CHAPTER 1INTRODUCTION TO FINANCIAL REPORTING 1
Development of Generally Accepted Accounting Principles GAAP 2
American Institute of Certified Public Accountants AICPA
·Financial
Accounting Standards Board FASB
·Operating Procedure for Statements of
Financial Accounting Standards SFAS
·FASB Conceptual Framework
Additional Input American Institute of Certified Public Accountants
AICPA 8
Emerging Issues Task Force EITF 9
Traditional Assumptions of the Accounting Model9
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 Intemet17
Companies'' Internet Web Sites
·Helpful Web Sites
Summary19
Questions19
To the Net22
Problems22
Case 1-1 Standards Overload 27
Case 1-2 Standard Setting: A Political Aspect28
Case 1-3 Standard Setting: By the Way of the United States Congress31
Case 1-4 Recognizing Revenue and Related Costs Consider These Situations Part I 31
Case 1-5 Recognizing Revenue and Related Costs Consider These Situations Part ID33
Case 1-6 Cash Basis Accrual Basis 34
Case 1-7 Going Concern 34
Case 1-8 Economics and Accounting: The Uncongenial Twins35
Case 1-9 I Often Paint Fakes36
CHAPTER 2 INTRODUCTION TO FINANCIAL STATEMENTS AND OTHER FINANCIAL REPORTING TOPICS 37
Forms of Business Entities38
The Financial Statements38
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 ·Footnotes Notes
The Accounting Cycle42
Recording Transactions
·Recording Adjusting Entries
·Preparing the Financial Statements
Auditor''s Report44
Management''s Responsibility for Financial Statements
·The SEC''s Integrated Disclosure System·Proxy
Summary Annual Report50
The Efficient Market Hypothesis50
Ethics50
Harmonization of International Accounting Standards52
Consolidated Statements54
Accounting for Business Combinations54
Summary55
Questions56
To the Net57
Problems58
Case 2-1 The CEO Retires63
Case 2-2 The Dangerous Morality of Managing Earnings65
Case 2-3 Frequent-Flier Awards -Tick-Tick, Tick-Tick, Tick-Tick71
Case 2-4 International Accounting Harmonization in Practice71
Case 2-5 Materiality: In Practice72
Case 2-6 Who is Responsible 73
Case 2-7 Safe Harbor74
CHAPTER 3 BALANCE SHEET
Basic Elements Of The Balance Sheet 78
Assets
·Liabilities·Stockholders'' Equity
·Quasi-ReorganizationAccumulated Other Comprehensive Income
·Equity-Oriented DeferredCompensation·Employee Stock Ownership Plans ESOPs
·Treasury Stock ·Stockholders'' Equity in Unincorporated Firms
Statement of Stockholders'' Equity107
Problems in Balance Sheet Presentation108
Summary108
Questions108
To the Net110
Problems111
Case 3-1 Balance Sheet Review117
Case 3-2 Insight on Liabilities and Shareholders'' Equity121
Case 3-3 Insight on Shareholders'' Investment122
Case 3-4 Insight on Assets123
Case 3-5 Our Principal Asset Is Our People125
Case 3-6 Brands Are Dead 126
Case 3-7 Advertising Asset 126
CHAPTER 4 INCOME STATEMENT
Basic Elements of the Income Statement128
Net Sales Revenues
·Cost of Goods Sold Cost of Sales
·OtherOperating Revenue
·Operating Expenses
·Other Income or Expense Special Income Statement Items131
A Unusual or Infrequent Item Disclosed Separately
· B Equity in Earnings of Nonconsolidated Subsidiaries
·Income Taxes Related to Operations
· C Discontinued Operations
· D Extraordinary Items
· E CumulativeEffect of Change in Accounting Principle
· F Minority Share of Earnings
Earnings Per Share138
Retained Earnings 138
Dividends and Stock Splits141
Legality of Distributions to Stockholders141
Comprehensive Income142
Summary145
Questions145
To the Net146
Problems147
Case 4-1 Electronic Solutions153
Case 4-2 Convenience 153
Case 4-3Run 154
Case 4-4 The Big Order155
Case 44 Celtics156
Case 4-6 Growth157
Case 4-7 Preparing For the Future158
ChAPTER 5BASICS OF ANAYLSIS161
Ratio Analysis162
Common-Size Analysis Vertical and Horizontal 162
Year-to-Year Change Analysis163
Financial Statement Variations by Type of Industry163
Review of Descriptive Information165
Comparisons165
Trend Analysis
·Standard Industrial Classification SIC Manual
·Industry Averages and Comparison with Competitors
·Caution in Using Industry Averages
Relative Size of Firm176
Other Library Sources176
Standard & Poor''s 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:TM The Billion Dollar Directory
·Million Dollar Directory
·Directory of Corporate Affiliations
·Thomas Register of American Manufacturers
·Moody''s Investors'' Services
·Securities Owner''s Stock Guide
·Wall Street Transcript
·The Wall Street Journal Index
·The Official Index to The Financial Times
·Predicasts F & S Index
·Reference Book of Corporate Managements
·Compact Disclosure The Users of Financial Statements179
Summary180
Questions180
To the Net182
Problems182
CHAPTER 6LIQUIDITY OF SHORT-TERM ASSETS; RELATED DEBT-PAYING ABILITY 185
Current Assets, Current Liabilities, and the Operating Cycle186 Cash
·Marketable Securities
·Receivables·Inventories
·Prepayments·Other Current Assets
·Current Liabilities
Current Assets Compared with Current Liabilities206
Working Capital
·Current Ratio
·Acid-Test Ratio Quick Ratio Cash Ratio
Other Liquidity Considerations210
Sales to Working Capital Working Capital Turnover
·Liquidity Considerations Not on the Face of the Statements
Summary212
Questions213
To the Net216
Problems216
Case 6-1 LIFO-FIFO229
Case 6-2 Rising Prices, a Time to Switch Off LIFO 230
Case 6-3 Online 231
Case 6-4 The Other Side of LIFO233
Case 6-5 Network Supreme234
Case 6-6 Booming Retail236
CHAPTER 7LONG-TERM DEBT-PAYING ABILITY237
Income Statement Consideration when Determining Long-Term Debt-Paying Ability238
Times Interest Earned
·Fixed Charge Coverage Balance Sheet Consideration when Determining Long-Term Debt-Paying Ability241 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 248
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
Summary260
Questions262
To the Net264
Problems265
Case 7-1 Expensing Interest Now and Later273
Case 7-2 Consideration of Leases273
Case 7-3 Lockout276
Case 7-4 Determine the Liability277
Case 7-5 Play It Safe278
Case 7-6 Retirement Plans Revisited281
Case 7-7 Fair Value of Financial Instruments282
CHAPTER 8 PROFITABILILTY
Profitability Measures 286
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 Profitability298
Segment Reporting298
Gains and Losses from Prior Period Adjustments301
Comprehensive Income302
Interim Reports302
Summary303
Questions304
To the Net305
Problems306
Case 8-1 Johnny''s Self-Service Station314
Case 8-2 The Tale of the Segments315
Case 8-3 Insights on Geographic Area317
Case 8-4 Tide, Pampers, and Etc.319
Case 8-5 Vehicles and Housing321
CHAPTER 9 FOR THE INVESTOR
Leverage and its Effects on Earnings326
Definition of Financial Leverage and Magnification Effects
·Computation of the Degree of Financial Leverage
·Summary of Financial Leverage
Earnings Per Common Share328
Price/Earnings Ratio330
Percentage of Earnings Retained331
Dividend Payout331
Dividend Yield332
Book Value Per Share333
Stock Options334
APB Opinion No. 25
·SFAS No. 123
·Analysis
·APB Opinion No. 25 Firms
·SFAS No. 123 Finns
Stock Appreciation Rights336
Summary337
Questions338
To the Net339
Problems340
Case 9-1 Stock Split346
Case 9-2 Why the Change 348
Case 9-3 Stock Split Revisited349
Case 9-4 Stock Option Plans353
Case 9-5 View This Investment354
CHAPTER 1 0STATEMENT OF CASH FLOWS387
Basic Elements of the Statement of Cash Flows358
Financial Ratios and the Statement of Cash Flows364
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 Flow368
Procedures for Development of the Statement of Cash Flows368
Summary374
Questions375
To the Net376
Problems377
Case 10-1Cash Flow Tales392
Case 10-2Watch the Cash394
Case 10-3Rapidly Expanding396
Case 10-4The Retail Mover403
Case 10-5Non-Cash Charges406
Case 10-6Cash Movements and Periodic Income Determination 409
SUMMARY ANALYSIS NIKE,INC. INCLUDES1999 FINANCIAL
STATEMENTS
Nike
Background Information412
Analysis of Nike412
Management Discussion and Analysis See Annual Report Highlights
· Vertical Common-Size Statement of Income Exhibit 1
·Horizontal Common-Size Statement of Income Exhibit 2
·Three-Year Ratio Comparison Exhibit 3
·Ratio Comparison with Selected Competitors Exhibit 4
·Ratio Comparison with Industry Exhibit 5
Summary420
CHAPTER 11 EXPANDED ANALYSIS
Financial Ratios as Perceived by Commercial Loan Depatments466
Most Significant Ratios and Their Primary Measure
·Ratios Appearing Most Frequently in Loan Agreements Financial Ratios as Perceived by Corporate Controllers468
Most Significant Ratios and Their Primary Measure
·Key Financial Ratios Included as Corporate Objectives
Financial Ratios as Perceived by Certified Public Accountants470
Financial Ratios as Perceived by Chartered Financial Analysts470
Financial Ratios Used in Annual Reports471
Degree of Conservatism and Quality of Earnings473
Inventory
·Fixed Assets
·Intangible Assets
·Pensions Forecasting Financial Failure474
Univariate Model
·Multivariate Model
Analytical Review Procedures477
Management''s use of Analysis477
Use of LIFO Reserves478
Graphing Financial Information479
Summary482
Questions 482
To the Net484
Problems485
Case 11-1What Position 502
CHAPTER 12SPECIAL INDUSTRIES:BANKS,UTILITIES,OIL AND GAS,TRANSPORTATION,INSURANCE,REAL ESTATE
COMPANIES
Banks508
Balance Sheet
·Income Statement
·Ratios for Banks Electric Utilities515
Financial Statements
·Ratios for Electhc Utilities
Oil and Gas521
Successful Efforts Versus Full Cost
·Supplementary Information on Oil and Gas Exploration, Development, and Production Activities
·Cash Flow Transportation524
Financial Statements
·Ratios
Insurance529
Balance Sheet Under GAAP
·Income Statement Under GAAP
·Ratios Real Estate Companies534
Summary535
Questions 536
To the Net538
Problems539
Case 12-1Allowance for Funds543
Case 12-2In Progress546
Case 12-3Loans and Provision for Loans 549
Case 12-4You Can Bank on It550
Case 12-5Proved Reserves553
Case 12-6Heavenly Flying555
CHAPTER13
PERSONAL FINANCIAL STATEMENTS AND
ACCDUNTINB FOR GOVERNMENTS AND
NOT-FOR-PROFIT ORGANIZATIONS
Personal Financial Statements558
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 Governments564
Accounting for Not-for-Profit Organizations Other Than Governments568
1. SFAS No. 93, Recognition of Depreciation by Not-for-Profit Organizations
·2. SFAS No. 116, Accounting for Contributions Received and Contributions Made
·3. SFAS No. 117, Financial Statements of Not-for-Profit Organizations
·4. 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,Summary577
Questions 579
To the Net581
Problems 581
Case 13-1Governor Lucas-This is Your County586
GLOSSARY
BIBLIOGRAPHY
INDEX
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