Wiley CPAexcel Exam Review April 2017 Study Guide Financial Accounting and Reporting

The Wiley CPAexcel Study Guide: Financial Accounting and Reporting arms CPA test-takers with detailed text and skill-building problems to help identify, focus on, and master the specific topics that may need additional reinforcement to pass the FAR section of the CPA Exam.

This essential study guide:

• Covers the complete AICPA content blueprint in FAR
• Explains every topic tested with 1,299 pages of study text, 752 multiple-choice questions, and 73 task-based simulations in FAR
• Organized in Bite-Sized Lesson format with 217 lessons in FAR
• Maps perfectly to the Wiley CPAexcel online course; may be used to complement the course or as a stand-alone study tool

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About the Financial Accounting Professors xiii

Welcome to Financial Accounting and Reporting xv

Conceptual Framework and Financial Reporting 1

Financial Accounting Standards Board (FASB) 2

Role and Standard-Setting Process 2

FASB and Standard Setting 2

Accrual Accounting 6

Financial Statements 12

Financial Accounting Standards Codification 17

Conceptual Framework of Financial Reporting by Business Enterprises 21

Objectives and Qualitative Characteristics 21

Assumptions and Accounting Principles 24

Constraints and Present Value 28

Fair Value Framework 31

Fair Value Framework—Introduction and Definitions 31

Recognition and Measurement 35

Inputs and Hierarchy 38

Disclosure Requirements 40

International Financial Reporting Standards (IFRS) 44

IASB Accounting Standards 44

IASB Framework 49

IFRS for SMEs 52

IFRS—General-Purpose Financial Statements 55

General-Purpose Financial Statements 62

Balance Sheet/Statement of Financial Position 62

Income Statement 70

Statement of Comprehensive Income 76

Statement of Changes in Equity 80

Statement of Cash Flows 83

Sources and Uses of Cash 83

Operating, Investing, and Financing Activities 86

Operating Cash Flows—Indirect Method 90

Notes to Financial Statements 105

Notes to Financial Statements 105

Risks and Uncertainties 111

Subsequent Events 116

Evaluating Financial Statements 119

Ratios—Liquidity/Solvency and Operational 119

Ratios—Profitability and Equity 123

Consolidated Financial Statements 126

Introduction to Consolidated Financial Statements 126

Consolidating Process 130

Consolidation at Acquisition 130

Consolidation Subsequent to Acquisition 137

Consolidation Less than 100% Ownership 142

Intercompany (I/C) Transactions and Balances 147

Intercompany I/C Transactions and Balances—Introduction 147

Intercompany (I/C) Inventory Transactions 150

Intercompany (I/C) Fixed Asset Transactions 159

Intercompany (I/C) Bond Transactions 170

IFRS—Consolidations 178

Combined Financial Statements 183

Variable Interest Entities (VIEs) 185

Exit or Disposal Activities and Discontinued Operations 187

Public Company Reporting Topics (SEC, EPS, Interim, and Segment) 192

U.S. Securities and Exchange Commission (SEC) 192

SEC—Role and Standard-Setting Process 192

SEC Reporting Requirements 195

Earnings per Share 200

Introduction to Earnings per Share 200

Basic Earnings per Share 204

Diluted Earnings per Share 208

Earnings per Share and IFRS 218

Segment Reporting 219

Interim Financial Reporting 224

Interim Reporting Principles 224

Interim Reporting—Details and IFRS 228

Special Purpose Frameworks 233

Cash, Modified Cash, Income Tax 233

Private Company Council 237

Select Financial Statement Accounts 241

Cash and Cash Equivalents 242

Cash 242

Bank Reconciliations 244

Receivables 247

Accounts Receivable—Accounting and Reporting 247

Uncollectible—Direct Write-Off and Allowance 250

Allowance—Income Statement and Balance Sheet Approach 252

Notes Receivable 256

Criteria for Sale of Receivables 260

Factoring, Assignment, and Pledging 263

Notes Receivable—Impairment 266

Inventory 268

Introduction to Inventory 268

Periodic Inventory System and Cost-Flow Assumption 272

Perpetual Inventory System and Cost-Flow Assumption 279

Evaluation of FIFO and LIFO 283

Dollar-Value LIFO 286

Subsequent Measurement of Inventory 290

Gross Margin and Relative Sales Value Method 294

Retail Inventory Method 297

Dollar-Value LIFO Retail 301

Inventory Errors 303

Losses on Purchase Commitments 305

Inventory and IFRS 307

Property, Plant, and Equipment 309

Categories and Presentation 309

Capitalized Costs 310

Valuation 312

Interest Capitalization Basics 315

Interest Capitalization Limits 318

Post-Acquisition Expenditures 323

Non-Accelerated Depreciation Methods 325

Accelerated Depreciation Methods 328

Natural Resources 332

Impairment—Assets for Use and Held-for-Sale 336

Impairment and IFRS 341

PPE and IFRS 343

Nonmonetary Exchange 346

Commercial Substance 346

No Commercial Substance 350

Nonmonetary Exchanges and IFRS 353

Investments 354

Introduction—Equity and Debt Investments 354

No Significant Influence 361

No Significant Influence 361

Cost Method and Transfers Between Classifications 367

IFRS—Investments 370

Significant Influence—Equity Method 374

Equity Method 374

IFRS—Equity Method 380

Investor Stock Dividends, Splits, and Rights 382

Impairment of Debt and Equity Securities 385

Intangible Assets—Goodwill and Other 387

Introduction to Intangible Assets 387

Goodwill 392

Research and Development Costs 399

Software Costs 402

Intangibles and IFRS 406

Payables and Accrued Liabilities 409

Current Liabilities 409

Specific Current Liabilities 413

Costs and Expenses 416

Costs and Expenses 416

Compensated Absences 420

Contingencies, Commitments, and Guarantees (Provisions) 422

Contingent Liability Principles 422

Examples of Contingent Liabilities and Additional Aspects 425

IFRS—Contingencies 428

Long-Term Debt (Financial Liabilities) 430

Notes Payable 430

Bonds Payable 436

Bond Accounting Principles 436

Bond Complications 440

Bond Fair Value Option, International 443

Modification and Debt Retirement 446

Refinancing Short-Term Obligations 446

Debt Retirement 448

Troubled Debt 450

Debt Covenant Compliance 457

Distinguishing Liabilities from Equity 462

Equity 466

Owners’ Equity Basics 466

Stock Issuance 475

Preferred Stock 480

Treasury Stock 483

Dividends 488

Stock Dividends and Splits 492

Dividend Allocation 495

Stock Rights, Retained Earnings 499

Book Value per Share 503

Select Transactions 507

Revenue Recognition 508

Point of Sale and Installment Method 508

Cost Recovery and Franchise Fees 513

Contract Accounting 517

Deferred Revenue 524

Deferred Revenue Principles 524

Specific Deferred Revenues 529

Deferred Compensation Arrangements 533

Pension Principles, Reporting 533

Pension Expense Basics 538

Pension Expense, Delayed Recognition 541

Pension Plan Reporting, International 550

Postretirement Benefits 553

Stock Compensation (Share-Based Payments) 559

Stock Options 559

Stock Awards 566

Stock Appreciation Rights 570

Income Taxes 573

Income Tax Basics 573

Permanent Differences 576

Temporary Differences 578

Tax Accrual Entry 584

Tax Allocation Process 588

Valuation Allowance for Deferred Tax Assets 593

Uncertain Tax Positions 596

Net Operating Losses 599

Accounting Changes and Error Corrections 606

Types of Changes and Accounting Approaches 606

Retrospective Application 610

Prospective Application 613

Accounting Errors—Restatement 616

Business Combinations 620

Introduction to Business Combinations 620

Acquisition Method of Accounting 625

Introduction to Acquisition Method of Accounting 625

Determining the Cost of the Business Acquired 629

Recognizing/Measuring Assets, Liabilities, and Noncontrolling Interest 633

Recognizing/Measuring Goodwill or Bargain Purchase Amount 638

Post-Acquisition Issues 641

Disclosure Requirements—Acquisition Method 645

Recording Business Combinations 647

IFRS—Business Combinations 658

Financial Instruments 661

Financial Instruments Introduction 661

IFRS—Financial Instruments 664

Financial Instruments Disclosures 669

Derivatives and Hedging 672

Derivatives Introduction 672

Hedging Introduction 677

Fair Value Hedges 682

Cash-Flow Hedges 685

Foreign Currency Hedges 690

Effectiveness and Disclosure 692

IFRS—Hedging 697

Foreign Currency Denominated Transactions 700

Introduction and Definitions 700

Import Transactions 705

Export Transactions 708

Foreign Currency Hedges 711

Introduction to Forward and Option Contracts 711

Natural (Economic) Hedge 716

Hedging Forecasted Transactions and Firm Commitment 720

Hedging Asset/Liability, Available for Sale, and Foreign Operations 724

Speculation and Summary 727

Conversion of Foreign Financial Statements 729

Introduction to Conversion of Foreign Financial Statements 729

Conversion Using Translation 731

Conversion Using Remeasurement 734

Remeasurement, Translation, and IFRS 738

Leases 740

Background, Operating Leases 740

Capital Lease Basics 743

Direct Financing Leases 748

Sales-Type Leases, International 752

Additional Aspects of Capital Leases 757

Depreciation, BPO, and Residuals 759

Capital Lease Examples 763

Sale Leasebacks and Disclosures 774

State and Local Governments 781

Not-for-Profit Accounting and Reporting 782

Introduction to Types of Not-for-Profit Entities and Standard Setting 782

Financial Reporting 784

Donations, Pledges, Contributions, and Net Assets 792

Special Issues—Recent Developments 799

State and Local Government Concepts 802

Introduction to Governmental Organizations 802

GASB Concepts Statements 805

Fund Accounting 811

Measurement Focus Basis of Accounting 817

Budgetary Accounting 822

Encumbrance Accounting 825

Deferred Outflows and Deferred Inflows of Resources 830

Net Position and Fund Balance 835

Governmental Funds 839

Proprietary Funds 856

Fiduciary Funds 861

Format and Content of Comprehensive Annual Financial Report (CAFR) 881

The Comprehensive Annual Financial Report 881

Determining the Financial Reporting Entity 896

Major Funds and Fund-Level Reporting 900

Deriving Government-Wide Financial Statements from Fund-Level Financial Statements 902

Typical Items and Specific Types of Transactions and Events 908

Interfund Transactions, Construction Projects, and Infrastructure 908

Long-Term Liabilities Other Than Bonded Debt 914

Terminology and Nonexchange Transactions 918

Special Items—Recent Developments 928

Special Industries: Healthcare and Colleges 935

Healthcare Organizations 935

Colleges and Universities 941

Multiple Choice Questions 945

Task-Based Simulations 1183

Index 1287