Financial Reporting and Analysis Using Financial Accounting Information (with Thomson Analytics Access Code)

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ISBN: 9780324304459 | 0324304455
Cover: Hardcover
Copyright: 4/27/2006

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The tenth edition thoroughly involves students with financial statements by using real-world examples. It builds skills in analyzing real financial reports through statements, exhibits, and cases of actual companies. Emphasis is placed on the analysis and interpretation of the end result of financial reporting--financial statements.

Introduction to Financial Reporting

(42)

Development of Generally Accepted Accounting Principles (GAAP)

(6)

American Institute of Certified Public Accountants (AICPA)

Financial Accounting Standards Board (FASB)

Operating Procedure for Statements of Financial Accounting Standards (SFASs)

FASB Conceptual Framework

Additional Input---American Institute of Certified Public Accountants (AICPA)

(1)

Emerging Issues Task Force (EITF)

(1)

A New Reality

(2)

Traditional Assumptions of the Accounting Model

(9)

Business Entity

Going Concern or Continuity

Time Period

Monetary Unit

Historical Cost

Conservatism

Realization

Matching

Consistency

Full Disclosure

Materiality

Industry Practices

Transaction Approach

Cash Basis

Accrual Basis

Using the Internet

(1)

Companies' Internet Web Sites

Helpful Web Sites

Summary

(1)

To the Net

(1)

Questions

(2)

Problems

(20)

Case 1-1 Standards Overload?

(1)

Case 1-2 Standard Setting: ``A Political Aspect''

(3)

Case 1-3 Standard Setting: ``By the Way of the United States Congress''

(1)

Case 1-4 Flying High

(1)

Case 1-5 Hawaii Centered

(1)

Case 1-6 Going Concern?

(2)

Case 1-7 Economics and Accounting: The Uncongenial Twins

(1)

Case 1-8 I Often Paint Fakes

(1)

Case 1-9 Oversight

(4)

Web Case: Thomson One, Business School Edition

(2)

Introduction to Financial Statements and Other Financial Reporting Topics

(44)

Forms of Business Entities

(1)

The Financial Statements

(2)

Balance Sheet (Statement of Financial Position)

Statement of Stockholders' Equity (Reconciliation of Stockholders' Equity Accounts)

Income Statement (Statement of Earnings)

Statement of Cash Flows (Statement of Inflows and Outflows of Cash)

Notes

The Accounting Cycle

(4)

Recording Transactions

Recording Adjusting Entries

Preparing the Financial Statements

Treadway Commission

Auditor's Opinion

(7)

Auditor's Report on the Firm's Internal Controls

Report of Management on Internal Control over Financial Reporting

Management's Responsibility for Financial Statements

The SEC's Integrated Disclosure System

Proxy

Summary Annual Report

(1)

The Efficient Market Hypothesis

(1)

Ethics

(2)

SEC Requirements---Code of Ethics

Harmonization of International Accounting Standards

(2)

Consolidated Statements

(1)

Accounting for Business Combinations

(1)

Summary

(1)

To the Net

(1)

Questions

(1)

Problems

(22)

Case 2-1 The CEO Retires

(2)

Case 2-2 The Dangerous Morality of Managing Earnings

(5)

Case 2-3 Frequent-Flier Awards---Firm Commitment

(1)

Case 2-4 International Accounting---Harmonization in Practice

(1)

Case 2-5 Materiality: In Practice

(1)

Case 2-6 Who is Responsible?

(1)

Case 2-7 Safe Harbor

(1)

Case 2-8 Enforcement

(1)

Case 2-9 Watch-Dollars--Auditing Standards---GAAP

(3)

Case 2-10 Multiple Country Enforcement

(1)

Web Case: Thomson One, Business School Edition

(2)

Balance Sheet

(48)

Basic Elements of the Balance Sheet

(28)

Assets

Liabilities

Stockholders' Equity

Quasi-Reorganization

Accumulated Other Comprehensive Income

Equity-Oriented Deferred Compensation

Employee Stock Ownership Plans (ESOPs)

Treasury Stock

Stockholders' Equity in Unincorporated Firms

Statement of Stockholders' Equity

115

(1)

Problems in Balance Sheet Presentation

116

(1)

Summary

117

(1)

To the Net

117

(1)

Questions

118

(1)

Problems

119

(16)

Case 3-1 Winne

124

(3)

Case 3-2 Reader's

127

(2)

Case 3-3 Sir Isaac

129

(2)

Case 3-4 Foods a Plenty

131

(1)

Case 3-5 Our Principal Asset is Our People

131

(1)

Case 3-6 Brands Are Dead?

132

(1)

Case 3-7 Advertising---Asset?

132

(1)

Case 3-8 Canadian GAAP vs. U.S. GAAP

132

(1)

Web Case: Thomson One, Business School Edition

133

(2)

Income Statement

135

(30)

Basic Elements of the Income Statement

135

(3)

Net Sales (Revenues)

Cost of Goods Sold (Cost of Sales)

Other Operating Revenue

Operating Expenses

Other Income or Expense

Special Income Statement Items

138

(6)

Unusual or Infrequent Item Disclosed Separately

Equity in Earnings of Nonconsolidated Subsidiaries

Income Taxes Related to Operations

Discontinued Operations

Extraordinary Items

Cumulative Effect of Change in Accounting Principle

Minority Share of Earnings

Earnings per Share

144

(1)

Retained Earnings

144

(1)

Dividends and Stock Splits

145

(2)

Legality of Distributions to Stockholders

147

(1)

Comprehensive Income

147

(2)

Summary

149

(1)

To the Net

150

(1)

Questions

151

(1)

Problems

151

(14)

Case 4-1 Optically Stimulated

157

(1)

Case 4-2 Gaming

157

(1)

Case 4-3 Riding High

158

(1)

Case 4-4 The Big Order

159

(1)

Case 4-5 Celtics

159

(2)

Case 4-6 Always Low Prices

161

(1)

Case 4-7 Multiple Income

161

(1)

Web Case: Thomson One, Business School Edition

162

(3)

Basics of Analysis

165

(22)

Ratio Analysis

165

(1)

Common-Size Analysis (Vertical and Horizontal)

166

(1)

Year-to-Year Change Analysis

166

(1)

Financial Statement Variation by Type of Industry

167

(4)

Review of Descriptive Information

171

(1)

Comparisons

171

(7)

Trend Analysis

Standard Industrial Classification (SIC) Manual

North American Industry Classification System (NAICS)

Industry Averages and Comparison with Competitors

Caution in Using Industry Averages

Relative Size of Firm

178

(1)

Other Library Sources

178

(2)

Ward's Business Directory

Standard & Poor's Stock Reports

Standard & Poor's Register of Corporations, Directors, and Executives

Standard & Poor's Analyst's Handbook

Standard & Poor's Corporation Records

America's Corporate Families:® The Billion Dollar Directory®

D&B® Million Dollar Directory®

Directory of Corporate Affiliations

Thomas Register of American Manufacturers

Mergent Industrial Manual

Security Owner's Stock Guide

Standard & Poor's Statistical Service

Mergent Dividend Record

Standard & Poor's Annual Dividend Record

D&B Reference Book of Corporate Managements

Compact Disclosure

The Users of Financial Statements

180

(1)

Summary

181

(1)

To the Net

182

(1)

Questions

183

(1)

Problems

184

(3)

Web Case: Thomson One, Business School Edition

186

(1)

Liquidity of Short-Term Assets; Related Debt-Paying Ability

187

(50)

Current Assets, Current Liabilities, and the Operating Cycle

187

(18)

Cash

Marketable Securities

Receivables

Inventories

Prepayments

Other Current Assets

Current Liabilities

Current Assets Compared with Current Liabilities

205

(4)

Working Capital

Current Ratio

Acid-Test Ratio (Quick Ratio)

Cash Ratio

Other Liquidity Considerations

209

(1)

Sales to Working Capital (Working Capital Turnover)

Liquidity Considerations Not on the Face of the Statements

Summary

210

(1)

To the Net

211

(1)

Questions

212

(2)

Problems

214

(23)

Case 6-1 LIFO-FIFO

226

(2)

Case 6-2 Rising Prices, a Time to Switch Off LIFO?

228

(1)

Case 6-3 Kodak Moment

228

(3)

Case 6-4 The Other Side of LIFO

231

(1)

Case 6-5 Chemical Specialty

232

(2)

Case 6-6 Booming Retail

234

(1)

Case 6-7 Supreme

235

(1)

Web Case: Thomson One, Business School Edition

236

(1)

Long-Term Debt-Paying Ability

237

(46)

Income Statement Consideration when Determining Long-Term Debt-Paying Ability

237

(4)

Times Interest Earned

Fixed Charge Coverage

Balance Sheet Consideration when Determining Long-Term Debt-Paying Ability

241

(6)

Debt Ratio

Debt/Equity Ratio

Debt to Tangible Net Worth Ratio

Other Long-Term Debt-Paying Ability Ratios

Special Items that Influence a Firm's Long-Term Debt-Paying Ability

247

(15)

Long-Term Assets versus Long-Term Debt

Long-Term Leasing

Pension Plans

Postretirement Benefits Other than Pensions

Joint Ventures

Contingencies

Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk

Disclosures About Fair Value of Financial Instruments

Summary

262

(1)

To the Net

262

(1)

Questions

263

(1)

Problems

264

(19)

Case 7-1 Expensing Interest Now and Later

270

(1)

Case 7-2 Consideration of Leases

271

(3)

Case 7-3 How May I Help You?

274

(1)

Case 7-4 Lockout

274

(1)

Case 7-5 Many Employers

275

(1)

Case 7-6 Play it Safe

276

(2)

Case 7-7 Apparel

278

(1)

Case 7-8 Fair Value of Financial Instruments

279

(1)

Case 7-9 Communications

280

(1)

Web Case: Thomson One, Business School Edition

280

(3)

Profitability

283

(38)

Profitability Measures

283

(11)

Net Profit Margin

Total Asset Turnover

Return on Assets

DuPont Return on Assets

Interpretation Through DuPont Analysis

Variation in Computation of DuPont Ratios Considering Only Operating Accounts

Operating Income Margin

Operating Asset Turnover

Return on Operating Assets

Sales to Fixed Assets

Return on Investment (ROI)

Return on Total Equity

Return on Common Equity

The Relationship Between Profitability Ratios

Gross Profit Margin

Trends in Profitability

294

(1)

Segment Reporting

294

(3)

Revenues by Major Product Lines

297

(1)

Gains and Losses from Prior Period Adjustments

298

(1)

Comprehensive Income

298

(1)

Pro Forma Financial Information

298

(2)

Interim Reports

300

(1)

Summary

301

(1)

To the Net

302

(2)

Questions

304

(1)

Problems

304

(17)

Case 8-1 Jeff's Self-Service Station

310

(1)

Case 8-2 The Tale of the Segments

311

(2)

Case 8-3 The Story of Starbucks---In Segments

313

(2)

Case 8-4 Scoreboards, Electronic Displays, Etc.

315

(2)

Case 8-5 Yahoo! Services

317

(2)

Case 8-6 Cars, Trucks, Etc.

319

(1)

Case 8-7 Shoes, Shoes, Shoes

319

(1)

Web Case: Thomson One, Business School Edition

320

(1)

For the Investor

321

(28)

Leverage and Its Effects on Earnings

321

(3)

Definition of Financial Leverage and Magnification Effects

Computation of the Degree of Financial Leverage

Summary of Financial Leverage

Earnings per Common Share

324

(1)

Price/Earnings Ratio

325

(1)

Percentage of Earnings Retained

326

(1)

Dividend Payout

326

(1)

Dividend Yield

327

(1)

Book Value per Share

328

(1)

Stock Options (Stock-Based Compensation)

328

(4)

Restricted Stock

332

(1)

Stock Appreciation Rights

332

(1)

Summary

333

(1)

To the Net

334

(1)

Questions

334

(1)

Problems

335

(14)

Case 9-1 Casey's

340

(1)

Case 9-2 Met-Pro Split

341

(1)

Case 9-3 Stock Option Plans (Stock-Based Compensation)

342

(2)

Case 9-4 Food, Food, Food

344

(3)

Case 9-5 Connecting

347

(1)

Web Case: Thomson One, Business School Edition

348

(1)

Statement of Cash Flows

349

(136)

Basic Elements of the Statement of Cash Flows

350

(5)

Financial Ratios and the Statement of Cash Flows

355

(4)

Operating Cash Flow/Current Maturities of Long-Term Debt and Current Notes Payable

Operating Cash Flow/Total Debt

Operating Cash Flow per Share

Operating Cash Flow/Cash Dividends

Alternative Cash Flow

359

(1)

Procedures for Development of the Statement of Cash Flows

359

(5)

Summary

364

(1)

To the Net

365

(1)

Questions

366

(1)

Problems

367

(24)

Case 10-1 The Big.Com

378

(1)

Case 10-2 Watch the Cash

379

(1)

Case 10-3 Who is Rapidly Expanding?

380

(3)

Case 10-4 The Retail Mover

383

(2)

Case 10-5 Noncash Charges

385

(3)

Case 10-6 Sorry---Give it Back

388

(1)

Case 10-7 Cash Movements and Periodic Income Determination

388

(1)

Web Case: Thomson One, Business School Edition

389

(2)

Summary Analysis Nike, Inc. (Includes 2005 Financial Statements on Form 10-K, and Selected Parts of 2005 Proxy)

391

(1)

Nike---Background Information

391

(9)

Management Discussion and Analysis (See 10-K) (in Part)

Vertical Common-Size Statement of Income (Exhibit 1)

Horizontal Common-Size Statement of Income (Exhibit 2)

Three-Year Comparison (Exhibit 3)

Ratio Comparison with Selected Competitor (Exhibit 4)

Ratio Comparison with Industry (Exhibit 5)

Other

400

(1)

Summary

400

(1)

Nike 2005 Financial Statements and Selected Parts of Proxy

400

(85)

Expanded Analysis

485

(48)

Financial Ratios as Perceived by Commercial Loan Departments

485

(2)

Most Significant Ratios and Their Primary Measure

Ratios Appearing Most Frequently in Loan Agreements

Financial Ratios as Perceived by Corporate Controllers

487

(2)

Most Significant Ratios and Their Primary Measure

Key Financial Ratios Included as Corporate Objectives

Financial Ratios as Perceived by Certified Public Accountants

489

(1)

Financial Ratios as Perceived by Chartered Financial Analysts

489

(1)

Financial Ratios Used in Annual Reports

490

(1)

Degree of Conservatism and Quality of Earnings

491

(1)

Inventory

Fixed Assets

Intangible Assets

Pensions

Forecasting Financial Failure

492

(3)

Univariate Model

Multivariate Model

Analytical Review Procedures

495

(1)

Management's Use of Analysis

495

(1)

Use of LIFO Reserves

496

(1)

Graphing Financial Information

497

(1)

Management of Earnings

497

(5)

Valuation

502

(4)

Multiples

Multiperiod Discounted Valuation Models

What They Use

International Aspects

Valuation as Seen by Management Consultants

From Page V

Dot.coms

Summary

506

(1)

To the Net

507

(1)

Questions

507

(2)

Problems

509

(24)

Case 11-1 Foresland Extraordinary

524

(3)

Case 11-2 Accounting Hocus-Pocus

527

(1)

Case 11-3 Turn a Cheek

528

(1)

Case 11-4 How Would You Value Nike?

529

(1)

Web Case: Thomson One, Business School Edition

530

(3)

Special Industries: Banks, Utilities, Oil and Gas, Transportation, Insurance, Real Estate Companies

533

(42)

Banks

533

(7)

Balance Sheet

Income Statement

Ratios for Banks

Regulated Utilities

540

(6)

Financial Statements

Ratios for Regulated Utilities

Oil and Gas

546

(3)

Successful-Efforts versus Full-Costing Methods

Supplementary Information on Oil and Gas Exploration, Development, and Production Activities

Cash Flow

Transportation

549

(4)

Financial Statements

Ratios

Insurance

553

(6)

Balance Sheet Under GAAP

Assets

Assets---Other than Investments Income Statement Under GAAP

Ratios

Real Estate Companies

559

(1)

Summary

559

(1)

To the Net

560

(1)

Questions

561

(2)

Problems

563

(12)

Case 12-1 Allowance for Funds

566

(2)

Case 12-2 Results of Operations for Oil and Gas Producing Activities

568

(1)

Case 12-3 Summary of Loan Loss Experience

569

(2)

Case 12-4 You Can Bank On It

571

(2)

Case 12-5 You're Covered

573

(1)

Web Case: Thomson One, Business School Edition

574

(1)

Personal Financial Statements and Accounting for Governments and Not-for-Profit Organizations

575

(28)

Personal Financial Statements

575

(7)

Form of the Statements

Suggestions for Reviewing the Statement of Financial Condition

Suggestions for Reviewing the Statement of Changes in Net Worth

Illustration of Preparation of the Statement of Financial Condition

Illustration of Preparation of the Statement of Changes in Net Worth

Accounting for Governments

582

(5)

Accounting for Not-for-Profit Organizations Other Than Governments

587

(5)

SFAS No. 93, ``Recognition of Depreciation by Not-for-Profit Organizations''

SFAS No. 116, ``Accounting for Contributions Received and Contributions Made''

SFAS No. 117, ``Financial Statements of Not-for-Profit Organizations''

SFAS No. 124 ``Accounting for Certain Investments Held by Not-for-Profit Organizations''

Applicability of GAAP to Not-for-Profit Organizations

Budgeting by Objectives and/or Measures of Productivity

Summary

592

(1)

To the Net

592

(1)

Questions

593

(1)

Problems

594

(9)

Case 13-1 Deficit Budget?

597

(1)

Case 13-2 My Mud Hens

598

(2)

Case 13-3 Jeep

600

(1)

Case 13-4 Governor Lucas---This is Your County

600

(1)

Case 13-5 County-Wide

601

(2)

Glossary

603

(20)

Bibliography

623

(10)

Index

633

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Financial Reporting and Analysis Using Financial Accounting Information (with Thomson Analytics Access Code)

Summary

Table of Contents

Supplemental Materials