of Annuity
Problems 5-25
5.5 Other Time Value of Money Issues 5-27
Deferred Annuities 5-28
Valuation of Long-Term Bonds 5-30
Analytics in Action Using Present Value for Investment
Analysis 5-31
Present Value Measurement 5-31
Appendix 5A: Technology Tools for Time Value of Money
Problems 5-34
Using Excel to Solve Time Value of Money Problems 5-34
Using Financial Calculators to Solve Time Value of Money
Problems 5-41
Benefits of Using Technology Tools 5-44
Analytics in Action Activities 5-59
Time Value of Money Tables 5-60
6 Cash and Receivables
6.1 Cash 6-1
Reporting Cash 6-2
Summary of Cash-Related Items 6-4
Accounting Matters What Counts for Cash? 6-5
6.2 Receivables 6-6
Recognition of Accounts Receivable 6-7
Measurement of the Transaction Price 6-7
Variable Consideration 6-8
6.3 Valuation of Accounts Receivable 6-13
Direct Write-Off Method for Uncollectible Accounts
(Non-GAAP) 6-14
Allowance Method for Uncollectible Accounts (GAAP) 6-14
Analytics in Action Predicting the Future 6-19
6.4 Notes Receivable 6-20
Recognition of Notes Receivable 6-21
Valuation of Notes Receivable 6-26
6.5 Other Issues 6-28
Disposition of Receivable 6-28
Accounting Matters Securitizations—Good or Bad? 6-33
Presentation and Decision Analysis 6-33
Accounting Matters A Foreign Affair 6-35
Accounting Matters I’m Still Waiting 6-36
Appendix 6A: Cash Controls 6-36
Using Bank Accounts 6-37
The Imprest Petty Cash System 6-37
Physical Protection of Cash Balances 6-38
Reconciliation of Bank Balances 6-39
Appendix 6B: Collectibility Assessment Based on
Expected Cash Flows 6-42
Measurement of Collectibility 6-42
Analytics in Action Activities 6-68
7 Valuation of Inventories:
A Cost-Basis Approach
7.1 Inventory Issues 7-2
Classification 7-2
Inventory Cost Flow 7-3
Inventory Control 7-6
Accounting Matters Staying Lean 7-7
7.2 Goods and Costs Included in Inventory 7-8
Goods Included in Inventory 7-8
Accounting Matters No Parking 7-11
Costs Included in Inventory 7-11
7.3 Which Cost Flow Assumption to Adopt? 7-14
Cost Flow Assumptions 7-14
Inventory Valuation Methods—A Summary Analysis 7-19
Basis for Selection of Inventory Method 7-20
Switching Inventory Methods 7-21
Accounting Matters The Itch to Switch? 7-22
7.4 Special Issues Related to LIFO 7-24
LIFO Reserve 7-24
LIFO Liquidation 7-25
Dollar-Value LIFO 7-27
Comparison of LIFO Approaches 7-31
7.5 Effect of Inventory Errors 7-32
Ending Inventory Misstated 7-32
Purchases and Inventory Misstated 7-33
Analytics in Action Inventory Matters 7-35
Analytics in Action Activities 7-59
8 Inventories: Additional Valuation
Issues
8.1 Lower-of-Cost-or-Net Realizable Value 8-2
Definition of Net Realizable Value 8-2
Illustration of LCNRV 8-3
Methods of Applying LCNRV 8-3
Accounting Matters Where Does Excess Inventory Go? 8-4
Adjusting Cost to NRV 8-5
Accounting Matters Are These Profit Margins for Real? 8-6
8.2 Lower-of-Cost-or-Market 8-7
How Lower-of-Cost-or-Market Works 8-9
Methods of Applying Lower-of-Cost-or-Market 8-10
Evaluation of the LCNRV and LCM Rules 8-11
Analytics in Action Role of Big Data in Inventory 8-11
8.3 Other Valuation Approaches 8-13
Valuation at Net Realizable Value 8-13
Valuation Using Relative Sales Value 8-14
Purchase Commitments—A Special Problem 8-15
8.4 The Gross Profit Method of Estimating
Inventory 8-19
Computation of Gross Profit Percentage 8-20
Evaluation of Gross Profit Method 8-22
8.5 Retail Inventory Method 8-22
Retail-Method Concepts 8-24
Retail Inventory Method with Markups and
Markdowns—Conventional Method 8-25
Special Items Relating to Retail Method 8-28
Evaluation of Retail Inventory Method 8-30
8.6 Presentation and Decision Analysis 8-31
Presentation of Inventories 8-31
Decision Analysis of Inventories 8-31
Appendix 8A: LIFO Retail Methods 8-32
Stable Prices—LIFO Retail Method 8-32
Fluctuating Prices—Dollar-Value LIFO Retail Method 8-34
Subsequent Adjustments Under Dollar-Value
LIFO Retail 8-35
Changing from Conventional Retail to LIFO 8-36
Analytics in Action Activities 8-61
9 Acquisition and Disposition
of Property, Plant,
and Equipment
9.1 Property, Plant, and Equipment 9-2
Acquisition of Property, Plant, and Equipment 9-2
Cost of Land 9-2
Cost of Land Improvements 9-3
Cost of Equipment 9-4
Cost of Buildings 9-5
Asset Retirement Costs and Obligations 9-6
9.2 Interest Costs During Construction 9-10
Qualifying Assets 9-10
Capitalization Period 9-10
Amount to Capitalize 9-11
Other Issues 9-12
9.3 Valuation of Property, Plant, and Equipment 9-16
Deferred-Payment Contracts 9-16
Lump-Sum Purchases 9-18
Issuance of Stock 9-18
Exchanges of Nonmonetary Assets 9-19
Other Asset Valuation Issues 9-24
9.4 Costs Subsequent to Acquisition 9-26
Additions 9-27
Improvements and Replacements 9-28
Rearrangement and Reinstallation 9-29
Repairs 9-30
Summary of Costs Subsequent to Acquisition 9-30
Accounting Matters Is that an Asset or an Expense? 9-31
9.5 Disposition of Property, Plant, and Equipment 9-32
Sale of Plant Assets 9-32
Involuntary Conversion 9-33
Analytics in Action Capital Expenditure Trends 9-34
Appendix 9A: Accounting for Contributions 9-35
Conditional Contribution 9-35
Unconditional Contribution 9-36
Exchange Transactions 9-37
Analytics in Action Activities 9-62
10 Depreciation, Impairments,
and Depletion
10.1 Depreciation—A Method of Cost Allocation 10-2
Factors Involved in the Depreciation Process 10-3
Methods of Depreciation 10-4
Accounting Matters Depreciation Choices Abound 10-10
Other Depreciation Issues 10-10
10.2 Impairments 10-15
Measuring Impairments 10-16
Restoration of Impairment Loss 10-18
Impairment of Assets to Be Disposed Of 10-18
10.3 Depletion 10-20
Establishing a Depletion Base 10-21
Cost Allocation 10-22
Estimating Recoverable Reserves 10-23
Liquidating Dividends 10-23
Continuing Controversy 10-23
Accounting Matters Full-Cost or Successful-Efforts? 10-24
10.4 Presentation and Decision Analysis 10-25
Presentation of Property, Plant, Equipment,
and Natural Resources 10-25
Decision Analysis of Property, Plant, and Equipment 10-27
Analytics in Action A Better Way to Estimate 10-28
Appendix 10A: Income Tax Depreciation 10-29
Modified Accelerated Cost Recovery System 10-29
Optional Straight-Line Method 10-31
Tax versus Book Depreciation 10-32
Accounting Matters In the Bonus (Boomerang?) 10-32
Analytics in Action Activities 10-52
11 Intangible Assets
11.1 Intangible Asset Issues 11-2
Characteristics 11-2
Valuation 11-2
Accounting for Intangibles 11-3
Accounting Matters Crypto at Cost? 11-6
Accounting Matters Purchase or Develop? 11-7
11.2 Types and Presentation of Intangible Assets 11-8
Marketing-Related Intangible Assets 11-9
Customer-Related Intangible Assets 11-10
Artistic-Related Intangible Assets 11-10
Contract-Related Intangible Assets 11-11
Technology-Related Intangible Assets 11-12
Accounting Matters “It Was All Started by a Mouse” 11-14
Presentation of Intangible Assets 11-15
11.3 Goodwill 11-17
Recording Goodwill 11-18
Impairment of Goodwill 11-20
Analytics in Action Goodwill Hunting? 11-21
Bargain Purchase 11-22
Accounting Matters Goodwill Impairments—Back to the
Future 11-23
Presentation of Goodwill 11-23
11.4 Research and Development Costs 11-25
Identifying R&D Activities 11-26
Accounting for R&D Activities 11-26
Costs Similar to R&D Costs 11-28
Accounting Matters Branded 11-29
Presentation of Research and Development Costs 11-30
Accounting Matters “Alexa, Should R&D Costs Be
Capitalized?” 11-31
Analytics in Action Activities 11-47
12 Current Liabilities and
Contingencies
12.1 Current Liabilities 12-2
Payable Transactions 12-3
Accounting Matters Is It a Liability? 12-5
Employee-Related Payables 12-7
Accounting Matters Salary, Benefits, and Gen Z 12-11
12.2 Unearned Revenues 12-14
Ticket Revenue 12-14
Gift Cards 12-15
Customer Advances 12-17
12.3 Contingencies 12-19
Loss Contingencies 12-19
Gain Contingencies 12-26
12.4 Presentation and Decision Analysis 12-29
Presentation of Current Liabilities 12-29
Analysis of Current Liabilities 12-32
Accounting Matters I’ll Pay You Later 12-33
Analytics in Action Current Ratio Analysis Can Lead
to Innovation 12-34
Analytics in Action Activities 12-55
13 Long-Term Liabilities
13.1 Bonds Payable 13-2
Issuing Bonds 13-3
Types of Bonds 13-3
Valuation and Accounting for Bonds Payable 13-4
Accounting Matters What Is My Bond Worth? 13-6
Accounting Matters Hot, Hot, Hot 13-10
Effective-Interest Method 13-10
13.2 Extinguishment of Debt 13-17
Accounting Matters Are All Bonds Created Equal? 13-18
13.3 Long-Term Notes Payable 13-19
Notes Issued at Face Value 13-20
Notes Not Issued at Face Value 13-20
Special Notes Payable Situations 13-23
Mortgage Notes Payable 13-25
13.4 Reporting and Analyzing Liabilities 13-28
Fair Value Option 13-28
Presentation and Decision Analysis 13-29
Analytics in Action Helping to Put Debt into
Perspective 13-34
Appendix 13A: Troubled-Debt Restructuring 13-34
Settlement of Debt 13-35
Transfer of Assets 13-35
Granting of Equity Interest 13-36
Modification of Terms 13-36
Example 1—No Gain for Debtor 13-37
Example 2—Gain for Debtor 13-39
Concluding Remarks 13-40
14 Stockholders’ Equity
14.1 Corporate Capital 14-2
Characteristics of a Corporation 14-2
Forming a Corporation 14-4
Accounting Matters Getting In on the Ground Floor 14-5
Components of Stockholders’ Equity 14-6
Common Stock 14-7
Accounting Matters A Class (B) Act 14-8
Preferred Stock 14-13
14.2 Reacquisition of Shares 14-17
Treasury Stock 14-17
Purchase of Treasury Stock 14-19
Sale of Treasury Stock 14-20
Retiring Treasury Stock 14-23
Accounting Matters Buybacks—Good or Bad? 14-23
14.3 Dividend Policy 14-24
Financial Condition and Dividend Distributions 14-25
Types of Dividends 14-26
Stock Dividends and Stock Splits 14-29
Accounting Matters Splitsville 14-34
14.4 Presentation and Decision Analysis of
Stockholders’ Equity 14-36
Presentation 14-36
Decision Analysis 14-38
Analytics in Action Track Those Ratios! 14-40
Appendix 14A: Dividend Preferences and Book Value
per Share 14-40
Dividend Preferences 14-40
Book Value per Share 14-42
Analytics in Action Activities 14-63
15 Dilutive Securities and Earnings
per Share
15.1 Dilutive Securities 15-2
Convertible Debt 15-3
Convertible Preferred Stock 15-5
Accounting Matters How Low Can You Go? 15-6
15.2 Stock Warrants 15-7
Stock Warrants Issued with Other Securities 15-7
Rights to Subscribe to Additional Shares 15-10
15.3 Stock Compensation Plans 15-11
Stock Options 15-12
Accounting Matters What’s the Debate About? 15-15
Restricted-Stock Plans 15-16
Employee Stock-Purchase Plans 15-18
Trends in Stock Compensation Plans 15-19
Disclosure of Compensation Plans 15-20
15.4 Basic Earnings per Share 15-23
Earnings per Share—Simple Capital Structure 15-23
15.5 Diluted Earnings per Share 15-28
Diluted EPS—Convertible Securities 15-29
Diluted EPS—Options and Warrants 15-31
Contingent Issue Agreement 15-33
Antidilution Revisited 15-33
EPS Presentation and Disclosure 15-34
Summary of EPS Computation 15-36
Analytics in Action Earnings per Share versus
Net Income 15-37
Appendix 15A: Accounting for Stock-Appreciation
Rights 15-39
SARs—Share-Based Equity Awards 15-39
SARs—Share-Based Liability Awards 15-40
Stock-Appreciation Rights Example 15-41
Appendix 15B: Comprehensive Earnings per Share
Example 15-42
Diluted Earnings per Share 15-43
Analytics in Action Activities 15-66
16 Investments
16.1 Investments in Debt Securities 16-1
Overview of Debt Investments 16-2
Debt Investment Classifications 16-3
Held-to-Maturity Securities (Amortized Cost) 16-3
Available-for-Sale Securities (Fair Value Through Other
Comprehensive Income) 16-7
Trading Securities (Fair Value Through Net Income) 16-11
Accounting Matters To Have and to Hold 16-13
16.2 Investments in Equity Securities 16-14
Holdings of Less Than 20% 16-15
Holdings Between 20% and 50% (Equity Method) 16-18
Holdings of More Than 50% (Consolidation) 16-21
Accounting Matters Who’s in Control Here? 16-22
16.4 Other Financial Reporting Issues 16-23
Fair Value Option 16-23
Accounting Matters Fair Value Controversy 16-25
Impairment of Value 16-26
Presentation of Comprehensive Income 16-28
Transfers Related to Debt Securities 16-32
Summary of Reporting Treatment of Securities 16-33
Analytics in Action Risky Retirement 16-33
Appendix 16A: Accounting for Derivative
Instruments 16-34
Defining Derivatives 16-34
Who Uses Derivatives, and Why? 16-35
Basic Principles in Accounting for Derivatives 16-36
Derivatives Used for Hedging 16-40
Other Reporting Issues 16-44
Comprehensive Hedge Accounting Example 16-46
Controversy and Concluding Remarks 16-50
Appendix 16B: Fair Value Disclosures 16-50
Disclosure of Fair Value Information: Financial
Instruments 16-50
Disclosure of Fair Values: Impaired Assets or
Liabilities 16-53
Conclusion 16-54
Analytics in Action Activities 16-76
17 Revenue Recognition
17.1 Fundamentals of Revenue Recognition 17-2
Background 17-2
Revenue Recognition Standard 17-2
Example of the Five-Step Process: BEAN 17-3
17.2 The Five-Step Process Revisited 17-6
Identifying the Contract with Customers—Step 1 17-7
Identifying Separate Performance Obligations—
Step 2 17-8
Determining the Transaction Price—Step 3 17-10
Allocating the Transaction Price to Separate Performance
Obligations—Step 4 17-14
Recognizing Revenue When (or as) Each Performance
Obligation Is Satisfied—Step 5 17-17
Summary 17-19
17.3 Accounting for Revenue Recognition
Issues 17-21
Sales Returns and Allowances 17-21
Analytics in Action Are You Going to Keep That? 17-23
Repurchase Agreements 17-23
Bill-and-Hold Arrangements 17-25
Principal-Agent Relationships 17-26
Consignments 17-27
Accounting Matters Did You Meet Your Target? 17-29
Warranties 17-29
Nonrefundable Upfront Fees 17-31
Summary 17-32
17.4 Presentation and Disclosure 17-34
Presentation 17-34
Disclosure 17-38
Appendix 17A: Long-Term Construction
Contracts 17-39
Revenue Recognition over Time 17-39
Percentage-of-Completion Method 17-40
Cost-Recovery (Zero-Profit) Method 17-46
Long-Term Contract Losses 17-48
Appendix 17B: Revenue Recognition for
Franchises 17-51
Franchise Accounting 17-52
Recognition of Franchise Rights Revenue
over Time 17-53
Analytics in Action Activities 17-79
18 Accounting for Income Taxes
18.1 Fundamentals of Accounting for Income
Taxes 18-2
Future Taxable Amounts and Deferred Taxes 18-4
Accounting Matters Deferring Tax Payments, Bonus! 18-8
Future Deductible Amounts and Deferred Taxes 18-9
Deferred Tax Asset—Valuation Allowance 18-12
Accounting Matters Deferred Tax Assets 18-14
18.2 Additional Considerations 18-15
Specific Differences 18-15
Tax Rate Considerations 18-20
Accounting Matters Lower Tax Rate—Good or Bad? 18-21
18.3 Accounting for Net Operating Losses 18-23
Loss Carryforward 18-24
Loss Carryforward Example 18-24
Accounting Matters NOLs: Good News or Bad? 18-29
18.4 Financial Statement Presentation 18-30
Balance Sheet 18-30
Note Disclosure 18-31
Income Statement 18-32
Accounting Matters Uncertain Tax Positions 18-35
Analytics in Action Visualizing Taxes 18-36
A Summary of the Asset-Liability Method 18-36
Appendix 18A: Comprehensive Example of Interperiod
Tax Allocation 18-38
First Year—2024 18-38
Second Year—2025 18-41
Appendix 18B: Accounting for Net Operating Loss
Carrybacks 18-44
Loss Carryback 18-45
Analytics in Action Activities 18-67
19 Accounting for Pensions and
Postretirement Benefits
19.1 Fundamentals of Pension Plan Accounting 19-2
Pension Plans 19-3
Accounting Matters Which Plan Is Right for You? 19-5
The Role of Actuaries in Pension Accounting 19-6
Measures of the Liability 19-6
Accounting Matters Roller Coaster 19-8
Components of Pension Expense 19-9
19.2 Using a Pension Worksheet 19-12
Funded Status 19-14
19.3 Prior Service Cost (PSC) 19-16
Amortization 19-16
Funded Status—2026 19-19
19.4 Gains and Losses 19-20
Smoothing Unexpected Gains and Losses on Plan
Assets 19-21
Smoothing Unexpected Gains and Losses on the Pension
Liability 19-22
Corridor Amortization 19-22
Accounting Matters Bye Bye Corridor 19-25
Funded Status—2027 19-27
19.5 Reporting Pension Plans in Financial
Statements 19-29
Assets and Liabilities 19-29
Net Income 19-29
Comprehensive Income 19-30
Within the Notes to the Financial Statements 19-32
Special Issues 19-34
Accounting Matters Who Guarantees the Guarantor? 19-35
Analytics in Action Pension De-Risking 19-37
Concluding Observations 19-37
Appendix 19A: Accounting for Postretirement
Benefits 19-39
Accounting Guidance 19-39
Differences Between Pension Benefits and Healthcare
Benefits 19-40
Accounting Matters OPEBs—How Big Are They? 19-41
Postretirement Benefits Accounting Provisions 19-41
Illustrative Accounting Entries 19-43
Disclosures in Notes to the Financial Statements 19-47
Actuarial Assumptions and Conceptual Issues 19-48
Analytics in Action Activities 19-70
20 Accounting for Leases
20.1 The Leasing Environment 20-2
A Look at the Lessee 20-2
Why Is Leasing So Popular? 20-3
Accounting Matters Residual Value Regret 20-4
Finance and Operating Leases (Lessee) 20-4
20.2 Accounting for Finance Leases 20-12
Lessee Accounting for Finance Leases:
An Example 20-12
Lessor Accounting for Sales-Type (Finance)
Leases 20-15
Accounting Matters Who Are the Lessors? 20-16
Sales-Type (Finance) Lease Example 20-17
20.3 Accounting for Operating Leases 20-22
Lessee Accounting for Operating Leases 20-22
Lessor Accounting for Operating Leases 20-26
20.4 Special Lease Accounting Problems 20-29
Residual Values 20-30
Other Lease Adjustments 20-34
Bargain Purchase Options 20-37
Short-Term Leases 20-38
Presentation and Decision Analysis 20-39
Analytics in Action Connoisseur of Coffee or Wrangler
of Big Data? 20-41
Appendix 20A: Sale-Leasebacks 20-41
Accounting Issues in Sale-Leaseback Transactions 20-42
Sale-Leaseback Example 20-43
Appendix 20B: Direct Financing Lease (Lessor) 20-45
Direct Financing Lease Accounting 20-46
Direct Financing Lease Example 20-46
Analytics in Action Activities 20-77
21 Accounting Changes
and Error Analysis
21.1 Accounting Changes 21-1
Background 21-2
Changes in Accounting Principle 21-3
Accounting Matters The Cost of Change 21-9
Other Accounting Change Issues 21-9
21.2 Other Accounting Changes 21-14
Changes in Accounting Estimates 21-14
Changes in Reporting Entity 21-17
21.3 Accounting Errors 21-18
Prior Period Adjustments and Restatements 21-19
Analytics in Action Big R versus Little r 21-22
Summary of Accounting Changes and Correction
of Errors 21-23
Accounting Matters What’s Your Motivation? 21-24
21.4 Error Analysis 21-25
Reclassification Errors 21-25
Balance Sheet and Income Statement Errors 21-26
Comprehensive Example: Numerous Errors 21-30
What Do the Numbers Mean? Guard the Financial
Statements! 21-32
Preparation of Financial Statements with Error
Corrections 21-33
Appendix 21A: Changing from or to the Equity
Method 21-36
Change from the Equity Method 21-36
Change to the Equity Method 21-37
Analytics in Action Activities 21-62
22 Statement of Cash Flows
22.1 Overview of Statement of Cash Flows 22-2
Usefulness of the Statement of Cash Flows 22-2
Classification of Cash Flows 22-3
Accounting Matters How’s My Cash Flow? 22-4
Format of the Statement of Cash Flows 22-5
22.2 Preparing the Statement of Cash Flows 22-6
Examples—Evergreen Inc. 22-6
Accounting Matters Cash Flow Management? 22-10
Sources of Information for the Statement of
Cash Flows 22-17
Indirect Method—Additional Adjustments 22-17
22.3 Net Cash Flow from Operating Activities—Direct
Method 22-19
Implementing the Direct Method 22-19
Summary of Net Cash Flow from Operating Activities—
Direct Method 22-23
Accounting Matters Direct versus Indirect 22-25
22.4 Special Problems in Statement Preparation 22-26
Adjustments to Net Income 22-26
Accounts Receivable (Net) 22-30
Accounting Matters Cash During Challenging Times 22-32
Other Working Capital Changes 22-32
Net Losses 22-33
Significant Noncash Transactions 22-34
Analytics in Action Cash Flow Analysis 22-35
22.5 Use of a Worksheet 22-37
Preparation of the Worksheet 22-38
Analysis of Transactions 22-42
Preparation of Final Statement 22-45
Analytics in Action Activities 22-73
23 Full Disclosure in Financial
Reporting
23.1 Full Disclosure Principle 23-2
Increase in Reporting Requirements 23-3
Differential Disclosure 23-4
Analytics in Action Disclosure—Quantity and Quality…and
Visualizations? 23-4
Notes to the Financial Statements 23-5
Accounting Matters What Did You Tweet? 23-7
23.2 Disclosure Issues 23-7
Related Parties 23-7
Post-Balance-Sheet Events (Subsequent Events) 23-8
Reporting for Diversified (Conglomerate) Companies 23-10
Interim Reports 23-16
23.3 Auditor’s and Management’s Reports 23-22
Auditor’s Report 23-22
Accounting Matters Covid-19 and Going Concern 23-25
Management’s Reports 23-26
Accounting Matters Environmental, Social, and Governance
Disclosures 23-27
23.4 Current Reporting Issues 23-29
Fraudulent Financial Reporting 23-29
Internet Financial Reporting 23-31
Reporting on Financial Forecasts and Projections 23-32
Accounting Matters Can You Say That? 23-34
Criteria for Making Accounting and Reporting Choices 23-34
Appendix 23A: Basic Financial Statement Analysis 23-34
Perspective on Financial Statement Analysis 23-35
Ratio Analysis 23-36
Limitations of Ratio Analysis 23-37
Comparative Analysis 23-38
Percentage (Common-Size) Analysis 23-39
Analytics in Action Activities 23-60
APPENDIX A Private Company Accounting A-1
A.1 The Private Company Council (PCC) A-1
Background on the PCC A-1
Private Company Decision-Making Framework A-1
PCC Accomplishments A-2
A.2 Private Company Alternatives for Intangible Assets
and Goodwill A-2
Accounting for Identifiable Intangible Assets A-2
Accounting for Goodwill A-4
A.3 Summary A-6
APPENDIX B Specimen Financial Statements:
The Procter & Gamble Company B-1
APPENDIX C Specimen Financial Statements:
The Coca-Cola Company C-1
APPENDIX D Specimen Financial Statements:
PepsiCo, Inc. D-1
COMPANY INDEX
SUBJECT INDEX
LIST OF ACCOUNTS