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9780471203599

Financial Accounting : A Valuation Emphasis

by ; ;
  • ISBN13:

    9780471203599

  • ISBN10:

    0471203599

  • Format: Hardcover
  • Copyright: 2004-12-01
  • Publisher: WILEY

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Summary

Financial Accounting: A Valuation Emphasis integrates an understanding of valuation concepts with accounting principles. The authors place considerable emphasis on the economic consequences of accounting practices. You'll develop a solid background in basic accounting processes and disclosures, and the critical role of accounting in valuation. The book Features Highlights the valuation and economic consequences of core accounting concepts. Emphasizes the construction of accounting information and how that information affects the value of the firm. Offers an inviting and accessible presentation, with real-world examples and transactions. Provides an early treatment of statement of cash flows and financial statement analysis. Illustrates key concepts, including valuation models through an integrated example of a hypothetical company. Helps you appreciate the significance of accounting information to managers, investors, regulators, and others with an interest in the firm's affairs.

Author Biography

Dr. John (Jack) Hughes holds the Ernst & Young Chair in Accounting at UCLA. He joined the UCLA faculty in 1999, having formerly been a member of faculties at Western New England College, Dartmouth College, Duke University, University of Minnesota, and University of British Columbia. He has won teaching awards in MBA programs at Duke and British Columbia and in undergraduate programs at Western New England, Purdue, and Minnesota.

Professor Hughes currently teaches in the MBA, Ph.D., and undergraduate programs. His present MBA course assignment is financial statement analysis, a course that emphasizes valuing equity from fundamental analysis. At the undergraduate level, Professor Hughes recently taught a course on Special Topics in Accounting that explored recent accounting scandals and their economic consequences and valuation implications. He serves as the accounting area Ph.D. advisor.

Professor Hughes has over 50 articles either published or forthcoming in major academic journals in accounting and economics, including The Accounting Review, Journal of Accounting Research, Journal of Accounting and Economics, Review of Accounting Studies, Econometrica, Journal of Economic Theory, RAND Journal of Economics, and Journal of Law and Economics. He is cofounder and a coeditor of the Review of Accounting Studies.

Professor Hughe's personal interests include cycling in the nearby Santa Monica mountains and rock climbing at his summer residence in British Columbia.

Dr. Frances L. Ayres Ph.D., CPA is currently the Director of the School of Accounting and is the John W. Jr. and Barbara J. Branch Professor of Accounting at the University of Oklahoma. She received her Ph.D. in Accounting at the University of Iowa. She has been a faculty member at the University of Oaklahoma for 22 years. Her teaching focus is in the Financial accounting area. She has taught introductory financial accounting to undergraduates and MBAs, intermediate financial accounting, accounting theory, and financial statement analysis. Dr. Ayres has published in numerous academic and professional journals, including the Journal of Accounting and Economics, the Journal of Accounting Research, The Accounting Review, and Management Accounting. She serves as an ad hoc reviewer for several journals and serves on the editorial boards of The Accounting Review and Journal of Accounting and Public Policy. She is past editor of the Journal of the American Taxation Association and currently serves as president of the American Taxation Association. Her research interest focus on the impact of taxation and financial information and disclosures on managers and investors. She also serves on the Board of Directors of the Oklahoma City Chapter of the Financial Executives Institute and has served on the Business Advisory Board for Los Alamos National Laboratory.

Dr. Robert (Rob) E. Hoskin is currently Accounting Faculty and Director of Executive Programs at the School of Business, University of Connecticut. He received his Ph.D. from Cornell University in 1980 and taught for six years at the Fuqua School of Business, Duke University, before coming to the University of Connecticut. Dr. Hoskin has since served as Director of the Executive MBA Program and as Associate Dean prior to his current role. He spent six months with Price Waterhouse in 1990 as a faculty intern. He currently teaches primarily introductory Financial Accounting to MBAs, a course in financial services (Insurance and Banking) in the MS in Accounting Program, as well as several executive education programs in the insurance and banking arena.

Table of Contents

Financial Reporting: The Institutional Setting
1(18)
Learning Objectives
1(1)
Real World Vignette
1(3)
Reporting of the Activities of the Firm
4(1)
Regulation of Financial Reporting
5(1)
Determining Generally Accepted Accounting Principles
6(3)
Independent Audits of Financial Statements
9(2)
Economic Consequences of Accounting Practices
11(2)
Financial Reporting and Valuation
13(1)
Summary and Transition
14(5)
Financial Statements: An Overview
19(34)
Learning Objectives
19(1)
Real World Vignette
19(1)
Forms of Business Organization
20(2)
Financial Accounting Reports
22(1)
Statement of Financial Position
23(4)
Assets
23(1)
Liabilities
23(1)
Stockholders' Equity
24(1)
The Accounting Equation
24(1)
Statement of Financial Position: Ross Stores
25(2)
Flow Statements: Changes in Financial Position
27(1)
Statement of Earnings
28(2)
Statement of Cash Flows
30(2)
Articulation of the Financial Statements
32(1)
Statement of Changes in Stockholders' Equity
33(1)
Other Statement Disclosures
33(2)
The Influence of Financial Statements
35(2)
Summary and Transition
37(16)
The Accounting Process
53(46)
Learning Objectives
53(1)
Real World Vignette
53(1)
Balance Sheet Accounts
54(2)
Assets
54(1)
Liabilities
55(1)
Stockholders' Equity
56(1)
Nominal Accounts
56(1)
Accounting for Transactions
56(1)
Double-Entry Accounting Systems
57(4)
T-Accounts
57(1)
Journal Entries
58(2)
Computerized Accounting
60(1)
An Illustration of Transaction Analysis
61(18)
Analysis of Financing and Investing Activities
61(1)
Issuing Stock
62(1)
Purchasing Fixtures
62(1)
Borrowing Funds
62(1)
Using Journal Entries and T-Accounts to Record Transactions
62(1)
Construction the Financial Statements
63(1)
Analysis of Operating Activities
64(1)
Revenues and Expenses
65(2)
Using the Accounting Equation to Analyze Operating Activities
67(1)
Purchasing Inventory on Account (Transaction 4)
67(1)
Selling Inventory on Account (Transaction 5)
67(1)
Recognizing Cost of Goods Sold (Transaction 6)
68(1)
Collecting Receivables (Transaction 7)
69(1)
Paying Accounts Payable (Transaction 8)
69(1)
Paying Selling and Administrative Costs (Transaction 9)
70(1)
Depreciating Fixtures (Transaction 10)
70(2)
Paying Interest (Transaction 11)
72(1)
Dividends (Transaction 12)
72(1)
Nominal Accounts Revisited
73(1)
Using Journal Entries and T-Accounts to Record Transactions
74(1)
Constructing the Financial Statements
75(2)
Closing Entries
77(2)
The Accounting Cycle
79(1)
Analyzing Financial Statements
80(1)
Summary and Transition
81(18)
Income Measurement and Reporting
99(30)
Learning Objectives
99(1)
Real World Vignette
99(1)
Accrual Accounting
100(1)
Revenue Recognition
101(5)
Revenue Recognition Criteria
102(1)
At Point of Delivery
103(1)
As Service Is Provided or Cost Incurred
103(1)
Based on Contractual Agreements
104(1)
At Time of Production
104(1)
As Cash Is Collected
105(1)
During Construction
105(1)
Expense Recognition
106(2)
Recording Accrual Entries
108(3)
Revenues That Are Received in Cash Before They Are Earned
108(1)
Revenues That are Earned Before They Are Received in Cash
109(1)
Expenses That Are Paid in Cash Before They Are Incurred
110(1)
Expenses That Are Incurred Before They Are Paid In Cash
111(1)
Valuation Implications of Income Recognition
111(1)
Income Statement Format
112(5)
Line Item Definitions
112(1)
Income Statement Labels
113(1)
Income from Continuing Operations
113(2)
Nonrecurring Items
115(1)
Discontinued Operations
115(1)
Extraordinary Items
115(2)
Accounting Changes and Errors
117(1)
Pro Forma Earnings
117(1)
Earnings per Share
117(1)
Comprehensive Income
118(1)
Summary and Transition
118(11)
Financial Statements: Measuring Cash Flow
129(38)
Cash Flow Statement Components
130(4)
Cash Flow From Operating Activities
130(3)
Cash Flow From Investing Activities
133(1)
Cash Flow From Financing Activities
134(1)
Preparation of the Statement of Cash Flows
134(10)
Worksheet Entries for Cash From Operations
137(1)
Adjusting Net Income
137(1)
Revenue Adjustments to Net Income
138(1)
Cost of Goods Sold Adjustment to Net Income
139(1)
Depreciation Adjustment to Net Income
140(1)
Prepaid Expense Adjustment to Net Income
140(1)
Worksheet Entries for Cash from Investing
141(1)
Worksheet Entries for Cash from Financing
141(3)
Summary of Cash Flow Statement Preparation--Indirect Method
144(1)
Articulation of the Cash Flow Statement
144(2)
Supplemental Disclosures to the Cash Flow Statement
146(1)
Interpreting the Cash Flow Statement
146(3)
Valuation Implications of the Cash Flow Statement
149(1)
Summary and Transition
150(17)
Financial Statement Analysis
167(46)
Learning Objectives
167(1)
Real World Vignette
167(1)
Overview of Financial Statement Analysis
168(1)
Creating Comparable Data for Financial Statement Analysis
169(5)
``As If'' Restatements
169(3)
Mandated Accounting Changes
172(1)
Discretionary Accounting Changes
173(1)
Using Financial Ratios to Assess Past Performance
174(10)
Assessing Profitability
174(4)
Assessing Turnover Ratios
178(3)
Assessing Debt Repayment Ability
181(1)
Short-Term Debt
181(1)
Long-Term Debt
182(2)
Using Financial Ratios to Assess Comparative Performance
184(3)
Inter-Temporal Comparisons
184(1)
Cross-Sectional Comparisons
184(3)
Forecasting
187(2)
Time Series Analysis
188(1)
Pro Forma Statements
188(1)
Time Value of Money
189(3)
Future Value
190(1)
Present Value
191(1)
Adjusting for Uncertainty
191(1)
Model for Valuing Equity
192(3)
DCF Approach
192(2)
RI Approach
194(1)
Summary and Transition
195(18)
Valuing Receivables
213(30)
Learning Objectives
213(1)
Real World Vignette
213(1)
Accounts Receivable
214(12)
Doubtful Accounts Recognition
215(1)
Illustration of Doubtful Accounts Methods
215(2)
Direct Write-Off Method
217(1)
Allowance Method
217(1)
Real Company Illustration of Doubtful Accounts
218(3)
Estimating Doubtful Accounts
221(1)
Sales Returns and Allowances
222(4)
Accounts Receivable and Revenue Recognition
226(2)
Financing Receivables
228(2)
Selling Receivables
230(3)
Summary and Transition
233(10)
Valuing Inventories
243(30)
Learning Objectives
243(1)
Real World Vignette
243(1)
Merchandise and Manufacturing Inventories
244(4)
Inventory Costs
245(1)
Inventory-Level Management
246(1)
Valuing Inventory
246(1)
Accounting for Inventory
247(1)
Inventory Recording Procedures
248(1)
Periodic Method
248(1)
Perpetual Method
249(1)
Inventory Cost Flow Assumptions
249(3)
First-In, First-Out
249(1)
Last-In, First-Out
250(1)
Weighted Average
251(1)
Specific Identification
252(1)
Illustration of Cost Flow Assumptions
252(4)
Periodic Inventory Computations
253(1)
Periodic FIFO
253(1)
Periodic LIFO
253(1)
Periodic Weighted Average
254(1)
Perpetual Inventory Computations
254(1)
Perpetual FIFO
255(1)
Perpetual LIFO
255(1)
Perpetual Weighted Average
255(1)
Comparison of Inventory Methods
256(1)
Inventory Method Choices and Firm Value
256(1)
LIFO's Effect on Financial Statements
257(2)
Late Purchases
258(1)
Lifo Liquidations
258(1)
Financial Analysis and Inventory: Converting from LIFO to FIFO
259(2)
Ratio Analysis Implications
260(1)
Transition and Summary
261(12)
Valuing Long-Lived Assets
273(24)
Learning Objectives
273(1)
Real World Vignette
273(1)
Capitalization Criteria
274(5)
Interest Capitalization
276(1)
Basket Purchases
276(2)
Improvements and Repairs
278(1)
Asset Exchanges
278(1)
Depreciation
279(6)
Depreciation Methods
279(1)
Straight-Line Depreciation
280(1)
Declining Balance Methods
281(1)
Tax Depreciation
282(1)
Choice of Depreciation Methods
283(1)
Effect of Changes in Estimates
283(2)
Asset Impairments
285(1)
Intangible Assets
286(3)
Research and Development
286(1)
Computer Software
287(1)
Oil and Gas Exploration Costs and Reserves
287(1)
Goodwill
288(1)
Transition and Summary
289(8)
Operating Liabilities: Recognition and Disclosure
297(34)
Learning Objectives
297(1)
Real World Vignette
297(1)
Liability Recognition
298(1)
Balance Sheet Classification
298(1)
Accounts Payable
299(1)
Advances on Sales and Unearned Revenue
300(1)
Accrued Liabilities
301(1)
Contingencies
302(2)
Purchase and Sales Commitments
304(2)
Restructuring Charges
306(1)
Income Taxes
307(1)
Deferred Tax Liabilities
308(1)
Deferred Tax Assets
309(2)
Reporting of Deferred Taxes
311(2)
Pensions and Other Postretirement Benefits
313(3)
Defined Benefit Plans
313(2)
Defined Contribution Plans
315(1)
Summary and Transition
316(15)
Debt: Pricing, Covenants, and Disclosure
331(32)
Learning Objectives
331(1)
Real World Vignette
331(1)
Notes Payable
332(1)
Pricing of Debt
333(3)
Accounting for Discounts on Debt
336(2)
Zero-Coupon Debt
338(1)
Fair Value of Debt
338(1)
Early Debt Retirement
339(1)
Debt Covenants
340(2)
Credit Agreements
342(1)
Bonds Payable
342(1)
Accounting for Coupon Bonds
343(1)
Leases
344(4)
Special Purpose Entities
348(2)
Summary and Transition
350(13)
Stockholders' Equity: The Residual Interest
363(26)
Learning Objectives
363(1)
Real World Vignette
363(1)
Overview of Stockholders' Equity
364(1)
Types of Stock
365(2)
Common Stock
365(1)
Preferred Stock
366(1)
Distributions to Stockholders
367(2)
Cash Dividends
367(1)
Stock Repurchases
368(1)
Stock Dividends and Stock Splits
369(3)
Small Stock Dividends
369(1)
Large Stock Dividends
370(1)
Stock Splits
370(2)
Stock Options and Compensation
372(3)
Convertible Securities
375(2)
Earnings per Share
377(2)
Diluted Earnings Per Share
378(1)
Retained Earnings and Comprehensive income
379(1)
Statement of Changes in Stockholders' Equity
379(1)
Summary and Transition
380(9)
Intercorporate Investments
389(30)
Learning Objectives
389(1)
Real World Vignette
389(1)
Overview of Intercorporate Investments
390(1)
Passive Minority Ownership
391(6)
Held to Maturity Debt Securities
391(2)
Trading Securities
393(1)
Available for Sale Securities
394(3)
Nonmarketable Securities
397(1)
Valuation and Marketable Securities
397(1)
Active Minority Investments
397(4)
Majority Investments
401(3)
Special Purpose Entities
404(1)
Summary and Transition
404(15)
Introduction to Valuation Analysis
419(114)
Learning Objectives
419(1)
Real World Vignette
419(1)
Overview of Fundamental Analysis Methods
420(1)
Pro Forma Financial Statements
420(2)
Pro Forma Income Statements
420(1)
Sales Forecasting
421(1)
Operating Expense Forecasting
421(1)
Depreciation Forecasting
421(1)
Interest Expense Forecasting
421(1)
Tax Expense Forecasting
422(1)
Other Forecasting Items
422(1)
Pro Forma Balance Sheets
422(3)
Plant, Property and Equipment
423(1)
Alternative Assumptions
423(1)
Cash Forecasting
423(1)
Effects of Intercorporate Investments
423(1)
Debt Forecasting
424(1)
Deferred Taxes
424(1)
Owners' Equity
424(1)
Pro Forma Cash Flow Statements
424(1)
Discounted Cash Flow (DCF) Approach
425(4)
Free Cash Flows
426(1)
Terminal Value
426(1)
Cost of Equity
427(1)
Example of DCF Analysis with Debt Financing
428(1)
Residual Income (RI) Approach
429(2)
Simple Example Continued
430(1)
Applying the Valuation Approaches
431(4)
Pro Forma Statements
433(1)
DCF Analysis
434(1)
RI Analysis
434(1)
Valuing a Real Company
435(5)
Pro Forma Statements
435(1)
Valuation Analyses
436(4)
Valuation and Pricing Multiples
440(1)
Summary and Transition
441(6)
Appendixes
A. Adjusting Entries
447(4)
B. Time Value of Money
451(24)
C. Comprehensive Case and Chico's 10K Report Fiscal 2002
475(40)
D. Journal References
515(2)
E. Official Accounting Pronouncements
517(16)
Glossary 533(20)
Index 553

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