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Fundamental Financial Accounting Concepts

ISBN: 9780070217782 | 0070217785
Edition: 2nd
Format: Hardcover
Publisher: McGraw Hill College Div
Pub. Date: 6/1/1998

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Table of Contents
Prefacevi
Elements of Financial Statements
Introduction
2(1)
... MORE
Role of Accounting in Society
3(4)
Market-Based Allocations
3(1)
Competition for Resources
4(1)
Accounting Is Information
5(1)
Nonbusiness Resource Allocations
6(1)
Role of Accounting in Business
7(1)
Finacial Statements
8(4)
Elements of Financial Statements
11(1)
Accounting Events and Transactions
12(1)
The New Company Illustration---Events for 19X1
12(4)
Summary of Transactions
15(1)
Elements Presented in Financial Statements
16(4)
Income Statement
16(1)
Statement of Changes in Equity
16(1)
Balance Sheet
17(1)
Statement of Cash Flows
18(2)
Completing the Cycle
20(1)
The New Company Illustration---Events for 19X2
20(2)
Financial Statements for 19X2
22(2)
Using the Financial Statements Model
24(3)
A Vertical Statements Model
24(2)
A Horizontal Statements Model
26(1)
Real-World Financial Reports
27(4)
Real-World Complications
27(1)
Annual Report for Reynolds Metals
28(1)
Special Terms for Corporations
28(1)
Unusual Items on the Income Statement
28(3)
Glossary
31(2)
Questions
33(1)
Exercises
34(6)
Problems
40(10)
Case Studies
50(3)
Accounting for Accruals
Introduction
53(1)
Accrual Accounting Illustrated
53(7)
Effect of Events on the Accounting Equation
53(3)
Summary of Transactions
56(1)
Understanding the 19X1 Financial Statements
56(1)
Understanding the Effects of Accrual Accounting
56(4)
Second Accounting Cycle
60(4)
Effect of Events on the Accounting Equation
61(1)
Understanding the 19X2 Financial Statements
62(1)
Understanding the Effects of Accrual Accounting
63(1)
Third Accounting Cycle
64(5)
Effect of Events on the Accounting Equation
65(2)
Understanding the 19X3 Financial Statements
67(2)
Role of the Independent Auditor
69(5)
The Financial Audit
69(3)
Materiality and Financial Audits
72(1)
Types of Audit Opinions
72(1)
Confidentiality
73(1)
Importance of Ethics
74(2)
Common Features of Ethical Misconduct
74(2)
A Review of Core Concepts
76(2)
Glossary
78(1)
Questions
79(1)
Exercises
80(6)
Problems
86(9)
Case Studies
95(4)
Accounting for Deferrals
Introduction
99(1)
Accounting for Deferrals Illustrated
100(8)
Summary of Transactions for 19X4
104(1)
Understanding the 19X4 Financial Statements
104(4)
Second Accounting Cycle
108(4)
Effect of 19X5 Transactions on the Accounting Equation and the Financial Statements
108(4)
Third Accounting Cycle
112(5)
Effect of 19X6 Transactions on the Accounting Equation and the Financial Statements
113(4)
Analyzing Financial Statements to Assess Managerial Performance
117(5)
Assessing the Effective Use of Assets
117(1)
Assessing the Risk of Debt
118(3)
Real-World Data
121(1)
Scope of Coverage
122(1)
A Review of Core Concepts
122(1)
Glossary
123(1)
Questions
124(1)
Exercises
125(5)
Problems
130(13)
Case Studies
143(3)
The Recording Process
Introduction
146(1)
Debit/Credit Terminology
146(2)
Collins Consultants Case
148(14)
Asset Source Transactions
148(4)
Asset Exchange Transactions
152(2)
Asset Use Transactions
154(2)
Claims Exchange Transactions
156(1)
Adjustments for Accruals
157(2)
Adjustments for Deferrals
159(3)
Overview of Debit/Credit Relationships
162(1)
Summary of T-Accounts
162(1)
The Ledger
162(1)
The General Journal
163(3)
Financial Statements
166(1)
Closing Entries
166(2)
Trial Balance
168(3)
Components of an Annual Report
171(4)
Footnotes to Financial Statements
172(1)
Management's Discussion and Analysis
173(1)
Role of the Independent Auditor Revisited
174(1)
The Securities and Exchange Commission
174(1)
Glossary
175(1)
Questions
176(1)
Exercises
177(8)
Problems
185(19)
Case Studies
204(4)
Accounting for Merchandising Businesses
Introduction
208(1)
Product Costs Versus Selling and Administrative Costs
208(1)
Allocating Inventory Cost Between Asset and Expense Accounts
209(2)
Recording Inventory Cost
211(2)
Perpetual Inventory Method
213(3)
Effect of Events on Financial Statements
213(2)
Journal Entries and Ledger T-Accounts
215(1)
Other Events Affecting Purchases and Sales of Inventory
216(8)
Effect of Events on Financial Statements
216(5)
Journal Entries and Ledger Accounts
221(1)
Financial Statements
221(3)
Periodic Inventory Method
224(3)
Schedule of Cost of Goods Sold
227(1)
Lost, Damaged, or Stolen Merchandise
227(2)
Adjustment for Lost, Damaged, or Stolen Inventory
228(1)
Financial Analysis for Merchandising Companies
229(5)
Common Size Financial Statements
229(1)
Gross Margin Percentage
230(1)
Real-World Data
230(1)
Return on Sales
231(1)
Using Common Size Financial Statements
232(1)
Financing Merchandise Inventory
232(2)
Glossary
234(1)
Questions
235(1)
Exercises
236(8)
Problems
244(10)
Case Studies
254(3)
Internal Control and Accounting for Cash
Introduction
257(1)
Key Features of Internal Control Systems
257(6)
Separation of Duties
258(1)
Quality of Employees
258(1)
Bonded Employees
258(1)
Periods of Absence
259(1)
Procedures Manual
259(1)
Authority and Responsibility
260(1)
Prenumbered Documents
260(1)
Physical Control
260(1)
Performance Evaluations
261(1)
Internal Control in Computer Systems
261(2)
Accounting For Cash
263(12)
Controlling Cash
264(1)
Checking Account Documents
265(4)
Illustration of the Reconciliation Schedule
269(4)
Petty Cash Funds
273(2)
Assessing the Level of Liquidity
275(6)
Current Versus Noncurrent
275(2)
Liquidity Versus Solvency
277(1)
Current Ratio
278(2)
Real-World Data
280(1)
Glossary
281(1)
Questions
282(1)
Exercises
283(6)
Problems
289(12)
Case Studies
301(3)
Accounting for Accruals---Advanced Topics: Receivables and Payables
Introduction
304(1)
Accounting Events Affecting the 19X1 Period
305(5)
Ledger T-Accounts
308(1)
Financial Statements
309(1)
Estimating Bad Debts Expense
310(1)
Accounting Events Afecting the 19X2 Period
310(6)
Ledger T-Accounts
314(1)
Analysis of Financial Statements
315(1)
Recognizing Bad Debts Under the Direct Write-Off Method
316(1)
Accounting for Credit Card Sales
317(1)
Warranty Obligations
318(3)
Ledger T-Accounts and Financial Statements
320(1)
Accounting for Discount Notes
321(3)
Ledger T-Accounts and Financial Statements
323(1)
Accounting Events Affecting the 19X2 Period
324(3)
Ledger T-Accounts and Financial Statements
327(1)
Real-World Credit Costs
327(5)
Managing Accounts Receivable
327(1)
Costs of Making Credit Sales
327(2)
Average Days to Collect Accounts Receivable
329(2)
Real-World Data
331(1)
Glossary
332(1)
Questions
333(1)
Exercises
334(6)
Problems
340(12)
Case Studies
352(3)
Asset Valuation: Accounting for Investments and Inventories
Introduction
355(1)
Types of Investment Securities
356(2)
Reporting Events That Affect Investment Securities
358(3)
Financial Statements Under the Three Classification Alternatives
361(4)
Alternative Reporting Practices for Equity Securities
363(2)
The Valuation of Inventory Assets
365(1)
Inventory Cost Flow Methods
365(2)
Specific Identification
365(1)
First-In, First-Out (FIFO)
366(1)
Last-In, First-Out (LIFO)
366(1)
Weighted Average
366(1)
Physical Flow
366(1)
Effect of Cost Flow on Financial Statements
367(1)
Effect on Income Statement
367(1)
Effect on Balance Sheet
367(1)
Inventory Cost Flow Under a Perpetual System
368(6)
Multiple Layers with Multiple Quantities
368(3)
Effect of Cost Flow on Financial Statements
371(3)
Inventory Cost Flow When Sales and Purchases Occur Intermittently
374(1)
FIFO Cost Flow
374(1)
Weighted-Average and LIFO Cost Flows
374(1)
Inventory Cost Flow in a Periodic System
375(2)
Lower-of-Cost-or-Market Rule
377(1)
Estimating the Ending Inventory Balance
378(1)
Effect of Inventory Errors on Financial Statements
379(3)
Errors Under a Periodic System
380(1)
Errors Under a Perpetual System
381(1)
Understanding How the Length of the Operating Cycle Affects Profitability
382(4)
Average Days to Sell Inventory
382(1)
Real-World Data
383(2)
Effects of Cost Flow on Ratio Analysis
385(1)
Glossary
386(1)
Questions
387(1)
Exercises
388(8)
Problems
396(11)
Case Studies
407(3)
Long-Term Operational Assets
Introduction
410(1)
Classifications of Long-Term Operational Assets
410(2)
Tangible Long-Term Assets
411(1)
Intangible Assets
411(1)
Determining the Cost of Long-Term Assets
412(2)
Basket Purchase Allocation
413(1)
Life Cycle of Operational Assets
414(1)
Accounting for Operational Assets Throughout the Life Cycle
414(1)
Methods of Depreciation
415(10)
Straight-Line Depreciation
416(3)
Double-Declining-Balance Depreciation
419(3)
Units-of-Production Depreciation
422(1)
Comparing the Methods
423(2)
Income Tax Considerations
425(2)
Revision of Estimates
427(1)
Revision of Life
427(1)
Revision of Salvage
428(1)
Continuing Expenditures for Plant Assets
428(2)
Costs That Are Expensed
428(1)
Costs That Are Capitalized
428(2)
Natural Resources
430(1)
Intangible Assets
431(4)
Specifically Identifiable Intangibles
431(3)
Goodwill
434(1)
Balance Sheet Presentation
435(1)
Understanding How Expense Recognition Affects Financial Performance Measures
436(4)
Effect of Judgment and Estimation
437(2)
Effect of Industry Characteristics
439(1)
Glossary
440(1)
Questions
441(2)
Exercises
443(6)
Problems
449(12)
Case Studies
461(4)
Accounting for Long-Term Debt
Introduction
465(1)
Long-Term Notes Payable
466(3)
Security for Bank Loan Agreements
468(1)
Line of Credit
469(1)
Bond Liabilities
470(4)
Characteristics of Bonds
472(1)
Security of Bonds
472(1)
Manner of Interest Payment
472(1)
Timing of Maturity
473(1)
Special Features
473(1)
Bond Rating
474(1)
Bonds Issued at Face Value
474(4)
Fixed-Rate, Fixed-Term, Annual Interest Bonds
474(1)
Effect of Events on Financial Statements
475(1)
Financial Statements
476(1)
Recording Procedures
477(1)
Bonds Issued at a Discount
478(7)
Effective Interest Rate
478(1)
Bond Prices
479(1)
Mason Company Revisited
479(3)
Effect on Financial Statements
482(2)
Effect of Semiannual Interest Payments
484(1)
Bonds Issued at a Premium
485(1)
Bond Redemptions
486(1)
Tax Advantage Associated with Debt Financing
487(3)
EBIT and Ratio Analysis
488(1)
Times-Interest-Earned Ratio
489(1)
Appendix
490(11)
Time Value of Money
490(4)
Business Applications
494(7)
Glossary
501(2)
Questions
503(1)
Exercises
504(6)
Problems
510(10)
Case Studies
520(4)
Accounting for Equity Transactions
Introduction
524(1)
Formation of Business Organizations
525(1)
Ownership Agreements
525(1)
Regulation
526(1)
Advantages and Disadvantages of Different Forms of Business Organization
526(4)
Double Taxation
527(1)
Regulation
528(1)
Limited Liability
528(1)
Continuity
528(1)
Transferability
529(1)
Management Structure
529(1)
Ability to Raise Capital
529(1)
Appearance of Capital Structure in Financial Statements
530(2)
Presentation of Equity in Proprietorships
530(1)
Presentation of Equity in Partnerships
531(1)
Presentation of Equity in Corporations
531(1)
Characteristics of Capital Stock
532(4)
Par Value
532(1)
Stated Value
533(1)
Other Valuation Terminology
533(1)
Stock: Authorized, Issued, and Outstanding
533(1)
Classes of Stock
533(1)
Preferred Stock
534(2)
Accounting for Stock Transactions on the Day of Issue
536(3)
Stock Issued at Par Value
536(1)
Stock Classification
536(1)
Stock Issued at Stated Value
537(1)
Stock Issued at No-Par Value
538(1)
Financial Statement Presentation
538(1)
Stockholder Equity Transactions After the Day of Issue
539(5)
Treasury Stock
539(1)
Cash Dividend
540(2)
Stock Dividend
542(1)
Stock Split
543(1)
Appropriation of Retained Earnings
544(1)
Financial Statement Presentation
544(1)
Assessment of Potential Investment Returns
545(3)
Receiving Dividends
546(1)
Increasing the Price of Stock
546(1)
Understanding the Price Earnings Ratio
547(1)
Exercising Control
548(1)
Appendix
548(5)
Accounting for Not-for-Profit (NFP) Organizations
548(4)
Government Accounting
552(1)
Glossary
553(2)
Questions
555(2)
Exercises
557(4)
Problems
561(10)
Case Studies
571(3)
Statement of Cash Flows
Introduction
574(1)
Statement of Cash Flow
574(2)
Operating Activities
575(1)
Investing Activities
575(1)
Financing Activities
575(1)
Noncash Investing and Financing Transactions
576(1)
Reporting Format for Statement of Cash Flows
576(1)
Converting from Accrual to Cash Basis Accounting
576(6)
Operating Activities
577(4)
Investing Activities
581(1)
Financing Activities
582(1)
Comprehensive Example Using the T-Account Approach
582(9)
Preparation of Statement of Cash Flows
583(1)
Cash Flows from Operating Activities
584(5)
Cash Flows from Investing Activities
589(1)
Cash Flows from Financing Activities
590(1)
Presenting Information in the Statement of Cash Flows
591(1)
Statement of Cash Flows Presented Under the Indirect Method
591(2)
Consequences of Growth on Cash Flow
593(4)
Real-World Data
594(3)
Glossary
597(1)
Questions
598(1)
Exercises
599(3)
Problems
602(12)
Case Studies
614(2)
Appendix A Accessing the EDGAR Database Through the Internet616(2)
Appendix B Reynolds Financial Statements618(42)
Index660


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