Financial Accounting with International Financial Reporting Standards 4/e PDF
Preview Financial Accounting with International Financial Reporting Standards 4/e
lOMoARcPSD|5814602 FFiinnaanncciiaall AAccccoouunnttiinngg wwiitthh IInntteerrnnaattiioonnaall FFiinnaanncciiaall RReeppoorrttiinngg SSttaannddaarrddss,, 44tthh EEddiittiioonn FFiinnaanncciiaall AAccccoouunnttiinngg wwiitthh IIFFRRSS,,44tthh EEddiittiioonn FFiinnaanncciiaall AAccccoouunnttiinngg ((UUnniivveerrssiittyy ooff CChhiiccaaggoo)) SSttuuDDooccuu iiss nnoott ssppoonnssoorreedd oorr eennddoorrsseedd bbyy aannyy ccoolllleeggee oorr uunniivveerrssiittyy Downloaded by ?? ? ([email protected]) lOMoARcPSD|5814602 Downloaded by ?? ? ([email protected]) lOMoARcPSD|5814602 Downloaded by ?? ? ([email protected]) lOMoARcPSD|5814602 Financial Accounting with International Financial Reporting Standards Fourth Edition JERRY J. WEYGANDT PhD, CPA University of Wisconsin—Madison Madison, Wisconsin PAUL D. KIMMEL PhD, CPA University of Wisconsin—Milwaukee Milwaukee, Wisconsin DONALD E. KIESO PhD, CPA Northern Illinois University DeKalb, Illinois Downloaded by ?? ? ([email protected]) lOMoARcPSD|5814602 DEDICATED TO Our wives, Enid, Merlynn, and Donna, for their love, support, and encouragement. DIRECTOR Michael McDonald ACQUISITIONS EDITOR Zoe Craig LEAD PRODUCT DESIGNER Ed Brislin PRODUCT DESIGNER Lindsey Myers EDITORIAL SUPERVISOR Terry Ann Tatro EDITORIAL ASSOCIATE Margaret Thompson EDITORIAL ASSISTANT Alyce Pellegrino SENIOR CONTENT MANAGER Dorothy Sinclair SENIOR PRODUCTION EDITOR Elena Saccaro SENIOR DESIGNER Wendy Lai SENIOR PHOTO EDITOR Mary Ann Price COVER IMAGE © Teodulo Vida/EyeEm/Getty Images This book was set in Stix Regular by Aptara®, Inc. Founded in 1807, John Wiley & Sons, Inc. has been a valued source of knowledge and understanding for more than 200 years, helping people around the world meet their needs and fulfi ll their aspirations. Our company is built on a foundation of principles that include responsibility to the communities we serve and where we live and work. In 2008, we launched a Corporate Citizenship Initiative, a global eff ort to address the environmental, social, economic, and ethical challenges we face in our business. Among the issues we are addressing are carbon impact, paper specifi cations and procurement, ethical conduct within our business and among our vendors, and community and charitable support. For more informa- tion, please visit our website: www.wiley.com/go/citizenship. Copyright © 2019 John Wiley & Sons, Inc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechan- ical, photocopying, recording, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc. 222 Rosewood Drive, Danvers, MA 01923, website www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774, (201)748-6011, fax (201)748-6008, website http://www.wiley.com/ go/permissions. ISBN-13: 978-1-119-50340-8 The inside back cover will contain printing identifi cation and country of origin if omitted from this page. In addition, if the ISBN on the back cover diff ers from the ISBN on this page, the one on the back cover is correct. Printed in Singapore by Markono Print Media Pte Ltd. 10 9 8 7 6 5 4 3 2 1 Downloaded by ?? ? ([email protected]) lOMoARcPSD|5814602 Brief Contents 1 Accounting in Action 1-1 2 The Recording Process 2-1 3 Adjusting the Accounts 3-1 4 Completing the Accounting Cycle 4-1 5 Accounting for Merchandise Operations 5-1 6 Inventories 6-1 7 Fraud, Internal Control, and Cash 7-1 8 Accounting for Receivables 8-1 9 Plant Assets, Natural Resources, and Intangible Assets 9-1 10 Current Liabilities 10-1 11 Non-Current Liabilities 11-1 12 Corporations: Organization, Share Transactions, and Equity 12-1 13 Investments 13-1 14 Statement of Cash Flows 14-1 15 Financial Analysis: The Big Picture 15-1 APPENDICES A Specimen Financial Statements: TSMC, Ltd. A-1 B Specimen Financial Statements: Nestlé SA B-1 C Specimen Financial Statements: Delfi Limited C-1 D Specimen Financial Statements: Apple Inc. D-1 E Time Value of Money E-1 F Accounting for Partnerships F-1 G Subsidiary Ledgers and Special Journals G-1 COMPANY INDEX / SUBJECT INDEX I-1 iii Downloaded by ?? ? ([email protected]) lOMoARcPSD|5814602 From the Authors Dear Student, WHY THIS TEXT? Your instructor has chosen this text for you because of the authors’ trusted reputation. The authors have WHY THIS COURSE? Remember your biology course worked hard to write a text that is engaging, timely, and accurate. in high school? Did you have one of those “invisible man” models (or maybe something more high-tech than that) that HOW TO SUCCEED? We’ve asked many students and many gave you the opportunity to look “inside” the human body? instructors whether there is a secret for success in this course. This accounting course off ers something similar. To under- The nearly unanimous answer turns out to be not much of a stand a business, you have to secret: “Do the homework.” This is one understand the fi nancial in- “Whether you are looking at a large multina- course where doing is learning. The more sides of a business organiza- tional company like Samsung or adidas or time you spend on the homework assign- tion. A fi nancial accounting ments—using the various tools that this a single-owner software consulting business course will help you under- text provides—the more likely you are to or coffee shop, knowing the fundamentals of stand the essential fi nancial learn the essential concepts, techniques, financial accounting will help you understand components of businesses. and methods of accounting. Besides the what is happening.” Whether you are looking at a text itself, the book’s companion website large multinational company also off ers various support resources. like Samsung or adidas or a single-owner software consult- Good luck in this course. We hope you enjoy the experience ing business or coff ee shop, knowing the fundamentals of and that you put to good use throughout a lifetime of success fi nancial accounting will help you understand what is hap- the knowledge you obtain in this course. We are sure you will pening. As an employee, a manager, an investor, a business not be disappointed. owner, or a director of your own personal fi nances—any of which roles you will have at some point in your life—you Jerry J. Weygandt will make better decisions for having taken this course. Paul D. Kimmel Donald E. Kieso iv Downloaded by ?? ? ([email protected]) lOMoARcPSD|5814602 Author Commitment Jerry Weygandt Paul Kimmel Don Kieso JERRY J. WEYGANDT, PhD, PAUL D. KIMMEL, PhD, CPA, DONALD E. KIESO, PhD, CPA, CPA, is Arthur Andersen Alumni Emeritus r eceived his bachelor’s degree from the Uni- received his bachelor’s degree from Aurora Uni- Professor of Accounting at the University of versity of Minnesota and his doctorate in ac- versity and his doctorate in accounting from the Wisconsin—Madison. He holds a Ph.D. in counting from the University of Wisconsin. University of Illinois. He has served as chairman accounting from the University of Illinois. He teaches at the Univers ity of Wisconsin— of the Department of Accountancy and is currently A rticles by Professor Weygandt have a ppeared Milwaukee and Madison, and has public ac- the KPMG Emeritus Professor of Accountancy in The Accounting Review, Journal of Account- counting experience with Deloitte & Touche at Northern Illinois University. He has public ing Research, Accounting Horizons, Journal of (Minneapolis). He was the recipient of the accounting experience with Price Waterhouse Accountancy, and other academic and profes- UWM School of Business Advisory Council & Co. (San Francisco and Chicago) and Arthur sional journals. These articles have examined Teaching Award, the Reggie Taite Excellence Andersen & Co. (Chicago) and research experi- such fi nancial reporting issues as accounting for in Teaching Award and a three-time winner ence with the Research Division of the American price-level adjustments, pensions, convertible of the Outstanding Teaching Assistant Award Institute of Certified Public Accountants (New securities, stock option contracts, and i nterim at the University of Wisconsin. He is also a York). He has done post doctorate work as a reports. Professor Weygandt is author of other recipient of the Elijah Watts Sells Award for Visiting Scholar at the University of California accounting and fi nancial r eporting books and Honorary Distinction for his results on the at Berkeley and is a recipient of NIU’s Teach- is a member of the American Accounting CPA exam. He is a member of the American ing Excellence Award and four Golden Apple Association, the American Institute of Cer- Accounting Association and the Institute of Teaching Awards. Professor Kieso is the a uthor tifi ed Public Accountants, and the Wiscon- Management Accountants and has published of other accounting and business books and is a sin Society of Certifi ed Public A ccountants. articles in The Accounting Review, Accounting member of the American Accounting Associa- He has served on numerous committees of H orizons, Advances in Management Accounting, tion, the A merican Institute of Certified Public the American Accounting Association and Managerial Finance, Issues in Accounting Accountants, and the Illinois CPA Society. as a member of the editorial board of The Education, Journal of Accounting Education, He has served as a member of the Board of Accounting Review; he also has served as Pres- as well as other journals. His research interests Directors of the Illinois CPA Society, then ident and Secretary-Treasurer of the A merican include accounting for fi nancial instruments AACSB’s Accounting Accreditation Commit- Accounting Association. In addition, he has and innovation in accounting education. He tees, the State of Illinois Comptroller’s Commis- been actively involved with the American has published papers and given numerous talks sion, as Secretary-Treasurer of the Federation Institute of Certifi ed Public Accountants and on incorporating critical thinking into account- of Schools of Accountancy, and as Secretary- has been a member of the Accounting Stand- ing education, and helped prepare a catalog of Treasurer of the American Accounting Associa- ards Executive Committee (AcSEC) of that critical thinking resources for the Federated tion. Professor Kieso is currently serving on the organization. He has served on the FASB task Schools of Accountancy. Board of Trustees and Executive Committee of force that examined the reporting issues related Aurora University, as a member of the Board of to accounting for income taxes and served as a Directors of Kishwaukee Community Hospital, trustee of the Financial Accounting Foundation. and as Treasurer and Director of Valley West Professor Weygandt has received the Chancellor’s Community Hospital. From 1989 to 1993 he Award for Excellence in Teaching and the Beta served as a charter member of the national Ac- Gamma Sigma Dean’s Teaching Award. He is on counting Education Change Commission. He the board of directors of Bascom-Palmer Eye is the recipient of the Outstanding Accounting Institute—Naples and also on the board of Artis— E ducator Award from the Illinois CPA Society, Naples. He is the recipient of the Wisconsin In- the FSA’s Joseph A. Silvoso Award of Merit, stitute of CPA’s Outstanding Educator’s Award the NIU Foundation’s Humanitarian Award for and the Lifetime Achievement Award. In 2001 Service to Higher Education, a Distinguished he received the American Accounting Associa- Service Award from the Illinois CPA Society, tion’s Outstanding Educator Award. and in 2003 an honorary doctorate from Aurora University. v Downloaded by ?? ? ([email protected]) lOMoARcPSD|5814602 Hallmark Features Financial Accounting provides a simple and practical introduction to the fundamentals of fi nancial accounting. It explains the concepts you need to know. This edition continues this approach by off ering even more explanations, illustrations, and homework problems to help students get a fi rm understanding of the accounting cycle. DO IT! Exercises DO IT! Exercises in the body of the text prompt students to stop and review key concepts. They outline the Action Plan necessary to complete the exercise as well as show a detailed solution. ACTION PLAN DO IT! 2 Closing Entries • Close revenue and expense accounts to Hancock Heating has the following balances in selected accounts of its adjusted trial balance. Income Summary. Accounts Payable €27,000 Dividends €15,000 • Close Income Summary Service Revenue 98,000 Share Capital—Ordinary 42,000 to Retained Earnings. Rent Expense 22,000 Accounts Receivable 38,000 Salaries and Wages Expense 51,000 Supplies Expense 7,000 • Close Dividends to Retained Earnings. Prepare the closing entries at December 31. Solution Dec. 31 Service Revenue 98,000 Income Summary 98,000 ( To close revenue account to Income Summary) 31 Income Summary 80,000 Salaries and Wages Expense 51,000 Rent Expense 22,000 Supplies Expense 7,000 ( To close expense accounts to Income Summary) Review and Practice Each chapter concludes with a Review and Practice section which includes a review of learn- ing objectives, key terms glossary, practice multiple-choice questions with annotated solu- tions, practice brief exercises with solutions, practice exercises with solutions, and a practice problem with a solution. Practice Brief Exercises Prepare the current assets section of a 3. (LO 4) The statement of fi nancial position debit column of the worksheet for Soon Cosmetics statement of fi nancial position. i ncludes the following accounts (amounts in thousands): Accounts Receivable W25,000, Prepaid Insurance W7,000, Cash W8,000, Supplies W11,000, and Inventory W14,000. Prepare the current assets section of the statement of fi nancial position, listing the accounts in proper sequence. Solution 3. Soon Cosmetics Statement of Financial Position (partial) Current assets Prepaid insurance W 7,000 Supplies 11,000 Inventory 14,000 Accounts receivable 25,000 Cash 8,000 Total current assets W65,000 vi Downloaded by ?? ? ([email protected]) lOMoARcPSD|5814602 Hallmark Features vii Infographic Learning Over half of the text is visual, providing students alternative ways of learning about a ccounting. In addition, a new interior design promotes accessibility. ILLUSTRATION 2.1 Title of Account Basic form of account Left or debit side Right or credit side Real-World Decision-Making Real-world examples that illustrate interesting situations in companies and how accounting information is used are integrated throughout the text, such as in the opening Feature Story as well as the Insight boxes. People, Planet, and Profit Insight Nestlé SA Creating Value Nutrition: Products meeting or exceeding Nutritional Founda- tion profi ling criteria (as percentage of total sales) and products Appendix B contains the fi nancial state- with increase in nutritious ingredients or essential nutrients. ments of Nestlé SA (CHE). Those fi nan- cial statements report on the company’s Water and Environmental Sustainability: Quality of water dis- profi tability and fi nancial position. In charged (average mg COD/I) and packaging weight reduction (tonnes). addition to these fi nancial statements, Rural Development: Farmers trained through capacity-build- Nestlé, like many other companies today, ing programs and suppliers audited for food safety, quality, and also reports its achievements with regard processing. to other, non-fi nancial goals. In Nestlé’s Simon Rawles/Alamy cVaasleu,e i.t” cNalelsst ltéh ehsaes g soeatl so “bCjercetaitviensg tSoh hareelpd Tthoe lceoamrnp manoyr’es awbeobusti tNe.estlé’s eff orts to create shared value, go to society in areas most directly related to its particular expertise: nutrition, water and environmental sustainability, and rural What are some implications of Nestlé’s decision to measure development. The company evaluates its progress in each area its results using objective measures and then publicly report using objective measures. Examples of measures used are pro- these results? (Go to the book’s companion website for this vided below. answer and additional questions.) Additional Guidance Throughout the text, marginal notes, such as Helpful Hints, Alternative Terminology, and Ethics Notes, are provided as additional guidance. Correcting Entries—An Avoidable Step Unfortunately, errors may occur in the recording process. Companies should correct errors, as soon as they discover them, by journalizing and posting correcting entries. If the account- ing records are free of errors, no correcting entries are needed. You should recognize several diff erences between correcting entries and adjusting entries. First, adjusting entries are an integral part of the accounting cycle. Correcting entries, on the ETHICS NOTE other hand, are unnecessary if the records are error-free. Second, companies journalize and post When companies fi nd errors adjustments only at the end of an accounting period. In contrast, companies make correcting in previously released income entries whenever they discover an error (see Ethics Note). Finally, adjusting entries always statements, they restate those aff ect at least one statement of fi nancial position account and one income statement account. In numbers. Downloaded by ?? ? ([email protected])
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