Financial Accounting

Cover......Page 1
Title Page......Page 3
Dedication......Page 4
Brief Contents......Page 5
From the Authors......Page 6
Table of Contents......Page 11
Acknowledgments......Page 17
Knowing the Numbers: Columbia Sportswear Company......Page 20
Three Activities......Page 22
Who Uses Accounting Data......Page 23
Ethics in Financial Reporting......Page 25
Measurement Principles......Page 27
Assumptions......Page 28
LO 3: State the accounting equation, and define its components......Page 30
Stockholders’ Equity......Page 31
Accounting Transactions......Page 33
Transaction Analysis......Page 34
Summary of Transactions......Page 39
LO 5: Describe the four financial statements and how they are prepared......Page 40
Retained Earnings Statement......Page 41
Statement of Cash Flows......Page 43
Governmental Accounting......Page 45
“Show Me the Money”......Page 46
A Look at IFRS......Page 66
Accidents Happen: MF Global Holdings......Page 68
Debits and Credits......Page 70
Summary of Debit/Credit Rules......Page 74
The Recording Process......Page 75
The Journal......Page 76
The Ledger......Page 78
Posting......Page 80
The Recording Process Illustrated......Page 81
Summary Illustration of Journalizing and Posting......Page 87
Limitations of a Trial Balance......Page 89
Dollar Signs and Underlining......Page 90
A Look at IFRS......Page 112
Keeping Track of Groupons: Groupon......Page 114
Accrual- versus Cash-Basis Accounting......Page 116
Recognizing Revenues and Expenses......Page 117
Types of Adjusting Entries......Page 118
Prepaid Expenses......Page 120
Unearned Revenues......Page 124
Accrued Revenues......Page 126
Accrued Expenses......Page 128
Summary of Basic Relationships......Page 131
Preparing the Adjusted Trial Balance......Page 133
Preparing Financial Statements......Page 134
LO *5: APPENDIX 3A: Prepare adjusting entries for the alternative treatment of deferrals......Page 137
Prepaid Expenses......Page 138
Unearned Revenues......Page 139
Qualities of Useful Information......Page 140
Assumptions in Financial Reporting......Page 141
Cost Constraint......Page 142
A Look at IFRS......Page 169
Everyone Likes to Win: Rhino Foods......Page 172
LO 1: Prepare a worksheet......Page 174
Steps in Preparing a Worksheet......Page 175
Preparing Financial Statements from a Worksheet......Page 177
LO 2: Prepare closing entries and a post-closing trial balance......Page 179
Preparing Closing Entries......Page 180
Posting Closing Entries......Page 182
Preparing a Post-Closing Trial Balance......Page 184
Summary of the Accounting Cycle......Page 187
Correcting Entries—An Avoidable Step......Page 189
Current Assets......Page 192
Intangible Assets......Page 194
Current Liabilities......Page 195
Stockholders’ (Owners’) Equity......Page 196
Reversing Entries Example......Page 198
A Look at IFRS......Page 227
Buy Now, Vote Later: REI......Page 230
Operating Cycles......Page 232
Flow of Costs......Page 233
LO 2: Record purchases under a perpetual inventory system......Page 235
Freight Costs......Page 236
Purchase Discounts......Page 238
Summary of Purchasing Transactions......Page 239
LO 3: Record sales under a perpetual inventory system......Page 240
Sales Returns and Allowances......Page 241
Sales Discounts......Page 242
Closing Entries......Page 244
Summary of Merchandising Entries......Page 245
Multiple-Step Income Statement......Page 246
Single-Step Income Statement......Page 249
Classified Balance Sheet......Page 250
Using a Worksheet......Page 251
Determining Cost of Goods Sold Under a Periodic System......Page 253
Recording Purchases of Merchandise......Page 254
Recording Sales of Merchandise......Page 255
Journalizing and Posting Closing Entries......Page 256
Using a Worksheet......Page 257
A Look at IFRS......Page 281
“Where Is That Spare Bulldozer Blade?”: Caterpillar......Page 284
Classifying Inventory......Page 286
Determining Inventory Quantities......Page 287
Specific Identification......Page 290
Cost Flow Assumptions......Page 291
Financial Statement and Tax Effects of Cost Flow Methods......Page 295
Using Inventory Cost Flow Methods Consistently......Page 297
Income Statement Effects......Page 298
Balance Sheet Effects......Page 299
Lower-of-Cost-or-Net Realizable Value......Page 300
Analysis......Page 301
LO *5: APPENDIX 6A: Apply the inventory cost flow methods to perpetual inventory records......Page 303
Last-In, First-Out (LIFO)......Page 304
Average-Cost......Page 305
Gross Profit Method......Page 306
Retail Inventory Method......Page 307
A Look at IFRS......Page 331
Minding the Money in Madison: Barriques......Page 334
The Sarbanes-Oxley Act......Page 336
Principles of Internal Control Activities......Page 337
Limitations of Internal Control......Page 344
LO 2: Apply internal control principles to cash......Page 345
Cash Receipts Controls......Page 346
Cash Disbursements Controls......Page 348
Petty Cash Fund......Page 350
Making Bank Deposits......Page 353
Writing Checks......Page 354
Reconciling the Bank Account......Page 355
Cash Equivalents......Page 361
Restricted Cash......Page 362
A Look at IFRS......Page 382
A Dose of Careful Management Keeps Receivables Healthy: Whitehall-Robins......Page 384
Recognizing Accounts Receivable......Page 386
Valuing Accounts Receivable......Page 388
Disposing of Accounts Receivable......Page 395
LO 3: Explain how companies recognize, value, and dispose of notes receivable......Page 397
Computing Interest......Page 398
Disposing of Notes Receivable......Page 399
Presentation......Page 402
Analysis......Page 403
A Look at IFRS......Page 423
How Much for a Ride to the Beach?: Rent-A-Wreck......Page 426
Determining the Cost of Plant Assets......Page 428
Expenditures During Useful Life......Page 430
LO 2: Apply depreciation methods to plant assets......Page 432
Depreciation Methods......Page 433
Revising Periodic Depreciation......Page 438
LO 3: Explain how to account for the disposal of plant assets......Page 439
Sale of Plant Assets......Page 440
Depletion......Page 442
Accounting for Intangible Assets......Page 443
Research and Development Costs......Page 446
Analysis......Page 447
Loss Treatment......Page 449
Gain Treatment......Page 450
A Look at IFRS......Page 471
Financing His Dreams: Wilbert Murdock......Page 474
Notes Payable......Page 476
Sales Taxes Payable......Page 477
Current Maturities of Long-Term Debt......Page 478
Payroll and Payroll Taxes Payable......Page 479
Issuing Procedures......Page 482
Bond Trading......Page 483
Determining the Market Price of a Bond......Page 484
Discount or Premium on Bonds......Page 486
Issuing Bonds at a Discount......Page 487
Issuing Bonds at a Premium......Page 489
Redeeming Bonds Before Maturity......Page 490
LO 4: Explain how to account for long-term notes payable......Page 492
Presentation......Page 493
Analysis......Page 494
Debt and Equity Financing......Page 496
Amortizing Bond Discount......Page 497
Amortizing Bond Premium......Page 498
LO *7: APPENDIX 10B: Apply the effective-interest method of amortizing bond discount and bond premium......Page 499
Amortizing Bond Discount......Page 500
Amortizing Bond Premium......Page 502
A Look at IFRS......Page 526
Oh Well, I Guess I’ll Get Rich: Facebook......Page 528
Characteristics of a Corporation......Page 530
Stockholder Rights......Page 533
Stock Issue Considerations......Page 535
Corporate Capital......Page 537
Accounting for Common Stock......Page 538
Accounting for Preferred Stock......Page 540
Accounting for Treasury Stock......Page 542
Cash Dividends......Page 545
Dividend Preferences......Page 547
Stock Dividends......Page 550
Stock Splits......Page 552
Reporting Stockholders’ Equity......Page 554
Balance Sheet Presentation of Stockholders’ Equity......Page 555
Analysis of Stockholders’ Equity......Page 557
LO *5: APPENDIX 11A: Describe the use and content of the stockholders’ equity statement......Page 559
Book Value per Share......Page 560
Book Value versus Market Price......Page 561
A Look at IFRS......Page 585
Got Cash?: Microsoft......Page 588
Classification of Cash Flows......Page 590
Significant Noncash Activities......Page 591
Format of the Statement of Cash Flows......Page 592
LO 2: Prepare a statement of cash flows using the indirect method......Page 593
Indirect Method—Computer Services Company......Page 594
Step 1: Operating Activities......Page 596
Summary of Conversion to Net Cash Provided by Operating Activities—Indirect Method......Page 599
Step 2: Investing and Financing Activities......Page 600
Step 3: Net Change in Cash......Page 602
Free Cash Flow......Page 604
Step 1: Operating Activities......Page 606
Step 2: Investing and Financing Activities......Page 612
LO *5: APPENDIX 12B: Use a worksheet to prepare the statement of cash flows using the indirect method......Page 613
Preparing the Worksheet......Page 614
LO *6: APPENDIX 12C: Use the T-account approach to prepare a statement of cash flows......Page 619
A Look at IFRS......Page 646
It Pays to Be Patient: Warren Buffett......Page 648
Sustainable Income......Page 650
Quality of Earnings......Page 654
LO 2: Apply horizontal and vertical analysis......Page 656
Horizontal Analysis......Page 657
Vertical Analysis......Page 659
Price-Earnings Ratio......Page 662
Solvency Ratios......Page 663
Profitability Ratios......Page 664
LO *4: APPENDIX 13A: Evaluate a company comprehensively using ratio analysis......Page 666
Liquidity Ratios......Page 668
Solvency Ratios......Page 670
Profitability Ratios......Page 672
A Look at IFRS......Page 699
A Specimen Financial Statements: Apple Inc......Page 701
B Specimen Financial Statements: PepsiCo, Inc......Page 707
C Specimen Financial Statements: The Coca-Cola Company......Page 713
D Specimen Financial Statements: Amazon.com, Inc......Page 717
E Specimen Financial Statements: Wal-Mart Stores, Inc......Page 723
F Specimen Financial Statements: Louis Vuitton......Page 729
Nature of Interest......Page 735
Future Value of a Single Amount......Page 737
Future Value of an Annuity......Page 738
Present Value of a Single Amount......Page 741
Present Value of an Annuity......Page 743
Present Value of a Long-Term Note or Bond......Page 745
Present Value of a Single Sum......Page 748
Useful Applications of the Financial Calculator......Page 749
Why Corporations Invest......Page 755
Accounting for Debt Investments......Page 757
Holdings of Less than 20%......Page 758
Holdings Between 20% and 50%......Page 759
Holdings of More than 50%......Page 760
Debt Securities......Page 761
Equity Securities......Page 764
Balance Sheet Presentation......Page 765
Presentation of Realized and Unrealized Gain or Loss......Page 766
Company Index......Page 775
Subject Index......Page 777
EULA......Page 791