The Ultimate Accountants' Reference, 3 rd Edition

Transcription

1 The Ultimate Accountants' Reference, 3 rd Edition INCLUDING GAAP, IRS AND SEC REGULATIONS, LEASES, AND MORE STEVEN M. BRAGG WILEY JOHN WILEY & SONS, INC.

2 vi The Trust Indenture Act of 1939 The Investment Company Act of 1940 The Investment Advisers Act of 1940 Regulation FD Regulation M-A Regulation S-K Regulation S-T Regulation S-X (Requirements for Financial Statement Reporting) Staff Accounting Bulletins Staff Accounting Bulletin 99: Materiality Forms to be Filed with the SEC Summary Laws; Impacting Accounting 5.1 Introduction 5.2 Ethics 5.3 Employment Eligibility 5.4 Garnishments 5.5 Health Insurance 5.6 Pensions 5.7 Taxes 5.8 Wages and Overtime 5.9 Other Laws Impacting Accounting 5.10 Summary Part Three Accounting Reports 6 The Balance Sheet and Statement of Stockholders' Equity Introduction Uses of the Balance Sheet and Statement of Stockholders' Equity The Balance Sheet Format Asset Definitions Liability Definitions Stockholders' Equity Definitions The Statement of Stockholders' Equity Format Accounting Treatment of Offsets to Assets and Liabilities Critique of the Balance Sheet Summary

3 vii 7 The income Statement Introduction Format of the Income Statement Expenses Listed in the Cost of Goods Sold Reporting Earnings per Share Treatment of Gains and Losses Treatment of Accounting Changes Treatment of Discontinued Operations Treatment of Extraordinary Items Treatment of Other Comprehensive Income Treatment of Prior Period Adjustments Summary 80 8 The Statement of Cash Flows Introduction Operating Activities Investing Activities Financing Activities The Format of the Statement of Cash Flows Exemptions from the Statement of Cash Flows Presentation of Consolidated Entities Treatment of Foreign Currency Transactions Summary 84 9 Footnotes Introduction Disclosure of Accounting Changes Disclosure of Accounting Policies Disclosure of Asset Impairments Disclosure of Bad Debt Recognition Disclosure of Barter Revenue Disclosure of Bill and Hold Transactions Disclosure of Business Combinations Disclosure of Callable Obligations Disclosure of Capital Structure Disclosure of Cash Deposits in Excess of FDIC Insurance Limits Disclosure of Cash Restrictions Disclosure of Change in Reported Method of Investment Disclosure of Changes in Investment Fair Value after Balance Sheet Date 92

4 viii 9.15 Disclosure of Collateral Disclosure of Collective Bargaining Agreements Disclosure of Commitments Disclosure of Compensating Balances Disclosure of Consignment Revenue Disclosure of Contingent Asset Purchase Obligation Disclosure of Contingent Liabilities Disclosure of Continued Existence Doubts Disclosure of Contract Revenue Recognition Disclosure of Customers Disclosure of Derivative Use Objectives Disclosure of Discontinued Operations Disclosure of Dividends Disclosure of Earnings per Share Disclosure of Employee Stock Ownership Plan Disclosure of Employment Contract Liabilities Disclosure of Error Corrections Disclosure of Gain Contingencies Disclosure of Gain or Loss on an Asset Sale Disclosure of Geographic Risk Disclosure of Goodwill Disclosure of Income Taxes Disclosure of Increase in Value of a Written-down Held-to-Maturity Investment Disclosure of Industry Risk Disclosure of Installment Sales Disclosure of Intangibles Disclosure of Inventory Disclosure of Investment Restrictions Disclosure of Investments Disclosure of Lease Termination Costs Disclosure of Leases by Lessees Disclosure of Life Insurance Proceeds Disclosure of Litigation Disclosure of Loan Acceleration Disclosure of Loan Extinguishment Disclosure of Loan Guarantees Disclosure of Loan Restructuring Disclosure of Loans 106

5 ix 9.53 Disclosure of Nonstandard Reported Method of Investment Disclosure of Par Value Change Disclosure of Postemployment Benefits Disclosure of Prior Period Adjustments Disclosure of Purchasing Commitments Disclosure of Reduction in Equity Method Investment Disclosure of Reduction in the Market Value of Equity Investments Disclosure of Related-Party Loans Disclosure of Revenue Recognition Policy Disclosure of Royalty Payments Disclosure of the Sale of Held-to-Maturity Investments Disclosure of Sales Return Allowance Disclosure of Sales with Significant Rights of Return Disclosure of Segment Information Disclosure of Shifts between Securities Accounts Disclosure of Significant Risks Disclosure of Stock Compensation Disclosure of Stock Options Disclosure of a Stock Repurchase Program Disclosure of a Stock Sale Disclosure of Stock Splits Disclosure of Stock Subscriptions Disclosure of Subsequent Events Disclosure of Taxation Disputes Disclosure of Unused Credit Facilities Disclosure of Warrants Issued Disclosure of Warranty Expense Allowance Disclosure of Warranty Revenue Recognition, Summary Internal Management Reports Introduction Status Reports Margin Reports Cash Reports Sales and Expense Reports Payroll Reports Graphical Report Layouts Summary 132

6 x 11 Foreign Currency Translation Introduction The Current Rate Translation Method Example of the Current Rate Method The Remeasurement Method Example of the Remeasurement Method, Decision Tree Translation of Foreign Currency Transactions Exchange Rates Used for Calculations Intercompany Transactions Summary 140 Part Four Elements of the Balance Sheet and Income Statement Cash, Prepaid Expenses, and Investments Introduction Cash Prepaid Expenses Accounting for Marketable Equity Securities Transfers between Available-for-Sale and Trading Investments Accounting for Investments in Debt Securities Transfers of Debt Securities among Portfolios Accounting for Gains or Losses on Securities Recognition of Deferred Tax Effects on Changes in Investment Valuations The Equity Method of Investment Accounting Summary Inventory Introduction Types of Inventory The Inventory Tracking System The Physical Inventory Procedure Inventory Management Inventory Purchasing Inventory Receiving Inventory Storage Production Issues Impacting Inventory The Bill of Materials 162

7 xi Product Design Customer Service Inventory Disposition Goods in Transit Accounting for Inventories Overhead Costs Allocable to Inventory Lower of Cost or Market Rule Specific Identification Inventory Valuation Method First-ln, First-Out (FIFO) Inventory Valuation Method Last-in, First-out (LIFO) Inventory Valuation Method Dollar Value LIFO Inventory Valuation Method Link Chain Method Weighted-Average Inventory Valuation Method Type of Inventory Valuation System to Use Summary Accounts Receivable Introduction Definition of Accounts Receivable The Accounts Receivable Transaction Flow Credit Card Accounts Receivable Collateral, Assignments, and Factoring Sales Returns Early Payment Discounts Reporting of Long-Term Receivables Treatment of Bad Debts Receivables Ownership Decision Summary Fixed Assets Introduction The Capitalization Limit Fixed Asset Purchases Fixed Asset Improvements Capitalization of Interest Fixed Asset Dispositions Inbound Fixed Asset Donations Outbound Fixed Asset Donations Construction in Progress Accounting for Land Accounting for Leasehold Improvements 196

8 xii The Depreciation Base Depreciation Issues Straight-Line Depreciation Double Declining Balance Depreciation Sum of the Years Digits Depreciation Units of Production Depreciation Method Asset Impairment 200, Intangible Assets The Asset Acquisition Capitalization or Expense Decision Summary Current Liabilities and Contingencies Introduction The Accounts Payable Transaction Flow Accounting for the Period-End Cutoff Current Liabilities Presentation Current Liabilities Advances Current Liabilities Bonuses Current Liabilities Commissions Current Liabilities Compensated Absences Current Liabilities Debt Current Liabilities Employee Terminations Current Liabilities Property Taxes Current Liabilities Royalties Current Liabilities Wages Current Liabilities Warranty Claims Contingencies Contingencies Debt Covenant Violation Contingencies Debt Guarantees Contingencies Guaranteed Minimum Option Price Summary Debt Introduction Overview of Bonds Debt Classification Interest Risk Management Bonds Sold at a Discount or Premium to Their Face Value Effective Interest Method Debt Issued with No Stated Interest Rate 226

9 xiii 17.8 Debt Issuance Costs Notes Issued with Attached Rights Notes Issued for Property Extinguishment of Debt Scheduled Bond Retirement Convertible Debt Convertible Debt Issued in the Money Convertible Debt Accrued but Unpaid Interest on Converted Debt Convertible Debt Subsequent Change in Offering to Induce Conversion Debt Issued with Stock Warrants Accounting for Interest Risk Management Activities Decision Points during the Lifetime of a Bond Summary Equity Introduction Legal Capital and Capital Stock Convertible Preferred Stock Stock Splits Stock Subscriptions Retained Earnings Stock Warrants ' Dividends Treasury Stock Stock Appreciation Rights Employee Stock Ownership Plans Summary Stock Options Introduction Option Accounting Compensation Expense Recognition Options Measurement Using SFAS 123 Requirements Stock Option Recordkeeping Summary Revenue Introduction Revenue Recognition Concepts 259

10 xiv 20.3 Revenue Recognition Scenarios Bill and Hold Revenue Transactions Recording Revenues at Gross or Net Reducing Revenue by Cash Paid to Customers Long-Term Construction Contracts Service Revenues Recognition of Losses on Service Contracts Recording Initiation Fees as Service Revenue Recording Out-of-Pocket Expense Reimbursements Sales When Collection Is Uncertain Repossession of Goods under Installment Sales Revenue Recognition When Right of Return Exists Revenue Recognition for Accretion and Appreciation Summary Research and Development Introduction Definition of Research and Development Accounting for In-House R&D Costs Accounting for Acquired R&D Costs Accounting for R&D Costs Contracted to Another Party R&D Costs in the Software Industry Summary Leases Introduction Accounting for Leases Lessee Accounting for Leases Lessor, Accounting for Operating Leases Lessor Accounting for Sales-Type Leases Lessor Accounting for Direct Financing Leases Lessor Lease Terminations Lease Extensions Subleases Sale-Leaseback Transactions Summary Earnings per Share Introduction Earnings per Share Presentation Requirements Earnings per Share for a Simple Capital Structure Diluted Earnings per Share ' 289

11 xv 23.5 Treasury Stock Method If-Converted Method Earnings per Share Disclosures Summary Segment Reporting v Introduction ^ Segment Reporting Requirements Testing for Reportable Segments Segment Aggregation Cost and Asset Allocation Issues Segment-Related Disclosures Summary Interim Reporting Introduction Requirements for Interim Reporting Interim Reporting Guidelines Interim-Period Disclosures Summary Accounting Changes and Correction of Errors Introduction Definitions Changes in Accounting Principle Changes in Accounting Estimate Changes in Reporting Entity Correction of Errors Disclosure of Accounting Changes and Correction of Errors Summary 305 Part Five Accounting Management Best Practices Introduction Best Practices Best Practices Process Flowcharts Summary Budgeting Introduction The System of Interlocking Budgets A Sample Budget 342

12 xvi The Flex Budget 28.5 Capital Budgeting Traditional Method 28.6 The Budgeting Process 28.7 Budgetary Control Systems 28.8 Summary Closing the Books 29.1 Introduction 29.2 The Current State of the Financial Statements 29.3 Interim Reports 29.4 General Improvements for Closing the Books 29.5 Closing Activities Prior to Period-End 29.6 Closing Activities Subsequent to Period-End 29.7 Closing Activities Subsequent to Statement Issuance 29.8 The Closing Checklist 29.9 Results of Closing Improvements The Instantaneous Close Closing the Books of a Public Company Summary Control Systems 30.1 Introduction 30.2 The Need for Control Systems 30.3 Types of Fraud 30.4 Order Entry and Credit Controls 30.5 Inventory Controls 30.6 Accounts Payable Controls 30.7 Billing Controls 30.8 Cash Receipts Controls 30.9 Payroll Controls Closing Controls Key Controls When to Eliminate Controls Summary Cost Accounting 31.1 Introduction 31.2 The Purpose of Cost Accounting Information 31.3 Input: Data Collection Systems 31.4 Processing: Data Summarization Systems 31.5 Processing: Job Costing

13 xvn Part Six Processing: Process Costing 31.7 Processing: Standard Costing 31.8 Processing: Direct Costing 31.9 Processing: Throughput Costing Processing: Activity-Based Costing Processing: Target Costing Processing: By-Product and Joint Product Costing Outputs: Cost Variances Summary Financial Analysis 32.1 Introduction 32.2 The Cost of Capitah 32.3 Breakeven Analysis 32.4 Eliminating Unprofitable Products 32.5 Risk Analysis 32.6 Business Cycle Forecasting 32.7 Summary Records Management 33.1 Introduction 33.2 RecordKeeping Costs 33.3 Recordkeeping Policies and Procedures 33.4 Required Tax Records 33.5 Summary Financial Management Customer Credit 34.1 Introduction 34.2 Types of Credit 34.3 Selling Terms 34.4 Credit Examination 34.5 Collection Techniques 34.6 Summary Financing 35.1 Introduction 35.2 Management of Financing Issues 35.3 Bank Relations 35.4 Accounts Payable Payment Delay 35.5 Accounts Receivable Collection Acceleration

14 xviii Credit Cards Employee Tradeoffs Equity Factoring Field Warehouse Financing Floor Planning Inventory Reduction Lease Lease, Synthetic Line of Credit Loan, Asset-Based Loan, Bond Loan, Bridge Loan, Economic Development Authority Loan, Long-Term Loan, Short-Term Private Investment in Public Equity Preferred Stock Sale and Leaseback Summary Cash Management Introduction The Cash Forecasting Model Measuring Cash Forecast Accuracy Cash Forecasting Automation Cash Management Controls The Benefits of Cash Concentration Cash Concentration Strategies Pooling Concepts Physical Sweeping Notional Pooling Investment Criteria Investment Options Investment Strategies Risk Reduction Strategies Summary Foreign Exchange Management Introduction Foreign Exchange Quote Terminology 546

15 xix 37.3 The Nature of Foreign Exchange Risk Data Collection for Foreign Exchange Risk Management Foreign Exchange Hedging Strategies Hedge Accounting, Foreign Exchange Hedge Controls Foreign Exchange Hedge Policies Recordkeeping for Foreign Exchange Hedging Activities Summary Risk Management Introduction Risk Management Policies Manager of Risk Management Risk Management Procedures Types of Insurance Companies Claims Administration Insurance Files Annual Risk Management Report Summary 576 Part Seven Other Accounting Topics Mergers and Acquisitions Introduction Evaluating Acquisition Targets Valuing an Acquisition Target Types of Acquisitions The Purchase Method The Cost Method The Equity Method The Consolidation Method Push-Down Accounting Leveraged Buyouts Spin-Off Transactions Summary The Initial Public Offering Introduction Reasons to Go Public Reasons Not to Go Public The Cost of an IPO 628

16 xx 40.5 Preparing for the IPO Finding an Underwriter Registering for and Completing the IPO Alternatives for Selling Securities Listing on an Exchange Restrictions on Stock in a Publicly Traded Company Summary Going Private Introduction The Going-Private Transaction Rule13E Shareholder Count Manipulation Filling Out Schedule 13E Form Summary Bankruptcy Introduction Applicable Bankruptcy Laws Players in the Bankruptcy Drama Creditor and Shareholder Payment Priorities The Bankruptcy Sequence of Events Tax Liabilities in a Bankruptcy Special Bankruptcy Rules Alternatives to Bankruptcy Summary Taxation Introduction The Strategy of Tax Planning Accumulated Earnings Tax Alternative Minimum Tax Barter Bonuses and Awards Cash Method of Accounting Change of Accounting Method Change of Tax Year Club Dues 668

17 xxi Consignment Revenue Deferred Compensation Depreciation Distributions Estimated Taxes Financial Reporting of Tax Liabilities Foreign Earned Income Gifts (Business) Goodwill and Other Intangibles Hybrid Methods of Accounting Imputed Interest Expense Installment Sales Inventory Valuation Life Insurance Like-Kind Exchanges Losses Nexus Organizational Expenses Partnership Taxation Passive Activity Losses Property Taxes Retirement Plans S Corporations, Sales and Use Taxes Sales Returns/Bad Debts Social Security Tax Stock Appreciation Rights Stock Options Tax Rate, Corporate Tax Year Transfer Pricing Unemployment Taxes Warranty Expenses Summary 703 The Chart of Accounts 704 A.1 Three-Digit Account Code Structure 704 A.2 Five-Digit Account Code Structure 706 A.3 Seven-Digit Account Code Structure 707

18 xxii B Journal Entries B.1 Acquisitions B.2 Bill and Hold Transactions- B.3 Bank Reconciliation B.4 Current Liabilities B.5 Debt, Convertible B.6 Debt Extinguishment B.7 Debt Issued with Stock Warrants B.8 Debt Security Transfers Among Portfolios B.9 Dividends B.10 Effective Interest Method B.11 Employee Stock Ownership Plan (ESOP) B.12 Equity Method of Accounting for Investments B.13 Equity Security Transfers between Available-for-Sale and Trading Portfolios B.14 Fixed Assets B.15 Foreign Currency B.16 Intangible Assets B.17 Inventory Adjustments B.18 Inventory in Transit B.19 Inventory Valuation B.20 Investments in Debt Securities B.21 Leases Lessee Accounting B.22 Leases Lessor Accounting B.23 Long-Term Construction Contracts B.24 Marketable Equity Securities B.25 Notes and Bonds B.26 Options B.27 Pensions B.28 Receivables B.29 Revenue Recognition When Right of Return Exists B.30 Revenue, Installment B.31 Revenue, Service B.32 Sale-Leaseback Transactions B.33 Stock B.34 Stock Appreciation Rights (SAR) B.35 Stock Subscriptions B.36 Taxes B.37 Treasury Stock B.38 Warrants

19 D E Interest Tables C.1 C.2 C.3 C.4 C.5 Ratios Simple Interest Table Compound Interest (Future Amount of 1 at Compound Interest Due in N Periods) Compound Interest (Present Value of 1 Due in N Periods) Present Value of Ordinary Annuity of 1 per Period Future Amount of Ordinary Annuity of 1 per Period Due Diligence Checklist E. 1 E. 2 E. 3 E. 4 E..5 E. 6 E. 7 E.,8 E..9 E,.10 E..11 E.12 E.13 E.14 E.15 E.16 E.17 Industry Overview Corporate Overview Organization and General Corporate Issues Capitalization and Significant Subsidiaries Cultural Issues General Cultural Issues Management Employees Revenue Assets Liabilities Financial Statements Internet Software Development Product Development Marketing Sales Other _ xxiii Index 775