The Vest Pocket CPA, 3rd Edition

by Joel G. Siegel; Nick A. Dauber; Jae K. Shim

• ISBN13: 9780471708759
• ISBN10: 0471708755
• Edition: 3rd
• Format: Paperback
• Copyright: 2005-03-01
• Publisher: WILEY

Summary

The thorough reference that goes wherever you go The Vest Pocket CPA is the perfect up-to-date reference tool for today's accountants in public practice and private industry, and accounting and other executives who interface with outside auditors. It is written in any easy Q&A format and packed with checklists, samples, and worked-out solutions for a wide variety of accounting problems in the areas of financial accounting, financial statement analysis, financial planning, managerial accounting, quantitative analysis and modeling, auditing, and taxation. Joel G. Siegel, PhD, CPA, is the author of 19 books and hundreds of articles for accounting and financial journals. He has acted as a consultant in accounting issues, with such clients as IT&T, Citicorp, and Person-Wolinsky CPA Review. Nicky A. Dauber, CPA, has served as a book reviewer for major book publishers and has had articles published in many professional accounting journals. Jae K. Shim, PhD (Long Beach, CA), has published 14 books that have sold more than 500,000 copies.

Table of Contents

Introduction	xxvii
PART 1 Commonly Used Generally Accepted Accounting Principles
Financial Statement Reporting: The Income Statement	3	(27)
Income Statement Format	4	(1)
Comprehensive Income	4	(1)
Extraordinary Items	5	(1)
Nonrecurring Items	6	(1)
Discontinued Operations	6	(2)
Revenue Recognition	8	(10)
Realization	8	(1)
At the completion of production	9	(1)
Requirements	9	(1)
During Production	9	(2)
Cash Basis	11	(4)
Recognition of Franchise Fee Revenue by the Franchisor	15	(3)
Other Revenue Considerations	18	(1)
Research and Development Costs	18	(3)
Advertising Costs	21	(1)
Restructuring Charges	21	(1)
Other Expense Considerations	21	(1)
Earnings Per Share (EPS)	21	(9)
Diluted Earnings Per Share	24	(3)
Antidilutive Securities	27	(3)
Financial Statement Reporting: The Balance Sheet	30	(49)
Assets	30	(24)
Accounts Receivable	31	(2)
Inventory	33	(6)
Fixed Assels	39	(2)
Depreciation	41	(1)
Capitalized Interest	42	(1)
Nonmonelary Transactions	43	(2)
Impairment or Disposal of Long-Lived Assets	45	(1)
Involuntary Conversion	46	(1)
Asset Retirement Obligations	47	(1)
Disclosure	47	(1)
Intangibles	48	(3)
Insurance	51	(3)
Liabilities	54	(12)
Bonds Payable	54	(5)
Extinguishment of Debt	59	(1)
Estimated Liabilities	60	(2)
Accounting for Compensated Absences	62	(1)
Accounting for Special Termination Benefits to Employees	63	(1)
Refinancing of Short-term Debt to Long-term Debt	63	(1)
Callable Obligations by the Creditor	64	(1)
Disclosure of Long-term Purchase Obligations	64	(1)
Exit or Disposal Activities	65	(1)
Stockholders' Equity	66	(13)
Preferred Stock	67	(1)
Stock Retirement	67	(1)
Appropriation of Retained Earnings (Reserve)	68	(1)
Treasury Stock	68	(1)
Cost Method	68	(1)
Par Value Method	69	(1)
Quasi-Reorganization	69	(2)
Dividends	71	(2)
Stock Split	73	(1)
Stock Options	73	(4)
Debt Issued with Stock Warrants	77	(1)
Fractional Share Warrants	78	(1)
Disclosure	78	(1)
Financial Statement Reporting: Statement of Cash Flows and Other Disclosures	79	(22)
Statement of Cash Flows	79	(12)
Interim Reporting	91	(4)
Personal Financial Statements	95	(3)
Incorporation of a Business	98	(1)
Partnerships	98	(3)
Bonus Method	99	(1)
Goodwill Method	99	(2)
Accounting and Disclosures	101	(27)
Accounting Changes	101	(7)
Change in Accounting Principle	102	(3)
Change in Accounting Estimate	105	(2)
Change in Reporting Entity	107	(1)
Correction of an Error	107	(1)
Prior Period Adjustments	108	(2)
Disclosure of Accounting Policies	110	(1)
Development Stage Companies	111	(1)
Troubled Debt Restructuring	112	(3)
Debtor	112	(1)
Creditor	113	(2)
Segmental Reporting	115	(5)
Imputing Interest on Notes	120	(3)
Accounting for Futures Contracts	123	(3)
Oil- and Gas-Producing Companies	126	(2)
Key Financial Accounting Areas	128	(57)
Consolidations	128	(3)
Business Combinations	131	(4)
Purchase Method	131	(3)
Advantage	134	(1)
Disadvantages	134	(1)
Investments In Securities	135	(1)
Stock Investments	135	(1)
Market Value Adjusted (FASB 115)	135	(7)
Equity Method	138	(4)
Leases	142	(13)
Lessee	142	(4)
Lessor	146	(1)
Income Statement	146	(1)
Balance sheet	146	(6)
Sales-Leaseback Arrangement	152	(1)
Subleases and Similar Transactions	152	(2)
Leveraged Leases	154	(1)
Pension Plans	155	(10)
Defined Contribution Pension Plan	157	(1)
Defined Benefit Pension Plan	157	(7)
Trustee Reporting for a Defined Benefit Pension Plan	164	(1)
Balance Sheet	164	(1)
Other Postretirement Benefits	165	(1)
Income Tax Accounting	165	(5)
Temporary Differences	166	(1)
Permanent Differences	166	(1)
Financial Statement Presentation	166	(1)
Intraperiod Tax Allocation	167	(1)
Loss Carrybacks and Carryforwards	167	(1)
Deferred Tax Liability vs. Deferred Tax Asset	167	(2)
Tax Rates	169	(1)
Indefinite Reversal	170	(1)
Foreign Currency Translation and Transactions	170	(15)
Translation Process	175	(1)
Balance Sheet	175	(1)
Income Statement	175	(1)
Translation Adjustments	176	(1)
Foreign Currency Transactions	176	(3)
Forward Exchange Contracts	179	(1)
Hedging	180	(1)
Derivative Products	181	(4)
PART 2 Analyzing Financial Statements
Financial Statement Analysis	185	(36)
Industry Comparison	186	(1)
Trend Analysis	187	(1)
Horizontal and Vertical Analysis	187	(1)
Balance Sheet Analysis	188	(1)
Assets	188	(1)
Cash	189	(16)
Accounts Receivable	189	(2)
Inventory	191	(1)
Investments	192	(1)
Fixed Assets	193	(3)
Intangibles	196	(1)
Deferred Charges	197	(1)
Unrecorded Assets	198	(1)
Liabilities	198	(2)
Evaluation of Liquidity	200	(3)
Appraising Corporate Solvency	203	(2)
Income Statement Analysis	205	(10)
Cash Flow from Operations	205	(2)
Discretionary Costs	207	(1)
Accounting Policies	208	(1)
Degree of Certainty in Accounting Estimates	209	(2)
Residual Income	211	(1)
Taxable Income	211	(1)
Foreign Operations	212	(1)
Discontinued Operations	212	(1)
Stability of Earnings	212	(2)
Operating Leverage	214	(1)
Profitability Measures	214	(1)
Growth Rate	214	(1)
Market Value Measures	215	(1)
Bankruptcy Prediction	215	(2)
Liquidation Value	217	(4)
PART 3 Managerial Accounting Applications
Appraising Segmental Performance	221	(54)
The What and Why Of Responsibility Accounting	221	(2)
Cost Center	222	(1)
Profit Center	222	(1)
Investment Center	222	(1)
Cost Center Performance and Standard Costs	223	(19)
Materials Variances	225	(1)
Materials Price Variance	225	(1)
Materials Quantity (Usage) Variance	226	(1)
Labor Variances	227	(1)
Variable Overhead Variances	228	(2)
Fixed Overhead Variances	230	(3)
Mix and Yield Variances	233	(9)
Flexible Budgets and Performance Reports	242	(2)
Profit Centers and Segmented Reporting	244	(1)
Profit Variance Analysis	245	(8)
Types of Standards in Profit Variance Analysis	246	(1)
Single-Product Firms	246	(1)
Multiproduct Firms	247	(5)
Managerial Planning and Decision Making	252	(1)
Sales Mix Analysis	252	(1)
Performance Reports	253	(1)
How to Measure the Performance of Investment Centers	253	(2)
Rate of Return on Investment (ROI)	255	(3)
Residual Income (Rl)	257	(1)
Residual Income and Economic Value Added	258	(1)
Investment Decisions Under ROI and RI	258	(1)
The Corporate Balanced Scorecard	259	(2)
How To Price Goods And Services Transferred	261	(1)
Alternative Transfer Pricing Schemes	261	(3)
Budgeting and Financial Planning	264	(6)
Case 1	267	(1)
Case 2	267	(3)
Budgeting Software	270	(2)
Adaytum Planning	270	(1)
Comshare's Interactive Financial Planning System (IFPS/Plus) and BudgetPLUS	270	(1)
Encore Plus	271	(1)
Budget Maestro	271	(1)
Microsoft Business Solutions for Analytics---Forecaster	272	(1)
The Latest Generation of Budgeting and Planning (B&P) Software	272	(3)
Analysis of Projects, Proposals, and Special Situations	275	(62)
Cost--Volume--Profit and Breakeven Analysis	275	(11)
Contribution Margin	276	(4)
Target Income Volume and Margin of Safety	280	(4)
Sales Mix Analysis	284	(2)
Short-Term Nonroutine Decisions	286	(6)
Theory of Constraints	292	(1)
Life-Cycle Costs and Target Costing	293	(4)
Activity-Based Costing	297	(5)
The Cost of Measurement	301	(1)
Indirect Measures and the Degree of Correlation	301	(1)
Just-In-Time (JIT) and Total Quality Management (TQM)	302	(4)
Taguchi Method of Quality Control	306	(1)
Time Value Fundamentals	307	(7)
Capital Budgeting	314	(17)
Payback Period	317	(1)
Advantages	318	(1)
Disadvantages	319	(1)
Accounting (Simple) Rate of Return	319	(1)
Advantage	320	(1)
Disadvantages	320	(1)
Net Present Value	320	(1)
Advantages	320	(1)
Disadvantage	320	(1)
Internal Rate of Return (or Time Adjusted Rate of Return)	321	(1)
Advantage	321	(1)
Disadvantages	321	(4)
Net Present Value (NPV)	325	(1)
Internal Rate of Return (IRR)	325	(1)
Profitability Index (or Excess Present Value Index)	325	(1)
Limited Funds for Capital Spending	326	(1)
Effects of Income Tax Factors on Capital Budgeting Decisions	327	(4)
The MACRS Rule	331	(6)
Quantitative Applications and Modeling in Accounting	337	(54)
Statistical Analysis and Evaluation	337	(5)
Mean	337	(4)
Standard Deviation	341	(1)
Regression Analysis	342	(6)
The Method of Least Squares	343	(2)
Use of a Spreadsheet Program for Regression	345	(2)
Trend Analysis	347	(1)
Regression Statistics	348	(6)
Quantitative Methods for Accounting	354	(1)
Decision Making	355	(5)
Decision Making Under Certainty	355	(1)
Decision Making Under Uncertainty	355	(2)
Decision Matrix	357	(1)
Expected Value of Perfect Information	358	(1)
Decision Tree	359	(1)
Linear Programming and Shadow Prices	360	(7)
Shadow Prices (Opportunity Costs)	364	(3)
Goal Programming and Multiple Goals	367	(3)
Learning Curve	370	(1)
Inventory Planning and Control	371	(9)
Economic Order Quantity (EOQ)	372	(4)
Reorder Point (ROP)	376	(1)
Safety Stock and Reorder Point	377	(3)
Program Evaluation and Review Technique (PERT)	380	(11)
PART 4 Auditing, Compiling, and Reviewing Financial Statements
Auditing Procedures	391	(43)
Internal Control	391	(24)
Substantive Testing	415	(6)
Audit Reports	421	(13)
Unqualified Opinion	424	(2)
Qualified Opinion	426	(4)
Disclaimer of Opinion	430	(2)
Adverse Opinion	432	(2)
Compilation, Review, and Other Reporting Services	434	(73)
Compilation of Financial Statements	434	(7)
Review of Financial Statements	441	(18)
Reports on Reviewed Financial Statements	455	(3)
Supplementary Information	458	(1)
Reporting on Prescribed Forms	459	(1)
Communication Between Successor and Predecessor Accountants	460	(1)
Reports on Prospective Financial Statements	461	(14)
Range of Values	469	(1)
Departure from AICPA Presentation Guidelines	469	(1)
Significant Assumption Does Not Provide Reasonable Basis	470	(1)
Scope Limitation	470	(1)
Emphasis of a Matter	471	(1)
Division of Responsibility	471	(1)
Agreed-Upon Procedures	471	(4)
Attest Engagements	475	(8)
Examination Engagements	476	(2)
Review Engagements	478	(3)
Engagements to Apply Agreed-Upon Procedures	481	(2)
Reporting on an Entity's Internal Control Over Financial Reporting	483	(5)
Compliance Attestation	488	(2)
Management's Discussion and Analysis	490	(1)
Personal Financial Statements Included in Written Personal Financial Plans	491	(2)
Reporting on Comparative Statements	493	(5)
Same Level of Service	496	(1)
Higher Level of Service	496	(1)
Guideline	496	(1)
Lower Level of Service	497	(1)
Special Reports	498	(9)
Specific Elements, Accounts, or Items in a Basic Set of Financial Statements	501	(2)
Compliance with Contracts or Regulations Relating to Audited Financial Statements	503	(2)
Financial Information Included in Prescribed Forms	505	(2)
Auditing Standards	507	(86)
Codification of Auditing Standards and Procedures	507	(2)
Reports on Audited Financial Statements	509	(1)
The Effects of EDP on the Auditor's Study and Evaluation of Internal Control	509	(1)
Quality Control Considerations for a Firm of Independent Auditors	509	(1)
The Meaning of ``Present Fairly in Conformity with Generally Accepted Accounting Principles'' in the Independent Auditor's Report	509	(1)
Related Party Transactions	509	(1)
Communication Between Predecessor and Successor Auditor	509	(1)
Other Information in Documents Containing Audited Financial Statements	509	(1)
The Effect of an Internal Audit Function on the Scope of the Independent Auditor's Examination	510	(1)
Limited Review of Interim Financial Information	510	(1)
Using the Work of a Specialist	510	(1)
Inquiry of a Client's Lawyer Concerning Litigation, Claims, and Assessments	510	(3)
Reports on a Limited Review of Interim Financial Information	513	(1)
Special Reports	513	(1)
Reports on Comparative Financial Statements	513	(1)
The Independent Auditor's Responsibility for the Detection of Errors or Irregularities	513	(1)
Illegal Acts by Clients	513	(1)
Unaudited Replacement Cost Information	513	(1)
Client Representations	514	(1)
Required Communication of Material Weaknesses in Internal Accounting Control	514	(1)
Segment Information	514	(1)
Planning and Supervision	514	(1)
Analytical Review Procedures	515	(1)
Review of Interim Financial Information	515	(1)
The Relationship of Generally Accepted Auditing Standards to Quality Control Standards	516	(1)
Association with Financial Statements	516	(1)
Supplementary Information Required by the Financial Accounting Standards Board: Supplementary Information on the Effects of Changing Prices	517	(1)
Reporting on Information Accompanying the Basic Financial Statements in Auditor-Submitted Documents	517	(1)
Reporting on Internal Accounting Control	518	(1)
Evidential Matter	518	(1)
Adequacy of Disclosure in Financial Statements	519	(1)
Supplementary Oil and Gas Reserve Information	519	(1)
The Auditor's Considerations When a Question Arises About an Entity's Continued Existence	519	(1)
Special Reports: Applying Agreed-Upon Procedures to Specified Elements, Accounts, or Items of a Financial Statement	519	(1)
Review of Interim Financial Information	520	(1)
Fillings Under Federal Securities Statutes	520	(1)
Letters for Underwriters	520	(1)
Audit Sampling	520	(1)
Supplementary Mineral Reserve Information	521	(1)
Working Papers	521	(1)
Reporting on Condensed Financial Statements and Selected Financial Data	521	(2)
Condensed Financial Statements	521	(1)
Selected Financial Data	522	(1)
Omnibus Statement on Auditing Standards	523	(1)
Special-Purpose Reports on Internal Accounting Control at Service Organizations	523	(1)
Omnibus Statement on Auditing Standards---1983	523	(2)
Substantive Tests Prior to the Balance Sheet Date	523	(1)
Related Parties	524	(1)
Consideration of Omitted Procedures After the Report Date	525	(1)
Audit Risk and Materiality in Conducting an Audit	525	(1)
The Effects of Computer Processing on the Audit of Financial Statements	526	(2)
Letters for Underwriters	528	(1)
Reports on the Application of Accounting Principles	528	(1)
Reporting on Financial Statements Prepared for Use in Other Countries	529	(1)
Omnibus Statement on Auditing Standards---1987	530	(1)
The Auditor's Responsibility to Defect and Report Errors and Irregularities	531	(1)
Illegal Acts by Clients	531	(1)
Consideration of Internal Control in a Financial Statement Audit	532	(1)
Analytical Procedures	532	(1)
Auditing Accounting Estimates	532	(1)
Reports on Audited Financial Statements	533	(1)
The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern	533	(2)
Communication of Internal Control Related Matters Noted in an Audit	535	(1)
Communication with Audit Committees	536	(1)
Special Reports	537	(1)
Compliance Auditing Applicable to Governmental Entities and Other Recipients of Governmental Financial Assistance	537	(1)
Omnibus Statement on Auditing Standards	537	(1)
The Auditor's Consideration of the Internal Audit Function in an Audit of Financial Statements	537	(1)
Communication of Matters About Interim Financial Information Filed or to Be Filed with Specified Regulatory Agencies	538	(1)
The Confirmation Process	538	(2)
Compliance Auditing Applicable to Governmental Entities and Other Recipients of Governmental Financial Assistance	540	(1)
The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles in the Independent Auditor's Report	540	(2)
Service Organizations	542	(1)
Interim Financial Information	542	(1)
Letters for Underwriters and Other Requesting Parties	542	(1)
Using the Work of a Specialist	543	(2)
Compliance Auditing Considerations in Audits of Governmental Entities and Recipients of Governmental Financial Assistance	545	(1)
Engagements to Apply Agreed-Upon Procedures to Specified Elements, Accounts, or Items of a Financial Statement	545	(1)
Amendments to Statement on Auditing Standards No. 72 Letters for Underwriters, and Certain Other Requesting Parties	545	(1)
Amendments to Statements on Auditing Standards No. 22, Planning and Supervision, No. 59 The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern, and No. 62, Special Reports	545	(1)
Consideration of Internal Control in a Financial Statement Audit: An Amendment to SAS 55	546	(1)
Amendment to Statement on Auditing Standards 58, Reports on Audited Financial Statements	546	(1)
Amendment to Statement on Auditing Standards No. 31, Evidential Matter	546	(1)
Auditing Investments	546	(1)
Consideration of Fraud in a Financial Statement Audit	546	(1)
Establishing an Understanding With the Client	546	(1)
communications Between Predecessor and Successor Accountants	547	(2)
Management Representations	549	(5)
Amendment to Statement on Auditing Standards No. 72. Letters for Underwriters and Certain Other Requesting Parties	554	(1)
Restricting the Use of an Auditor's Report	554	(1)
Service Organizations and Reporting on Consistency	555	(1)
Audit Adjustments	555	(1)
Audit Committee Communications	555	(1)
Federal GAAP Hierarchy	555	(1)
Auditing Derivative Instruments, Hedging Activities, and Investments in Securities	555	(8)
Existence or Occurrence	557	(1)
Completeness	558	(1)
Rights and Obligations	558
Valuation	557	(3)
Impairment Losses	560	(3)
Omnibus Statement on Auditing Standards---2000	563
The Effect of Information Technology on the Auditor's Consideration of Internal Control in a Financial Statement Audit	562	(1)
Generally Accepted Auditing Standards	562	(1)
Audit Documentation	562	(2)
Amendment to Statement on Auditing Standards No. 50, Reports on the Application of Accounting Principles	564	(1)
Omnibus Statement on Auditing Standards---2002	564	(1)
Consideration of Fraud in a Financial Statement Audit	564	(11)
Interim Financial Information	575	(1)
Auditing Fair Value Measurements and Disclosures	576	(1)
References in Auditor's Reports to the Standards of the Public Company Accounting Oversight Board	577	(1)
An Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statements	577	(13)
Audit Documentation	590	(3)
The Sarbanes-Oxley Act of 2002	593	(6)
Auditor Independence	593	(1)
Partner Rotation	594	(1)
Public Company Accounting Oversight Board (PCAOB)	595	(4)
PART 5 Taxation
Fourteen Tax Research	599	(4)
Sources of Tax Law	599	(2)
The Court System	601	(2)
Index	603