bindex

I-1

A. C. Nielsen Company, 657n.16AASB (Australian Accounting Standards

Board), 1360Abbott Laboratories, 183, 873–874Abdel-khalik, A. Rashad, 1129n.19Abnormal shortages, 456Abrams, J., 993n.1Absences, compensated, 648–650Accelerated Cost Recovery System

(ACRS), 564Accounting, ethics in, 19Accounting changes. see Change(s) in

accountingAccounting cycle, 73–98

adjusted trial balance, 90adjusting entries, 81–82closing, 92–94journalizing, 75–76post-closing trial balance, 94posting, 76–80preparing financial statements, 91–92reversing entries, 95steps of, 95transactions and other events, identifying/

recording, 73–75trial balance, 80–81

Accounting information system, 68–73Accounting policies

on balance sheets, 191, 192disclosure of, 1316–1319MD&A of, 1339–1340

Accounting principle, changes in. seeChange(s) in accounting principle

Accounting Principles Board (APB), 9, 24.See also Opinions of the Accounting Principles Board

Accounting Research Bulletins, 9Accounting Research Study No. 13 (“The

Accounting Basis of Inventories”),445n.5

Accounting standardseconomic consequences of, 17need for development of, 7politicization of, 24

Accounting Standards Board (AcSB)(Canada), 1360

Accounting Standards Board (ASB) (U.K), 1360

Accounting Standards Board of Japan(ASBJ), 1360

Accounting Standards Executive Committee(AcSEC), 12, 493n.2, 510n.11, 547n.6

Accounting theory, and cash basis accounting, 101–102

Accounts payable(s), 639decrease in, 1257increase in, 1254indirect method of analyzing, 1251

Accounts receivable(s), 324age of, 329n.7days to collect, 344decrease in, 1254disposition of, 337–342increase in, 1256indirect method of analyzing, 1250net, accounts receivable, 1267–1269, 1277recognition of, 324–326trade, 336uncollectible, 326–331valuation of, 326–331

Accounts receivable written off, 330–331Accruals

as class of adjusting entries, 81in reversing entries illustration, 105–106

Accrual basis accountingcash basis accounting vs., 101–104conversion to cash basis accounting,

103–104for warranties, 655

Accrued expensesadjusting entries for, 87as class of adjusting entries, 81

Accrued interest, adjusting entries for,87–88

Accrued revenue(s)adjusting entries for, 86–87as class of adjusting entries, 81overstatement of, 1207

Accrued salaries, adjusting entries for,88–89

Accrued wages, failure to record, 1206Accumulated benefit obligation, 1053Accumulated depreciation, 1255, 1257, 1279Accumulated Depreciation account, 559Accumulated other comprehensive loss,

765n.19Accumulated postretirement benefit

obligation (APBO), 1085–1089Accumulated rights, 649Acid-test ratio, 666Acquisition costs, 507–511, 555ACRS (Accelerated Cost Recovery

System), 564AcSB (Accounting Standards Board)

(Canada), 1360AcSEC. see Accounting Standards Executive

CommitteeActivity method for depreciation, 543–544Activity ratios, 208, 1350, 1351Actually refinancing, 642Actual return on plan assets, 1057, 1086Actuarial present value, 1054n.7Actuaries, 1053Adaptec, 823ADC Telecommunications, 321Additions, 509

Additional paid-in capital, 746Adelphia, 40, 709, 710, 1345Adjunct account, 700Adjustable-rate mortgage, 709Adjusted trial balance, 69, 90, 94, 109–110Adjustments, 81–90

for accruals, 86–90for bad debts, 89–90for deferrals, 82–86defined, 68–69for depreciation, 84–85for insurance, 82–83prior period, 147for statement presentation, 85types of, 81–82for unearned revenues, 85–86on worksheet, 108–109

Adjustments columns, 108Administrative expenses, on income

statement, 136Adolph Coors Company, 662Adverse opinion, 1338Advertising costs, 607, 1331–1332AES, 143, 688After-closing trial balance, 69Age of accounts receivables, 329n.7AHold NV, 960AICPA. see American Institute of Certified

Public AccountantsAICPA Special Committee on Financial

Reportingon cost of business reporting, 1315on forward-looking disclosures, 1342on interim reporting, 1334on off-balance-sheet accounting, 1320on segment disclosure, 1328on users’ changing needs, 1316

AICPA Task Force on LIFO InventoryProblems, 399n.5, 408n.15,442n.1, 443n.3

AIG, 2, 5, 49, 337Airline industry, 178, 541n.2Air Products & Chemicals,

886n.12, 886n.12Alaska Airlines, 1157Alberto-Culver Company, 195, 764Alcatel-Lucent, 488–489Allied Products Corporation, 755Allowance method, 327, 328, 442–443Alltel Corp., 643Almost Family, Inc., 89Altera International, 872Alternative minimum tax (AMT), 1005Alterra Healthcare Corp., 181–182Altman, E. I., 191Amazon.com, 130, 178, 187, 259, 393, 596,

797, 811, 825, 861, 872Ameren, 561

I N DEX

PDF Watermark Remover DEMO : Purchase from www.PDFWatermarkRemover.com to remove the watermark

http://www.PDFWatermarkRemover.com/buy.htm

I-2 · Index

American Airlines, 85, 644, 1094,1158–1159, 1178

American Bar Association, 742American Express, 338American Home Mortgage Investment

Corp., 931American Institute of Certified Public

Accountants (AICPA), 192. See alsoAICPA Special Committee on FinancialReporting; AICPA Task Force on LIFOInventory Problems

and Accounting Standards ExecutiveCommittee, 12–13

and APB, 9Code of Professional Conduct, 13and Committee on Accounting

Procedure, 9, 24and GAAP standards development, 9and government intervention, 27and SEC, 7

American Maize-Products Company, 399America Online (AOL), 590America West, 178Ameritrade, 763Ames Department Stores, 437AM International, 391Amortization

of bonds, 289–290, 695–696, 1266–1267corridor, 1064–1065, 1075–1076, 1088defined, 540effective-interest method, of bond, 289–290of intangible assets, 591–593of limited-life intangible assets, 1266on postretirement benefit plans, 1088of prior service costs, 1060–1061, 1086straight-line, 1061of trademark, 1279on units-of-production basis, 596n.5years-of-service, 1060–1061

Amortized cost, 859Ampco-Pittsburgh Corporation, 546, 1196AMT (alternative minimum tax), 1005Anadarko Petroleum Corporation, 498, 904Analogic Corporation, 616Anheuser-Busch, 1352Anixter Bros., Inc., 391Annual interest rate, in compound interest

tables, 268–269Annualized approach, 1332Annual reports, on World Wide Web, 5–6Annuity(-ies), 286–288Annuity due, 278–279, 286

future value of, 278–279present value of, 283–286

Ante, S. E., 444Antidilutive securities, 817, 819–821, 834n.21APB. see Accounting Principles BoardAPBO. see Accumulated postretirement

benefit obligationAPB Opinions. see Opinions of the Accounting

Principles BoardApple Computer, 323, 451, 593, 654April-Marcus, Inc., 387Arbitrageurs, 885Arcady, A. T., 1078n.19Arndt, M., 1005AROs (asset retirement obligations), 659

Arrears, dividend in, 754Artificial loss, 1158n.22Artistic-related intangible assets, 594ASB (Accounting Standards Board)

(U.K), 1360ASBJ (Accounting Standards Board of

Japan), 1360Assessments, 654–655Asset(s)

on balance sheet, 180current assets, 181–184depreciable base for, 540gains/losses in (pensions), 1063–1064held for disposal, 553in lessee accounting, 1124noncurrent, 184–186pensions, 1063–1064recognition of, 999replacement of fixed, 549sales price of, 1142transfer of, 717

Asset expenditures, 508–509Asset-linked bonds, 691Asset retirement obligations (AROs), 659, 714Asset reversions, 1078–1079Asset turnover ratio, 560–561Asset valuation, 507Astra Zeneca Plc., 597Atlantic Richfield, 558AT&T, 74, 545, 615, 800–801, 1082Attmore, R. H., 1091Attribution period, 1084–1085Auditing Standards Board, 13Auditor’s report, 1335–1338

emphasis of matter in, 1337and expectation gap, 1346n.26on going concern of entity, 1337and lack of consistency, 1337and management’s responsibilities for

financial statements, 1340n.18qualified/adverse/disclaimer opinion,

1337–1338standards for, 1335–1336unqualified/clean opinion, 1337

Australian Accounting Standards Board(AASB), 1360

Available-for-sale securities, 152n.21, 182,858, 861–865, 868–870, 873, 882

Average cost method, 460for cost flow assumption, 395–396for security purchases, 868n.6

Average days to sell inventory, 459Avis, 962Avon Products, 177, 323Avon Rubber PLC., 174Ayers, B., 996

Baan NV, 960Badanhausen, K., 177Bad debts

adjusting entries for, 89–90failure to adjust for, 1207–1208

Bahree, B., 557Balance sheet(s), 69, 178–197

accounting policies on, 191and cash flows statement, 1247–1248,

1253, 1256, 1260

classification in, 179–191classified, 179columns on, 110comparative, 1275contingencies on, 191, 192contractual situations on, 191–193current assets on, 181–184debit vs. credit balances on, 1274deferred tax reporting on, 1011–1013elements of, 180errors on, 1205–1208events after preparation of, 1323–1324example, 97fair values on, 191, 193–194format of, 189–191under GAAP/iGAAP, 206liabilities on, 180, 186–188limitations of, 179noncurrent assets on, 184–186owner’s equity on, 189presentation of, 154stockholders’ equity on, 72, 765–766usefulness of, 178–179

Balance sheet (percentage-of-receivables)approach, 328–330

Ball, J., 557Banks

as lessors, 1117, 1148n.17treatment of purchases/sales of

loans/securities by, 1246n.2Bank, David, 645Bank accounts, 347–348Bank charges, reconciling, 349–352Bank credits, reconciling, 350Bank errors, reconciling, 350Bankers Trust, 885Bank of America, 67, 352, 759, 1115,

1119, 1157BankOne, 5, 809, 811Bank overdrafts, 322Bank reconciliation, 349–352Bankruptcies, of retailers, 437Bankruptcy-prediction model, 191Bank statements, 349Bargain purchases, 964Bargain purchase option, 1123, 1144Bargain purchase option test, 1121–1122Barnesandnoble.com, 596Barrick Gold Corporation, 486Barth, Mary, 802n.6Barth Industries, 652Basis Technology, 872Basket purchase, 446Bayer, 634Bearer (coupon) bonds, 691Bear Stearns & Co., 187Beaver, W. H., 133n.3Beck, Rachel, 751Beckett, Paul, 352Bed Bath & Beyond, 1129Behn, Bruce K., 609n.16BellSouth Corp., 691, 692Benchmark, verifiable, 42Benefits/years-of-service actuarial method,

1056, 1085n.26Beresford, Dennis R., 877n.9Berkshire Hathaway Inc., 1312



Index · I-3

Bernanke, Ben S., 291, 323Bernard, Victor, 381Beru AG Corporation, 636Best Buy, 40, 55, 112, 326, 344, 385, 436,

452, 663, 666, 710–713, 767, 1182, 1336Best Western, 962Bethlehem Steel, 999, 1066, 1079Bhamornsiri, Sak, 944n.18Biddle, Gary C., 410n.22“Big GAAP versus little GAAP,” 1316Biggs, Stanley F., 448n.8Black & Decker, 55Blackman, Andrew, 768n.22Bloomberg, 596Bloomingdale’s, 452Blow-out sales, 380BLS (Bureau of Labor Statistics), 405n.10Blumenstein, Rebecca, 508BMC Industries, Inc., 652Boeing Capital, 1117Boeing Company, 84, 180, 382, 490, 508,

741, 1084, 1119, 1130Boise Cascade, 447Bonds. See also specific types, e.g.: Discount

bondsaccounting for, 702–703corporate listings, 691–692effective-interest method for, 697–700and extinguishment of debt, 701–703face value of, 692and interest date, 694–696between interest dates, issuance, 696issuance of, 690, 700–701monitoring investments in, 691–692notes vs., 703par on interest date, issuance at, 694–695premium, 693types of, 691

Bond amortization, effective-interestmethod of, 289–290

Bond covenants, 688–689Bond discounts, amortization of, 1266–1267Bondholders, 1349Bond indenture, 691Bonds payable, 690–703

and contra accounts, 700decrease in, 1258discount, 700increase in, 1255

Bond premium(s)amortization of, 1266–1267valuation of, 692–696

Bonus agreements, 650–651Bonus payments, and change in

accounting method, 1203Book depreciation, tax depreciation vs.,

566–567Book of original entry, 69Book value (bonds), 85, 697n.3Book value method, 755Book value per share, 768, 772–773BOP Clothing Co., 686–687Borrus, A., 694Bradlees Stores, 437Brand images, 608Braniff, 178Briggs & Stratton, 651, 724

Brinker International Inc., 1128Bristol-Myers Squibb Company, 321Broadcom, 823Brokers, 1246n.2Brown, K. L., 49, 938n.17Brown, Robert Moren, 409n.20Brown Group, Inc., 764Brown Shoe Company, 399Budge, Bruce P., 1272n.9Buffet, Warren E., 1312Building depreciation, 1254, 1279Burden, 492Bureau of Labor Statistics (BLS), 405n.10Burger King, 962Burton, John C., 8n.6Business combinations, 590n.1Business combinations, as present value-

based measurement, 265Business-method patents, 596Business organization. see Corporate formBuyback(s)

in early 1990s, 749n.5of outstanding stock, 756n.11as sign to buy stock, 750–751of treasury stock, 756n.11

Buyback agreements, 388, 935Buybackletter.com, 750Byrnes, Nanette, 1049, 1129Byrnes, Tracey, 937

Cable and Wireless, 1150Cablevision Systems, 744Cadbury Schweppes, 1080Calhoun, Charles H., III, 964n.31Callable bonds, 691, 701n.8Callable preferred stock, 755Callaway Golf Co., 1162Call option, 887Call provisions, 689Calpine, 688, 710Campbell Soup Company, 570, 868–869,

1094, 1244Canada, 1358–1360Cannondale Corporation, 55CAP. see Committee on Accounting ProcedureCapettini, Robert, 505n.9Capital allocation, 4Capital assets errors, 1198Capital expenditures, 508–509Capitalization criteria

avoiding, 1148–1149for lessee, 1121–1124for lessor, 1131

Capitalization period, 494Capitalized lease accounting, 1118n.1,

1120–1124bargain purchase option test in,

1121–1122economic life test in, 1122recovery of investment test in,

1122–1124transfer of ownership test in, 1121

Capital leases, 1121–1124Capital lease method, 1124–1129Capital maintenance approach, 134n.5Capital One Financial, 177Capital stock, 742–743, 750

Capital structure, 1203Capital structure ratios, 1350n.28Captive leasing companies, 1117Carcache, B., 564n.1, 1069, 1116Carrybacks, 1006, 1018Carryforwards, 1018. See also Loss

carryforwardsCarrying amounts, 994Carrying value (bonds), 697n.3Cash and cash equivalents, 181–182,

320–323, 1245n.1, 1269n.7alternate terminology for, 320n.2on balance sheets, 181–182basis of valuation of, 181determining change in, 1248, 1249,

1253, 1256GAAP/iGAAP standards, 1283internal control over, 347from operating activities, 200reporting, 320–322restricted cash vs., 321–322

Cash balances, physical protection of, 349Cash-balance pension plans, 1078n.19Cash basis accounting

and accounting theory, 101–102accrual-basis accounting vs., 101–104conversion to accrual basis, 103–104financial statements, 101modified cash basis, 102of pension plan, 1055n.10theoretical weaknesses of, 104–105warranties, 655

Cash controls, 347–352and bank balances reconciliation,

349–352and imprest petty cash system, 348–349and physical protection of cash

balances, 349using bank accounts, 347–348

Cash crunch, 203Cash debt coverage ratio, 204Cash deposits, returnable, 643–644Cash discounts, 325–326, 392, 499Cash dividends, 758–759

on common stock, 758n.12on treasury stock, 759

Cash dividends payable, 1269Cash flows, 7n.3

classification of, 1245evaluating, 1246–1247free, 204–205net income vs., 203

Cash flow hedge, 893–894Cash flow risk, 893Cash flow statement. see Statement of

cash flowsCash funds, 320Cash over account, 348Cash payments

classes of, 1261and direct method, 1263–1264for income taxes, 1263for operating expenses, 1262–1263special rules applying to, 1265to suppliers, 1262

Cash ratio, 323Cash rebates, 657



I-4 · Index

Cash receiptsclasses of, 1261from customers, 1261–1262and direct method, 1263–1264special rules applying to, 1265

Cash-related items, 322–323Caterpillar, Inc., 84, 382, 407, 604, 875, 886,

1117, 1325Caterpillar Financial Services Corp., 1117,

1124–1127, 1130, 1132–1146CBS, 750CDs (certificates of deposit), 320n.1Ceiling (upper), 439–440Ceiling and Floor, 438–445Cendant, 17Century 21, 595Certificates of deposit (CDs), 320n.1Change(s) in accounting (general), 1182

guidelines for, 1201–1202motivations for, 1203–1204

Change(s) in accounting estimate, 146, 148,1195–1197, 1201

Change(s) in accounting principle, 148,1182–1194, 1201

accounting for/reporting of, 1191–1192direct/indirect effects of, 1193disclosure of, 1320and impracticability, 1193–1194prospective reporting of, 1183and retained earnings adjustment, 1192retrospective, 1184–1190

Change in cash, determining, 1248, 1249,1253, 1256

Change in reporting entity, 1197, 1201Change-in-the-present-value method,

1145–1146Channel stuffing, 936Chase, 1117Checks

bouncing, 351–352outstanding, 350paper, 349n.16postdated, 320

Check fraud, 349n.16Checking accounts, 347–348Cheney, Richard E., 1352n.29Chesapeake Corporation, 192ChevronTexaco, 558n.10ChexSystems, 352China Railway Construction Corp, 741Choice Point, Inc., 904Christie, Rebecca, 1316Chrysler Corporation, 40, 409, 550n.8, 1184Chrysler Financial, 1117Ciba-Geigy, 433Ciesielski, J., 204, 795, 804, 1055n.9Cinergy, 811Circuit City, 40, 326, 436, 457, 645, 666, 743,

1129, 1182Cisco Systems, 47, 92, 133, 444, 593, 709,

885, 1271n.8Citicapital, 1159Citicorp, 145n.15Cities Service Company, 665Citigroup, 145n.15, 326, 608, 885, 904,

1117, 1130CKE Restaurants Inc., 1128

Claims, 654–655, 1319–1320Clarcor Inc., 649Class B common stock, 744Classified balance sheets, 179–180Clean opinion. see Unqualified opinionClorox Co., 759Closing, 92–94Closing entries, 69, 93–94, 98Closing prices, 92–94CNC (Conseil Nationale de la

Comptabilité), 1360Coach Inc., 1313Coastal Corp., 1064The Coca-Cola Company, 18, 20, 64, 81,

127, 172, 257–258, 377, 484–485, 584,590, 597, 608, 632–633, 685, 738, 791,809, 811, 852, 858, 870, 885, 890, 902,927, 987, 1045, 1051, 1111, 1239, 1244,1308–1309, 1356, 1377

“Cockroach theory,” 140Code of Professional Conduct (AICPA), 13“The codification,” 19Cohen, A. J., 823, 1313Collaterized receivables, 339n.11Collection float, 347Columbia Sportswear Company, 19, 619Combination methods for depreciation, 547Combined statement, 153Comiskey, Eugene E., 1079n.20, 1273Commercial paper, 320n.1Commercial substance, 501–502Commitments, disclosure of, 1320Committee for Improvements in Financial

Reporting (CIFR), 1181Committee on Accounting Procedure

(CAP), 9, 24, 761n.14Commodity-backed bonds, 691Common costs, 1328Common-size analysis, 1354–1355Common stock, 743. See also Preferred stock

cash dividend paid for, 758n.12change related to investment in, 1267increase in, 1258rate of return on, 767in treasury at cost, 751n.7as worksheet entry, 1280

Commonwealth Edison, 271, 738Company names (intangible asset), 593Compaq, 603Comparative analysis, 1353Comparative balance sheets, 1248, 1253,

1256, 1275Comparative financial statements,

correcting errors on, 1200–1201Compensated absences, 648–650Compensating balances, 321Compensation plans, 796–811

convertible debt accounting, 797–798convertible preferred stock, 798–799debt and equity classifications of, 796dilutive securities issuance in, 816n.14effective, 803and FASB, 796n.1GAAP/iGAAP standards, 825stock compensation plans, 803–811stock warrants, 799–803

Competition, 1357

Completed-contract accounting method,938, 943–944, 960

Completion-of-production basis, 948Complex capital structure EPS, 816–822, 824

antidilution, 820–821contingent issue agreement, 820convertible securities—diluted EPS,

817–819options and warrants—diluted EPS,

819–820presentation and disclosure of, 821–822simple vs., 812–813

Components, 141Component depreciation, 547n.6Composite depreciation rate, 546Composite life, 546Composite methods for depreciation,

545–547Compounded continuously, 269n.4Compounded daily, 269Compound interest, 266–269

future value as variable in, 270present value as variable in, 270rate of interest as variable in, 270and Social Security, 267tables for, 267–269, 308–317variables fundamental to, 270

Comprehensive dollar-value LIFO method,402–403

Comprehensive income, 152–154, 877combined statement of, 153corrections of errors as, 154n.24display requirements of, 153n.23errors in, 1198

Computer Associates, 811Computer software. see under SoftwareComserve, 620Condensed income statements, 138–139Conditional expenses, 651Conglomerate (diversified) companies

reporting, 1324–1329ConocoPhillips, 749Conseil Nationale de la Comptabilité

(CNC), 1360Consigned goods, 387–388, 965–966Consignment shipment, 387Consolidated Edison, 491Consolidated financial statements, 871Consolidated Natural Gas Company

(CNG), 306Consolidated Papers, Inc., 195Consolidated statements of cash flows, 1265Consolidations, 882, 1197Continental Airlines, 178, 1157Continental Trucking, 870Contingencies, 651–662

on balance sheets, 191, 192defined, 192disclosure of, 1320errors in, 1198GAAP/iGAAP standards, 714presentation of, 664–665

Contingent-fee-basis litigation, 1342n.21Contingent liabilities. see Loss contingenciesContingent shares, 820Continuing franchise fees, 964Continuously compounded, 269n.4



Index · I-5

Contra accounts, and bonds payable, 700Contract-related intangible assets, 595Contractual situations, on balance sheets,

191–193Contra items, 196Contributions, accounting for, 506–507Contributory pension plans, 1050Control device, 453Convenience financial statements, 1350Convergence, of U.S. and international

standards, 1183n.1, 1356–1360accounting changes and errors, 1212accounting information systems, 99balance sheets, 206cash and receivables, 345conceptual framework for, 51dilutive securities, 825disclosure, 1347earnings per share (EPS), 825income statements, 155income taxes, 1019intangible assets, 612international financial reporting, 20inventories, 460investments, 882lease accounting, 1151liabilities, 714postretirement benefits, 1080property, plant, and equipment, 562revenue recognition, 960statement of cash flows, 206, 1283stockholders’ equity, 769

Convertible bonds, 691, 755, 796–797, 833Convertible debt accounting, 797–798, 825Convertible preferred stock, 755,

798–799, 833Convertible securities, 817–819Cookie jar reserves, 134Coolidge, C., 1202Coon, William R., 401n.8Copyrights, 594Corning, 823Corporate bond listings, 691–692Corporate capital, 744–753Corporate form, 742–743

capital stock/share system, 742–743and ownership interests, 743state laws, 742

Corporate taxes, 646n.6. See also Incometaxes, accounting for

Corrections of errorsas comprehensive income, 154n.24GAAP/iGAAP standards, 1212in income statement, 148reporting, 1197–1201

Corridor amortization, 1064–1065,1075–1076, 1088

Cost, 438Cost allocation, 395n.4, 540–551. See also

DepreciationCost approach, 500n.4Cost-benefit constraint, 1271Cost flow assumption, 386

average cost method for, 395–396and first-in, first-out, 396–397identification, 394–395and last-in, first-out, 397–398

Costs included in inventory, 386period costs, 392product costs, 391–392and treatment of purchase discounts,

392–393Cost method, 452, 751, 867n.5Costs of financing, 392Cost of goods available for sales or use, 386Cost of goods sold, 386, 1142

multiple pools contributing to, 401n.8in periodic inventory system, 384section of income statement, 136

Cost per unit of product, 555–556Cost-recovery accounting method, 956–958Cost-to-cost basis, 939–941Cost-to-retail ratio, 445Coughlan, J. D., 541n.1Counterbalancing errors, 1205–1207Counterparty, 887n.16Countrywide Financial Corp., 43, 343Coupons, 657Coupon bonds, 691Coupon rate, 692Coverage ratios, 208, 1350, 1351CPC International, 329Craig, Susanne, 865Credits (Cr.), 69–71, 178Credit balance, 69Credit cards, 339n.12Creditors, 203

disclosure of claims by, 1319–1320short-term, 1349

Creditor calculations, 720–721Credit quality, 694Credit risk, 343n.14Credit risk rate of interest, 291Creswell, J., 143, 596Crittenden, M., 319Cron, William R., 406n.11Cross-reference items, 196CRS (FASB Codification Research

System), 14Cummins, C., 557Cumulative catch-up, 942Cumulative-effect approach, 1183Cumulative preferred stock, 754Current assets, 181–184

on balance sheets, 181–184cash, 181–182

Current cash debt coverage ratio, 204Current liability(-ies), 638–651. See also

specific types, e.g.: Accounts payable(s)analysis of, 665–666on balance sheets, 186–187declared cash dividends as, 759presentation of, 662–665

Current maturities of long-term debt, 641Current operating performance

approach, 141Current ratios, 398, 665–666Current receivables, 323Current tax expense (benefit), 1018Cushing, Barry E., 409n.19Customary form, of balance sheets, 190n.11Customer-related intangible assets, 593–594CVS, 1129Cycle, accounting. see Accounting cycle

Daily compounding, 269DaimlerChrysler, 20, 1117, 1184, 1266, 1356Dairy Queen, 962Dakdduk, Kenneth E., 1086n.27Daley, Clayton C., Jr., 214, 215Darden Restaurants Inc., 1128Darlin, D., 1052n.4Date of declaration (stock dividends), 758Date of payment (stock dividends), 758Date of record (stock dividends), 758Days outstanding, 344Days to collect accounts receivable, 344Dead-weight debt, 702Debenham, 451Debenture bonds, 691Debit balance, 69Debits (Dr.), 69–71Debt(s)

compensation plans, 796continuation of, 718–722current maturities of, 641dead-weight, 702extinguishment of, 701–703failure to adjust for bad, 1207–1208issue cost (SFAS No. 6), 700n.5long-term (see Long-term debt)settlement of, 717–718

Debtor accounting, 718n.15Debtor calculations, 719–720Debt ratings, 694Debt-rating triggers, 1321Debt to total assets ratio, 713Debt triggers, 1321Declaration, date of (stock dividends), 758Declared cash dividends, 758Declining-balance method, 545Decreasing-charge methods for

depreciation, 544–545Deductible amounts, 994Deductible temporary differences, 1001, 1018Deep-discount bonds, 691Defaults, 953–954Deferrals, adjusting entries for, 82–86Deferred annuities, 286–288Deferred income taxes, 993–1000

changes in, 1267and changes in tax rate, 1004–1005Congressional acts affecting, 1005n.2under GAAP and iGAAP, 1019on income statements, 1000–1001

Deferred-payment contracts, 499–500Deferred taxes, disclosure of, 1320Deferred tax amounts, 993Deferred tax assets, 993, 997–1000, 1018

asset recognition for, in companyrecords, 999

recognized as loss carryforwards, 1008n.4valuation allowance for, 999–1000

Deferred tax benefits, 997, 1018Deferred tax consequences, 1018Deferred tax expense, 995, 1018Deferred tax liabilities, 993–995, 1018

in company assessments, 996Congressional acts affecting, 1005n.2and SFAS No. 6, 996and SFAS No. 109, 996

Defined-benefit plans, 1051–1052, 1080



I-6 · Index

Defined-contribution plans, 1051, 1080DeFond, Mark L., 1198n.7Dell Computer, 5, 179, 604, 884, 1122Delphi Corp., 716, 1084Delta Airlines, 85, 178, 885, 1016, 1114,

1115, 1119–1124, 1267Deluxe Corp., 352de Mesa Graziano, Cheryl, 931Denny’s, 962Depletion, 554–559

acquisition costs of, 555defined, 540development costs of, 555exploration costs of, 555issues in oil and gas industry, 557–559and liquidating dividends, 557and recoverable reserves, 556restoration costs of, 555

Depletion base, 554–555Deposits

legally restricted, 322in transit, 350

Deposit method, 958–959Depositor errors, reconciling, 350Depreciable base, for assets, 540Depreciable tax life. see Recovery periodsDepreciation, 540–551

Accumulated Depreciation account, 559activity method for, 543–544adjusting entries for, 84–85and asset vs. liability accounting, 1124changes in method of, 1196decreasing-charge methods for, 544–545defined, 540factors involved in process of, 540failure to record, 1207GAAP/iGAAP standards, 562group and composite methods for,

545–547hybrid or combination methods for, 547issues in airline industry, 541n.2under partial periods, 548–549post-September 11, 2001 measures, 564n.1rate revision for, 550and replacement of fixed assets, 549straight-line method for, 543–544tax methods for, 564–567

Depreciation expense, 1254, 1257Derivatives, 884–900

basic accounting principles for, 886–889cash flow hedge, 893–894characteristics of, 889disclosures for, 897embedded, 895and fair hedge value, 891–893hedging, 890–894SFAS No. 133, 900

Designated market value, 440Detachable stock warrant, 800, 802Development costs, 555Devon Energy Corporation, 194Dieter, Richard, 1148n.16Differential disclosure, 1315–1316Diluted earnings per share, 816–821

convertible securities, 817–819factors in, 818–819illustration of, 831–834

options and warrants, 819–820reconciliation for basic and, 821

Dilutive securities, 796, 816Diners Club, 338Dingell, John, 27Direct costs, incremental vs. internal, 1145Direct-financing leases, 1131–1135

initial direct costs in, 1145sales-type vs., 1141–1142

Direct method, 442–443for accounts receivable (net), 1268–1269for determining net cash flow from

operating activities, 1250, 1260–1264GAAP/iGAAP standards, 1283indirect vs., 1251, 1264–1265special rules applying to, 1265

Direct write-off method, 327–328Disclaimer of an opinion, 1338Disclosure(s), 343n.14

of change in accounting estimate, 1196–1197for derivatives, 897of fair value, 905–908in financial statements, 947of franchisors, 965full (see Full disclosure in financial

reporting)GAAP/iGAAP standards, 1347of interest rates, 265n.2of lease data, 1146–1148of operating activities, 1265as present value-based measurement, 265of restrictions on retained earnings,

764–765and Sarbanes-Oxley Act of 2002, 661for securities, 881and Statement of Position 94-6, 192techniques of, 194–197

Disclosure—effectiveness project, 1315n.2Discontinued operations, 137, 141–142,

148, 834n.20Discounts, cash, 325–326Discount bonds, 692, 693, 700, 708n.13Discounting, 272–273Discount notes, 705Discount rate, of postretirement benefit

obligation, 1086n.28Discover, 330, 338Discrete approach, 1330, 1334Diversified (conglomerate) companies

reporting, 1324–1329Dividends. See also Stock dividends; specific

types, e.g.: Liquidating dividendscash, 758–759, 1269date determining receipt of, 758n.13liquidating, 758, 760property, 759types of, 757

Dividend in arrears, 754Dividends payable, 643Dividend policy, 756Dividend preferences, 771–772Dollar-value LIFO method, 401–406,

452, 463–465and AICPA Task Force on LIFO

Inventory Problems, 442n.1comprehensive, 402–403for determining cost of single item, 442n.1

example, 401–402and price index selection, 403–405specific-goods pooled approach vs.,

401–406Dollar-value retail method, 401n.6Double-declining-balance method, 545“Double dipping,” 1118Double-entry accounting system, 70Double-extension method, 404Dow Jones & Co, 744Dr. (debits), 69–71Dr. Pepper, 451Dresser Industries, 173DRSC (German Accounting Standards

Committee), 1360Drugs.com, 593Drugstore.com, 37, 393, 872Dudley, Lola W., 811n.11Due process system, 10–11Duffy, Wendy A., 495n.3DuPont, 759Dynegy, 710

E. F. Hutton, 322n.3Eagle Clothes, Inc., 387Earned capital, 744Earned revenues, 933Earnings, 132n.2

claim by stockholders, 743retained (see Retained earnings)smooth, and changes in accounting

method, 1203Earnings before interest, taxes, depreciation,

and amortization (EBITDA), 542Earnings management, 133Earnings per common share, 150Earnings per share (EPS), 150–151, 811

calculating, 150n.18for complex capital structure, 816–822computations, 811–824diluted, 816–821illustration of, 830–834on income statement, 137, 137n.9interim reporting of, 1332–1333for simple capital structure, 812–816

Eastern Air Lines, 1079Eastman Kodak Company, 55, 145n.15, 329,

438, 510, 575, 1016, 1315Eavis, P., 198, 330eBay, 904Ebbers, Bernie, 26–27EBITDA (earnings before interest, taxes,

depreciation, and amortization), 542Ecolab, 177Economic consequences, 17n.10, 541, 761n.14Economic life, 1136n.13Economic life test (75% test), 1122Economic Recovery Tax Act of 1981, 564EDGAR (electronic data gathering and

retrieval), 1335n.12, 1344Effective-interest method, 333, 704, 705

and accruing interest, 699–700asset vs. liability accounting with, 1124of bond amortization, 289–290for bonds, 697–700for bonds issued at discount, 697–698for bonds issued at premium, 698–699



Index · I-7

Effective interest rate, 331n.9Effective rate, calculating, 269n.5Effective yield, 331n.9, 693Efficiency ratios, 1350n.28Efficient-market hypothesis, 1352eFund, 352EITF. see Emerging Issues Task ForceEITF Issue No 86-29 (“Nonmonetary

Transactions: Magnitude of Boot andthe Exception to the Use of FairValue”), 504n.8

Elective straight-line method, 566Electronic data gathering and retrieval

(EDGAR), 1335n.12, 1344Electronic dissemination of financial

reports, 1343Eli Lilly, 597n.6Elliott, J., 145n.15Elmer’s Restaurants, 1167El Paso Corporation, 557El Paso Energy, 1005Elstrom, P., 393Ely, Michael, 1272n.9Embedded derivatives, 895Embraer, 1309–1310Emerging Issues Task Force (EITF), 12, 143Employees, as pension beneficiaries, 1052Employee discounts, 457Employee payroll deductions, 648Employee-related liabilities, 646–651Employee Retirement Income Security Act

(ERISA) (1974), 1076–1078Employee stock purchase plans (ESPPs),

808–809Employer(s)

payroll taxes paid by, 648and pension plan risks, 1052

Enacted tax rate, 1004Ending inventory, misstated, 389–390Enron, 2, 5, 8, 17, 32, 49, 179, 337, 661, 688,

709, 710, 749, 865, 872, 886n.12, 902,1005, 1314, 1321, 1321n.4, 1345

Entitychange in reporting, 1197as going concern, 1337

Entriesadjusting (see Adjustments)reversing (See Reversing entries)

Entwistle, G., 131Environmental liabilities, 265, 658–661EPBO. see Expected postretirement benefit

obligationEpictetus, 642EPS. see Earnings per shareEquipment

depreciation of, 1255loss on sale of, 1257purchase of, 1258as worksheet entry, 1279

Equipment lease-versus buy analysis,1341n.16

Equityon balance sheets, 180owner’s, 189

Equity awards, share-based, 827Equity classifications (compensation

plans), 796

Equity errors, 1198Equity holders’ claims, disclosure of, 1320Equity interest, 718Equity investment, 882Equity method, 870–872, 1215–1218

changing from, 1215–1216changing to, 1216–1217and fair value options, 873–874GAAP/iGAAP standards, 1212and retrospective application, 1197n.6

Equity securities, 866–872Erickson, Naomi, 1083n.25Eralp, Osman, 617Ernst and Young, 741Errors, accounting, 1205–1214

on balance sheet and income statement,1205–1208

correction of, 146counterbalancing, 1205–1207example of, 1199–1200, 1208–1210fraud vs., 1322on income statements, 1205noncounterbalancing, 1207–1208preparation of financial statements with

corrections to, 1210–1211reporting correction of, 1197–1201types of, 1198

ESM Government Securities, Inc., 1346eSpeed, 596ESPPs (employee stock purchase plans),

808–809Estée Lauder, 744Estimate, changes in. see Change(s) in

accounting estimateEstimates, judgments and, 179Estimated annual effective tax rate, 1332E-tailers, 393Ethics, 19E*Trade Financial, 633Europe, aging population of, 1053European Union (EU), 1358n.36Eurotext, 740Event, defined, 68Exchange for noncash consideration, 868n.6Exchange price, 324Exchange rate risk, 890Excise tax, 1078Ex-dividend date, 758n.13Executory contract, lease as, 1119Executory costs, 1123Exelon Corp., 703Exercise price, 887Expectations gap, 17–18, 1346n.26Expected cash flow approach, 290–292Expected inflation rate of interest, 291Expected postretirement benefit obligation

(EPBO), 1085, 1086Expected rate of return, 1063, 1067Expected reversal date, 1013Expense(s)

conditional, 651on financial statements, 134under GAAP/iGAAP, 155on income statement, 136–137pension, 1055–1057postretirement, 1086prepaid (see Prepaid expenses)

Expense expenditures, 508–509Expense recognition errors, 1198Expenses subject to year-end-

adjustment, 1332Expense warranty approach, 655–656Exploration costs of depletion, 555Extensible business reporting language

(XBRL), 1343External environment, fraud and, 1345External events, 68, 74–75External indexes, 403n.9, 405n.10Extinguishment of debt, 701–703Extractive industries, R&D costs of, 605n.12Extraordinary gains, 149Extraordinary items

determining, 143n.14frequency of, in 2004 survey, 142n.13on income statement, 137, 142–144, 148interim reporting of, 1332reporting, 1271–1272reporting, after September 11, 2001, 143

Extraordinary losses, 149ExxonMobil, 74, 382, 554, 557, 558n.10, 886,

890, 1116Eziba.com, 872

Face rate (interest), 269Face value (bonds), 692Factors, 339Factoring arrangement, 339n.12Factoring receivables, 339FAF. see Financial Accounting FoundationFailure to adjust for bad debts, 1207–1208Failure to record accrued wages, 1206Failure to record prepaid expenses, 1206Faircloth, Lauch, 27Fair hedge value, 891–893Fair value(s)

of asset, 506on balance sheets, 191, 193–194of derivatives, 886n.14disclosure of, 905–908and EITF Issue No. 86-29, 504n.8under GAAP/iGAAP, 345hierarchy for, 886n.14, 905hierarchy of, 193of security, 859, 865, 879of stock in lump-sum exchange, 746of stock issued, 761of stock options, 805

Fair value controversy, 880Fair value hedge, 898–899Fair value method

changing from, 1216changing from equity method to,

1215–1216of stock compensation, 805, 809–811for unrealized gains/losses, 1257n.5

Fair value options, 873–874Fair value tests

for indefinite-life intangible impairment, 601

for limited-life intangible impairment, 601

Falconbridge Ltd, Nickel Mines, 551Fannie Mae, 811, 886n.12, 890Farrell, C., 589



I-8 · Index

FASAC (Financial Accounting StandardsAdvisory Council), 9–10

FASB. see Financial Accounting StandardsBoard

FASB Concepts. see Statements of FinancialAccounting Concepts

FASB Interpretation No. 46(R)(“Consolidation of Variable InterestEntries (revised)—an interpretation ofARB No. 51”), 903, 904, 908

FASB Statements. see Statements of FinancialAccounting Standards

Federal Insurance Contribution Act(F.I.C.A.), 646–647

Federal Reserve Bank, 291Federal Unemployment Tax Act

(F.U.T.A.), 647Federated Department Stores, 436FedEx Corporation, 55Feedback value, 1349Feltham, G., 131FFO (funds from operations), 547n.7FFP Marketing, 66F.I.C.A. (Federal Insurance Contribution

Act), 646–647FIFO. See First-in, first-outFifth Third Bancorp., 5Final reconciling entry, 1280–1281Financial accounting, as discipline, 4, 6Financial Accounting Foundation, 9, 26Financial Accounting Standards Advisory

Council (FASAC), 9–10Financial Accounting Standards Board

(FASB), 26on accounting changes, 1182–1183Accounting Standards Codification, 13–15APB vs., 9–10on basis for statement of cash flows,

1245n.1and capitalization of interest costs, 392and cash and cash equivalents, 197n.13Codification Research System, 14and compensation plans, 796n.1Concepts of, 12 (See also Statements of

Financial Accounting Concepts)on differential disclosure, 1315on direct method on statement of cash

flows, 1252due process system of, 10–11and Emerging Issues Task Force, 12and financial engineering, stance on,

710n.14and financial statements, 179–180and GAAP, 9–12and goodwill measurement, 599n.8and guarantees, 665n.20and held-to-maturity requirement, 859n.2improved financial statement

presentation, 1344on income taxes as operating cash

outflows, 1271and international standards, 1358–1360Interpretations (see FASB Interpretations)and irregular items, 139on leased property, 1124and loss contingencies, 328, 652on operating cash receipts/payments, 1265

on pension plans, 1056–1057, 1070n.14on postretirement benefits accounting,

1082–1083, 1086n.28, 1091and sales, 341and SEC, 7, 8n.6and staff positions, 11Standards of, 11, 1360 (See also Statements

of Financial Accounting Standards)Technical Bulletins of, 11and transactions, 74–75on uncertain tax positions, 1016–1017

Financial components approach, 340Financial engineering, 710n.14Financial flexibility, 179, 199, 204Financial forecasts, 1341–1343Financial income, 992, 1001–1004Financial information, types of, 1314Financial instruments, 193Financial liquidity, 204Financial markets, 1356Financial position, statement of. see

Balance sheet(s)Financial projections, 1341–1343Financial reporting, 4. See also Reporting

accuracy of, 2–3and expectations gap, 17–18of international accounting standards, 18objectives of, 6–7and politically-influenced standard

setting, 15–17Financial Reporting Standards Board

(FRSB), 1360Financial statement(s), 4

correcting errors on, 1199–1201defined, 69elements of, 134–135example of, 210–238general-purpose, 7installment-sales transactions

presentation, 955–956interest rate swap presentation, 899–900inventory accounting for, 442n.2maintaining monthly vs. quarterly, 96management’s responsibilities for, 1340for merchandising company, 96–98notes to the (see Balance sheet(s))and ownership structure, 72pecentage-of-completion presentation,

942–943pension plan reporting in (see Pension

plan reporting)preparing, 91–92preparing, with error corrections,

1210–1211presenting, 864–865worksheet preparation of, 110

Financial statement analysis, 1349–1355comparative analysis, 1353percentage analysis, 1354–1355perspective on, 1349–1350ratio analysis, 1350–1352

Financing activities, 199, 201, 1245, 1246Financing agreement, 642Firm (as concept), 448n.8“Firm” contractual rights and

obligations, 1120Firm purchase commitments, 448n.8

First Chicago, 1157First-in, first-out (FIFO), 460

for assigning investment costs, 868n.6and cost flow assumption, 396–397and LIFO, 398–399

Fixed assets, 490Fixed percentage of book value method.

see Declining-balance methodFixed-rate mortgage, 709Fleming, Sir Alexander, 595n.4Flexibility, financial, 179, 199, 204Flint, J., 381Float, collection, 347Floating-rate mortgage, 709Floor (lower), 439–440f.o.b. (free on board) destination, 387Footstar, 143Ford Motor Company, 4, 17, 38, 40, 132,

177, 194, 381, 382, 414, 550n.8, 650, 651,741, 744, 1084, 1182, 1266, 1363

Foreign Corrupt Practices Act, 66Foreign currency hedging, 890n.20Form 10-Q, 1330Fortune Brands, Inc., 458, 538Forward-looking information, 5Foster, Taylor W., III, 761n.15, 764n.17401(k) plan, 1051Foust, D., 1005France, 1360Franchise(s), 595, 962–965Franchise agreement, 963Franchise fees, continuing, 964Franchisor’s cost, 965Fraud

check, 349n.16recorded by ChexSystems, 352

Fraudulent financial reporting, 1344–1346accounting errors vs., 1322causes of, 1345–1346National Commission on, 1322n.6

Freddie Mac, 337, 890Free cash flow, 204–205, 209Free on board (f.o.b.) destination, 387Freight costs, 456Frequent-flyer programs, 658Frito Lay, 35FRSB (Financial Reporting Standards

Board), 1360Fruehauf, 1314Full-cost concept, 557Full-costing approach, 492Full disclosure in financial reporting,

1314–1316of auditor’s reports, 1335–1338criteria for accounting/reporting choices

in, 1346current reporting issues with, 1341–1346and differential disclosure, 1315–1316of diversified companies, 1324–1329on financial forecasts/projections,

1341–1343and fraudulent reporting, 1344–1346increase in reporting requirements, 1315of interim reports, 1330–1335on Internet, 1343issues with, 1321–1335of management’s reports, 1338–1340



Index · I-9

and notes to financial statements,1316–1321

of post-balance-sheet events, 1323–1324as principle, 1314–1315of special transactions/events, 1321–1322and stock markets, 1316

Functional expense classification, 137Fund (term), 1050n.1Funds from operations (FFO), 547n.7Fuqua Industries, 406–407F.U.T.A. (Federal Unemployment Tax

Act), 647Future deductible amounts, 997Future tax consequences, 1017Future tax rates, 1004–1005Future tax savings, 1007Future value

of an annuity due, 278–281of annuity, 278–279of an ordinary annuity of 1 (table),

267–268computing for unknown, 270of deferred annuity, 286–288of 1 (table), 267–268of single sum, 271–272as variable in compound interest, 270

GAAP. see Generally accepted accountingprinciples

Gage. J., 177Gains, 1270

on financial statements, 135on income statements, 137on pension plans, 1063–1067and postretirement expense, 1086, 1088

Gain contingencies, 651–652Gains trading, 880The Gap, 1116Gap fillers, 598Gap Inc., 457, 590, 645Gateway, 1315General checking account, 347–348General Dynamics, 49General Electric (GE), 49, 55, 132, 145, 329,

608, 643, 741, 809, 811, 885, 890, 1082,1084, 1111, 1324–1325

General Electric Capital Corp., 643, 1158General Electric Credit, 1158General expenses, 136General Foods, 1332General indexes, 403n.9General journal entry, 75General ledger, 69, 75Generally accepted accounting principles

(GAAP), 7, 13and actual interest capitalization, 494“big” vs. “little,” 1316codification of, 19and fair value, 896n.32hierarchy, 13n.7and IFRS, 1183n.1international and U.S., 1357, 1360major sources of, 13and OPEBs, 1055n.9organizations settings standards for, 8–13and variable interest entities, 902

General Mills, Inc., 89, 360, 604

General Motors (GM), 38, 40, 337, 380–381,491, 550n.8, 691, 692, 742, 759, 811, 823,1005, 1010n.6, 1049, 1051, 1078n.16,1084, 1266

General Motors Acceptance Corp.(GMAC), 337

General-purpose financial statements, 7General Tire and Rubber, 408n.16Georgia-Pacific, 172, 447, 512German Accounting Standards Committee

(DRSC), 1360Germany, 1360Gerth, J., 557Gibson, R., 49, 1128Gillette, 224–226, 235–236GlaxoSmithKline plc, 634, 1019Gleckman, H., 1005Global Crossing, 49, 506, 932, 1150, 1315Going concern concept, 1337Goldman, Sachs & Co., 1313Golf Digest, 644Goods in transit, 387Goodwill, 597–601

economic consequences of, 16impairment of, 602–603recording, 598–600as write-off, 600

Goodyear Tire and Rubber, 540, 689, 1005,1016, 1051

Google, 96, 590, 744, 884Gore, Richard, 547n.7Gotham Utility Company, 649Governmental Accounting Standards

Board (GASB), 1091Granof, Michael H., 408n.17, 410n.22Grant date, 805The Great Atlantic & Pacific Tea

Company, 188Greenberg, Herb, 542, 689Greene, Kelly, 1082n.21Gross margin percentage, 450n.11Gross profit method (gross margin

method), 451Gross profit on selling price, 450Gross profit percentage, 450–451Grothe, M., 1181Group methods for depreciation, 545–547Guarantees, 655–657, 657n.15, 665n.20. See

also WarrantiesGuaranteed residual value, 1123

in capitalization of lease, 1149in lessee accounting, 1137–1138in lessor accounting, 1140–1141for sales-type lease, 1143

Gujarathi, Mahendra R., 448n.8Gulf Oil, 742

H. J. Heinz Company, 1373Half-year convention, 549, 565Hall, C., 177Halliburton Company, 186–187, 948, 1186Halperin, Alex, 744Hambrecht & Quist, 617Hamm, S., 589Hanna, D., 145n.15Harley-Davidson, Inc., 1322Harris, Trevor, 634

Hasbro, Inc., 184Hayes, Randall, 401n.8, 406n.11HCA, 319Healthcare benefits, 1082n.21, 1083–1084Healthsouth, 32Hedging, 885, 890–894Held-to-maturity debt securities, 182,

859–861, 882Henriques, D., 323Henry, David, 763Hershey Foods, 173, 410, 745Hertz, 962Herz, Bob, 19, 337Hewitt, Conrad W., 3Hewlett-Packard Company, 343n.14, 603,

604, 1051, 1147–1148, 1197, 1244Hickok, Richard S., 938n.16Historical cost, 179–180Hof, R. D., 591Holiday Inn, 962The Home Depot, 491, 1122, 1340Homer, Sidney, 262Homestake Mining Company, 1045Homestore Inc., 931Honeywell Inc., 750, 823Honghua Group Ltd, 741Horizontal percentage analysis, 1354Host security, 895H & R Block, 962Hudson, M., 353, 354Huffy Corp., 716Hurricanes, 1324n.8Hybrid methods for depreciation, 547Hybrid plans, 1078n.19Hybrid securities, 895

IASB. see International AccountingStandards Board

IASCF (International Accounting StandardsCommittee Foundation), 1358

IBM Corporation, 4, 18, 36, 132, 180, 208, 240, 382, 389, 589, 608, 614n.17, 617, 1082, 1117, 1131,1162–1163, 1315

IBM Global Financing, 1117IDEA (Interactive Data Electronic

Applications), 1344If-converted method, 817, 831, 832IFRS. see International Financial Reporting

StandardsiGAAP. see International GAAPiGo Corp., 930Ijiri, Yuji, 448n.8, 1120n.3ILFC, 1122–1124Illegal acts, 1322Imhoff, Eugene A., Jr., 1352n.30Impaired note receivable, 336–337Impairments, 551–554, 875

GAAP/iGAAP standards, 552, 553measuring, 354–356, 552–553of receivables, 352–356recognizing, 352–354, 551–552recoverability tests for, 552, 601and SFAS No. 114, 718n.16

Impairment loss, 354–356, 553under GAAP/iGAAP, 612GAAP/iGAAP standards, 562



I-10 · Index

Impairment test, 592, 612Implicit interest rate, 332–333, 1123–1124Impracticability, 1193–1194Imprest bank accounts, 348Imprest petty cash system, 348–349Imprest system for petty cash

disbursements, 348–349Imputation, 335, 707Imputed interest rate, 335, 707Inadequacy, 541Income approach, 500n.4Income available to common

stockholders, 816Income before taxes. see Pretax financial

incomeIncome bonds, 691Income statement(s), 69, 132–135

alternate terminology for, 132n.2and cash flows statement, 1248–1249,

1253, 1256, 1260columns on, 110and comprehensive income, 152–154condensed, 138–139deferred tax reporting on, 1000–1001,

1013–1015and earnings per share, 150–151errors on, 1205–1208example, 96and extraordinary gains, 149and extraordinary losses, 149format of, 134–139illustration of, 1276intermediate components of, 136–137and intraperiod tax allocation, 148–149irregular items reported on, 139–140limitations of, 132–133and quality of earnings, 132–133and retained earnings statement, 151–152segmented, 1325single-step, 135–136and unusual gains and losses, 144–145usefulness of, 132–133

Income statement (percentage-of-sales)approach, 328

Income statement method. see Direct methodIncome taxes, accounting for, 992–1018,

1265n.6accounting objectives, 996–997asset-liability method, 1017on balance sheet, 1011–1013deferred taxes, 993–1000, 1018, 1267depreciation, 564–567and future deductible amounts, 997and future taxable amounts, 993–994on income statement, 137, 1000–1001,

1013–1015interim reporting, 1332interperiod tax allocation (example),

1021–1028LIFO, 407n.13and net operating losses, 1006–1011as operating cash outflows, 1271–1272and uncertain tax positions, 1016–1017and withholding, 647–648

Income tax benefit, 1018Income tax expense, 1018Income taxes payable, 646

Incorporation acts, 742Increasing-charge method, of

depreciation, 547Incremental borrowing rate, 1123, 1125n.7Incremental direct costs, 1145Incremental method, 747, 801, 832, 833Incremental shares, 819n.16Indefinite-life intangibles, 592, 602Independent lessors, 1117Independent third-party trustee, 1051Indexes, computing, 403–405Indirect method, 442–443

for accounts receivable (net), 1267–1268for determining net cash flow from

operating activities, 1250–1251,1259–1260

direct vs., 1264–1265GAAP/iGAAP standards, 1283special rules applying to, 1265

Induced conversions, 797–798Indy Mac Bank, 8Inflows, cash, 1274Information, financial, 1314Information overload, 1315Information technology, 1356Initial direct costs (lessor accounting), 1145Initial franchise fee, 963–964Initial operating-losses, 607Inland Steel, 543Input, in depreciation, 543Installment-sales accounting method,

948–956Instruments, financial, 193In-substance defeasance, 701n.7Insurance, adjusting entries for, 82–83Intangibility index, 588–589Intangible assets, 588–603, 609–611.

See also specific types, e.g.: Limited-lifeintangibles

amortization of, 591–593on balance sheets, 186characteristics of, 591defined, 590impairment of, 601–603limited-life, 1266presentation of, 609–611valuation of, 590

Integral approach, 1330, 1334Intel, 20, 45, 85, 240, 265, 444, 511, 608,

902, 1356Interactive Data Electronic Applications

(IDEA), 1344Interbrand Corp., 608Interest. See also Compound interest

accruing with effective-interest method,699–700

capitalization of, 392n.3, 392n.8, 495components of, 291computation of, 265–266costs of, 392as pension expense, 1057as period cost, 392as postretirement expense, 1086and time value concepts, 265variables in computation of, 265

Interest-bearing notes, 331, 333–335,639–640, 705–706

Interest rate(s), 495in capitalization of lease, 1149choosing, 291, 335computation of, 285disclosure requirement, 265n.2implicit, 332–333imputed, 335as variable in interest computation, 265

Interest rate risk, 890Interest rate swap, 899–900Interest revenue, 326, 498Interest tables, 267–268Interim period tax, 1332Interim reports, 1330–1335

continuing controversy about, 1334–1335GAAP/iGAAP standards, 1347requirements for, 1330–1331unique problems of, 1331–1335

Internal controls, 17under GAAP/iGAAP, 99over cash, 347

Internal direct costs, 1145Internal environment, fraud and, 1345Internal events, 75Internal indexes, 403n.9Internally created goodwill, 598Internally created intangibles, 590Internal Revenue Code, 992–993Internal Revenue Service (IRS), 66

and indexes, 405n.10and LIFO conformity rule, 409and purchases-only-approach, 465n.2

International accounting convergence. SeeConvergence, of U.S. and internationalstandards

International accounting standards, 18,1356–1360

accounting changes and errors, 1212on cash and cash equivalents, 1245challenge of, 1357convergence of FASB and, 1359–1360disclosure, 1347IASB in, 1358–1359IOSCO, 1358for leases, 1151national standard setters, 1358present environment, 1356rationale for understanding, 1356–1357

International Accounting Standards Board(IASB), 18, 20, 64–65, 813, 817, 1080,1183n.1, 1344, 1358–1359

International Accounting StandardsCommittee Foundation (IASCF), 1358

International Financial ReportingStandards (IFRS), 18, 1080, 1183n.1,1347, 1358, 1360

GAAP comparison to, 637interim reporting, 1334

International GAAP (iGAAP), 1358. See alsoConvergence, of U.S. and internationalstandards

and income taxes, 1018valuation of long-term debt, 692

International Lease Finance Corp. (ILFC), 1120

International Organization of SecuritiesCommissions (IOSCO), 1358



Index · I-11

International Paper Co., 16, 195, 538, 550,560, 823

International stock exchanges, 740International Thoroughbred Breeders, 321Internet financial reporting, 1343Intraperiod tax allocation, 148–149Intrinsic value, 887Intuit Inc., 182–183Inventory(-ies), 382–386. See also related

headings, e.g.: Periodic inventory systemalternative method for estimating, 449n.10analysis of, 459average days to sell, 459on balance sheets, 183–184basis of valuation of, 181control, 383–386costs included in, 391–393defined, 382disclosure of, 1319estimating, using gross profit percentage,

449n.10GAAP/iGAAP standards, 1212gross profit method for, 449–451increase in, 1256–1257land as, 491management of, 436–437method selection for, 409–411misstated, 390–391at net realizable value, 445presentation of, 457–459purchases of, 406n.11valuation of, 386, 410–411, 445–448as worksheet entry, 1278

Inventory cost flow, 383Inventory errors, 389–391, 1198Inventory methods, 385.1, 408n.18Inventory turnover ratio, 459Investing activities, 198, 201, 1245, 1246Investment(s), 856–881

available-for sale securities, 861–865,868–870

in common stock, 1267in debt securities, 858–865derivatives, 884–900equity method for accounting, 870–872equity securities, 866–872fair value controversy, 880and FASB interpretation No. 46(R), 903,

904, 908held-to-maturity securities, 859–861holdings of less than 20%, 867–870impairment of value, 875long-term, 184–185PPE, 491security, 858n.1short-term, 181–183in stock, as worksheet entry, 1278trading securities, 865–866, 870transfers between categories, 879variable-interest entities, 902–904

Investment accounting approaches, 858Investment carrying amount, 1215–1216Investor groups, 769Investors’ expectations, 1357IOSCO (International Organization of

Securities Commissions), 1358I.O.U.s, 320

Ip, Grep, 187iPhone, 593Irregular items

analyzing, 141categories of, 141and FASB, 139in income statement, 148on income statement, 139–140summary of, 147–148

IRS (Internal Revenue Service), 66Issue costs, 748

J. Crew, 5J. P. Morgan Chase, 608Jack in the Box, 49, 1128Jaenicke, Henry R., 934n.9Japan, 1053, 1122, 1360Japan Airlines (JAL), 1178JCPenney Company, 409, 436, 691Jenkins, Edmund L., 1357n.32, 1358n.33Jiambalvo, James, 1198n.7Jiffy Lube International, 963n.30Jim Walter’s Corporation, 498Job Creation and Worker Assistance Act of

2002, 564n.1John Deere and Company, 172, 259, 337,

410, 604, 1051John Deere Credit, 337Johnson, L. Todd, 877n.9Johnson Controls, 16Johnson & Johnson, 534–535, 604, 633, 749,

886, 1329Jones, S. D., 49, 1128Journal(s), 69, 75–76Journal entry, general, 75–76Journalizing, 75–76JPMorgan Chase & Co., 187, 1116Judgments and estimates, 179Junk bonds, 694

Kahn, Jeremy, 933Kaiser Aluminum, 1079Kardous, D., 451Kazenski, Paul M., 495n.3Kellogg Company, 35, 127–128, 459,

490, 604, 745, 766, 791, 852–853, 1078, 1332

Kelly, Kate, 187Kelly Services, 962Kerwin, K., 1005Keystone Consolidated Industries, 144KFC, 962Kiley, David, 597, 608Kimberly-Clark Corp., 904, 1164Kimco Realty, 547, 585–586King, Thomas E., 505n.9Kirk, Donald, 617KLM Royal Dutch Airlines, 1178Kmart, 437Kmart Holding, 1015Knutson, Peter H., 1120n.2Kohls, 326Krispy Kreme, 5, 176, 709, 1016, 1114–1115,

1118Kroger, 177, 561Kurzweil Applied Intelligence Inc., 389Kyowa Hakko Kogyo Co., Ltd., 1112

Labaton, S., 557Laboratory Corp. of America, 689Lafley, A. G., 212, 215Lahart, J., 749Land

cost of, 491decrease in, 1258expenditures for, 498increase in, 1254as worksheet entry, 1278

Landsman, Wayne, 802n.6Largay, James A., III, 1243Large stock dividends, 761n.15Larson, R. K., 938n.17Last-in, first-out (LIFO). See also LIFO

entriesadoption of, for inventory valuation,

1194n.4advantages of, 406–407approach comparisons, 405–406and cost flow assumption, 397–398disadvantages of, 407–408external indexes computations, 405n.10and FIFO, 398–399and future earning hedge, 407specific-goods, 400–401tax benefits, 406–407, 409

Lavelle, Louis, 795n.1Lawsuits, 1341n.18Layers, 399–400LBO (leveraged buyout), 750LCM. see Lower-of-cost-or-marketLeach, Jim, 27Lease accounting

and bargain purchase option, 1144current vs. noncurrent classification

in, 1145–6and disclosing lease data, 1146–1148and initial direct costs, 1145by lessee, 1120–1129by lessor, 1130–1135and residential values, 1136–1141for sales-type leases, 1141–1144special problems in, 1135–1148unsolved problems in, 1148–1150

Leases and leasing, 1116–1160accounting for (see Lease accounting)advantages of, 1118–1119classifications of, 1131–1132conceptual nature of, 1119–1120and disclosure, 1320economics of, 1130environment for, 1116–1120examples of, 1153–1157GAAP/iGAAP standards, 1151lessor types in, 1116–1117operating leases, 710term of lease, 1118, 1122, 1136n.13

Lease receivable, 1132–1135, 1142LeClere, Marc J., 409n.19Ledger, 69Lee Enterprises Inc., 603Legally restricted deposits, 322Lennard, A., 1149n.20Leone, M., 1181LePeep Restaurants, Inc., 963n.30Leslie Fay (company), 391



I-12 · Index

Lessee accounting, 1120–1129of assets vs. liabilities, 1124for bargain purchase option, 1144capitalization criteria for, 1121–1124capital lease method of, 1124–1127capital vs. operating, 1128–1129operating method of, 1127–1128for residual value, 1137–1140for sale-leasebacks, 1158

Lessor accounting, 1130–1135benefits of, 1130and classification of leases, 1131–1132direct-financing method of, 1132–1135and economics of leasing, 1130for initial direct costs, 1145operating method of, 1135for residual value, 1140–1141for sale-leasebacks, 1158for sales-type leases, 1141–1144

Lev, Baruch, 609n.16Level 8 Systems, 47Leveraged buyout (LBO), 750Leverage ratios, 1350n.28Levitt, A., 133n.4Lewent, Judy, 1312Liability(-ies), 638

on balance sheets, 180, 186–188contingent (see Loss contingencies)current vs. noncurrent lease, 1145–1146defined, 638employee-related, 646–651environmental, 660and fair value option, 874in lessee accounting, 1124, 1129long-term, 188pension, 1064

Liability approach, 1017Liability awards, share-based, 827–828Liability measurements, 714Liability valuation account, 700Liberty International, 585–586Licenses, 595Liesman, S., 15, 140, 999LIFO. see Last-in, first-outLIFO conformity rule, 409LIFO liquidations, 399–401, 408n.15, 443n.3LIFO matches, 406LIFO method, dollar-value, 401–406LIFO reserve, 398–399LIFO retail methods, 452, 462–466

changing from conventional retailmethod to, 465–466

and stable prices, 462–463Limited Brands Inc., 990–991Limited-life intangibles, 591, 1266

accounting treatment for, 593fair value tests for, 601impairment of, 601

Lipe, Robert C., 1352n.30Liquidating dividends, 557, 758, 760Liquidity, 178, 199Liquidity evaluation, 400–401Liquidity ratios, 208, 1350, 1351Litigation, 654–655, 1341–1343Lloyd’s of London, 1149n.18Loans, 352n.17, 1246n.2Loans.com, 593

Lobbyists, 1204n.13Lockbox accounts, 347Loews Corporation, 1076Logarhythmics, 269n.4Long Island Railroad (LIRR), 66Long-term assets, 264Long-term bonds, valuation of, 288–289Long-term borrowing, 322Long-term contract losses, 944–947Long-term debt, 690

analysis of, 713current maturities of, 641on financial statements, 690off-balance-sheet financing, 709–711presentation of, 711–712reporting, 709–713and SAF Opinions No. 5, 709and SAF Opinions No. 6, 709

Long-term investments, 184–185Long-term liabilities, 688–713

on balance sheets, 188bonds payable, 690–703long-term notes payable, 703–708and reporting and analysis of debt, 709–713

Long-term notes payable, 703–708Loomis, Carol J., 603Loss(es)

accumulated other comprehensive loss,765n.19

from continuing operations, 834n.21on financial statements, 135in income statement, 137on pension plans, 1063–1067and postretirement expense, 1086in sale-leasebacks, 1158on sale of equipment, 1257and SFAS No. 6, 135n.7

Loss carrybacks, 1006Loss carryforwards, 1006

deferred tax assets recognized as, 1008n.4example, 1007–1011operating, 1008–1009period length for, 1007n.3with valuation allowance, 1009–1010without valuation allowance, 1008–1009

Loss contingencies, 352, 652–666coupons, 657environmental liabilities, 659–660and FASB, 323, 652guarantee and warranty costs, 655–657litigations, claims, and assessments,

654–655of no-par stock, 745–746premiums, 657–658self-insurance, 661–662

Loss measurement, 144Loudder, Martha L., 609n.16Lower (floor), 439–440Lower-of-cost-or-market (LCM)

applying, 441–442and net realized value, 439–440in practice, 445n.5and recording market instead of cost,

442–444Lower-of-cost-or-market (LCM) rule, 439,

440, 444, 445LTV Corporation, 755, 1079

Lubore, Seth, 1115Lucent Technologies, 763, 823, 937, 1064Lump-sum exchange, 747Lump-sum price, 500Lump-sum purchases, 500

McConnell, Pat, 1015n.8McDermott, D., 141n.11MacDonald, Elizabeth, 1115McDonald’s Corporation, 4, 20, 49, 81, 135,

584–585, 595, 885, 962, 1116, 1356McGregor, Warren, 1120n.2MacKay, Archibald E., 963n.29McKay, P., 749Mack Trucks, Inc., 183McLean, Bethany, 319McNamee, M., 694MACRS. see Modified Accelerated Cost

Recovery SystemMcTauge, R., 49Maher, Kris, 489Mahoney, Jeff, 337Major repair, 510–511Maker, 331Mallorca Ltd, 769Management, 1338–1340, 1349Management’s discussion and analysis

(MD&A), 1338–1340Managerial accounting, 4Mandel, M., 589Manufacturers Hanover Trust Co., 347Manufacturing, 382, 392Maremont, M., 1144Marginal principle approach, 1332Markdowns, 451, 453Markdown cancellations, 453Market(s) (GAAP/iGAAP definition), 438Marketable securities, 320n.2Market approach, 500n.4Marketing-related intangible assets, 593Market rate, 331n.9, 693Market-related asset value, 1063Market value, and accounting quality, 134Markup, 451, 453Marriott, 595, 962Martha Stewart Living, 744Masco Corporation, 1324MasterCard, 338, 339n.12MasterNet, 67Master valuation accounts, 598Master valuation approach, 599–600Matching principle, 45n.13Mattel, Inc., 185Maturity value (bonds), 692Maxwell House, 325May Department Stores, 436Maytag Corp., 1116Mbagwu, C., 131MD&A. see Management’s discussion

and analysisMeans, Grady, 489Means, Kathryn, 495n.3Medicare, 646–647Mehring, James, 703Meineke Mufflers, 962Mellors, F., 1078n.19Mercedes-Benz, 608



Index · I-13

Merchandising concerns, 382Merck & Co., Inc., 595, 604, 609, 611, 633,

634, 651, 1051, 1118, 1312Meredith, 744Mergers and acquisitions, 816n.14, 1356Merit rating, 647Mermin, G., 1049Merrill Lynch, 811Mesa Limited Partnerships, 558n.12Metallgesellschaft, 886n.12Mexico, 1357M&I Bank, 885Microsoft Corporation, 4, 5, 18, 133, 265, 323,

377–378, 589, 608, 615, 644, 645, 751, 795MicroStrategy, 134, 158, 1315, 1319Midway, 178Miller, G. S., 1011Miller, Paul B. W., 1058n.12, 1272n.9Minimum lease payments, 1122, 1137Minimum liability, pension, 1076Minimum rental payments, 1122Misclassification errors, 1198Mobile Telecommunications Company

Saudi Arabia, 741Model Business Corporate Act, 742Modified Accelerated Cost Recovery

System (MACRS), 564–567example of, 564–566optional straight-line method vs., 566property classes, 564and tax depreciation methods, 565

Modified cash basis, 102Modified perpetual inventory system, 385Mohican Company, 686Molson Coors Brewing, 324, 1051Monetary assets, 501n.5Monetary exchange, 504n.8Money-market funds, 320n.1Money-market savings certificates, 320n.1Monsanto Chemical Corporation, 329, 1343Montavon Winery, 642Montgomery Ward, 437Monthly financial statements, 96Moody’s Investors Service, 694Moran, M., 823“More likely than not,” 999Morgan Stanley, 608, 865Morgenson, Gretchen, 37, 47, 177, 1321Mortgages, 708–709Mortgage notes payable, 708–709Moses, O. Douglas, 1203n.12Moto Photo, Inc., 963n.30Motorola Inc., 45, 55, 185, 382Mott, D., 1015n.8Moving-average method, 395Mulford, Charles W., 1079n.20, 1272n.9, 1273Multinational corporations, 1356Multiple-step income statements, 136Mumford of Wyoming, 458Myers, David, 26–27Myers, John H., 1120n.2

Nailor, H., 1149n.20NASDAQ, 740National Car Rental, 962National Commission on Fraudulent

Financial Reporting, 1322n.6, 1344n.24

National Steel, 1079Natural expense classification, 137Natural resources, 559Navistar, 593, 1005NBC TV, 1325NBC Universal, 1325NEC, 960Nesco Holdings, Inc., 652Nestlé Group, 714Net cash flow

direct method of determining, 1250indirect method of determining,

1250–1251, 1265from investing/financing activities, 1248,

1251–1252, 1254–1255, 1257–1258from operating activities, 1249–1251,

1253–1254, 1256–1261, 1270Net income

cash flows vs., 204and indirect method, 1265

Net increase in cash, 201Net losses, 137n.9, 1269–1270Net method, 392–393Net of cash discounts, 392Net operating loss (NOL), 1006–1011Net periodic postretirement benefit

cost, 1086Net realizable value, 445, 460Net realized value (NRV), 439–440Net settlement, 889Net working capital, 187Neutrality, 1204New allowance account, 443New average unit cost, 395–396New Century, 43Newmont Gold Company, 458New York Stock Exchange (NYSE),

740, 1051n.3The New York Times, 744Nicholaisen, Don, 4990% test. see Recovery of investment testNissan (formerly Datsun), 593Noel, J., 381Nokia Corporation, 460NOL. see Net operating lossNOL carrybacks. see Loss carrybacksNOL carryforwards. see Loss carryforwardsNominal accounts, 69Nominal rate, 269, 692Noncalculable purchase commitments,

448n.8Noncash charges/credits, 1280Noncash transactions, 1272–1273Non-consolidated subsidiary, 709Noncontributory pension plans, 1050Noncounterbalancing errors, 1205,

1207–1208Noncurrent assets, 184–186Noncurrent receivables, 323Nondetachable stock warrants, 802Nonfinancial measurements, 5Non-interest bearing notes. see Zero-

interest-bearing notesNonmonetary assets, 501–506, 512, 562Nonpublic enterprise, 812n.12Nonqualified stock-option plans, 827Nonreciprocal transfers, 506

Nonrecognized subsequent events, 1323–1324Nontrade receivables, 323–324No-par stock, 745–746Norby, William C., 33n.3Nordstrom, 436, 438Norfolk Southern Corporation, 55, 1064Normal shortages, 456Normand, Troy, 26–27Norris, Floyd, 356, 799, 1312Nortel, 5, 318–319, 488–489Northern Trust Company, 271Northland Cranberries, 685Northwest Airlines, 178, 716, 1048Northwest Industries, Inc., 868Note(s)

accounting for, 703bonds vs., 703choice of interest rate for, 707–708common, 1319–1321discount, 705interest-bearing, 331, 333–335, 705–706issuance of, at face value, 332, 703–704issuance of, for property, goods, and

services, 335, 706of noncash investing/financing

activities, 1272not issued at face value, 332–335, 704–706as present value-based measurement, 264

Notes payable, 639–641, 703n.10,706–709, 1269

Notes receivable, 323disposition of, 337–342fair value option for, 336impaired, 336–337recognition of, 331–335valuation of, 335–336

Notes to the financial statements, 188n.10accounting policies in, 1316–1319as disclosure technique, 195pension plan reporting within, 1058,

1072–1074, 1076postretirement benefits reporting within,

1090–1091Notional amount, 887Not-sufficient funds (NSF) checks, 350Noven Pharmaceuticals, Inc., 432–433NRG Energy, 688NRV. see Net realized valueNSF (not-sufficient funds) checks, 350NYSE (New York Stock Exchange),

740, 1051n.3NYSE Eurotext, 740

O.A.S.D.I (old age, survivor, and disabilityinsurance), 646–647

Obligations (postretirement benefits), 1085Obsolescence, 541Occidental Petroleum, 377, 1078Off-balance-sheet financing, 709–711

disclosure of, 1320forms of, 709–710and leases, 1118, 1119, 1129rationale for, 710and SEC stance on, 710

Ohio Edison, 1157Oil and gas industry, depletion issues in,

557–559



I-14 · Index

Old age, survivor, and disability insurance(O.A.S.D.I), 646–647

Olofson, Roy, 506OMX, 740On-balance sheet financing, 7111-800-Flowers, 744One-time items, 145n.15Opdyke, Jeff, 756n.10OPEB. see Other postretirement benefitsOperating activities

cash provided by, 201net cash flow computation from,

1249–1251, 1253–1254net income vs. net cash flow from,

1249–1250and securitizing receivables, 1251on statement of cash flows, 198, 1245,

1246, 1256–1257Operating cycle, 639Operating expense computation, 103–104Operating leases, 710, 1132, 1135, 1145Operating lease method, 1127–1129, 1135Operating loss carryforwards, 1008–1009Operating segments, 1326–1328, 1347Operations, 132n.2Opinions of the Accounting Principles Board

(APB Opinions), 9, 11Options. see Stock optionsOptional straight-line method, 566Option to purchase (franchises), 965Oracle Corporation, 55, 378Ordinary annuity, 281–283, 286Ordinary stock dividends, 760Original entry, book of, 69Originating temporary difference, 1002Other postretirement benefits (OPEB),

1055n.9, 1082n.22, 1084Outdoor Channel Holdings, 592Outflows, cash, 1274Output

in depreciation, 543measures of, 939

Outstanding checks, 350Outstanding stock, 750, 756n.11Overfunded pension plans, 1070Overhead, 492Overseas National Airways, 760Overstatement of accrued revenue, 1207Overstatement of purchases, 1207Owens Corning, Inc., 182Owners’ equity. see Stockholders’ equityOwnership structure, 72Oxford Industries, 1251Ozanian, Michael K., 177, 539

Pacific Lighting, 558n.12Pacter, Paul A., 1217n.15Paid-in capital, 745, 765n.18Paid-in capital in excess of par, 745Pan American Airlines, 1078n.17, 1079Panera Bread Company, 40Paper checks, 349n.16Parenthetical explanations, 194Parking transactions, 388Partial period depreciation, 548–549Participating preferred stock, 754–755Participating securities, 820n.21

Par valueas basis for fair value, 746of bonds, 692of stock issued, 760, 763–764

Par value method, 751Par-value stock, 745Passage of title rule, 387“Past event,” 1193n.3Patents, business-method, 596Paychex, 323Payee, 331Payment, date of (stock dividends), 758Payout ratio, 767–768Payroll deductions, 648

example of, 648income tax withholding, 647–648Social Security taxes, 646–647unemployment taxes, 647

Payroll taxes, 648PBGC. see Pension Benefit Guaranty

CorporationPCAOB. see Public Company Accounting

Oversight BoardPegg, Janet, 1015n.8Penalty for failure to renew/extend

lease, 1123Penn Central Railroad, 641–642Pensions, 264, 1320Pension Benefit Guaranty Corporation

(PBGC), 1048, 1053n.6, 1077–1079Pension obligations, 1053–1054Pension plan(s), 1050–1082

accounting for (see Pension planaccounting)

actuaries’ role in accounting for, 1053assets in, 1052n.4defined-benefit, 1051–1052defined-contribution, 1051financial health of, 1069funding of, 1050–1051nature of, 1050–1052net funded status of, 1055reporting (see Pension plan reporting)stock market value of, 1051n.3trends in, 1048–1049worksheet for, 1058–1059

Pension plan accounting, 1053–1057actual return on plan assets, 1057actuaries’ role in, 1053employer’s obligation in, 1053–1054expense components in, 1055–1056interest on liability, 1057service cost in, 1056

Pension plan assets, actual return on, 1057Pension plan gains/losses, 1063–1067

assets, smoothing unexpectedgains/losses on, 1063–1064

calculations for, 1066–1067corridor amortization, 1064–1065example of unrecognized, 1065–1066liability, smoothing unexpected

gains/losses on, 1064Pension plan reporting

ERISA, 1076–1078within financial statements, 1069–1079within notes to financial statements,

1072–1074

terminations, pension, 1078–10792013 entries/worksheet example,

1075–1076Pension poison pills, 1079n.20Pension Protection Act, 1076n.15Pension Reform Act (1974), 1076–1078Pension terminations, 1078–1079Pension worksheet, 1058–1059

amortization of unrecognized priorservice costs, 1060–1061

gain or loss, 1063–10672010 entries, 1058–10602011 entries, 1062–10632012 entries, 1067–10692013 entries, 1075–1076

Pep Boys, 904The Pepsi Bottling Group (PBG), 16PepsiCo. Beverages, 35PepsiCo, Inc., 35, 64, 127, 144, 172, 186,

257–258, 377, 484–485, 584, 607,632–633, 641, 685, 738–739, 745, 791,852, 856, 858, 927, 987, 1013–1015,1017, 1045, 1111, 1239, 1308–1309,1338–1340, 1377

PepsiCo. International, 35Percentage analysis, 1354–1355Percentage markup, 450n.11Percentage-of-completion accounting

method, 937–938, 946–947Percentage-of-receivables approach,

328–330Percentage-of-sales approach, 328Performance approach, current

operating, 140Periods, compounding, 268Period costs, 1331

interest as, 392in inventory, 392

Periodic inventory system, 384–385Periodic rent, 285–286Permanent accounts, 69, 93Permanent differences, 1002Permits, 595Perpetual inventory system, 383–385, 442Petroleum Equipment Tools Inc., 512Petty cash disbursements, imprest system

for, 348–349Petty cash funds, 320, 348–349Pfizer Inc., 589PharMor, 1315Phillips, Michael M., 187Physical factors, of depreciation, 541Physical goods included in inventory, 386

consigned goods, 387–388goods in transit, 387and sales agreements, 388

Physical inventory count, 385Pier 1 Imports, 204Pillsbury, 1332Pinnacle West Corporation, 1157Pizza Hut, 962Plant assets, 490

dispositions of, 511–512and involuntary conversion, 512problems with, 512sale of, 511–512

Pledge, 338n.10



Index · I-15

Plugs, 598PNC, 5, 1117Points (note), 708Polaroid, 595Political costs, 1203Politicization, 24Polo Ralph Lauren, 744Pools, 400, 401nn.7–8, 407n.13Porter, J., 1313Positive intent, 859Postage stamps on hand, 320Post-balance-sheet events (subsequent

events), 1323–1324, 1347Post-closing trial balance, 69, 94Postdated checks, 320Postemployment benefits, 648n.8Posting, 76–80

closing entries, 93–94defined, 69

Postretirement benefits, 264, 650n.9disclosures of, 1090–1091eligibility for, 1085n.26obligations under, 1085pension vs. healthcare, 1083–1084

Postretirement benefits accounting,1082–1091

actuarial assumptions/conceptual issuesof, 1091

costs, reporting, 1271expense under, 1086FASB on, 1082–1083gains/losses recognition, 1088illustrative entries of, 1086–1089provisions of, 1084–10862011 entries and worksheet, 1087–10892012 amortization of unrecognized net

gain/loss, 1089Postretirement expense, 1086Potlatch Corporation, 724PPE. see Property, plant, and equipmentPrab Command, Inc. (U.S.), 485Prab Limited (U.K.), 485Prab Robots, Inc., 485–486Practice Bulletins, 12Preemptive privilege, 803Preemptive right, 743Preferred dividends in arrears, 643Preferred stock, 743, 745, 754–756, 831.

See also Common stock; specific types,e.g.: Convertible preferred stock

accounting and reporting of, 755–756convertible, 798–799convertible bonds vs., 755dividends from, 812–813features of, 754–755participating, 754–755, 772n.23redeemable, 755

Preferred stock outstanding, 754n.9, 756Premier Parks, 542Premiums, 657–658Premium amortization, of bonds, 695–696Premium bonds, 692–696Prepaid expenses

adjusting entries for, 82–83on balance sheets, 184basis of valuation of, 181as class of adjusting entries, 81

decrease in, 1257failure to record, 1206increase in, 1254as worksheet entry, 1278

Preparing financial statements, 91–92Prepayments

as class of adjusting entries, 81in reversing entries illustration, 106–107

Present value, 262, 263of annuity, 284–286of annuity due, 283–286of annuity due of 1 (table), 267of an ordinary annuity, 284–285of an ordinary annuity of 1 (table), 267of benefits, 1054n.7computing for unknown, 270–271of deferred annuity, 287–288measurement, 290–292of 1 (table), 267of ordinary annuity, 281–283of single sum, 272–274solving for, 270–271as variable in compound interest, 270

Present value-based measurements,264–265

Pretax financial income, 992, 1001–1004Price index selection, 403–405Priceline.com, 37, 932–933PricewaterhouseCoopers, 99, 932n.1, 958,

1052, 1283Prime Motor Inn, 203Primerica (formerly American Can), 593Principal, 265Principal amount (bonds), 692Principle-based accounting standards, rule-

based vs., 15Prior period adjustments, 147, 1197Prior service costs (PSC), 1060–1061, 1086Probability, degree of, 654The Procter & Gamble Company, 63, 112,

127, 171–172, 193, 210–238, 257,305–306, 376, 382, 484, 584, 588–589,604, 632, 684, 738, 767, 790, 811, 852,886n.12, 927, 987, 1044–1045, 1111,1177, 1239, 1308, 1317, 1377

Product costs, 391–392Product guarantees. see GuaranteesProduction variable method, 547Profitability ratios, 208, 1350, 1351Profit margin on sales ratio, 561Progress Energy, 794Projected benefit obligation, 1053–1057Project financing arrangement, 710Promissory note, 331Property, goods, or services, 335Property, plant, and equipment (PPE), 490

acquisition and valuation of, 490–498analysis of, 560–561on balance sheets, 185and cost of buildings, 491–492and cost of equipment, 492and cost of land, 491disclosure of, 1319and interest costs during construction,

493–498observations for, 498presentation of, 559–560

and self-constructed assets, 492–493valuation of, 498–507

Property dividends, 759Property-rights approach, 1120, 1149Proportional method, 746, 800–801Proposed Statements of Financial Accounting

Standards, 13Pro rata portion, 492Prorating, 699Proved reserves, 557PSC. see Prior service costsPublic Company Accounting Oversight

Board (PCAOB), 17, 1322n.5Pulitzer Inc., 603Pulliam, Susan, 381Purchases, misstatement/overstatement of,

390–391, 1207Purchase allowances, 456, 456n.13Purchase commitments, valuation of,

446–448Purchased goodwill, 598–599Purchased intangibles, 590Purchase discounts, 392–393, 456Purchase returns, 456Purchases-only-approach, 465n.2Pure rate of interest, 291Put option, 887n.15

Quaker Foods, 35Quaker Oats Company, 1194, 1202Quaker State Oil Refining Corp., 653Qualcomm Inc., 595, 596, 762, 823Qualified opinion, 1337Qualified pension plans, 1050Qualifying assets, 494Quality of earnings, 133Quality ratings (bonds), 694Quanex Corporation, 189Quantum Corporation, 343n.14Quarterly financial statements, 96Quest Company, 1087–1089Questcor Pharmaceuticals Inc., 759Qwest Communications, 506, 930, 932, 1150

R. G. Barry & Co., 74R. J. Reynolds, 36Rabigh Refining and Petrochemical

Company, 741Ranchers Exploration and Development

Corp., 759Rate of gross profit, 450n.11Rate of interest, 270Rate(s) of return, 388–389

on common stock equity, 767on sales, 561

Rate of return on assets (ROA), 561Ratios, 208. See also specific ratios, e.g.: Cash

debt coverage ratioactivity, 1350, 1351coverage, 1350, 1351liquidity, 1350, 1351profitability, 1350, 1351

Ratio analysis, 208–209, 1350–1352Raw materials inventory, 382Raymark Corporation, 664R&D. see Research and development

(R&D) costs



I-16 · Index

Reacquisition price, 701–702Readily determinable fair value, 908Real accounts, 69Real economic loss, 1158n.22Real estate investment trusts (REITs),

547n.7Realizable revenues, 933Realized revenues, 933Really Useful Group, 595Rearrangements, costs of, 510Reasonableness test, 1196n.5Receivables, 323–344. See also Accounts

receivable(s)analysis of, 344on balance sheets, 183basis of valuation of, 181classifying, 343defined, 323derecognizing, 345disappearing, 749impairment of, 352–356presentation of, 343with recourse, 340–341sales of, 339–343securitizing, 1251trade, 323without recourse, 340

Receivables turnover ratio, 344Reclassification adjustments, 876–879Recognized subsequent events, 1323Reconciliation method. see Indirect methodReconciliation to international standards,

1357, 1360Reconciling entry, final, 1280–1281Reconciling items, 350Record, date of (stock dividends), 758Recourse

defined, 339n.13receivables with, 340–341receivables without, 340

Recoverability tests, 552, 601–602Recoverable reserves, 556Recovery of investment test (90% test),

1122–1124, 1149Recovery periods, 564Redeemable preferred stock, 755Reed, Jack, 337Reeve, James M., 401n.6, 407n.13Refinancing, 642Refunding, 702Regions Bank, 927Registered bonds, 691Registrars, 743Reilly, David, 337Reinstallation costs, 510Reither, Cheri L., 877n.9REITs (real estate investment trusts),

547n.7Related-party transactions, disclosure of,

1321–1322Relative sales value, 446Reliance Power Ltd, 741Rendleman, Richard, Jr., 802n.6Rent-Way, Inc., 134Repairs, 510–511Replacements, 455n.12, 509Reported amounts, 993–994

Reporting, 4, 1341–1346change in entity, 1197of change in principle, 1186–1187of correction of error, 1197–1201criteria for accounting/reporting

choices, 1346on financial forecasts/projections,

1341–1343fraudulent financial reporting,

1344–1346Internet financial reporting, 1343requirements, 1315

Repossessions (installment sales), 953–954Research and development (R&D)

costs, 587–609accounting for, 605–606under contractual arrangements, 605n.13of extractive industries, 605n.12under GAAP/iGAAP, 612identifying, 604–605and investors, 609n.16presentation of, 609, 611

Reserves, cookie jar, 134Reserves errors, 1198Residual interest, 744Residual value, 1130, 1136–1141

guaranteed vs. unguaranteed, 1136and lease payments, 1136–1137lessee accounting for, 1137–1140lessor accounting for, 1140–1141meaning of, 1136

Restatement, 1199n.8, 1206Restaurant chains, 1127–1128Restoration costs, of depletion, 555Restricted cash, 321Restricted stock plans, 807–808Restricted-stock units, 808n.10Restrictions on retained earnings,

764–765, 1273Restructuring, 145n.15, 717–722

continuation of debt, 718–722settlement of debt, 717–718

Restructuring charge, 145Retail inventory methods, 452–457

concepts of, 453with conventional method, 453–456evaluation of, 457special items relating to, 456–457

Retail methods, 465–466Retained earnings

change in, 1258, 1277disclosures of restrictions on, 764–765illustration of statement of, 1276increase in, 1255reporting restrictions on, 1273restrictions of, 152restrictions on, 764–765statement of, 97on statement of stockholders’

equity, 152n.22as worksheet entry, 1277

Retained earnings adjustment, 1192Retained earnings statement, 152Retired shares, 753Retirement benefits. see Postretirement

benefitsRetirement of convertible debt, 798

Retrospective adjustment, 145Retrospective changes in accounting

principle, 1183–1190accounting for, 1191and equity method, 1197n.6example of, 1188–1190impracticability of, 1193–1194reporting of, 1186–1187

Returnable cash deposits, 643–644Reuters Group, 596Revaluation model, 206Revaluation surpluses, 769Revell, Janice, 173Revenue(s)

on financial statements, 134in income statement, 137overstatement of accrued, 1207understatement of unearned, 1206

Revenue bonds, 691Revenue expenditures, 508–509Revenue recognition, 930–966

after delivery, 948–959for consignments, 965–966current environment, 932–935before delivery, 937–948errors, 1198for franchises, 962–965at point of sale (delivery), 935–937and SFAC No. 3, 933n.5and SFAC No. 5, 933n.5, 933n.6, 937n.14,

948n.21–22for special sales transactions, 962–966

Reverse stock splits, 63Reversing differences, 1002Reversing entries, 95, 105–110Rhone-Poulenc Rorer (RPR), 433Richard, Christine, 689Richardson, A. W., 1145n.15Right of return, 935Risk, 178n.2

cash flow, 893exchange rate, 890interest rate, 890

Risk management (derivatives), 884–900Rite-Aid, 17RJR Nabisco, 690, 1331ROA (rate of return on assets), 561Rohde, L., 596Romero, Simon, 1150Royal Dutch/Shell, 557Rule-based accounting standards, 15Rural Electrification Corp, 741Ryder System, 177

S. C. Johnson, 141Sack, Robert J., 19, 1346Safe harbor rule, 1342, 1343Safeway, 452St. Regis Pulp Co., 868–869Sales

with buyback agreement, 388conditions for, 341and FASB, 341with high rates of return, 388–389on installment, 389with recourse, 340–341secured borrowing vs., 341–342



Index · I-17

of treasury stock, 752–753without recourse, 340–341

Sales agreements, 388–389Sales discounts, 325–326, 456Sale-leasebacks, 1157–1160

asset use determination in, 1157–1158example of, 1158–1159as term, 1157

Sales price of asset, 1142Sales-type leases, 1131–1132, 1141–1145Sales-warranty approach, 656–657Sales tax payable, 645Sales transactions, 934Salvage value, 540, 1136n.13Sampling, statistical, 385.1Sandberg, Jared, 508San Diego Gas and Electric (SDGE), 904SARs. see Stock appreciation rightsSarbanes-Oxley Act of 2002, 1322, 1340, 1346

and auditing standards, 13and “big GAAP versus little

GAAP,” 1316n.3and disclosure, 661key provisions of, 17revenue recognition, 932n.2and SEC, 661Section 404 of, 17

Sauter, Douglas, 13Savings certificates, money-market, 320n.1SBC Communications Inc., 1084Schiesel, Seth, 1150Schipper, Katherine, 1315n.2Schneider, David, 489Scholtes, S., 694Scott, Richard A., 949n.23Scott, Rita K., 949n.23Scott Paper, 1158Scribner, Edmund, 764n.17Seaboard Corporation, 324Searfoss, D., 1083n.25Sears Holdings, 326, 385, 437, 452Sears Roebuck, 326, 436, 1015Seasonality, 1333–1334SEC. see Securities and Exchange CommissionSecond income statement, 153Secret reserves, 748Secured bonds, 691Secured borrowing, 338, 341–342Securities, 858n.1

available-for-sale, 152n.21, 861–865,868–870

disclosure for, 881equity, 866–872held-to-maturity, 859–861holdings between 20% and 50%, 870–872holdings of less than 20%, 867–869holdings of more than 50%, 872short-term available-for-sale, 1269on statement of cash flows, 1246n.2trading, 865–866, 870, 1269

Securities and Exchange Commission(SEC), 26

and American Institute of CertifiedPublic Accountants, 7

on cash flow classification, 1266and Caterpillar, 1325on differential disclosure, 1315

and earnings management, 133enforcement by, 8–9and FASB, 8, 8n.6and GAAP standards development, 8IDEA database, 1344on interim reporting, 1334–1335as IOSCO member, 1358and management’s responsibilities for

financial statements, 1340on MD&A, 1338and off-balance-sheet financing, 710in private sector, 8and Sarbanes-Oxley Act of 2002, 661on timeliness of information, 1335

Securities Fair Value Adjustment account, 863

Securitization, 283, 339, 341, 353Securitizing receivables, 1251Segment disclosures, 1325–1329

disadvantages of, 1325–1326identifying operating segments for,

1326–1328illustration of, 1329measurement principles for, 1328objectives of, 1326principles of, 1326types of information in, 1328–1329

Self-insurance, 661–662Sender, Henny, 204, 506Senyak, C., 1015n.8Sepracor, Inc., 838September 11, 2001 terrorist attacks, 12

depreciation measures taken after, 564n.1effect on airlines, 178reporting extraordinary items after, 143

Serial bonds, 691Service costs, 1056, 1086Service lives, 541Service period, 805Service revenue, 102–103Settlement of debt, 717–7187-Eleven Stores, 962Seven Bank Ltd, 74175% test, 1122Sewer, Andy, 744Shares, reacquisition of, 749–753Share price appreciation, 827Share system, 742–743Shatner, William, 932Shaustyuk, K., 823Sherwin-Williams Company, 258Short, Daniel G., 408n.17, 410n.22Short account, 348Shortages, normal/abnormal, 456Short-term available-for-sale securities, 1269Short-term borrowing, 322Short-term creditors, 1349Short-term financing, 326n.4Short-term investments, 181–183Short-term nontrade notes payable, 1269Short-term obligations, 641n.5Short-term paper, 320n.1Short-term receivables, 323Showa Shell Sekiyu, 886n.12Shwiff, K., 1144Sick pay, 649Sidel, Robin, 187

Siebel Systems, 1315Significant influence, 870Significant noncash activities, 201–202Significant noncash transactions, 1272–1273Simple capital structure EPS, 812–816, 824

complex vs., 812–813comprehensive example of, 815–816preferred stock dividends, 812–813stock dividends/stock splits, 814–815weighted-average number of shares

outstanding, 813–814Simple interest, 266Simpson, Glenn, 991Single-period statements, correcting errors

on, 1200Single-step income statements, 135–136Single sum

future value of, 271–272present value of, 272–274

Single-sum problems, 270–275and future values of an annuity due,

278–281and present value of annuity due, 283–286and present value of ordinary annuity,

281–283solving for unknown in, 274–275

Skinner, D. J., 1011Small stock dividends, 761, 761n.15Smart Choice Automotive, 1202Smith, Alison, 451Smooth earnings, and change in

accounting method, 1203Smoothing unexpected gains/losses,

1063–1064Social Security, 267, 646–647Soft assets, 5Software costs, 608

accounting for, 614–617capitalized, 615–616reporting, 616

Software industry, 614n.17Solectron Corporation, 55Solomon, Deborah, 508Solvency, 179, 199Solvency ratios, 1350n.28Sonic Foundry Corporation, 299SOP (Statements of Position), 12SoRIE (Statement of recognized income

and expense), 769Sotheby’s Holdings, 387Sougiannis, Theodore, 609n.16Southern California Edison, 755Southwest Airlines, 85, 488–489, 510–511,

885, 1048, 1114, 1115, 1178, 1244SPEs. see Special purpose entitiesSpecial assessments, 491Special journals, 76Special purpose entities (SPEs), 342–343,

709–710, 902, 1115Specific-goods LIFO approach, 400–401Specific-goods pooled approach, 401–406Specific-goods pooled LIFO approach,

400–401Specific identification, 868n.6Specific indexes, 403n.9Specific items, 148Speculators, and derivatives, 885



I-18 · Index

Sprint Nextel, 633Staff positions, 11Standard account form, 76Standardized cost system, 445n.4Standard & Poor’s Corporation, 694Standards-setting

government intervention in, 27–28international, 1356–1360in political environment, 15–17

Stanga, Keith G., 401n.6, 407n.13Staples, 439Starbucks Corp., 55, 490, 859, 911, 1116, 1129Start-up costs, 606–607State corporate law, 742Stated interest rate, 331n.9Stated rate, 269, 692Stated value method, 751Statement of cash flows, 69, 197–205

classification of cash flows on, 1245–1247content and format of, 198–199format of, 1247GAAP/iGAAP standards, 1283purpose of, 197–198, 1244usefulness of, 203–204, 1244

Statement of cash flows preparation,200–202, 1247–1282

and accounts receivable (net), 1267–1269and adjustments similar to depreciation,

1266–1267and extraordinary items, 1271–1272final, 1282and gains, 1270indirect vs. direct method in, 1259–1266and net losses, 1269–1270and postretirement benefit costs, 1271and significant noncash transactions,

1272–1273sources for information used on, 1259steps in, 1247–1248and stock options, 1270–12712009 example of, 1248–12522010 example of, 1253–12552011 example of, 1255–1258and working capital changes, 1269worksheet used for (see Statement of

cash flows worksheet)Statement of cash flows worksheet, 1273–1282

accounts receivable (net), 1277building depreciation and amortization

of trademark, 1279change in retained earnings, 1277common stock/related accounts, 1280equipment and accumulated

depreciation, 1279final reconciling entry, 1280guidelines for using, 1274illustration of completed, 1281inventories, 1278investment in stock, 1278land, 1278noncash charges/credits, 1280prepaid expense, 1278preparing, 1275–1277reasons for using, 1273–1274

Statements of Financial Accounting Concepts, 12No. 1, 1314, 1339No. 3, 933n.5

No. 5 (“Recognition and Measurementin Financial Statements of BusinessEnterprises”), 141n.12, 709, 933n.6,935n.11, 937n.14, 948n.21–22

No. 6 (“Elements of Financial Statementsof Business Enterprises”), 135n.7,700n.5, 709, 744

Statements of Financial Accounting Standards,11, 26, 1148–1150

FASB Standards Statement, 11No. 6 (“Elements of Financial

Statements”), 1083n.23No. 13 (“Accounting for Leases”),

1129n.10, 1145, 1151No. 34 (“Capitalization of Interest

Cost”), 495n.3No. 58 (“Reports on Audited Financial

Statements”), 1202n.10No. 109 (“An Empirical Investigation of

Its Incremental Value-RelevanceRelative to APB No. 11”), 996

No. 114 (“Accounting by Creditors forImpairment of a Loan”), 718n.15,718n.16

No. 128 (“Earnings Per Share”), 820n.17No. 130 (“Reporting Comprehensive

Income”), 766n.20, 908No. 133 (“Accounting for Derivative

Instruments and Hedging Activities”), 900

No. 145 (“Recission of FASH StatementsNo. 4, 44, and 64, and TechnicalCorrections”), 702n.9

Statement of financial position, 178. See alsoBalance sheet(s)

Statement of recognized income andexpense (SoRIE), 155, 769

Statement of retained earnings, 97Statement of stockholders’ equity, 152n.22,

153–154, 766Statement on Auditing Standards

No. 54 (“Illegal Acts by Clients”), 1322n.7

No. 58 (“Reports on Audited FinancialStatements”), 1335n.13

No. 99 (“Consideration of Fraud in aFinancial Statement Audit”), 1322n.5,1346n.27

No. 101 (“Interim Financial Information”),1335n.11

Statements of Position (SOP), 12Statistical sampling, 385.1Stauffer Chemical Company, 406Stead, D., 1321Sterling Construction Corp., 1124–1127,

1130, 1132–1134, 1136–1141, 1144–1146

Sternstein, Aliya, 1315n.1Stickney, Clyde P., 1243Stires, David, 811STMicroelectronics (STM), 799Stock. See also specific types, e.g.: Preferred

stockbuybacks (see Buyback(s))change related to investment in

common, 1267costs of issuing, 748

dividend distributions, 757issuance of, 501, 745issuance of, below par value, 745n.3issuance of, in noncash transaction,

747–748issuance of, with other securities, 746–747rights and privileges of, 742–743as worksheet entry, 1280

Stock appreciation rights (SARs), 827–829equity awards, 827example of, 828–829liability awards, 827–828

Stock-based compensation plans, 803–811accounting for, 811debate over stock option accounting,

809–811disclosure of, 09employee stock purchase plans, 808–809and fair value, 265reporting issue with, 804–805restricted-stock, 807–808stock appreciation rights, 827–829

Stock dividends, 643, 760–761, 761n.15in EPS computation, 814–815and par value, 763–764reporting, 1273stock splits vs., 763–764

Stockholders, 743, 1349Stockholders’ equity, 72, 189, 740–768

analysis of, 767–768on balance sheet, 765–766and corporate capital, 744–753in corporation, 742presentation of, 765–766and SFAS No. 6, 744n.2statement of (see Statement of

stockholders’ equity)Stock investment, as worksheet entry, 1278Stock markets, 1316Stock options, 803, 1270–1271

in diluted EPS computation, 819–820errors in, 1198reduced use of, 794–795

Stock right, 743n.1, 803Stock splits, 762–763

in 1990s, 763in EPS computation, 814–815reporting, 1273reverse, 763stock dividends vs., 763–764

Stock warrants, 743n.1, 799–803conceptual questions regarding, 802in diluted EPS computation, 819–820incremental method, 801issued with other securities, 800proportional method, 800–801rights to subscribe to additional

shares, 803Storey, Reed K., 32n.1Storey, Sylvia, 32n.1Stott, David, 547n.7Straight-line amortization, 1061Straight-line method for depreciation,

543–544Strand, W. K., 541n.1Strict cash basis, 101Strike price, 887



Index · I-19

Stroh’s Brewery Co., 1078Stuart, A., 131Study Group on Establishment of

Accounting Principles, 9Subprime mortgage crisis, 342–343, 353–354Subsequent events. see Post-balance-sheet

eventsSubsequent events (post-balance-sheet

events), 1323–1324Subsidiary ledger, 69Substitution approach, 509–510Successful-efforts concept, 557–558Sullivan, Scott, 26–27Summary of Significant Accounting, 192Summers, Lawrence, 18Sum-of-the-years’-digits method, 544Sunbeam, 17, 49, 937, 1202Sunder, Shyam, 409n.20Sunshine Mining, 32, 691SunTrust Banks, 5, 17, 330Supersession, 541SUPERVALU Inc., 433Supporting schedules, 196Sweden, 1122Swensen’s, Inc., 963n.30Swieringa, R. J., 1145n.15Switzerland, 1122Synthetic lease, 1115, 1118

T-account, 75Taco Bell, 193Take-or-pay contract, 710Takeover protection covenants, 797n.2Tangreti, Robert, 1346Target Corporation, 56, 198, 326, 330, 385,

436, 438, 452, 462, 490, 569, 1184Tastee Freeze, 962Tasty Baking Company, 1147, 1178Taxes. See also Income taxes, accounting for

corporate, 646n.6disclosure of, 1320employer payroll, 648errors in, 1198and leasing, 1130Social Security, 646–647unemployment, 647

Taxable amounts, 994Taxable income, 992–993, 1001–1004, 1018Taxable temporary differences, 1001, 1018Tax depreciation, book depreciation vs.,

566–567Tax-planning strategy, 1018Tax rates, 1004–1005Tax Reform Act of 1986, 564TCBY, 962Technological feasibility, 615, 617Technology-related intangible assets,

595–597Teco Energy, 177Temporary accounts, 93Temporary differences, 993, 1001–1002, 1018

examples of, 1003–1004originating, 1002originating/reversing aspects of, 1002and SFAS No. 6, 996

Tenet Healthcare, 319Tenneco, Inc., 800

Tergesen, Ann, 751, 1251Term bonds, 691Terminations, pension, 1078–1079Texaco, 329TGI Friday’s, 962TGK-7 (Volzhskaya TGK), 741TheStreet.com, 689Third-party guarantors, 1123, 11493M, 767Three-column form of account, 77Timberland, 177Time diagram, 270Timelines, 5Times interest earned ratio, 713Time value concepts, 264–270

applications of, 264–265and compound interest, 266–269and interest, 265and simple interest, 266variables fundamental to, 270

Timex, 438Timmons, H., 694T J International, 431–432Tomkins PLC, 260Tootsie Roll Industries, 173, 560–561, 759,

1090–1091, 1317–1319, 1330Total comprehensive income, 766n.20Townsend, Leah, 17n.12, 68n.1Toyota, 132, 595Toys R Us, 1244Trade accounts payable. see Accounts

payable(s)Trade accounts receivable, 336Trade discounts, 324–325Trade loading, 936Trademark (trade name), 593, 1279Trade notes payable. see Notes payableTrade receivables, 323Trading, 182

debt securities, 859on the equity, 767

Trading securities, 865–866, 870, 1269Traditional LIFO, 399Transactions, 68, 75

and cash flows statement, 1248identifying and recording, 73–75

Transaction approach, 134Transfer agents, 743Transfers between investment categories, 879Transfer of ownership test, 1121Transfers-in, 456Transwitch, 444Travel advances, 320Treasury bills, 320n.1Treasury stock (shares), 750

acquisitions of, 751n.8as assets, 750n.6buyback of, 756n.11and capital stock, 750cash dividends on, 759under GAAP and iGAAP, 769purchase of, 751–752retiring, 753sale of, 752–753

Treasury-stock method, 820, 831Trial balance, 63, 80–81. See also specific

types, e.g.: Adjusted trial balance

Trial balance columns, 108Triggers, debt-rating, 1321Triple smoothing, 1067Troubled debt

accounting for, 716–722restructuring, 717–722

True-Value Hardware, 452Trump Hotels & Casino Resorts (DJT), 823Trusts, 1051, 1052Trustees, 1051Tucker, Reed, 597Turner, Lynn, 749Turner, Ted, 750Turnover ratios, 1350n.28TWA, 1079Twarowski, C., 1343n.22Tweedie, Sir David, 1347Two-class common shares, 820n.21TXU Corp., 1116Tyco International, 1321n.4, 1345

UAL, Inc., 1178Unamortized bond issue costs, 700Uncertain tax positions, 1016–1017, 1019Uncollectible accounts receivable,

326–331, 953Underfunded pension plans, 1054, 1070,

1078n.16Understatement of unearned revenue, 1206Underwriters Labs Inc., 1195Unearned revenues, 644

adjusting entries for, 85–86as class of adjusting entries, 81understatement of, 1206

Unemployment taxes, 647Unexpected (deferred) asset gain or loss, 1066Unfiled suits, 654Unguaranteed residual value, 1123

in lessee accounting, 1138–1140in lessor accounting, 1140–1141for sales-type lease, 1143, 1144

Uniform Commercial Code, 743Uniform Stock Transfer Act, 743Union Planters, 927–928Uniroyal Technology Corporation (UTC), 258Unisys Corp., 1064Unit approach, and Accounting Standards

Executive Committee (AcSEC), 547n.6United Airlines, 178, 658, 716, 885, 1048,

1079, 1114, 1115United Kingdom, 1342, 1357–1360United Parcel Service (UPS), 36, 552United States

aging population of, 1053standards in, 1357, 1360

United States Steel, 742Unit LIFO, 399Units-of-production approach, 555Universal Pictures, 1325Unqualified opinion, 1337Unrealized holding gain, 336Unrealized holding loss, 336Unrecognized gains/losses

in pension plan, 1065–1066in postretirement benefits, 1089

Unsecured bonds, 691Unusual gains or losses, 144–145, 148



I-20 · Index

Upper (ceiling), 439–440UPS Capital, 1117Upton, Wayne, Jr., 179n.5US Airways, 178, 1079USX Corp., 329

Valuationof accounts receivable, 326–331of inventories, 386, 445–448at net realizable value, 445of notes receivables, 335–336and purchase commitments, 446–448and SFAS No. 157, 500n.4using relative sales value, 446

Valuation allowance, 1010–1011, 1018for deferred tax asset, 999–1000evidence for, 1010–1011loss carryforward with, 1009–1010loss carryforward without, 1008–1009

Vames, Steven, 643, 689The Vanguard Group, 692Variable-interest entities (VIEs), 902–904Variable-rate mortgage, 709Varshney, A., 1116Vatter, William J., 326n.5Verifiable benchmark, 42Verity, Inc., 1011Verizon Communications Inc., 1084Vermont Teddy Bear Co., 1309Vertical percentage analysis, 1354Vested (term), 805n.8Vested benefits, 1053, 1055Vested rights, 649Viacom Inc., 1116Vickrey, Don, 761n.15VIEs. see Variable-interest entitiesVincent, Linda, 547n.7VISA, 338, 339n.12, 741Vishay Technologies, 444Visteon, 17Vivendi Universal Entertainment, 1325Vodafone/Mannesmann, 20, 1356

W. R. Grace, 40, 134W. T. Grant Company, 198, 203, 1243, 1273Wachovia, 809Wages, failure to record accrued, 1206Walgreen Co., 55, 82, 112, 172, 180, 387,

748, 1129Wallman, Steven H., 40n.10Wal-Mart, Inc., 64, 236, 301, 382, 386, 436,

452, 462, 470, 488–489, 491, 645, 749Walt Disney Company, 35, 591, 594, 744Want Want China Holdings, 741Warrants. see Stock warrantsWarranties, 655–657. See also Guarantees

accrual method for, 655cash-basis method for, 655tax deduction for, 997

Washington Mutual, 633The Washington Post, 809, 811Waste Management, 538Watered stock, 748Watts, Ross L., 1203n.11Webber, Andrew Lloyd, 594Webber Inc., 416Weber, R. P., 1015n.7Webvan, 763Weighted-average accumulated

expenditures, 494–495, 495n.3Weighted-average method, 395Weighted-average number of shares

outstanding, 813–814, 830Weil, J., 49, 140, 319, 603, 749, 865, 999Weirton Steel, 1079Welch, David, 1049“Welfare benefits,” 1082Wells Fargo, 1117Western Airlines, 1078Westinghouse Electric Corporation, 987Weyerhaeuser Company, 143, 184, 447Wheat, Francis, 9Wheat Committee, 9Wheeler, J. E., 1015n.7Wherehouse Entertainment Inc., 797n.2

Whole Foods Market, 1129WHX Corporation, 547Wiebold, Incorporated, 791Wilbert, James, R., 1086n.27Willamette Industries, 195, 551Williams Companies, 710Williams-Sonoma Inc., 904William Wrigley Jr. (company), 438Wingfield, Nick, 593n.3Wolverton, Troy, 811Working capital, 187, 1269Working capital ratio, 665Work in process inventory, 382Worksheet(s)

adjustments entered on, 108–109pension (see Pension worksheet)preparation of, 110statement of cash flows (see Statement of

cash flows worksheet)WorldCom, 2, 17, 26–27, 204, 508, 1315, 1345Wright, David W., 1352n.30Write-offs, 140–141, 538–539, 999Written off, accounts receivable, 330–331

XBRL (extensible business reporting language), 1343

Xerox, 17, 331, 595, 1144, 1273

Yahoo, Inc., 47, 55, 323, 795, 1006, 1015, 1016Year-end-adjustment, expenses subject

to, 1332Years-of-service amortization, 1060–1061Young, S., 937

Zeff, Stephen A., 17n.10, 761n.14Zero-interest-bearing notes, 331–333,

640–641, 704–705Zero-interest debenture bonds, 691Zimmerman, Jerold L., 1203n.11Zion, David, 564n.1, 1069, 1116Z-scores, 191Zuckerman, G., 703



bindex

Documents

certified public accountants

aicpa task force

uncertain tax positions

cost flow assumption

lifo conformity rule

smoothing unexpected gains losses

audited financial statements

related intangible assets