Schaum's Outline of Intermediate Accounting II

291 Pages·2009·1.15 MB·English

by  Baruch Englard

SCHAUM’S
OUTLINE OF
Intermediate
Accounting II
This page intentionally left blank
SCHAUM’S
OUTLINE OF
Intermediate
Accounting II
Second Edition
Baruch Englard, M.S., M.B.A., CPA
Associate Professor of Accounting
The College of Staten Island
The City University of New York
Schaum’s Outline Series
New York Chicago San Francisco Lisbon
London Madrid Mexico City Milan New Delhi
San Juan Seoul Singapore Sydney Toronto
Copyright © 2007, 1992 by The McGraw-Hill Companies, Inc. All rights reserved. Except as permitted under the United States Copyright
Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval
system, without the prior written permission of the publisher.
ISBN: 978-0-07-170240-9
MHID: 0-07-170240-7
The material in this eBook also appears in the print version of this title: ISBN: 978-0-07-161166-4, MHID: 0-07-161166-5.
All trademarks are trademarks of their respective owners. Rather than put a trademark symbol after every occurrence of a trademarked
name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the
trademark. Where such designations appear in this book, they have been printed with initial caps.
McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales promotions, or for use in corporate training
programs. To contact a representative please e-mail us at [email protected].
TERMS OF USE
This is a copyrighted work and The McGraw-Hill Companies, Inc. (“McGraw-Hill”) and its licensors reserve all rights in and to the work.
Use of this work is subject to these terms. Except as permitted under the Copyright Act of 1976 and the right to store and retrieve one copy
of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, transmit,
distribute, disseminate, sell, publish or sublicense the work or any part of it without McGraw-Hill’s prior consent. You may use the work
for your own noncommercial and personal use; any other use of the work is strictly prohibited. Your right to use the work may be
terminated if you fail to comply with these terms.
THE WORK IS PROVIDED “AS IS.” McGRAW-HILL AND ITS LICENSORS MAKE NO GUARANTEES OR WARRANTIES AS TO
THE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUD-
ING ANY INFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE, AND
EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WAR-
RANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. McGraw-Hill and its licensors do not warrant or
guarantee that the functions contained in the work will meet your requirements or that its operation will be uninterrupted or error free.
Neither McGraw-Hill nor its licensors shall be liable to you or anyone else for any inaccuracy, error or omission, regardless of cause, in the
work or for any damages resulting therefrom. McGraw-Hill has no responsibility for the content of any information accessed through the
work. Under no circumstances shall McGraw-Hill and/or its licensors be liable for any indirect, incidental, special, punitive, consequential
or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the possibility of such
damages. This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or
otherwise.
To Moshe, Rochel, Naomi and Yosef...
with Love
iii
Preface to the Teacher and Student
Thisbookmaybeusedasacompletestand-alonetextfortheclassroom,orasasupplementtoastandard
intermediate accounting textbook. I have written it with two goals in mind: to provide complete coverage of
thematerialandtopresentitinaclearandeasy-to-readmanner.
Thebookcontainsbroadandin-depthcoverageoftheIntermediateAccountingIItopics.Itcoverstheory
and practice and is helpful as a study aid for the CPAexamination. The latest pronouncements of the FASB
havebeenwovenintothetext.
Eachchapterthoroughlydiscussesthetopicathandandthenconcludeswithasummary.Thisisfollowed
byaseriesofrapid-reviewquestionsthatrequirefill-intypeanswers.
At this point the student should have a good, overall understanding of the material presented. What then
followsisaseriesofsolvedproblemsthatthoroughlychallengethestudent’sgraspofthematerial.Thestudent
isencouragedtosolvethesewithoutlookingattheanswers.Theproblemsarepresentedinthesameorderas
thechaptermaterialandarekeyedtothechaptersections.
Finally, the chapter concludes with approximately ten supplemental problems without answers for addi-
tional practice. These may be selected by the teacher as assignment material to be done at home or in
class.
The author wishes to thank Kim Eaton and Chuck Wall of McGraw-Hill for their help in managing the
bookthroughtheeditingandproductionphases.
BaruchEnglard
Brooklyn,NY
April2007
iv
Contents
CHAPTER 1 LONG-TERMLIABILITIES ............................................... 1
1.1 Introduction ......................................................... 1
1.2 BondsPayable—Definitions ........................................... 1
1.3 IssuanceofBonds—ParandDiscount ................................... 1
1.4 IssuanceofBondsataPremium ....................................... 3
1.5 SemiannualandQuarterlyInterestPayments ............................. 4
1.6 AccrualsofInterest ................................................... 5
1.7 BondsIssuedbetweenInterestDates .................................... 5
1.8 ThePriceofaBond .................................................. 7
1.9 BondIssueCosts ..................................................... 7
1.10 EarlyRetirementofBonds ............................................ 8
1.11 TheEffectiveInterestMethodofAmortization ........................... 9
1.12 Long-termNotesIssuedforCash ....................................... 10
1.13 Long-termNotesIssuedforGoodsorServices ........................... 11
1.14 Long-termNotesIssuedforCashandSpecialPrivileges .................. 12
1.15 Off-Balance-SheetFinancing .......................................... 12
Summary .................................................................. 13
RapidReview .............................................................. 14
SolvedProblems ............................................................ 16
SupplementaryProblems .................................................... 22
CHAPTER 2 STOCKOWNERSHIP ..................................................... 24
2.1 Introduction ......................................................... 24
2.2 StockIssuances ...................................................... 24
2.3 StockSubscriptions ................................................... 26
2.4 Lump-SumSalesofStock ............................................. 26
2.5 StockIssuancesinNoncashTransactions ................................ 27
2.6 StockIssuanceCosts ................................................. 27
2.7 TreasuryStock—CostMethod ......................................... 28
2.8 TreasuryStock—ParValueMethod ..................................... 30
2.9 AssessmentsonStock ................................................. 32
2.10 FeaturesofPreferredStock ............................................ 32
Summary .................................................................. 34
RapidReview .............................................................. 35
SolvedProblems ............................................................ 36
SupplementaryProblems .................................................... 44
CHAPTER 3 STOCKHOLDERS’EQUITY:RETAINEDEARNINGS ...................... 45
3.1 Definition ........................................................... 45
3.2 CashDividends ...................................................... 45
3.3 PropertyDividends ................................................... 46
3.4 ScripDividends ...................................................... 47
3.5 LiquidatingDividends ................................................ 47
3.6 StockDividends ...................................................... 47
3.7 StockSplits .......................................................... 48
3.8 AppropriationsofRetainedEarnings .................................... 49
v
vi CONTENTS
3.9 Quasi-Reorganizations ................................................ 49
3.10 PriorPeriodAdjustments .............................................. 50
Summary .................................................................. 51
RapidReview .............................................................. 52
SolvedProblems ............................................................ 52
SupplementaryProblems .................................................... 59
EXAMINATION I ........................................................................ 60
CHAPTER 4 DILUTIVESECURITIESANDEARNINGSPERSHARE.................... 65
4.1 Introduction ......................................................... 65
4.2 ConvertibleBonds .................................................... 65
4.3 ConvertiblePreferredStock ........................................... 66
4.4 BondswithDetachableStockWarrants .................................. 66
4.5 StockWarrantsIssuedAlone ........................................... 68
4.6 EmployeeStockOptions .............................................. 68
4.7 StockAppreciationRights(SARs) ...................................... 69
4.8 EarningsperShare—Basic ............................................ 71
4.9 DilutedEPS—ConvertiblePreferredStock .............................. 71
4.10 DilutedEPS—ConvertibleBonds ...................................... 72
4.11 FullyDilutedEPS—StockWarrants .................................... 72
4.12 TheAntidilutiveand3%Tests ......................................... 73
4.13 WeightedAverageShares;ContingentShares ............................ 74
Summary .................................................................. 75
RapidReview .............................................................. 76
SolvedProblems ............................................................ 77
SupplementaryProblems .................................................... 85
CHAPTER 5 INVESTMENTS:TEMPORARYANDLONG-TERM ........................ 87
5.1 Introduction ......................................................... 87
5.2 TemporaryInvestments—MarketableEquitySecurities .................... 87
5.3 TemporaryInvestments—MarketableDebtSecurities ..................... 88
5.4 Long-termInvestments—DebtSecurities ................................ 89
5.5 Long-termInvestments—EquitySecurities .............................. 91
5.6 StockDividends ...................................................... 93
5.7 StockRights ......................................................... 94
5.8 LifeInsurancePoliciesonOfficers ..................................... 95
Summary .................................................................. 95
RapidReview .............................................................. 97
SolvedProblems ............................................................ 97
SupplementaryProblems .................................................... 103
Appendix5A:EvaluationandReportingofInvestmentsonDecember31st ......... 105
CHAPTER 6 REVENUERECOGNITIONISSUES........................................ 109
6.1 Introduction ......................................................... 109
6.2 RevenueRecognitionatDelivery ....................................... 109
6.3 RevenueRecognitionbeforeDelivery—Introduction ...................... 110
6.4 TheCompleted-ContractMethod ....................................... 110
6.5 ThePercentage-of-CompletionMethod .................................. 112
CONTENTS vii
6.6 TheCompletion-of-ProductionMethod .................................. 113
6.7 RevenueRecognitionafterDelivery—TheInstallmentMethod ............. 114
6.8 TheCostRecoveryMethod ............................................ 116
Summary .................................................................. 117
RapidReview .............................................................. 118
SolvedProblems ............................................................ 119
SupplementaryProblems .................................................... 125
EXAMINATION II........................................................................ 127
CHAPTER 7 ACCOUNTINGFORLEASES.............................................. 132
7.1 Introduction ......................................................... 132
7.2 OperatingLeases ..................................................... 132
7.3 CapitalLeases ....................................................... 133
7.4 DirectFinancingLeases ............................................... 134
7.5 Sales-typeLeases .................................................... 135
7.6 BargainPurchaseOptions ............................................. 136
7.7 SalvageValue—Unguaranteed ......................................... 138
7.8 SalvageValue—Guaranteed ........................................... 140
7.9 SaleandLeasebacks .................................................. 141
Summary .................................................................. 142
RapidReview .............................................................. 144
SolvedProblems ............................................................ 144
SupplementaryProblems .................................................... 154
CHAPTER 8 THESTATEMENTOFCASHFLOWS...................................... 156
8.1 Introduction ......................................................... 156
8.2 CashfromOperatingActivities—IndirectMethod ........................ 156
8.3 CashfromInvestmentActivities ....................................... 159
8.4 CashfromFinancingActivities ........................................ 160
8.5 CompleteStatementofCashFlows—IndirectMethod .................... 161
8.6 CashfromOperatingActivities—DirectMethod ......................... 166
8.7 CompleteStatementofCashFlows—DirectMethod ...................... 170
8.8 SpecialIssuesRelatingtotheStatementofCashFlows ................... 172
Summary .................................................................. 173
RapidReview .............................................................. 174
SolvedProblems ............................................................ 175
SupplementaryProblems .................................................... 188
CHAPTER 9 ACCOUNTINGCHANGESANDCORRECTIONOFERRORS............... 191
9.1 Introduction ......................................................... 191
9.2 ChangeinAccountingPrinciple ........................................ 191
9.3 ChangeinAccountingEstimates ....................................... 193
9.4 ChangesinReportingEntity ........................................... 194
9.5 CorrectionofErrors .................................................. 194
Summary .................................................................. 199
RapidReview .............................................................. 200