Financial Accounting : A Valuation Emphasis

, by John S. Hughes (Univ. of California, Los Angeles); Frances L. Ayres (Univ. of Oklahoma ); Robert E. Hoskin (Univ. of Connecticut)

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ISBN: 9780471203599 | 0471203599
Cover: Hardcover
Copyright: 12/1/2004

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Financial Accounting: A Valuation Emphasis integrates an understanding of valuation concepts with accounting principles. The authors place considerable emphasis on the economic consequences of accounting practices. You'll develop a solid background in basic accounting processes and disclosures, and the critical role of accounting in valuation. The book Features Highlights the valuation and economic consequences of core accounting concepts. Emphasizes the construction of accounting information and how that information affects the value of the firm. Offers an inviting and accessible presentation, with real-world examples and transactions. Provides an early treatment of statement of cash flows and financial statement analysis. Illustrates key concepts, including valuation models through an integrated example of a hypothetical company. Helps you appreciate the significance of accounting information to managers, investors, regulators, and others with an interest in the firm's affairs.

Financial Reporting: The Institutional Setting

(18)

Learning Objectives

(1)

Real World Vignette

(3)

Reporting of the Activities of the Firm

(1)

Regulation of Financial Reporting

(1)

Determining Generally Accepted Accounting Principles

(3)

Independent Audits of Financial Statements

(2)

Economic Consequences of Accounting Practices

(2)

Financial Reporting and Valuation

(1)

Summary and Transition

(5)

Financial Statements: An Overview

(34)

Learning Objectives

(1)

Real World Vignette

(1)

Forms of Business Organization

(2)

Financial Accounting Reports

(1)

Statement of Financial Position

(4)

Assets

(1)

Liabilities

(1)

Stockholders' Equity

(1)

The Accounting Equation

(1)

Statement of Financial Position: Ross Stores

(2)

Flow Statements: Changes in Financial Position

(1)

Statement of Earnings

(2)

Statement of Cash Flows

(2)

Articulation of the Financial Statements

(1)

Statement of Changes in Stockholders' Equity

(1)

Other Statement Disclosures

(2)

The Influence of Financial Statements

(2)

Summary and Transition

(16)

The Accounting Process

(46)

Learning Objectives

(1)

Real World Vignette

(1)

Balance Sheet Accounts

(2)

Assets

(1)

Liabilities

(1)

Stockholders' Equity

(1)

Nominal Accounts

(1)

Accounting for Transactions

(1)

Double-Entry Accounting Systems

(4)

T-Accounts

(1)

Journal Entries

(2)

Computerized Accounting

(1)

An Illustration of Transaction Analysis

(18)

Analysis of Financing and Investing Activities

(1)

Issuing Stock

(1)

Purchasing Fixtures

(1)

Borrowing Funds

(1)

Using Journal Entries and T-Accounts to Record Transactions

(1)

Construction the Financial Statements

(1)

Analysis of Operating Activities

(1)

Revenues and Expenses

(2)

Using the Accounting Equation to Analyze Operating Activities

(1)

Purchasing Inventory on Account (Transaction 4)

(1)

Selling Inventory on Account (Transaction 5)

(1)

Recognizing Cost of Goods Sold (Transaction 6)

(1)

Collecting Receivables (Transaction 7)

(1)

Paying Accounts Payable (Transaction 8)

(1)

Paying Selling and Administrative Costs (Transaction 9)

(1)

Depreciating Fixtures (Transaction 10)

(2)

Paying Interest (Transaction 11)

(1)

Dividends (Transaction 12)

(1)

Nominal Accounts Revisited

(1)

Using Journal Entries and T-Accounts to Record Transactions

(1)

Constructing the Financial Statements

(2)

Closing Entries

(2)

The Accounting Cycle

(1)

Analyzing Financial Statements

(1)

Summary and Transition

(18)

Income Measurement and Reporting

(30)

Learning Objectives

(1)

Real World Vignette

(1)

Accrual Accounting

100

(1)

Revenue Recognition

101

(5)

Revenue Recognition Criteria

102

(1)

At Point of Delivery

103

(1)

As Service Is Provided or Cost Incurred

103

(1)

Based on Contractual Agreements

104

(1)

At Time of Production

104

(1)

As Cash Is Collected

105

(1)

During Construction

105

(1)

Expense Recognition

106

(2)

Recording Accrual Entries

108

(3)

Revenues That Are Received in Cash Before They Are Earned

108

(1)

Revenues That are Earned Before They Are Received in Cash

109

(1)

Expenses That Are Paid in Cash Before They Are Incurred

110

(1)

Expenses That Are Incurred Before They Are Paid In Cash

111

(1)

Valuation Implications of Income Recognition

111

(1)

Income Statement Format

112

(5)

Line Item Definitions

112

(1)

Income Statement Labels

113

(1)

Income from Continuing Operations

113

(2)

Nonrecurring Items

115

(1)

Discontinued Operations

115

(1)

Extraordinary Items

115

(2)

Accounting Changes and Errors

117

(1)

Pro Forma Earnings

117

(1)

Earnings per Share

117

(1)

Comprehensive Income

118

(1)

Summary and Transition

118

(11)

Financial Statements: Measuring Cash Flow

129

(38)

Cash Flow Statement Components

130

(4)

Cash Flow From Operating Activities

130

(3)

Cash Flow From Investing Activities

133

(1)

Cash Flow From Financing Activities

134

(1)

Preparation of the Statement of Cash Flows

134

(10)

Worksheet Entries for Cash From Operations

137

(1)

Adjusting Net Income

137

(1)

Revenue Adjustments to Net Income

138

(1)

Cost of Goods Sold Adjustment to Net Income

139

(1)

Depreciation Adjustment to Net Income

140

(1)

Prepaid Expense Adjustment to Net Income

140

(1)

Worksheet Entries for Cash from Investing

141

(1)

Worksheet Entries for Cash from Financing

141

(3)

Summary of Cash Flow Statement Preparation--Indirect Method

144

(1)

Articulation of the Cash Flow Statement

144

(2)

Supplemental Disclosures to the Cash Flow Statement

146

(1)

Interpreting the Cash Flow Statement

146

(3)

Valuation Implications of the Cash Flow Statement

149

(1)

Summary and Transition

150

(17)

Financial Statement Analysis

167

(46)

Learning Objectives

167

(1)

Real World Vignette

167

(1)

Overview of Financial Statement Analysis

168

(1)

Creating Comparable Data for Financial Statement Analysis

169

(5)

``As If'' Restatements

169

(3)

Mandated Accounting Changes

172

(1)

Discretionary Accounting Changes

173

(1)

Using Financial Ratios to Assess Past Performance

174

(10)

Assessing Profitability

174

(4)

Assessing Turnover Ratios

178

(3)

Assessing Debt Repayment Ability

181

(1)

Short-Term Debt

181

(1)

Long-Term Debt

182

(2)

Using Financial Ratios to Assess Comparative Performance

184

(3)

Inter-Temporal Comparisons

184

(1)

Cross-Sectional Comparisons

184

(3)

Forecasting

187

(2)

Time Series Analysis

188

(1)

Pro Forma Statements

188

(1)

Time Value of Money

189

(3)

Future Value

190

(1)

Present Value

191

(1)

Adjusting for Uncertainty

191

(1)

Model for Valuing Equity

192

(3)

DCF Approach

192

(2)

RI Approach

194

(1)

Summary and Transition

195

(18)

Valuing Receivables

213

(30)

Learning Objectives

213

(1)

Real World Vignette

213

(1)

Accounts Receivable

214

(12)

Doubtful Accounts Recognition

215

(1)

Illustration of Doubtful Accounts Methods

215

(2)

Direct Write-Off Method

217

(1)

Allowance Method

217

(1)

Real Company Illustration of Doubtful Accounts

218

(3)

Estimating Doubtful Accounts

221

(1)

Sales Returns and Allowances

222

(4)

Accounts Receivable and Revenue Recognition

226

(2)

Financing Receivables

228

(2)

Selling Receivables

230

(3)

Summary and Transition

233

(10)

Valuing Inventories

243

(30)

Learning Objectives

243

(1)

Real World Vignette

243

(1)

Merchandise and Manufacturing Inventories

244

(4)

Inventory Costs

245

(1)

Inventory-Level Management

246

(1)

Valuing Inventory

246

(1)

Accounting for Inventory

247

(1)

Inventory Recording Procedures

248

(1)

Periodic Method

248

(1)

Perpetual Method

249

(1)

Inventory Cost Flow Assumptions

249

(3)

First-In, First-Out

249

(1)

Last-In, First-Out

250

(1)

Weighted Average

251

(1)

Specific Identification

252

(1)

Illustration of Cost Flow Assumptions

252

(4)

Periodic Inventory Computations

253

(1)

Periodic FIFO

253

(1)

Periodic LIFO

253

(1)

Periodic Weighted Average

254

(1)

Perpetual Inventory Computations

254

(1)

Perpetual FIFO

255

(1)

Perpetual LIFO

255

(1)

Perpetual Weighted Average

255

(1)

Comparison of Inventory Methods

256

(1)

Inventory Method Choices and Firm Value

256

(1)

LIFO's Effect on Financial Statements

257

(2)

Late Purchases

258

(1)

Lifo Liquidations

258

(1)

Financial Analysis and Inventory: Converting from LIFO to FIFO

259

(2)

Ratio Analysis Implications

260

(1)

Transition and Summary

261

(12)

Valuing Long-Lived Assets

273

(24)

Learning Objectives

273

(1)

Real World Vignette

273

(1)

Capitalization Criteria

274

(5)

Interest Capitalization

276

(1)

Basket Purchases

276

(2)

Improvements and Repairs

278

(1)

Asset Exchanges

278

(1)

Depreciation

279

(6)

Depreciation Methods

279

(1)

Straight-Line Depreciation

280

(1)

Declining Balance Methods

281

(1)

Tax Depreciation

282

(1)

Choice of Depreciation Methods

283

(1)

Effect of Changes in Estimates

283

(2)

Asset Impairments

285

(1)

Intangible Assets

286

(3)

Research and Development

286

(1)

Computer Software

287

(1)

Oil and Gas Exploration Costs and Reserves

287

(1)

Goodwill

288

(1)

Transition and Summary

289

(8)

Operating Liabilities: Recognition and Disclosure

297

(34)

Learning Objectives

297

(1)

Real World Vignette

297

(1)

Liability Recognition

298

(1)

Balance Sheet Classification

298

(1)

Accounts Payable

299

(1)

Advances on Sales and Unearned Revenue

300

(1)

Accrued Liabilities

301

(1)

Contingencies

302

(2)

Purchase and Sales Commitments

304

(2)

Restructuring Charges

306

(1)

Income Taxes

307

(1)

Deferred Tax Liabilities

308

(1)

Deferred Tax Assets

309

(2)

Reporting of Deferred Taxes

311

(2)

Pensions and Other Postretirement Benefits

313

(3)

Defined Benefit Plans

313

(2)

Defined Contribution Plans

315

(1)

Summary and Transition

316

(15)

Debt: Pricing, Covenants, and Disclosure

331

(32)

Learning Objectives

331

(1)

Real World Vignette

331

(1)

Notes Payable

332

(1)

Pricing of Debt

333

(3)

Accounting for Discounts on Debt

336

(2)

Zero-Coupon Debt

338

(1)

Fair Value of Debt

338

(1)

Early Debt Retirement

339

(1)

Debt Covenants

340

(2)

Credit Agreements

342

(1)

Bonds Payable

342

(1)

Accounting for Coupon Bonds

343

(1)

Leases

344

(4)

Special Purpose Entities

348

(2)

Summary and Transition

350

(13)

Stockholders' Equity: The Residual Interest

363

(26)

Learning Objectives

363

(1)

Real World Vignette

363

(1)

Overview of Stockholders' Equity

364

(1)

Types of Stock

365

(2)

Common Stock

365

(1)

Preferred Stock

366

(1)

Distributions to Stockholders

367

(2)

Cash Dividends

367

(1)

Stock Repurchases

368

(1)

Stock Dividends and Stock Splits

369

(3)

Small Stock Dividends

369

(1)

Large Stock Dividends

370

(1)

Stock Splits

370

(2)

Stock Options and Compensation

372

(3)

Convertible Securities

375

(2)

Earnings per Share

377

(2)

Diluted Earnings Per Share

378

(1)

Retained Earnings and Comprehensive income

379

(1)

Statement of Changes in Stockholders' Equity

379

(1)

Summary and Transition

380

(9)

Intercorporate Investments

389

(30)

Learning Objectives

389

(1)

Real World Vignette

389

(1)

Overview of Intercorporate Investments

390

(1)

Passive Minority Ownership

391

(6)

Held to Maturity Debt Securities

391

(2)

Trading Securities

393

(1)

Available for Sale Securities

394

(3)

Nonmarketable Securities

397

(1)

Valuation and Marketable Securities

397

(1)

Active Minority Investments

397

(4)

Majority Investments

401

(3)

Special Purpose Entities

404

(1)

Summary and Transition

404

(15)

Introduction to Valuation Analysis

419

(114)

Learning Objectives

419

(1)

Real World Vignette

419

(1)

Overview of Fundamental Analysis Methods

420

(1)

Pro Forma Financial Statements

420

(2)

Pro Forma Income Statements

420

(1)

Sales Forecasting

421

(1)

Operating Expense Forecasting

421

(1)

Depreciation Forecasting

421

(1)

Interest Expense Forecasting

421

(1)

Tax Expense Forecasting

422

(1)

Other Forecasting Items

422

(1)

Pro Forma Balance Sheets

422

(3)

Plant, Property and Equipment

423

(1)

Alternative Assumptions

423

(1)

Cash Forecasting

423

(1)

Effects of Intercorporate Investments

423

(1)

Debt Forecasting

424

(1)

Deferred Taxes

424

(1)

Owners' Equity

424

(1)

Pro Forma Cash Flow Statements

424

(1)

Discounted Cash Flow (DCF) Approach

425

(4)

Free Cash Flows

426

(1)

Terminal Value

426

(1)

Cost of Equity

427

(1)

Example of DCF Analysis with Debt Financing

428

(1)

Residual Income (RI) Approach

429

(2)

Simple Example Continued

430

(1)

Applying the Valuation Approaches

431

(4)

Pro Forma Statements

433

(1)

DCF Analysis

434

(1)

RI Analysis

434

(1)

Valuing a Real Company

435

(5)

Pro Forma Statements

435

(1)

Valuation Analyses

436

(4)

Valuation and Pricing Multiples

440

(1)

Summary and Transition

441

(6)

Appendixes

A. Adjusting Entries

447

(4)

B. Time Value of Money

451

(24)

C. Comprehensive Case and Chico's 10K Report Fiscal 2002

475

(40)

D. Journal References

515

(2)

E. Official Accounting Pronouncements

517

(16)

Glossary

533

(20)

Index

553

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Financial Accounting : A Valuation Emphasis

Summary

Author Biography

Table of Contents

Supplemental Materials