Financial & Managerial Accounting

15th Edition

Financial & Managerial Accounting THE BASIS FOR BUSINESS DECISIONS

Jan R. Williams University of Tennessee

Susan F. Haka Michigan State University

Mark S. Bettner Bucknell University

Joseph V. Carcelio University of Tennessee

McGraw-Hill Irwin Boston Burr Ridge, IL Dubuque, IA New York San Francisco St. Louis Bangkok Bogota Caracas Kuala Lumpur Lisbon London Madrid Mexico City Milan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto

Contents Accounting: Information for Decision Making Accounting Information: A Means to an End

4

Owners' Equity

45

The Accounting Equation

45

The Effects of Business Transactions: An Illustration

46

Effects of These Business Transactions on the Accounting Equation

50

Accounting from a User's Perspective

4

Types of Accounting Information

5

Income Statement

6

Statement of Cash Flows

Determining Information Needs

7

Relationships among Financial Statements

The Cost of Producing Accounting Information

7

Financial Analysis and Decision Making

Basic Functions of an Accounting System

7

Forms of Business Organization

Who Designs and Installs Accounting Systems?

8

Components of Internal Control

8

Financial Accounting Information

9

Accounting Systems

External Users of Accounting Information

9

Objectives of External Financial Reporting

10

Characteristics of Externally Reported Information

12

51 53 54 57 57

Sole Proprietorships

57

Partnerships

58

Corporations

58

Reporting Ownership Equity in the Statement of Financial Position

58

Management Accounting Information

13

The Use of Financial Statements by External Parties

59

Users of Internal Accounting Information

13

The Need for Adequate Disclosure

60

Objectives of Management Accounting Information

14

Management's Interest in Financial Statements

60

Characteristics of Management Accounting Information •

15

Integrity of Accounting Information Institutional Features

16 17

Professional Organizations

19

Competence, Judgment, and Ethical Behavior

21

Careers in Accounting

23

Public Accounting

23

Management Accounting

24

Governmental Accounting

24

Accounting Education

24

What about Bookkeeping?

25

Accounting as a Stepping-Stone

25

But What about Me? I'm Not an Accounting Major

25

Ethics^ Fraud & Corporate Governance .

26

Concluding Remarks

26

End-of-Chapter Review

27

Assignment Material

Concluding Remarks

61 62


63

Assignment Material

66

Ethics, Fraud & Corporate Governance

30

The Accounting Cycle: Capturing Economic Events The Accounting Cycle The Role of Accounting Records

The Ledger The Use of Accounts Debit and Credit Entries Double-Entry Accounting—The Equality of Debits and Credits

The Journal Posting Journal Entries to the Ledger Accounts (and How to "Read" a Journal Entry)

Basic Financial Statements

Recording Balance Sheet Transactions: An Illustration

89 89 90

91 92

92

Introduction to Financial Statements

40

What Is Net Income?

96 98

A Starting Point: Statement of Financial Position

41

Retained Earnings

98

Assets

42

The Income Statement: A Preview

Liabilities

44

Revenue

Ledger Accounts after Posting

98 100

100 102

Relationships among the Financial Statements

The Accrual Basis of Accounting

Drafting the Notes That Accompany Financial Statements

198

Debit and Credit Rules for Revenue and Expenses

102

What Types of Information Must Be Disclosed?

199

Expenses

103

Dividends Recording Income Statement Transactions: An Illustration

The Trial Balance

201

103

Closing Entries for Expense Accounts

201

109

Closing the Income Summary Account

202

109 111

Closing the Dividends Account

203

Summary of the Closing Process

204

112

After-Closing Trial Balance

205

Uses and Limitations of the Trial Balance


112

Concluding Remarks

113 113

The Accounting Cycle in Perspective


114

Assignment Material

119

The Accounting Cycle: Accruals and Deferrals Adjusting Entries

142

A Last Look at Overnight: Was 2009 a Good Year?

Financial Analysis and Decision Making " Preparing Financial Statements Covering Different Periods of Time

210

Isn't This Really a Spreadsheet?

210

How Is a Worksheet Used?

210

The Mechanics: How It's Done

210

What If: A Special Application of Worksheet Software

142 142

Assignment Material

Adjusting Entries and Timing Differences

143

Characteristics of Adjusting Entries

144

Year-End at Overnight Auto Service

145

Converting Assets to Expenses

146

The Concept of Depreciation

148

Converting Liabilities to Revenue

151

Accruing Unpaid Expenses

152

Accruing Uncollected Revenue

154

Accruing Income Taxes Expense: The Final Adjusting Entry

155

Susquehanna Equipmental Rentals

6

Merchandising Companies

248 248 249

Effects of the Adjusting Entries

158

Companies

161 161 162 167

Two Approaches Used in Accounting for Merchandise Inventories

250 251

Perpetual Inventory Systems

251

Taking a Physical Inventory

253

Closing Entries in a Perpetual Inventory System

254

Periodic Inventory Systems

The Accounting Cycle: Reporting Financial Results

244

Income Statement of a Merchandising Company Accounting System Requirements for Merchandising

Assignment Material

218

The Operating Cycle of a Merchandising Company

157


213

214

Merchandising Activities

The Concept of Materiality

Concluding Remarks

208

Supplemental Topic: The Worksheet

Types of Adjusting Entries


206

209 209

The Need for Adjusting Entries

156

205

Concluding Remarks



Adjusting Entries and Accounting Principles

254

Operation of a Periodic Inventory System

254

Closing Process in a Periodic Inventory System

255

Comparison of Perpetual and Periodic Inventory Systems 257 Selecting an Inventory System

258

194

Transactions Relating to Purchases

The Income Statement

194

Credit Terms and Cash Discounts

259

The Statement of Retained Earnings

197

Returns of Unsatisfactory Merchandise

261

The Balance Sheet

197

Transportation Costs on Purchases

261

Preparing Financial Statements

XXIV

200

Closing Entries for Revenue Accounts

The Journal

February's Ledger Balances

Closing the Temporary Accounts

198

259


314

Sales Returns and Allowances

262


316

Sales Discounts

263

Concluding Remarks

316

Delivery Expenses

263

Accounting for Sales Taxes

264


317

Assignment Material

321

Transactions Relating to Sales

262

Modifying an Accounting System Special Journals Provide Speed and Efficiency

264 264

Financial Analysis and Decision Making Net Sales Gross Profit Margins Ethics, Fraud & Corporate Governance Concluding Remarks

265 265 265 267 267

End-of-Chapter Review Assignment Material

268 272

7

The Valuation of Financial Assets

Cash

346

346

Which Unit Did We Sell?

347

Data for an Illustration

347

Specific Identification

348

Cost Flow Assumptions

348

Average-Cost Method

348

First-ln, First-Out Method

349

Last-In, First-Out Method

350

292

Evaluation of the Methods

351

292

Do Inventory Methods Really Affect Performance?

353

The Principle of Consistency

353

Just-in-Time (JIT) Inventory Systems

353

293

Reporting Cash in the Balance Sheet

Inventory Defined

The Flow of Inventory Costs

Financial Assets

How Much Cash Should a Business Have?

Inventories and the Cost of Goods Sold

293

The Statement of Cash Flows ';

294

Cash Management

294

Taking a Physical Inventory

355

294

Recording Shrinkage Losses

355

295

LCM and Other Write-Downs of Inventory

355

Reconciling the Bank Statement

295

The Year-End Cutoff of Transactions

356

Petty Cash Funds

299

Periodic Inventory Systems

357

International Financial Reporting Standards

360

Importance of an Accurate Valuation of Inventory

361 362

/

Internal Control over Cash Bank Statements

Short-Term Investments Accounting for Marketable Securities

299 300

Purchase of Marketable Securities

300

Recognition of Investment Revenue

301

Techniques for Estimating the Cost of Goods Sold and the Ending Inventory

Sale of Investments

301

The Gross Profit Method

362

Adjusting Marketable Securities to Market Value

302

The Retail Method

363 363

364

Accounts Receivable •

303

Uncollectible Accounts

303

"Textbook" Inventory Systems Can Be Modified... and They Often Are

The Allowance for Doubtful Accounts

305


Writing Off an Uncollectible Account Receivable

305

Monthly Estimates of Credit Losses Concentrations of Credit Risk

Inventory Turnover

364

306

Receivables Turnover

365

308

Accounting Methods Can Affect Financial Ratios

365

Recovery of an Account Receivable Previously Written Off

308

Direct Write-Off Method

309

Internal Controls for Receivables

310

Management of Accounts Receivable

310

Factoring Accounts Receivable Credit Card Sales

Notes Receivable and Interest Revenue

.

Ethics, Fraud & Corporate Governance Concluding Remarks

366

310


366 367

310

Assignment Material

370

311

Nature of Interest

312

Accounting for Notes Receivable

312

Guitar Universe, Inc.

388 XXV

Plant and Intangible Assets Plant Assets as a "Stream of Future Services" Major Categories of Plant Assets Accountable Events in the Lives of Plant Assets

Acquisitions of Plant Assets Some Special Considerations

393


416

Assignment Material

419

394

395

10 Liabilities The Nature of Liabilities

Current Liabilities

436

437

Accounts Payable

437

Motes Payable

437

Allocating the Cost of Plant and Equipment over the Years of Use

395

The Current Portion of Long-Term Debt

438

Causes of Depreciation

396

Accrued Liabilities

439

Methods of Computing Depreciation

396

Payroll Liabilities

439

The Straight-Line Method

397

Unearned Revenue

441

The Declining-Balance Method

399

Which Depreciation Methods Do Most Businesses Use?

401

Financial Statement Disclosures

402

The Impairment of Plant Assets

403

Other Depreciation Methods

403

Long-Term Liabilities

441

Maturing Obligations Intended to Be Refinanced

441

Installment Notes Payable

442

Bonds Payable

444

What Are Bonds?

444

Tax Advantage of Bond Financing

446

The Units-of-Output Method

404

Accounting for Bonds Payable

446

MACRS

404

Bonds Issued at a Discount or a Premium

448

Sum-of-the-Years' Digits

404

Accounting for a Bond Discount: An Illustration

449

Decelerated Depreciation Methods

404

Accounting fora Bond Premium: An Illustration

451

Depreciation Methods in Use: A Survey

405

Bond Discount and Premium in Perspective

454

The Concept of Present Value

454

Bond Prices after Issuance

455

Early Retirement of Bonds Payable

456

Disposal of Plant and Equipment

405

Gains and Losses on the Disposal of Plant and Equipment

405

Trading in Used Assets for New Ones

406


407

Estimated Liabilities, Loss Contingencies, and Commitments

457

407

Estimated Liabilities

457

Characteristics

407

Loss Contingencies

457

Operating Expenses versus Intangible Assets

408

Amortization

408

Evaluating the Safety of Creditors' Claims

458

Goodwill

408

Methods of Determining Creditworthiness

459

Patents

410

Trademarks and Trade Names

411

Franchises

411

Copyrights

411

Other Intangibles and Deferred Charges

411

Research and Development (R&D) Costs

Intangible Assets

Financial Analysis and Decision Making Natural Resources Accounting for Natural Resources Depreciation, Amortization, and Depletion— A Common Goal

Plant Transactions and the Statement of Cash Flows Ethics, Fraud & Corporate Governance XXVI

392

392 393

Depreciation

415

392 392

Determining Cost: An Example

Capital Expenditures and Revenue Expenditures

Concluding Remarks

Commitments

How Much Debt Should a Business Have?

458

459

Special Types of Liabilities

460 461 462

411

Lease Payment Obligations

462

412 413

Operating Leases

462

Capital Leases

462

413 413

414 414

Financial Analysis and Decision Making Ethics, Fraud & Corporate Governance

Liabilities for Pensions and Other Postretirement Benefits

463

Deferred Income Taxes

465

Concluding Remarks

465


466 470

Assignment Material

Stockholders' Equity: Paid-in Capital Corporations

490

Why Businesses Incorporate

490

Publicly Owned Corporations

491

Formation of a Corporation Stockholder Records in a Corporation

Paid-in Capital of a Corporation

492 494

494

Authorization and Issuance of Capital Stock

494

Common Stock and Preferred Stock

496

Characteristics of Preferred Stock

497

Book Value per Share of Common Stock

499

Market Value

500

Statement of Retained Earnings

538

Prior Period Adjustments

539

Comprehensive Income

539

Statement of Stockholders' Equity

540

Stockholders' Equity Section of the Balance Sheet

540


542

Concluding Remarks

543


544

Assignment Material

548

13 Statement of Cash Flows Statement of Cash Flows

570

Market Price of Preferred Stock

501

Purposes of the Statement

570

Market Price of Common Stock

501

Example of a Statement of Cash Flows

570

Book Value and Market Price

502

Classification of Cash Flows

570

Stock Splits

502

Treasury Stock

Preparing a Statement of Cash Flows

573

502

Operating Activities

Recording Purchases of Treasury Stock

503

Investing Activities

574

Reissuance of Treasury Stock

503

Financing Activities

575

Stock Buyback Programs

504

Cash and Cash Equivalents

575

505

Cash Flows from Operating Activities

576

506

Cash Payments for Merchandise and for Expenses

577

Cash Flows from Investing Activities

579

Cash Flows from Financing Activities

581

Financial Analysis and Decision Making Ethics, Fraud & Corporate Governance Concluding Remarks

/

506

574


507

Relationship between the Statement of

Assignment Material

510

Cash Flows and the Balance Sheet

582 ,

Reporting Operating Cash Flows by the Indirect Method

583

McMinn Retail, Inc.

525

12 Income and Changes in Retained Earnings Reporting the Results of Operations

528

Developing Predictive Information

528

Reporting Irregular Items: An Illustration

Reconciling Net Income with Net Cash Flows

584

The Indirect Method: A Summary

585

Indirect Method May Be Required in a Supplementary Schedule

585

The Statement of Cash Flows: A Second Look

585


587

Managing Cash Flows

589

Budgeting: The Primary Cash Management Tool

589

528

What Priority Should Managers Give to Increasing Net Cash Flows?

589

Continuing Operations

528

Some Strategies for Permanent Improvements

Discontinued Operations

529

in Cash Flow

590

Extraordinary Items

529


591

Earnings per Share (EPS)

531

A Worksheet for Preparing a Statement of Cash Flows

592

Financial Analysis and Decision Making Basic and Diluted Earnings per Share

Other Transactions Affecting Retained Earnings Cash Dividends Dividend Dates Liquidating Dividends Stock Dividends

533 534

534 534 535 _ 536 536

Data for an Illustration

592

The Worksheet

593

Entry

595

Concluding Remarks End-of-Chapter Review Assignment Material

596 .'

598 603 XXVII

15 Global Business and Accounting

14 Financial Statement Analysis

Globalization

Financial Statements Are Designed for Analysis

630

Tools of Analysis

631

Dollar and Percentage Changes

631

694

Economic Systems

694 695

632

Culture

Component Percentages

633

Technology and Infrastructure

Ratios

633

Standards of Comparison

633

Quality of Earnings

634

Quality of Assets and the Relative Amount of Debt

635

A Classified Balance Sheet Working Capital

International Financial Reporting Standards: Adoption or Convergence

699 700

635

Currency Fluctuations—Who Wins and Who Loses?

704

637

Consolidated Financial Statements That Include Foreign Subsidiaries

706

637

Debt Ratio

638

Evaluating Financial Ratios

638

Liquidity, Credit Risk, and the Law

640

640

Classifications in the Income Statement

641

Multiple-Step Income Statements

642

706

Global Sourcing Foreign Corrupt Practices Act

708


709 709 710

Assignment Material

713


644

Price-Earnings Ratio

644

Single-Step Income Statements

645

Evaluating the Adequacy of Net Income

645

Return on Investment (ROI)

645

Return on Assets (ROA)

646

Management Accounting: Basic Framework

Return on Equity (ROE)

646

Management Accounting's Role in Assigning

Comprehensive Illustration: Seacliff Company

699

Accounting for Transactions with Foreign Companies

638

.

697

635

Quick Ratio

Measures of Profitability

696

697

Exchange Rates

Current Ratio

Earnings per Share

Harmonization of Financial Reporting Standards

Foreign Currencies and Exchange Rates

•

692 693

Political and Legal Systems

Trend Percentages

Measures of Liquidity and Credit Risk

647

Management Accounting: A Business Partner 730

Decision-Making Authority

730

Analysis by Common Stockholders

650

Management Accounting's Role in Decision Making

730

Return on Investment (ROI)

652

Leverage

653

Management Accounting's Role in Performance Evaluation and Rewards

731

.

Analysis by Long-Term Creditors

654

Accounting Systems: A Business Partner

731

Accounting for Manufacturing Operations

733

Analysis by Short-Term Creditors

654

Cash Flow Analysis

658

Classifications of Manufacturing Costs

Statements

659


735

Product Costs and the Matching Principle

736

Product Costs versus Period Costs

Usefulness of Notes to Financial

734 734


659

Summary of Analytical Measurements

660

Inventories of a Manufacturing Business

736


662

The Flow of Costs Parallels the Flow of Physical Goods

736

Concluding Remarks

663

Accounting for Manufacturing Costs: An Illustration

737

End-of-Chapter Review Assignment Material

Home Depot, Inc. XXVIII

Environmental Forces Shaping Globalization

664 668

688

Direct Materials

737

Direct Labor

738

Manufacturing Overhead

739

Direct and Indirect Manufacturing Costs

740

Work in Process Inventory, Finished Goods Inventory, and the Cost of Goods Sold

740

The Need for Per-Unit Cost Data

741


826

Determining the Cost of Finished Goods Manufactured

741

Concluding Remarks

826

Financial Statements of a Manufacturing Company

742


827

Assignment Material

830

International Financial Reporting Standards and Inventories

Concluding Remarks

743

•

744


745

Assignment Material

748

Costing and the Value Chain

17 Job Order Cost Systems and Overhead Allocations Cost Accounting Systems Job Order Cost Systems and the Creation of Goods and Services Overhead Application Rates What "Drives" Overhead Costs?

770

The Value Chain

771 779

852

Value- and Non-Value-Added Activities

852

Activity-Based Management Activity-Based Management across the Value Chain

770

ABC: A Subset of Activity-Based Management

The Target Costing Process

tic.

852

International Financial Reporting Standards and the Value Chain

854 854 857

857

Components of the Target Costing Process

858

ltd

Target Costing: An Illustration

859

The Job Cost Sheet

773

Characteristics of the Target Costing Process

861

Flow of Costs in Job Costing: An Illustration

774

Accounting for Direct Materials

71A 1 14

Accounting for Direct Labor Costs

775

Accounting for Overhead Costs

776

Accounting for Completed Jobs'

779

Job Order Costing

Job Order Costing in Service Industries

Activity-Based Costing (ABC)

-7-70

Just-in-Time Inventory Procedures

862

Measures of Efficiency in a JIT System

863

Total Quality Management and the Value Chain

779

779

864

Measuring the Cost of Quality

865

Productivity and Quality

866

782

Stage 2: Allocate Activity Cost Pools to the Products

783


Determining Unit Costs Using ABC

786

Concluding Remarks End-of-Chapter Review


788 788

Concluding Remarks

789


790

Assignment Material

792

Assignment Material

n

Production of Goods and Services and Costing Systems

814

Process Costing

815

Tracking the Physical Flow and Related Production Costs Process Costing and Equivalent Units Cost per Equivalent Unit

866 867 868 871

i E r < V 20 Cost-Volume-Profit Wmff Analysis Cost-Volume Relationships

18 Process Costing

863

Components of the Cost of Quality

Stage 1: Separate Activity Cost Pools

The Trend toward More Informative Cost Accounting Systems

862

JIT, Supplier Relationships, and Product Quality

890

Fixed Costs (and Fixed Expenses)

890

Cost-Volume Relationships: A Graphic Analysis

891

The Behavior of Per-Unit Costs 895

893

Economies of Scale

894

Additional Cost Behavior Patterns

895

Cost Behavior and Operating Income

896

815

Cost-Volume-Profit Analysis: An Illustration

896

817

Preparing and Using a Cost-Volume-Profit Graph

897

819

Contribution Margin: A Key Relationship

898

How Many Units Must We Sell?

899

Tracking Costs Using a Process Costing Production Report

821

How Many Dollars in Sales Must We Generate?

900

Evaluating Departmental Efficiency

825

What Is Our Margin of Safety?

900 XXIX

968

900

Business Applications of CVP

900

Responsibility Accounting: An Illustration

968

Additional Considerations in CVP

903

CVP Analysis When a Company Sells Many Products

903

Assigning Revenue and Costs to Responsibility Centers

969

Variable Costs

970

Determining Semivariable Cost Elements: The High-Low Method

904

Contribution Margin

970

Assumptions Underlying Cost-Volume-Profit Analysis

905

Fixed Costs

971

Summary of Basic Cost-Volume-Profit Relationships

905

Traceable Fixed Costs

971

906

Common Fixed Costs

971

Responsibility Margin

972

When Is a Responsibility Center "Unprofitable"?

974

Evaluating Responsibility Center Managers

974


906


907

Assignment Material

910

21 Incremental Analysis The Challenge of Changing Markets The Concept of Relevant Cost Information

928 928

Arguments against Allocating Common Fixed Costs to Business Centers

975

Transfer Prices

975

Nonfinancial Objectives and Information

978


979

Responsibility Center Reporting in Financial Statements

979

International Financial Reporting Standards and Responsibility Center Reporting

Relevant Information in Business Decisions

930

International Financial Reporting Standards and Relevant Costs

930


A Simple Illustration Of Relevant Costs

930

Assignment Material

Opportunity Costs

931


Concluding Remarks

979

980 981 983

931

Sunk Costs versus Out-of-Pocket Costs

'

Incremental Analysis in Common Business Decisions Special Order Decisions

931

I; 23 Operational Budgeting

932 932

Profit Rich, Yet Cash Poor

1002 1002

1003

Production Constraint Decisions

933

Operating Cash Flows: The Lifeblood of Survival

Make or Buy Decisions

935

Budgeting: The Basis for Planning and Control

Sell, Scrap, or Rebuild Decisions

936

Benefits Derived from Budgeting

1004

938

Establishing Budgeted Amounts

1004

Joint Product Decisions

Concluding Remarks End-of-Chapter Review Assignment Material

The Gilster Company

939 940 943

960

22 Responsibility Accounting and Transfer Pricing Responsibility Centers

XXX

Responsibility Accounting Systems

What Change in Operating Income Do We Anticipate?

964

The Need for Information about Responsibility Center Performance

964

Cost Centers, Profit Centers, and Investment Centers

965


1006

The Budget Period

1006

The Master Budget: A Package of Related Budgets

1007

Steps in Preparing a Master Budget

1007

Preparing the Master Budget: An Illustration

1009

Operating Budget Estimates

1009

Budgeted Income Statement

1013

Cash Budget Estimates

1014

The Cash Budget

1017

Budgeted Balance Sheets

1020

International Financial Reporting: Standards and Budgeting

1020

Using Budgets Effectively

1021

Flexible Budgeting

1022

Concluding Remarks

1024


1025

Assignment Material

1028

Management Compensation

24 Standard Cost Systems

Components of Management Compensation

Ethics, Fraud & Corporate Governance Standard Cost Systems

1048

1102

Direct Labor Standards

1050

Design Choices for Management Compensation

Manufacturing Overhead Standards

1050

Goals and Rewards in Life

Standard Costs and Variance Analysis: An Illustration

1050

Materials Price and Quantity Variances

1052

Labor Rate and Efficiency Variances

1054

1058

Evaluating Cost Variances from Different Perspectives

1058

A Final Note: JIT Systems and Variance Analysis

1102


1103

Assignment Material

1106


1062


1063

26 Capital Budgeting Capital Investment Decisions

1066

25 Rewarding Business Performance Motivation and Aligning Goals and Objectives

1088

Communicating Goals and Objectives

1088

Accounting Information and Feedback about Goal Achievement Rewarding Goal Achievement

The DuPont System

1126

Evaluating Capital Investment Proposals: An Illustration

1126

Payback Period

1127

Return on Average Investment

1128

Discounting Future Cash Flows

1129

Replacing Assets

1132

Behavioral Considerations in Capital Budgeting

1134

1135

1088


1135

1088

A Concluding Comment from the Authors

1136


1137

Assignment Material

1140

1089 1089

The Components of Return on Investment

1091

Return on Sales

1091

Capital Turnover

1092

Criticisms of ROI

1093

The Short Horizon Problem

1093

Failing to Undertake Profitable Investments

1093

Measurement Problems

1094

1094

Residual Income

1094

Economic Value Added

1095

The Balanced Scorecard

1126

Financial and Nonfinancial Considerations

Concluding Remarks

Return on Investment

Residual Income and Economic Value Added

1122

1061

1061

Assignment Material

Concluding Remarks

Utease Corporation

Concluding Remarks

'

1101

1050

1055

1100 1101

1048

Direct Materials Standards

Manufacturing Overhead Variances

1099

International Financial Reporting Standards and Management Compensation

Establishing and Revising Standard Costs

Valuation of Finished Goods

1099

1095

ra m mM B

A

Home Depot 2007 Financial Statements

A

The Time Value of Money: Future Amounts and Present Values The Concept

B-1

Relationships between Present Values and Future Amounts

B-1

Compound Interest

B-2

Applications of the Time Value of Money Concept

B-2 B-2

The Financial Perspective

1097

The Customer Perspective

1098

The Business Process Perspective

1098

The Tables Approach

B-3

The Learning and Growth Perspective

1098

The Future Amount of an Annuity

B-4

Difficulties with the Balanced Scorecard

1098

Interest Periods of Less than One Year

B-5

Future Amounts

XXXI

Present Values

B-6

Using Present Value Tables

B-7

What Is the Appropriate Discount Rate?

B-7

The Present Value of an Annuity

B-8 B-10

Discount Periods of Less than One Year

B-10

Valuation of Financial Instruments Interest-Bearing Receivables and Payables

B-10

"Non-Interest-Bearing" Notes

B-10

Market Prices of Bonds

B-12

Capital Leases

B-13 B-14

Obligations for Postretirement Benefits

B-14

Assignment Material

Evaluating the Financial Statements of a Partnership

Corporations

C-6

C-6

What Is a Corporation?

C-7

Stockholders' Liability for Debts of a Corporation

C-8

What Types of Businesses Choose the Corporate Form of Organization?

C-8

Accounting for Corporate Income Taxes

C-8

Salaries Paid to Owners

C-10

Owners' Equity in a Corporate Balance Sheet

C-10

The Issuance of Capital Stock

C-10

Retained Earnings

C-10

Accounting for Dividends

C-11

Closing Entries and the Statement

C

Forms of Business Organization Importance of Business Form

C-1

Sole Proprietorships

C-1

The Concept of the Separate Business Entity

C-1

Characteristics of a Sole Proprietorship

C-1

Unlimited Personal Liability

C-2

Accounting Practices of Sole Proprietorships

C-2

Evaluating the Financial Statements of a Proprietorship

C-2

Partnerships General Partnerships

XXXII

C-3 •

C-4

Partnerships That Limit Personal Liability

C-4

Accounting Practices of Partnerships

C-5

of Retained Earnings

C-11

Evaluating the Financial Statements of a Corporation

C-12

The Concept—and the Problem—of "Double Taxation"

C-13

S Corporations

C-13

Selecting an Appropriate Form of Business Organization Incorporating an Established Business

Supplemental Topic: Partnership Accounting— A Closer Look

C-14 C-14

C-16

Opening the Accounts of a New Partnership

C-16

Allocating Partnership Net Income among the Partners

C-18

Assignment Material

Index

C-22

I