Wiley CPAexcel 2015 focus notes fianancial accounting

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2015

Wiley
®

CPAexcel

EXAM REVIEW
FOCUS NOTES

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2015

Wiley
®

CPAexcel

EXAM REVIEW
FOCUS NOTES

FINANCIAL ACCOUNTING AND REPORTING

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Cover Design by Wiley
Cover image: © turtleteeth/iStockphoto
Copyright © 2015 by John Wiley & Sons, Inc. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic,
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they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and
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ISBN: 978-1-118-91773-2; ISBN: 978-1-119-05173-2 (ebk); ISBN: 978-1-119-05174-9 (ebk)
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1

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CONTENTS
Preface
About the Author
About the Contributor
Module 9:

Basic Concepts
Financial Statements

Module 10:

Inventories
Long-Term Construction Contracts

Module 11:

Module 12:
Module 13:

Fixed Assets
Monetary Assets and Liabilities
Leases
Bonds

Module 14:
Module 15:
Module 16:

vii
ix
ix
1
11

42
65

69
95
124
138

Debt Restructure

151

Pensions

155

Deferred Taxes
Stockholders’ Equity
Investments

162
172
198

v

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Module 17:
Module 18:
Module 19:
Module 20:

Statement of Cash Flows
Consolidated Statements
Derivative Instruments
Segment Reporting
Partnership

249

Foreign Currency

257

Interim Reporting

261

Personal Financial Statements

Module 21:
Module 22:

Governmental (State and Local) Accounting
Not-for-Profit Accounting

Index

265

268
317
332

Contents

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209
218
234
246

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PREFACE
This publication is a comprehensive yet simplified study program. It provides a review of all the
basic skills and concepts tested on the CPA exam and teaches important strategies to take
the exam faster and more accurately. This tool allows you to take control of the CPA exam.
This simplified and focused approach to studying for the CPA exam can be used:
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As a handy and convenient reference manual
To solve exam questions
To reinforce material being studied

Included is all of the information necessary to obtain a passing score on the CPA exam in a
concise and easy-to-use format. Due to the wide variety of information covered on the exam,
a number of techniques are included:
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Acronyms and mnemonics to help candidates learn and remember a variety of rules and
checklists
Formulas and equations that simplify complex calculations required on the exam
Simplified outlines of key concepts without the details that encumber or distract from
learning the essential elements

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r


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Techniques that can be applied to problem solving or essay writing, such as preparing
a multiple-step income statement, determining who will prevail in a legal conflict, or
developing an audit program
Pro forma statements, reports, and schedules that make it easy to prepare these items by
simply filling in the blanks
Proven techniques to help you become a smarter, sharper, and more accurate test taker

This publication may also be useful to university students enrolled in Intermediate, Advanced and
Cost Accounting; Auditing, Business Law, and Federal Income Tax classes; and Economics
and Finance classes.
Good luck on the exam,
Ray Whittington, PhD, CPA

Preface

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ABOUT THE AUTHOR
Ray Whittington, PhD, CPA, CMA, CIA, is the dean of the College of Commerce at DePaul University. Prior to joining the faculty at DePaul, Professor Whittington was the Director of Accountancy at San Diego State University. From
1989 through 1991, he was the Director of Auditing Research for the American Institute of Certified Public Accountants
(AICPA), and he previously was on the audit staff of KPMG. He previously served as a member of the Auditing Standards
Board of the AICPA and as a member of the Accounting and Review Services Committee and the Board of Regents of
the Institute of Internal Auditors. Professor Whittington has published numerous textbooks, articles, monographs, and
continuing education courses.

ABOUT THE CONTRIBUTOR
Natalie T. Churyk, PhD, CPA, is the Caterpillar Professor of Accountancy at Northern Illinois University. She teaches
in the undergraduate and L.M.A.S. programs as well as developing and delivering continuing professional education
in Northern Illinois University’s CPA Review program. Professor Churyk has published in professional and academic
journals. She serves on state and national committees relating to education and student initiatives and is a member of
several editorial review boards. Professor Churyk is a coauthor on three textbooks: Accounting and Auditing Research:
Tools and Strategies; Accounting & Auditing Research and Databases: Practitioner’s Desk Reference; and Mastering
the Codification and eIFRS: A Case Approach.

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OBJECTIVES OF FINANCIAL REPORTING
The objectives of financial reporting are to provide:
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Basic Concepts—Module 9

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Financial statements are designed to meet the objectives of financial reporting:
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Basic Concepts—Module 9

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Qualitative Characteristics of Accounting Information
Primary Users of
Accounting Information

Existing and Potential Investors, Lenders, and Other Creditors

Pervasive Constraint
Benefits > Costs
Decision Usefulness
Fundamental
Qualitative
Characteristics

Relevance

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Value
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Qualitative
Characteristics

Threshold for
Recognition

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(consistency
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comparability)

Faithful Representation

Complete

Confirmatory
Value

Verifiability

Timeliness

Neutral

Free from Error

Understandability

Materiality
(Entity-specific and related to relevance)

Focus on

Basic Concepts—Module 9

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IFRS® and U.S. Conceptual Framework as Converged
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Relevance
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Private Company Standards
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Private Company Standards (continued)
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Basic Concepts—Module 9

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Elements of Financial Statements
Assets – Liabilities = Equity

Equity =

Contributions
by owners

–

Distributions
to owners

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Comprehensive
Income

Comprehensive

= Revenues – Expenses + Gains – Losses
Income
Comprehensive Income = Net income ± Adjustments to stockholders’ equity

Focus on

Basic Concepts—Module 9

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IFRS Elements
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BASIC RULES AND CONCEPTS
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Revenue Recognition
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Converting from Cash Basis to Accrual Basis
Revenues
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Expenses
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Financial Statements—Module 9

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Balance Sheet
Current Assets
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