Financial Accounting The Impact on Decision Makers, The Alternative to Debits and Credits

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ISBN: 9780324272666 | 0324272669
Cover: Hardcover
Copyright: 1/6/2004

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The fourth edition of Financial Accounting: The Impact on Decision Makers, An Alternative to Debits and Credits, 4e continues to focus on the user/decision maker perspective. Transactions, which as presented in a spreadsheet (accounting equation) format, are used to help students understand the impact on financial information. The authors use the financial statements from Winnebago Industries and Monaco Coach throughout the chapter and end of chapter material. Porter/Norton is unique in its use of these competing companies for comparative financial analysis and in end of chapter cases.

PART I THE ACCOUNTING MODEL

(214)

INTRODUCTION Getting Started in Business

(10)

Winnebago Industries: The Need to Make Financial Decisions

(1)

What Is Business?

(1)

Forms of Organization

(2)

Business Entities

(1)

Nonbusiness Entities

(1)

Organizations and Social Responsibility

(1)

The Nature of Business Activity

(2)

Financing Activities

(1)

Investing Activities

(1)

Operating Activities

(1)

Starting the Study of Accounting

(1)

Key Term Quiz

(1)

Alternate Terms

(1)

Questions

(1)

Solutions to Key Terms Quiz

(1)

CHAPTER 1 Accounting as a Form of Communication

(44)

Focus on Financial Results: Winnebago Industries

(1)

What Is Accounting?

(1)

Users of Accounting Information and Their Needs

(1)

Internal Users

(1)

External Users

(1)

Business Strategy: To Build or Not to Build?

(1)

Financial Statements: How Accountants Communicate

(5)

The Accounting Equation and the Balance Sheet

(2)

The Income Statement

(1)

The Statement of Retained Earnings

(1)

Accounting for Your Decisions: You Are a Potential Stockholder

(1)

Relationships Among Winnebago Industries' Financial Statements

(1)

The Conceptual Framework: Foundation for Financial Statements

(2)

Accounting as a Social Science

(1)

Who Determines the Rules of the Game?

(1)

The Accounting Profession

(5)

Employment by Private Business

(1)

Employment by Nonbusiness Entities

(1)

Employment in Public Accounting

(3)

Accountants in Education

(1)

Accounting as a Career

(1)

Introduction to Ethics in Accounting

(1)

Accounting for Your Decisions: You Are a Student

(3)

Identification

(1)

Analysis

(1)

Resolution

(1)

Accountants and Ethical Judgments

(1)

The Changing Face of the Accounting Profession

(1)

A Final Note About Winnebago Industries

(24)

CHAPTER 2 Financial Statements and the Annual Report

(50)

Focus on Financial Results: Monaco Coach Corporation

(1)

What External Decision Makers Want to Know About Financial Statements

(1)

Why Does Accounting Information Need to Be Useful? Objectives of Financial Reporting

(2)

The Primary Objective: Provide Information for Decision Making

(1)

Secondary Objective: Reflect Prospective Cash Flows to the Enterprise

(1)

Secondary Objective: Reflect the Enterprises Resources and Claims to Its Resources

(1)

What Makes Accounting Information Useful? Qualitative Characteristics

(1)

Understandability

(1)

Relevance

(1)

Accounting for Your Decisions: You Are the Stockholder

(2)

Reliability

(1)

Comparability and Consistency

(2)

Materiality

(1)

Conservatism

(1)

Financial Reporting: An International Perspective

(1)

The Classified Balance Sheet

(5)

What Are the Parts of the Balance Sheet? Understanding the Operating Cycle

(2)

Current Assets

(1)

Noncurrent Assets

(1)

Accounting for Your Decisions

(1)

Current Liabilities

(1)

Long-Term Liabilities

(1)

Stockholders' Equity

(1)

Using a Classified Balance Sheet

(1)

Working Capital

(1)

Current Ratio

(1)

The Income Statement

(4)

What Appears on the Income Statement?

(1)

Ethics in Accounting

(1)

Format of the Income Statement

(2)

Using a Multiple-Step Income Statement

(1)

The Statement of Retained Earnings

(1)

The Statement of Cash Flows

(2)

The Cash Flow Statement for Dixon Sporting Goods

(2)

The Financial Statements for Monaco Coach Corporation

(5)

Monaco Coach's Balance Sheet

(2)

Monaco Coach's Income Statement

(1)

Other Elements of an Annual Report

(3)

Business Strategy: Focused on Growth

(1)

Ratios for Decision Making

(23)

CHAPTER 3 Processing Accounting Information

106

(50)

Focus on Financial Results: General Mills

107

(1)

What External Decision Makers Want To Know About How Accounting Information Is Processed

108

(1)

Economic Events: The Basis for Recording Transactions

109

(7)

External and Internal Events

109

(1)

The Role of Source Documents in Recording Transactions

110

(1)

Analyzing the Effects of Transactions on the Accounting Equation

110

(4)

Balance Sheet and Income Statement for the Health Club

114

(2)

Business Strategy: General Mills

116

(1)

The Account: The Basic Unit for Recording Transactions

117

(2)

Chart of Accounts

117

(1)

The General Ledger

117

(2)

Processing Accounting Information

119

(4)

APPENDIX: Accounting Tools: The Double-Entry System

123

(1)

The T Account

123

(1)

Debits and Credits

123

(1)

Accounting for Your Decisions: You Are a Student

124

(4)

Debits and Credits for Revenues, Expenses, and Dividends

124

(1)

Summary of the Rules for Increasing and Decreasing Accounts

125

(1)

Normal Account Balances

125

(1)

Debits Aren't Bad, and Credits Aren't Good

125

(1)

Debits and Credits Applied to Transactions

125

(1)

Transactions for Glengarry Health Club

126

(2)

The Journal: The Firm's Chronological Record of Transactions

128

(2)

The Trial Balance

130

(1)

Accounting for Your Decisions: You Are the Manager

131

(1)

Accounting for Your Decisions: You Are the Stockholder

132

(24)

CHAPTER 4 Income Measurement and Accrual Accounting

156

(57)

Focus on Financial Results: McDonald's

157

(1)

What External Decision Makers Want to Know About Accrual Accounting

158

(1)

Recognition and Measurement in Financial Statements

159

(2)

Recognition

159

(1)

Measurement

159

(2)

Summary of Recognition and Measurement in Financial Statements

161

(1)

The Accrual Basis of Accounting

161

(2)

Comparing the Cash and Accrual Bases of Accounting

161

(1)

What the Income Statement and the Statement of Cash Flows Reveal

162

(1)

Business Strategy: Adding Customers to Restaurants

163

(2)

Accrual Accounting and Time Periods

164

(1)

The Revenue Recognition Principle

164

(1)

Accounting for Your Decisions: You Are the Marketing Manager

165

(1)

Accounting for Your Decisions: You Are the Stockholder

165

(3)

Other Applications of the Revenue Recognition Principle

166

(2)

Ethics in Accounting: Bristol-Myers Squibb 167

Expense Recognition and the Matching Principle

168

(2)

Accrual Accounting and Adjustments

170

(1)

Types of Adjustments

170

(1)

Accounting for Your Decisions: You Are the Store Manager

171

(3)

Accounting for Your Decisions: You Are the Banker

174

(8)

Accruals and Deferrals

176

(1)

Summary of Adjustments

177

(1)

Comprehensive Example of Adjustments

178

(1)

Adjustments at the End of January

178

(2)

Income Statement and Balance Sheet for Duffy Transit

180

(1)

Ethical Considerations for a Company on the Accrual Basis

181

(1)

The Accounting Cycle

182

(34)

The Use of a Work Sheet

182

(1)

The Closing Process

182

(1)

Interim Financial Statements

183

(30)

Part I Integrative Problem

213

(2)

PART II ACCOUNTING FOR ASSETS

215

(200)

CHAPTER 5 Cash and Internal Control

216

(34)

Focus on Financial Results

217

(1)

What External Decision Makers Want to Know About Cash and Internal Control

218

(1)

What Constitutes Cash?

219

(1)

Cash Equivalents and the Statement of Cash Flows

219

(1)

Control Over Cash

220

(1)

Cash Management

220

(1)

Business Strategy: Putting Cash to Use

221

(4)

Reading a Bank Statement

221

(2)

The Bank Reconciliation

223

(2)

The Bank Reconciliation and the Need for Adjustments to the Records

225

(1)

Establishing a Petty Cash Fund

225

(1)

An Introduction to Internal Control

225

(4)

The Report of Management: Showing Responsibility for Control

226

(1)

The Control Environment

227

(1)

The Accounting System

228

(1)

Internal Control Procedures

228

(1)

Accounting for Your Decisions: You Are the Chief Financial Officer

229

(2)

Limitations on Internal Control

230

(1)

Computerized Business Documents and Internal Control

231

(19)

Control Over Cash Receipts

231

(1)

The Role of Computerized Business Documents in Controlling Cash Disbursements

232

(18)

CHAPTER 6 Investments and Receivables

250

(46)

Focus on Financial Results: PepsiCo

250

(2)

What External Decision Makers Want to Know About Short-Term Investments and Receivables

252

(1)

Accounting for Investments

253

(1)

Investments in Highly Liquid Financial Instruments

254

(1)

Investing Idle Cash

254

(1)

Accounting for an Investment in a Certificate of Deposit (CD),

254

(1)

Investments in Stocks and Bonds

255

(1)

Investments Without Significant Influence

256

(5)

Investments in Held-to-Maturity Securities

256

(1)

Investments in Trading Securities

257

(3)

Investments in Available-for-Sale Securities

260

(1)

Business Strategy: Adding Brands, Growing Sales, and Cutting Costs

261

(2)

Summary of Accounting and Reporting Requirements

262

(1)

The Controversy over Fair Value Accounting

262

(1)

Accounts Receivable

263

(2)

The Use of a Subsidiary Ledger

263

(1)

The Valuation of Accounts Receivable

264

(1)

Two Methods to Account for Bad Debts

264

(1)

Accounting for Your Decisions: You Are the Credit Manager

265

(2)

Write-Offs of Uncollectible Accounts with the Allowance Method

266

(1)

Two Approaches to the Allowance Method of Accounting for Bad Debts

266

(1)

Accounting for Your Decisions: You Are the Owner

267

(3)

Analyzing the Accounts Receivable Rate of Collection

270

(1)

Notes Receivable

270

(3)

Important Terms Connected with Promissory Notes

270

(1)

Interest-Bearing Notes

271

(1)

Non-Interest-Bearing Notes

272

(1)

Accelerating the Inflow of Cash from Sales

273

(2)

Credit Card Sales

273

(2)

Discounting Notes Receivable

275

(1)

How Liquid Assets Affect the Cash Flows Statement

275

(1)

Ratios for Decision Making: Reporting and Analyzing Financial Statement Information Related to a Company's Accounts Receivable

276

(20)

CHAPTER 7 Inventories and Cost of Goods Sold

296

(70)

Focus on Financial Results: Circuit City

297

(1)

What External Decision Makers Want to Know About

Inventory

298

(1)

The Nature of Inventory

299

(2)

The Income Statement for a Merchandiser

301

(1)

Net Sales of Merchandise

301

(1)

Sales Returns and Allowances

301

(1)

Credit Terms and Sales Discounts

302

(1)

The Cost of Goods Sold

302

(3)

The Cost of Goods Sold Model

303

(1)

Inventory Systems: Perpetual and Periodic

304

(1)

Accounting for Your Decisions: You Are the Entrepreneur

305

(2)

Beginning and Ending Inventories in a Periodic System

306

(1)

The Cost of Goods Purchased

306

(1)

Accounting for Your Decisions: You Are the President

307

(3)

Inventory Valuation and the Measurement of Income

310

(1)

Inventory Costs: What Should Be Included?

310

(1)

Inventory Costing Methods with a Periodic System

311

(1)

Business Strategy: Capitalizing on the Digital Age

311

(4)

Specific Identification Method

312

(1)

Weighted Average Cost Method

313

(1)

First-In, First-Out Method (FIFO)

314

(1)

Last-In, First-Out Method (LIFO)

314

(1)

Accounting for Your Decisions: You Are the Controller

315

(1)

Selecting an Inventory Costing Method

315

(4)

Costing Methods and Cash Flow

316

(1)

LIFO Liquidation

317

(1)

The LIFO Reserve: Estimating LIFO's Effect on Income and on Taxes Paid for Winnebago Industries

317

(1)

Costing Methods and Inventory Profits

318

(1)

Accounting for Your Decisions: You Are a Student

319

(6)

Changing Inventory Methods

319

(1)

Inventory Valuation in Other Countries

320

(1)

Inventory Errors

320

(3)

Valuing Inventory at Lower of Cost or Market

323

(1)

Why Replacement Cost Is Used as a Measure of Market

323

(1)

Conservism Is the Basis for the Lower-of-Cost-or-Market Rule

324

(1)

Application of the LCM Rule

325

(1)

Methods for Estimating Inventory Value

325

(3)

Gross Profit Method

326

(1)

Retail Inventory Method

327

(1)

Analyzing the Management of Inventory Turnover

328

(1)

How Inventories Affect the Cash Flows Statement

329

(1)

Ratios for Decision Making

330

(6)

APPENDIX: Accounting Tools: Inventory Costing Methods with the Use of a Perpetual Inventory System

336

(30)

CHAPTER 8 Operating Assets: Property, Plant, and Equipment, Natural Resources, and Intangibles

366

(46)

Focus on Financial Results: Walt Disney Company

367

(1)

What External Decision Makers Want to Know About Operating Assets

368

(1)

Operating Assets: Property, Plant, and Equipment

369

(1)

Balance Sheet Presentation

369

(1)

Acquisition of Property, Plant, and Equipment

369

(1)

Accounting for Your Decisions: You Are an Attorney

370

(9)

Challenges to Internal Decision Makers: Use, Depreciation, and Disposal of Property, Plant, and Equipment

372

(4)

Accounting for Your Decisions: You Are the Sole Owner

376

(3)

Accounting for Your Decisions: You Are the Owner

379

(2)

Environmental Aspects of Operating Assets

379

(1)

Disposal of Property, Plant, and Equipment

379

(2)

Operating Assets: Natural Resources

381

(1)

Balance Sheet Presentation

381

(1)

Depletion of Natural Resources

381

(1)

Operating Assets: Intangible Assets

382

(4)

Balance Sheet Presentation

383

(1)

Acquisition Cost of Intangible Assets

384

(2)

Business Strategy: Valuing Intangible Assets

386

(2)

Amortization of Intangibles

386

(2)

Ethics in Accounting: AOL Time Warner

388

(1)

How Long-Term Assets Affect the Statement of Cash Flows

388

(2)

Analyzing Long-Term Assets for Average Life and Asset Turnover

390

(1)

Accounting for Your Decisions: You Are the Student Intern

391

(2)

Ratios for Decision Making

393

(19)

Part II Integrative Problem

412

(3)

PAT III ACCOUNTING FOR LIABILITIES AND OWNERS' EQUITY

415

(176)

CHAPTER 9 Current Liabilities, Contingencies, and the Time Value of Money

416

(68)

Focus on Financial Results: J.C. Penney

417

(1)

What External Decision Makers Want to Know About Current Liabilities

418

(1)

Current Liabilities

419

(2)

Ethics in Accounting: Rent-Way

421

(4)

Accounts Payable

422

(1)

Notes Payable

422

(1)

Current Maturities of Long-Term Debt

423

(1)

Taxes Payable

424

(1)

Other Accrued Liabilities

424

(1)

Accounting for Your Decisions: You Are a Student

425

(1)

Reading the Statement of Cash Flows for Changes in Current Liabilities

425

(1)

Contingent Liabilities

426

(2)

Contingent Liabilities That Are Recorded

427

(1)

Business Strategy: Effectively Expanding into Different Market Segments

428

(3)

Contingent Liabilities That Are Disclosed

430

(1)

Contingent Liabilities versus Contingent Assets

430

(1)

Accounting for Your Decisions: You Are the CEO

431

(2)

Time Value of Money Concepts

433

(2)

Simple Interest

434

(1)

Compound Interest

434

(1)

Interest Compounding

434

(1)

Accounting for Your Decisions You Invest Some Unexpected Cash

435

(9)

Future Value of a Single Amount

435

(3)

Present Value of a Single Amount

438

(1)

Future Value of an Annuity

439

(2)

Present Value of an Annuity

441

(1)

Solving for Unknowns

442

(2)

Ratios for Decision Making

444

(10)

APPENDIX A: Accounting Tools: Payroll Accounting

454

(3)

APPENDIX B: Accounting Tools: Using Excel for Problems Involving Interest Calculations

457

(27)

CHAPTER 10 Long-Term Liabilities

484

(52)

Focus on Financial Results: Coca-Cola

485

(1)

What External Decision Makers Want to Know About Long-Term Liabilities

486

(1)

Balance Sheet Presentation

487

(1)

Ethics in Accounting. Enron Corporation

487

(2)

Bonds Payable

489

(3)

Characteristics of Bonds

489

(1)

Issuance of Bonds

490

(1)

Factors Affecting Bond Price

490

(2)

Accounting for Your Decisions: You Rate the Bonds

492

(8)

Premium or Discount on Bonds

493

(1)

Bond Amortization

494

(4)

Redemption of Bonds

498

(2)

Business Strategy: Product Strategy to Meet Competition

500

(1)

Liability for Leases

500

(1)

Leases

500

(1)

Accounting for Your Decisions: Should You Lease or Buy?

501

(4)

How Long-Term Liabilities Affect the Statement of Cash Flows

505

(2)

Analyzing Debt to Assess a Firm's Ability to Pay Its Liabilities

507

(1)

Ratios for Decision Making

508

(4)

Accounting Tools: Other Liabilities

512

(24)

CHAPTER 11 Stockholders' Equity

536

(53)

Focus on Financial Results: Southwest Airlines

537

(1)

What External Decision Makers Want To Know About Stockholders' Equity

538

(1)

An Overview of Stockholders' Equity

539

(1)

Equity as a Source of Financing

539

(1)

Accounting far Your Decisions: You Are the Investor

539

(6)

Stockholders' Equity on the Balance Sheet

541

(1)

How Income and Dividends Affect Retained Earnings

541

(1)

Identifying the Components of the Stockholders' Equity Section of the Balance Sheet

541

(4)

Business Strategy: Southwest's Culture and Compensation

545

(1)

What Is Preferred Stock?

545

(1)

Issuance of Stock

546

(1)

Stock Issued for Cash

546

(1)

Stock Issued for Noncash Consideration

547

(1)

What Is Treasury Stock?

547

(2)

Retirement of Stock

549

(1)

Dividends: Distribution of Income to Shareholders

549

(5)

Cash Dividends

549

(1)

Cash Dividends for Preferred and Common Stock

550

(1)

Stock Dividends

551

(2)

Stock Splits

553

(1)

Statement of Stockholders' Equity

554

(1)

What Is Comprehensive Income?

555

(1)

Ethics in Accounting: Boston Chicken

556

(1)

What Analyzing Owners' Equity Reveals About a Firm's Value

557

(2)

Book Value per Share

557

(1)

Calculating Book Value When Preferred Stock Is Present

557

(2)

Market Value per Share

559

(1)

How Changes in Stockholders' Equity Affect the Statement of Cash Flows

559

(2)

Ratios for Decision Making

561

(5)

APPENIDX: Accounting Tools: Unincorporated Businesses

566

(23)

Part III Integrative Problem

589

(2)

PART IV ADDITIONAL TOPICS IN FINANCIAL REPORTING

591

(130)

CHAPTER 12 The Statement of Cash Flows

592

(62)

Focus of Financial Results: IBM

593

(1)

What External Decision Makers Want to Know About the Statement of Cash Flows

594

(1)

Cash Flows and Accrual Accounting

595

(1)

Purpose of the Statement of Cash Flows

596

(1)

An Example

596

(1)

Reporting Requirements for a Statement of Cash Flows

597

(4)

The Definition of Cash: Cash and Cash Equivalents

598

(1)

Classification of Cash Flows

599

(2)

Business Strategy: Investing in the Future

601

(5)

Two Methods of Reporting Cash Flow from Operating Activities

602

(3)

Noncash Investing and Financing Activities

605

(1)

How the Statement of Cash Flows Is Put Together

606

(6)

The Accounting Equation and the Statement of Cash Flows

606

(2)

Preparing the Statement of Cash Flows: Direct Method

608

(4)

Accounting for Your Decisions: You Are an Entrepreneur

612

(4)

Accounting for Your Decisions: You Decide for Your Investment Club

616

(4)

An Approach to Preparing the Statement of Cash Flows: Indirect Method

617

(2)

Comparison of the Indirect and Direct Methods

619

(1)

The Use of Cash Flow Information

620

(2)

Creditors and Cash Flow Adequacy

620

(1)

Stockholders and Cash Flow per Share

621

(1)

Accounting for Your Decisions: You Are the Banker

622

(1)

Ratios for Decision Making

622

(4)

APPENDIX: Accounting Tools: A Work-Sheet Approach to the Statement of Cash Flows

626

(28)

CHAPTER 13 Financial Statement Analysis

654

(64)

Focus on Financial Results: Wm. Wrigley Jr. Company

655

(1)

Precautions in Statement Analysis

656

(1)

Watch for Alternative Accounting Principles

656

(1)

Take Care When Making Comparisons

656

(1)

Understand the Possible Effects of Inflation

657

(1)

Business Strategy: Focus on Core Values

657

(1)

Analysis of Comparative and Common-Size Statements

658

(8)

Horizontal Analysis

658

(3)

Vertical Analysis

661

(5)

Liquidity Analysis and the Management of Working Capital

666

(4)

Working Capital

666

(1)

Current Ratio

666

(1)

Acid-Test Ratio

667

(1)

Cash Flow from Operations to Current Liabilities

668

(1)

Accounts Receivable Analysis

669

(1)

Inventory Analysis

669

(1)

Accounting for Your Decisions: You Examine Your Business's Trends

670

(1)

Accounting for Your Decisions: You Are the Analyst

670

(1)

Cash Operating Cycle

671

(1)

Solvency Analysis

671

(3)

Debt-to-Equity Ratio

672

(1)

Times Interest Earned

672

(1)

Debt Service Coverage

673

(1)

Cash Flow from Operations to Capital Expenditures Ratio

673

(1)

Profitability Analysis

674

(5)

Rate of Return on Assets

674

(1)

Components of Return on Assets

675

(1)

Return on Common Stockholders' Equity

676

(1)

Return on Assets, Return on Equity, and Leverage

677

(1)

Earnings per Share

678

(1)

Price/Earnings Ratio

678

(1)

Accounting for Your Decisions: You Are the CEO

679

(3)

Dividend Ratios

679

(1)

Summary of Selected Financial Ratios

680

(2)

Accounting for Your Decisions: You Decide on a Stock Purchase

682

(6)

APPENDIX: Accounting Tools: Reporting and Analyzing Other Income Statement Items

688

(30)

Part IV Integrative Problem

718

(3)

APPENDIX A: WINNEBAGO INDUSTRIES 2002 ANNUAL REPORT

721

(44)

APPENDIX B: MONACO COACH CORPORATION 2002 ANNUAL REPORT

765

GLOSSARY

G-1

COMPANY INDEX

I-1

SUBJECT INDEX

I-3

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Financial Accounting The Impact on Decision Makers, The Alternative to Debits and Credits

Summary

Table of Contents

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