Nội dung

Accounting in the Finance World v. 1.0 This is the book Accounting in the Finance World (v. 1.0). This book is licensed under a Creative Commons by-nc-sa 3.0 (http://creativecommons.org/licenses/by-nc-sa/ 3.0/) license. See the license for more details, but that basically means you can share this book as long as you credit the author (but see below), don't make money from it, and do make it available to everyone else under the same terms. This book was accessible as of December 29, 2012, and it was downloaded then by Andy Schmitz (http://lardbucket.org) in an effort to preserve the availability of this book. Normally, the author and publisher would be credited here. However, the publisher has asked for the customary Creative Commons attribution to the original publisher, authors, title, and book URI to be removed. Additionally, per the publisher's request, their name has been removed in some passages. More information is available on this project's attribution page (http://2012books.lardbucket.org/attribution.html?utm_source=header). For more information on the source of this book, or why it is available for free, please see the project's home page (http://2012books.lardbucket.org/). You can browse or download additional books there. ii Table of Contents About the Authors................................................................................................................. 1 Acknowledgments................................................................................................................. 3 Preface..................................................................................................................................... 5 Chapter 1: Why Is Financial Accounting Important? .................................................... 9 Making Good Financial Decisions about an Organization ....................................................................... 10 Incorporation and the Trading of Capital Shares..................................................................................... 17 Using Financial Accounting for Wise Decision Making ........................................................................... 24 End-of-Chapter Exercises ............................................................................................................................ 30 Chapter 2: What Should Decision-makers Know So That Good Decisions Can Be Made about an Organization? .......................................................................................... 36 Creating a Portrait of an Organization That Can Be Used by Decision Makers..................................... 37 Dealing with Uncertainty............................................................................................................................ 41 The Need for Generally Accepted Accounting Principles........................................................................ 45 Four Basic Terms Found in Financial Accounting .................................................................................... 52 End-of-Chapter Exercises ............................................................................................................................ 61 Chapter 3: In What Form Is Financial Information Actually Delivered to Decision Makers Such as Investors and Creditors? ..................................................................... 66 The Construction of an Income Statement ............................................................................................... 67 Reported Profitability and the Principle of Conservatism ...................................................................... 74 Increasing the Net Assets of a Company.................................................................................................... 80 Reporting a Balance Sheet and a Statement of Cash Flows ..................................................................... 86 End-of-Chapter Exercises ............................................................................................................................ 94 Chapter 4: How Does an Organization Accumulate and Organize the Information Necessary to Prepare Financial Statements? .............................................................. 103 The Essential Role of Transaction Analysis ............................................................................................. 104 The Effects Caused by Common Transactions ........................................................................................ 109 An Introduction to Double-Entry Bookkeeping...................................................................................... 115 Preparing Journal Entries ......................................................................................................................... 120 The Connection of the Journal and the Ledger....................................................................................... 128 End-of-Chapter Exercises .......................................................................................................................... 139 iii Chapter 5: Why Must Financial Information Be Adjusted Prior to the Production of Financial Statements? ................................................................................................. 148 The Need for Adjusting Entries ................................................................................................................ 149 Preparing Various Adjusting Entries ....................................................................................................... 154 Preparing Financial Statements Based on Adjusted Balances .............................................................. 160 Chapter Appendix ...................................................................................................................................... 165 End-of-Chapter Exercises .......................................................................................................................... 167 Chapter 6: Why Should Decision Makers Trust Financial Statements? ................ 179 The Need for the Securities and Exchange Commission........................................................................ 180 The Role of the Independent Auditor in Financial Reporting............................................................... 185 Performing an Audit .................................................................................................................................. 190 The Need for Internal Control .................................................................................................................. 194 The Purpose and Content of an Independent Auditor’s Report............................................................ 198 End-of-Chapter Exercises .......................................................................................................................... 204 Chapter 7: In a Set of Financial Statements, What Information Is Conveyed about Receivables? ....................................................................................................................... 209 Accounts Receivable and Net Realizable Value ...................................................................................... 210 Accounting for Uncollectible Accounts ................................................................................................... 215 The Problem with Estimations ................................................................................................................. 221 Estimating the Amount of Uncollectible Accounts ................................................................................ 227 Remeasuring Foreign Currency Balances................................................................................................ 235 A Company’s Vital Signs—Accounts Receivable ..................................................................................... 240 End-of-Chapter Exercises .......................................................................................................................... 246 Chapter 8: How Does a Company Gather Information about Its Inventory? ........ 258 Determining and Reporting the Cost of Inventory ................................................................................ 259 Perpetual and Periodic Inventory Systems ............................................................................................. 265 The Calculation of Cost of Goods Sold...................................................................................................... 271 Reporting Inventory at the Lower-of-Cost-or-Market........................................................................... 278 Determining Inventory on Hand .............................................................................................................. 284 End-of-Chapter Exercises .......................................................................................................................... 290 iv Chapter 9: Why Does a Company Need a Cost Flow Assumption in Reporting Inventory? .......................................................................................................................... 302 The Necessity of Adopting a Cost Flow Assumption .............................................................................. 303 The Selection of a Cost Flow Assumption for Reporting Purposes ....................................................... 310 Problems with Applying LIFO ................................................................................................................... 316 Merging Periodic and Perpetual Inventory Systems with a Cost Flow Assumption........................... 322 Applying LIFO and Averaging to Determine Reported Inventory Balances ........................................ 327 Analyzing Reported Inventory Figures.................................................................................................... 333 End-of-Chapter Exercises .......................................................................................................................... 340 Chapter 10: In a Set of Financial Statements, What Information Is Conveyed about Property and Equipment?.................................................................................... 354 The Reporting of Property and Equipment............................................................................................. 355 Determining Historical Cost and Depreciation Expense........................................................................ 362 Recording Depreciation Expense for a Partial Year ............................................................................... 368 Alternative Depreciation Patterns and the Recording of a Wasting Asset .......................................... 373 Recording Asset Exchanges and Expenditures That Affect Older Assets ............................................. 381 Reporting Land Improvements and Impairments in the Value of Property and Equipment ............388 End-of-Chapter Exercises .......................................................................................................................... 397 Chapter 11: In a Set of Financial Statements, What Information Is Conveyed about Intangible Assets?.................................................................................................. 410 Identifying and Accounting for Intangible Assets.................................................................................. 411 The Balance Sheet Reporting of Intangible Assets ................................................................................. 417 Recognizing Intangible Assets Owned by a Subsidiary .......................................................................... 422 Accounting for Research and Development............................................................................................ 428 Acquiring an Asset with Future Cash Payments ..................................................................................... 434 End-of-Chapter Exercises .......................................................................................................................... 445 Chapter 12: In a Set of Financial Statements, What Information Is Conveyed about Equity Investments?.............................................................................................. 456 Accounting for Investments in Trading Securities ................................................................................ 457 Accounting for Investments in Securities That Are Available for Sale ................................................ 464 Accounting for Investments by Means of the Equity Method............................................................... 470 The Reporting of Consolidated Financial Statements............................................................................ 477 End-of-Chapter Exercises .......................................................................................................................... 486 v Chapter 13: In a Set of Financial Statements, What Information Is Conveyed about Current and Contingent Liabilities?.................................................................. 500 Basic Reporting of Liabilities .................................................................................................................... 501 Reporting Current Liabilities Such as Gift Cards .................................................................................... 506 Accounting for Contingencies .................................................................................................................. 511 Accounting for Product Warranties......................................................................................................... 519 End-of-Chapter Exercises .......................................................................................................................... 527 Chapter 14: In a Set of Financial Statements, What Information Is Conveyed about Noncurrent Liabilities Such as Bonds? ............................................................. 541 Debt Financing ........................................................................................................................................... 542 The Issuance of Notes and Bonds ............................................................................................................. 547 Accounting for Zero-Coupon Bonds......................................................................................................... 554 Pricing and Reporting Term Bonds.......................................................................................................... 562 Issuing and Accounting for Serial Bonds................................................................................................. 568 Bonds with Other Than Annual Interest Payments................................................................................ 575 End-of-Chapter Exercises .......................................................................................................................... 581 Chapter 15: In Financial Statements, What Information Is Conveyed about Other Noncurrent Liabilities?.................................................................................................... 591 Accounting for Leases................................................................................................................................ 592 Operating Leases versus Capital Leases ................................................................................................... 598 Recognition of Deferred Income Taxes.................................................................................................... 606 Reporting Postretirement Benefits .......................................................................................................... 612 End-of-Chapter Exercises .......................................................................................................................... 620 Chapter 16: In a Set of Financial Statements, What Information Is Conveyed about Shareholders’ Equity? .......................................................................................... 634 Selecting a Legal Form for a Business ...................................................................................................... 635 The Issuance of Common Stock ................................................................................................................ 640 Issuing and Accounting for Preferred Stock and Treasury Stock......................................................... 647 The Issuance of Cash and Stock Dividends.............................................................................................. 654 The Computation of Earnings per Share ................................................................................................. 661 End-of-Chapter Exercises .......................................................................................................................... 667 vi Chapter 17: In a Set of Financial Statements, What Information Is Conveyed by the Statement of Cash Flows?......................................................................................... 682 The Structure of a Statement of Cash Flows ........................................................................................... 683 Cash Flows from Operating Activities: The Direct Method ................................................................... 691 Cash Flows from Operating Activities: The Indirect Method ................................................................ 699 Cash Flows from Investing and Financing Activities ............................................................................. 707 Appendix..................................................................................................................................................... 718 End-of-Chapter Exercises .......................................................................................................................... 729 Appendix: Present Value Tables .................................................................................... 745 vii About the Authors Joe Ben Hoyle, University of Richmond Joe Hoyle is an associate professor of accounting at the Robins School of Business at the University of Richmond. In 2006, he was named by BusinessWeek as one of twenty-six favorite undergraduate business professors in the United States. In 2007, he was named Virginia Professor of the Year by the Carnegie Foundation for the Advancement of Teaching and the Council for the Advancement and Support of Education. In 2009, he was selected as one of the one hundred most influential members of the accounting profession by Accounting Today. Joe has two market-leading textbooks published with McGraw-Hill—Advanced Accounting (10th edition, 2010) and Essentials of Advanced Accounting (4th edition, 2010), both coauthored with Tom Schaefer of the University of Notre Dame and Tim Doupnik of the University of South Carolina. At the Robins School of Business, Joe teaches Fundamentals of Financial Accounting, Intermediate Financial Accounting I, Intermediate Financial Accounting II, and Advanced Financial Accounting. He earned his BA degree in accounting from Duke University and his MA degree in business and economics, with a minor in education, from Appalachian State University. He has written numerous articles and made many presentations around the country on teaching excellence. Joe also has three decades of experience operating his own CPA review programs. In 2008, he created CPA Review for Free (http://www.CPAreviewforFREE.com), which provides thousands of free questions to help accountants around the world prepare for the CPA Exam. Joe and his wife, Sarah, have four children and four grandchildren. 1 About the Authors C. J. Skender, University of North Carolina at Chapel Hill C. J. Skender has received multiple teaching awards at the University of North Carolina’s Kenan-Flagler Business School (ten), at Duke University’s Fuqua School of Business (five), and at North Carolina State University (five). He has been included among the outstanding Fuqua faculty in four editions of the BusinessWeek Guide to the Best Business Schools. C. J. also received the James M. Johnston Teaching Excellence Award at the University of North Carolina in 2005. His classes were featured on businessweek.com and sportsillustrated.cnn.com in 2006. C. J. has served as a training consultant on three continents for Glaxo Wellcome, IBM, Nortel Networks, Paragon Trade Brands, Siemens, Starwood, and Wells Fargo. He has developed and delivered various executive education seminars as well as CPA, CMA, and CIA review courses. For six years, he lectured simultaneously in the State, Carolina, and Duke CPA preparatory classes. For seven years, C. J. taught Financial Accounting and Managerial Accounting on cable television in the Research Triangle area. His scholarly work has been published in TAXES and Journal of Accounting Education. C. J. was born in Harrisburg, Pennsylvania, in 1954. He captained three sports at Susquehanna Township High School. C.J. holds academic degrees from Lehigh University and Duke University. He attended Lehigh on a basketball scholarship and graduated magna cum laude. C. J. worked as an auditor for Deloitte Haskins and Sells in Philadelphia. He has attained eleven professional designations in accounting, financial planning, insurance, and management: CPA (certified public accountant), CMA (certified management accountant), CCA (certified cost analyst), CIA (certified internal auditor), ChFC (chartered financial consultant), CLU (chartered life underwriter), CFP (certified financial planner), AIAF (associate in insurance accounting and finance), CFE (certified fraud examiner), CFM (certified in financial management), and CBM (certified business manager). C. J. and his wife, Mary Anne, are the parents of two sons and one daughter: Charles (1979), Timothy (1983), and Corey (1987). They reside in Raleigh, North Carolina. 2 Acknowledgments A textbook of this size owes a genuine debt of gratitude to a long list of wonderful people. We want to acknowledge the time, energy, ideas, and patience invested by each of the following individuals. Book Development and Support A warm thank you to Jeff Shelstad, Bradley Felix, Sharon Koch, Shannon Gattens, Jenn Yee, Stacy Claxton, Chrissy Chimi, John Britton, and Barbara Corbin. Textbook Reviewers • Pervaiz Alam, Kent State University • Jane Austin, Oklahoma City University • Richard Baldwin, Johnson & Wales University, Friedman Center, Graduate School • Sheila Bedford, American University • Bruce Branson, North Carolina State University • Rada Brooks, University of California, Berkeley, Haas School of Business • Charles Bunn, Wake Technical Community College • Stan Clark, University of Southern Mississippi • Sue Cunningham, Rowan Cabarrus Community College • Betty David, Francis Marion University • Carolyn Dreher, Southern Methodist University, Cox School of Business • Wilbert Harri, Pima Community College • Lori Holder-Webb, Simmons College School of Management • Ethan Kinory, Baruch College, City University of New York • Pamela Legner, College of DuPage • Randall Lewis, Spring Arbor University • Chao-Shin Liu, University of Notre Dame • Mary Middleton, University of Richmond • Jane Mooney, Simmons College • David Sulzen, Ferrum College • Diane Tanner, University of North Florida • Steven Thoede, Texas State University • Robin Thomas, North Carolina State University • Wendy Wilson, Southern Methodist University • Gregory Yost, University of West Florida 3