Financial Accounting

by Reimers, Jane L.

• ISBN13: 9780131492011
• ISBN10: 0131492012
• Edition: 1st
• Format: Hardcover
• Copyright: 2007-01-01
• Publisher: Pearson College Div

Summary

For a traditional Introductory to Financial Accounting course where the accounting cycle is introduced early and the focus of the course blends aspects of both "user" and "preparer" approaches. Reimers Financial Accounting 1/e.How Accounting is Driving Change in Business.

Table of Contents

Preface	1	(1)
Introduction	1
The Link Between Business and Accounting	2	(40)
You make the call: Who owns Apple Computer, Inc.?	3	(1)
What Is Accounting and Why Is It Important to Business?	4	(3)
Accounting in the News: Ethics
Cooking the Books at HealthSouth Corporation	5	(1)
What does a business do?	5	(1)
Accounting information needed to operate a firm	6	(1)
Using Financial Reports to Make Decisions	7	(3)
Internal and external financial statement users	8	(1)
Who sets the guidelines for financial reporting?	9	(1)
The Basic Financial Statements and the Accounting Equation	10	(9)
Balance sheet	11	(2)
Income statement	13	(1)
The difference between the balance sheet and the income statement	14	(1)
Statement of changes in shareholders' equity	15	(1)
Statement of cash flows	15	(3)
The relationship among the financial statements	18	(1)
Reporting to the Securities and Exchange Commission	18	(1)
Financial Statement Analysis	19	(1)
Accounting in the News: Financial Statement Analysis
What Does a Financial Analyst Do?	20	(1)
Business risk, control, & ethics	20	(3)
What is a risk?	21	(1)
Accounting in the News: Risk and Control
What Creates the Most Risk for a Small Business?	21	(1)
Ethics in financial reporting and the Sarbanes-Oxley Act of 2002	22	(1)
The demand for auditing	22	(1)
You make the call: Who owns Apple Computer, Inc.?	23	(1)
Let's Take a Test Drive: Real-World Problem	24	(1)
Rapid Review	25	(1)
Key Terms	26	(1)
Have You Increased Your Business IQ?	26	(1)
Questions	27	(1)
Multiple Choice	27	(1)
Short Exercises	28	(2)
Exercise Set A	30	(2)
Exercise Set B	32	(3)
Problem Set A	35	(1)
Problem Set B	36	(2)
Financial Statement Analysis	38	(1)
Critical Thinking Problems	39	(1)
Risk and Control	39	(1)
Group Problem	39	(1)
Ethics	40	(1)
Internet Exercise	40	(1)
Continuing Case Study
Building your Excel skills with The MP3 Store	40	(2)
Preparing Financial Statements and Analyzing Business Transactions	42	(56)
You make the call: Can Southwest get a loan?	43	(1)
Objectives, Assumptions, and Qualities of Financial Reporting	44	(4)
Financial reporting	45	(1)
Qualities of accounting information	45	(1)
Assumptions and principles underlying financial reporting	46	(2)
Materiality and conservatism in financial reporting	48	(1)
A Closer Look at the Balance Sheet	48	(4)
Current and non-current assets	49	(1)
Current and non-current liabilities	50	(1)
Shareholders' equity	51	(1)
A Closer Look at the Income Statement	52	(2)
Recognizing revenue and expenses	52	(1)
Earnings per share---a number you've heard about	53	(1)
Accounting in the News: Ethics
Your Bonus Is on the Line. What Would You Do?	54	(1)
A Closer Look at the Statement of Changes in Shareholders' Equity	54	(1)
A Closer Look at the Statement of Cash Flows	55	(2)
Notes to the Financial Statements	57	(1)
Business Transactions and Financial Statements	58	(6)
Analyzing transactions	58	(3)
Finding the financial statements on the accounting equation worksheet	61	(1)
Preparing an income statement, statement of changes in shareholders' equity, and balance sheet	62	(2)
Preparing a statement of cash flows	64	(1)
The relationship among the financial statements	64	(1)
Financial Statement Analysis: The Current Ratio	64	(3)
Business risk, control, & ethics	67	(2)
Controls to ensure accuracy and completeness	67	(1)
Accounting in the News: Risk and Control
How the Sarbanes-Oxley Act Will Help Companies Manage Risks	68	(1)
You make the call: Can Southwest Airlines Get a Loan?	69	(1)
End-of-chapter resource materials	69	(29)
The Accounting Information System and the Accounting Cycle	98	(56)
You make the call: Should Cisco allow its salespeople to enter their transactions directly into the firm's accounting system?	99	(1)
Keeping Track of Business Transactions	100	(5)
The recording process	100	(1)
How transactions increase and decrease balance sheet accounts---debits and credits	100	(1)
Accounting in the News: Technology
ERP Software Captures the Data	101	(2)
Journals and the general ledger	103	(2)
Recording Income Statement Transactions	105	(3)
Recording revenue	105	(2)
Recording expenses	107	(1)
The Accounting Cycle	108	(1)
Recording and Posting Transactions and Preparing an Unadjusted Trial Balance	109	(8)
Recording a series of transactions	109	(5)
Posting transactions to the general ledger	114	(1)
Preparing a trial balance	114	(1)
Preparing an income statement and a balance sheet	115	(2)
Financial Statement Analysis	117	(3)
Working capital	117	(1)
Accounting in the News: Financial Statement Analysis
Why Do Analysts Care About the Working Capital of Whole Foods Market?	118	(1)
Quick ratio	119	(1)
Business risk, control, & ethics	120	(2)
Errors in recording and updating the general ledger	120	(1)
Unauthorized access to the general ledger	121	(1)
Loss or destruction of general ledger data	121	(1)
Accounting in the News: Risk and Control
A Disaster Recovery Plan Helps a Large Investment Firm---Franklin Templeton---Recover After 9/11	122	(1)
You make the Call: Should Cisco allow its salespeople to enter their transactions directly into the firm's accounting system?	122	(1)
End-of-chapter resource materials	123	(28)
Appendix: Using T-accounts to Analyze Problems	151	(3)
Accrual Accounting Concepts and the Accounting Cycle	154	(70)
You make the call: How should Bed Bath & Beyond account for a customer's payment in advance?	155	(1)
Measuring Income---Recording Revenues and Expenses	156	(1)
Timing Differences	157	(20)
Back to the accounting cycle	158	(1)
Accrual transactions	159	(7)
Deferral transactions	166	(11)
Making Adjusting Entries and Preparing the Financial Statements	177	(6)
Closing the Revenue and Expense Accounts	183	(5)
The mechanics of closing the books	185	(2)
Accounting in the News: Technology
How Can Accountants Decrease the Time It Takes to Close the Books?	187	(1)
Financial Statement Analysis	188	(1)
Business risk, control, & ethics	189	(1)
You make the call: How should Bed Bath & Beyond account for a customer's payment in advance?	190	(1)
End-of-chapter resource materials	190	(34)
Accounting for Merchandising Operations	224	(52)
You make the call: How could Target increase its gross profit on sales?	225	(1)
Merchandising Firms	226	(1)
An operating cycle	226	(1)
Acquiring Merchandise for Sale	227	(7)
Acquisition process for inventory	228	(1)
Recording purchases	229	(5)
Selling Merchandise	234	(5)
Sales process	234	(1)
Recording sales	235	(4)
Recording Inventory: Perpetual Versus Periodic Record Keeping	239	(3)
Differences between perpetual and periodic inventory systems	241	(1)
Accounting in the News: Ethics
Would You Help Yourself to a Few Steaks?	241	(1)
Multiple-step Income Statement	242	(1)
Financial Statement Analysis---Gross Profit Ratio and Profit Margin Ratio	243	(4)
Accounting in the News: Financial Statement Analysis
Dell's Gross Profit	245	(2)
Business risk, control, & ethics	247	(1)
Accounting in the News: Risk and Control
The Never-ending Battle to Control Inventory	248	(1)
You make the call: How could Target increase its gross profit on sales?	248	(1)
End-of-chapter resource materials	249	(24)
Appendix: Recording Transactions Using Periodic Inventory	273	(3)
Recording Purchases of Merchandise	273	(1)
Comparing Record Keeping for Perpetual and Periodic Inventory	273	(3)
Reporting and Analyzing Inventory	276	(52)
You make the call: Should Best Buy reduce the value of its television inventory?	277	(1)
Inventory Cost Flow Assumptions	278	(7)
Specific identification	279	(1)
Weighted average cost	280	(1)
First-in, first-out method (FIFO)	281	(1)
Last-in, first-out method (LIFO)	281	(4)
How Inventory Cost Flow Assumptions Affect Financial Statements	285	(6)
Differences in reported inventory and cost of goods sold under different cost flow assumptions	285	(4)
Income tax effects of LIFO and FIFO	289	(1)
How do firms choose an inventory cost flow method?	290	(1)
Complications in Valuing Inventory: Lower-of-Cost-or-Market Rule	291	(1)
Accounting in the News: Financial Statement Analysis
Best Buy Shows How Estimates of Inventory Reserves Can Change Net Income	292	(1)
Financial Statement Analysis: Inventory Turnover	292	(3)
Accounting in the News: Ethics
Would You Pad Inventory to Protect Your Job?	294	(1)
Business risk, control, & ethics	295	(2)
Accounting in the News: Risk and Control
Wal-Mart Controls Inventory with RFID Tags	296	(1)
You make the call: Should Best Buy reduce the value of its television inventory?	297	(1)
End-of-chapter resource materials	297	(24)
Appendix A: Perpetual Inventory Systems	321	(4)
Weighted Average Perpetual	321	(1)
FIFO Perpetual	322	(1)
LIFO Perpetual	322	(1)
Conclusion	323	(2)
Appendix B: Inventory Errors	325	(2)
Ending Inventory Errors	325	(1)
Beginning Inventory Errors	326	(1)
Appendix C: Gross Profit Method of Estimating Ending Inventory	327	(1)
Cash, Accounts Receivable, and Bad Debts Expense	328	(52)
You make the call: How should Hershey Foods deal with a customer firm filing for bankruptcy?	329	(1)
Accounts Receivable and Bad Debts Expense	330	(11)
Extending credit	330	(1)
Recording uncollectible accounts	331	(1)
Methods of estimating bad debts expense	332	(3)
Writing off a specific account	335	(4)
Accounting in the News: Ethics
American International Group Helps Clients Smooth Earnings	339	(1)
The direct write-off method	340	(1)
Notes Receivable	341	(2)
Controlling Cash	343	(8)
Assignment of responsibilities for cash	343	(1)
Bank reconciliations	343	(8)
Reporting Cash	351	(1)
Cash equivalents	351	(1)
The statement of cash flows	351	(1)
Analyzing Accounts Receivable with Ratio Analysis	352	(2)
Business risk, control, & ethics	354	(2)
Clear assignment of responsibility	354	(1)
Specific procedures for documentation related to the assets	354	(1)
Independent internal verification of the data	355	(1)
Accounting in the News: Risk and Control
Association of Certified Fraud Examiners Report Cash Is Easy to Steal	356	(1)
You make the call: How will the bankruptcy of a major customer affect Hershey Foods' financial statements?	356	(1)
End-of-chapter resource materials	357	(23)
Reporting and Interpreting Long-Term Operational Assets	380	(60)
You make the call: How should Staples account for the purchase of a local office supply store?	381	(1)
Acquiring Plant Assets	382	(3)
Types of long-lived assets: tangible and intangible	383	(1)
Acquisition costs	383	(2)
Basket purchase allocation	385	(1)
Using Long-Term Tangible Assets: Depreciation and Depletion	385	(11)
Straight-line depreciation	387	(4)
Activity (units of production) depreciation	391	(2)
Declining balance depreciation	393	(3)
Depletion	396	(1)
Using Intangible Assets: Amortization	396	(4)
Copyrights	397	(1)
Patents	397	(1)
Accounting in the News: Technology
Google This: ``Copyright Law''	398	(1)
Trademarks	398	(1)
Franchises	398	(1)
Goodwill	398	(1)
Research and development costs	399	(1)
Changes After the Purchase of the Asset	400	(2)
Asset impairment	400	(1)
Expenditures to improve an asset or extend its useful life	401	(1)
Revising estimates of useful life and salvage value	401	(1)
Selling Long-Term Assets	402	(3)
Accounting in the News: Ethics
``Managing'' Depreciation and Amortization	403	(2)
Presentation of Long-Term Assets on the Financial Statements	405	(1)
Financial Statement Analysis---Return on Assets and Asset Turnover Ratio	406	(2)
Return on assets	406	(1)
Asset turnover ratio	407	(1)
Business risk, control, & ethics	408	(1)
Accounting in the News: Risk and Control
Do You Download Sony Music?	409	(1)
You make the call: How should Staples account for the purchase of a local office supply store?	409	(1)
End-of-chapter resource materials	410	(29)
Appendix: Depreciation and Taxes	439	(1)
Reporting and Understanding Liabilities	440	(72)
You make the call: How should Hewlett-Packard account for warranty expense?	441	(1)
Definitely Determinable Liabilities	442	(4)
Accounting for payroll	442	(2)
Accounting in the News: Ethics
Drop It---University Students Voice an Opinion on Bush's Plan for Social Security Reform	444	(2)
Estimated Liabilities	446	(3)
Accounting for warranties	446	(3)
Long-Term Notes Payable and Mortgages	449	(4)
Long-Term Liabilities: Raising Money by Issuing Bonds	453	(11)
What is a bond?	453	(1)
Types of bonds	454	(1)
Accounting in the News: Risk and Control
General Motors and Ford Motor Go to the Junk Yard	455	(1)
Issuing bonds payable: getting the money	455	(5)
Paying interest to the bondholders: amortizing bond discounts and premiums	460	(3)
Market for trading bonds	463	(1)
Accounting in the News: Financial Statement Analysis
How to Read a Bond Quote	464	(1)
Financial Statement Analysis---Financial Leverage and Debt Ratios	464	(3)
Business risk, control, & ethics	467	(1)
You make the call: How should Hewlett-Packard account for its warranty expense?	468	(1)
End-of-chapter resource materials	468	(24)
Appendix A: Time Value of Money and Present Values	492	(8)
The Time Value of Money	492	(1)
Simple Versus Compound Interest	492	(1)
Present Value	493	(1)
Present Value of a Single Amount	493	(2)
Present Value of an Annuity	495	(5)
Appendix B: Calculating the Proceeds from a Bond Issued at a Premium or a Discount	500	(3)
Bonds Issued at a Premium: Stated Rate on Bonds Is Greater Than the Market Rate of Interest	500	(1)
Bonds Issued at a Discount: Stated Rate on Bonds Is Less Than the Market Rate of Interest	501	(2)
Appendix C: Amortizing Bond Discounts and Premiums: The Effective Interest Method	503	(6)
Actual Interest Expense on the Outstanding Principal Balance	503	(1)
Payment of Interest to Bondholders and Amortization of a Discount	504	(2)
Payment of Interest to Bondholders and Amortization of a Premium	506	(1)
Straight-line Versus Effective Interest Methods of Amortization	507	(2)
Appendix D: Leases and Pensions	509	(3)
Capital Leases	509	(1)
Pensions	509	(1)
Accounting in the News: Risk and Control
Employee Benefits: Trouble on the Horizon	510	(2)
Reporting and Understanding Shareholders' Equity	512	(46)
You make the call: How does a Papa John's shareholder earn a return on an investment in the company's stock?	513	(1)
Components of Shareholders' Equity in a Corporation---Contributed Capital	514	(5)
Stock---authorized, issued, and outstanding	514	(2)
Common stock	516	(1)
Accounting in the News: Risk and Control
Who Runs the Show at Google?	516	(2)
Preferred stock	518	(1)
Accounting in the News: Ethics
Insider Trading at Interstate Bakeries	519	(1)
Cash Dividends	519	(5)
Important dates related to dividends	520	(1)
Distribution of dividends between common and preferred shareholders	521	(1)
An example of dividend payment	522	(2)
Treasury Stock	524	(4)
Why do firms buy their own stocks?	524	(1)
Accounting for the purchase	525	(1)
Selling treasury stock	526	(1)
Reporting treasury stock	527	(1)
Stock Dividends and Stock Splits	528	(2)
Stock dividends	528	(1)
Stock splits	529	(1)
Retained Earnings	530	(1)
Financial Statement Analysis	531	(2)
Return on equity	531	(1)
Earnings per share	532	(1)
Accounting in the News: Financial Statement Analysis
Bristol-Myers Squibb's Earnings Per Share	532	(1)
Business risk, control, & ethics	533	(1)
Risks faced by owners	533	(1)
Public or private?	534	(1)
You make the call: How does a Papa John's shareholder earn a return on an investment in the company's stock?	534	(1)
Accounting in the News: Risk and Control
Vermont Teddy Bear Company Says No Thanks to SOX	535	(1)
End-of-chapter resource materials	535	(23)
Preparing and Analyzing the Statement of Cash Flows	558	(60)
You make the call: Does The Home Depot's statement of cash flows indicate that the company is in good financial shape?	559	(1)
Categories of Cash Flows	560	(2)
Accounting in the News: Ethics
Would You Help Yourself to the Company's Cash?	561	(1)
Accrual-Basis Accounting Versus Cash-Basis Accounting	562	(2)
Overview of the Two Methods of Preparing and Presenting the Statement of Cash Flows	564	(2)
Statement of Cash Flows---Indirect Method	566	(3)
Steps in calculating cash from operations---indirect method	566	(3)
Cash Flows from Operating Activities---Direct Method	569	(5)
Changing revenues from accrual-basis to cash-basis	570	(1)
Changing expenses from accrual basis to cash basis	571	(3)
Cash from Investing and Financing Activities	574	(1)
Investing cash flows	574	(1)
Financing cash flows	574	(1)
Putting It All Together to Prepare the Statement of Cash Flows	575	(4)
Cash from operating, investing, and financing activities	575	(1)
Supplementary disclosures	576	(1)
Wrapping up the statement of cash flows	577	(1)
Accounting in the News: Risk and Control
Financial Fitness---Better Get in Shape	578	(1)
Financial Statement Analysis---Using Cash Flows to Evaluate Performance	579	(3)
Free cash flow	579	(1)
Accounting in the News: Financial Statement Analysis
Free Cash---We All Want Some	579	(1)
Cash flow adequacy ratio	580	(1)
Cash needed to pay current liabilities	581	(1)
Business risk, control, & ethics	582	(1)
Accounting in the News: Risk and Control
Look Out for Cash Burners	583	(1)
You make the call: Does The Home Depot's statement of cash flows indicate that the company is in good financial shape?	583	(1)
End-of-chapter resource materials	584	(34)
Using Financial Statement Analysis to Evaluate Firm Performance	618	(52)
You make the call: Should you invest in Wal-Mart or Target?	619	(1)
A Closer Look at the Income Statement	620	(3)
Discontinued operations	620	(1)
Extraordinary items	621	(1)
Reporting taxes	622	(1)
Horizontal and Vertical Analysis of Financial Information	623	(2)
Horizontal analysis	623	(1)
Vertical analysis	624	(1)
Ratio Analysis	625	(10)
A review of all ratios	625	(3)
Accounting in the News: Financial Statement Analysis
DuPont---More than a FORTUNE 500 Chemical Company	628	(1)
Market indicator ratios	628	(1)
Accounting in the News: Technology
Do P/E Ratios Help Identify Good Stocks to Buy?	629	(1)
Understanding ratios	630	(1)
Using ratio analysis	631	(4)
Financial Statement Analysis---It's More than Numbers	635	(1)
Business risk, control, & ethics	635	(2)
Accounting in the News: Risk and Control
How Wall Street Wrecked United Airline's Pension	636	(1)
End-of-chapter resource materials	637	(28)
Appendix A: Comprehensive Income	665	(2)
Accounting in the News: International
United States and International Accounting Standards Find Common Ground	666	(1)
Appendix B: Investments in Securities	667	(3)
Held-to-maturity Securities	667	(1)
Trading Securities	667	(1)
Available-for-sale Securities	668	(1)
Selling the Securities	669	(1)
Quality of Earnings and Corporate Governance	670	(25)
You make the call: WorldCom's $11 billion fraud---how did everyone miss the signs?	671	(1)
Why Are Earnings Important?	672	(1)
Accounting in the News: Ethics
Hardee's Focus: Ethics not Earnings	673	(1)
The Quality of Earnings	673	(1)
Common Ways to Manipulate Earnings	674	(3)
Big bath charges	675	(1)
Cookie jar reserves	675	(2)
Revenue recognition	677	(1)
What We Learned from the Business Scandals of the Early 2000s	677	(3)
Accounting in the News: International
Corporate Governance Around the World	680	(1)
The Sarbanes-Oxley Act of 2002	680	(6)
Accounting in the News: Ethics	682	(1)
Key players in corporate governance	682	(1)
Accounting in the News: Ethics
Would You Blow the Whistle on Fraud?	683	(1)
Outlook for the future	684	(1)
Accounting in the News: Risk and Control
Are There Downsides to Sarbanes-Oxley?	685	(1)
Evaluating Corporate Governance	686	(4)
Defining and measuring good corporate governance	686	(1)
How can we evaluate a firm's corporate governance?	687	(1)
Staying up to date: it's up to you	688	(2)
End-of-chapter resource materials	690	(5)
Appendix A: Wal-Mart Annual Report	695	(36)
Appendix B: Target 10-K	731
Glossary	1	(1)
Credits	1	(1)
Company Index	1	(2)
Subject Index	3