Accrual Accounting and Valuation Pricing Earnings Google

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Accrual Accounting and Valuation Pricing Earnings Google Powered By Docstoc
					CONTENTS
Chapter 1
The Accounting Environment: What is Accounting and Why is it Done? 1
  Introduction 2
  A Challenge to the Reader 2
  What is Accounting? 3
  Why do People Need and Want Accounting
    Information? 3
  The Two Fields of Accounting: Financial Accounting
     and Managerial Accounting 5
  The Accounting Environment 5
    Environment 6
    Entities 6
    Stakeholders: Different Users, Different Decisions,
       Different Information 9
    Characteristics of Entities 10
    Constraints 10
    Stakeholders versus Preparers 11
    Accounting Scandals 13
  Accounting is for Measurement 14
  The Rules of the Game 18
  Solved Problem 20
  Summary of Key Points 23
  Key Terms 23
  Similar Terms 24
  Assignment Materials 24
    Questions 24
    Exercises 25
    Problems 26
  Endnotes 31


Chapter 2
Financial Statements: A Window on an Entity 32
  Introduction 33
  General Purpose Financial Statements 33
  Rogers’ Financial Statements: An Overview 34
  The Balance Sheet 34
    Assets 38
    Liabilities 39
    Using Balance Sheet Information to Analyze Liquidity 40
    Owners’ Equity 41
  The Income Statement 44
    Rogers’ Statement of Income (Income Statement) 47
  Gross Margin and Gross Margin Percentage 48
  The Statement of Retained Earnings 50
  The Cash Flow Statement 51
  The Relationship Among the Financial Statements 52
  Notes to the Financial Statements 52
  Users of Rogers’ Financial Statements 54
  Format of General Purpose Financial Statements 55
  Other Accounting Information 56
  Solved Problem 56
  Summary of Key Points 59
  Key Terms 60
  Similar Terms 61
  Assignment Materials 61
    Questions 61
    Exercises 63
    Problems 68
    Using Financial Statements 79
    Analyzing Rogers Communications Inc. 85
  Endnotes 86

Chapter 3
The Accounting Cycle 87
  Introduction 88
  The Accounting Cycle 88
  Accrual Accounting 90
  A Question of Timing 93
  Devices for Doing Accounting 93
    The Accounting Equation Spreadsheet 94
    Journal Entries 109
  Adjusting Entries 112
  Closing Journal Entries 120
  Solved Problem 122
  Summary of Key Points 127
  Appendix: The Accounting Cycle 128
  Key Terms 137
  Similar Terms 138
  Assignment Materials 138
    Questions 138
    Appendix Questions 139
    Exercises 140
    Problems 148
    Appendix Problems 159
    Using Financial Statements 161
    Analyzing Rogers Communications Inc. 165
  Endnotes 166
Chapter 4
Income Measurement and the Objectives of Financial Reporting 167
  Introduction 168
  Revenue Recognition 168
    Criteria for Recognizing Revenue 170
    The Critical-Event Approach to Recognizing Revenue 171
    Why Does It Matter When a Company Recognizes Revenue? 176
    Google Inc. 179
    Why Do Managers Have So Much Choice? 181
    The Gradual Approach to Recognizing Revenue 182
    Accounting Innovation: Revenue Recognition at
       Microsoft Corporation 185
  Gains and Losses 187
  Expense Recognition 188
  The Objectives of Financial Reporting 190
    Tax Minimization 192
    Stewardship 193
    Management Evaluation 193
    Performance Evaluation 193
    Cash Flow Prediction 193
    Monitoring Contract Compliance 193
    Earnings Management 194
    Minimum Compliance 195
    Reporting Impact 197
  Can Managers Do Whatever They Want? 198
  Solving Accounting Choice Problems 199
    Constraints, Facts, and Objectives 199
    Analyzing Accounting Problems 201
  Solved Problem 202
  Summary of Key Points 208
  Key Terms 209
  Assignment Materials 209
    Questions 209
    Exercises 211
    Problems 216
    Using Financial Statements 225
    Analyzing Rogers Wireless Communications 230
  Endnotes 231


Chapter 5
Generally Accepted Accounting Principles 232
  Introduction 233
  What are Generally Accepted Accounting Principles (GAAP) ? 234
  The World According to GAAP 235
    Basic Assumptions of GAAP 236
    Qualitative Characteristics 239
    Measurement Conventions 244
  The Audit Environment and the Auditors’ Report 252
    A New Era for Financial Reporting 252
    The Auditors’ Report 253
    Other Auditors’ Reports 254
    Other Assurance Accountants Can Provide 255
  Solved Problem 255
  Summary of Key Points 263
  Key Terms 263
  Similar Terms 264
  Assignment Materials 264
    Questions 264
    Exercises 265
    Problems 270
    Using Financial Statements 278
    Analyzing Rogers Communications Inc. 283
  Endnotes 284


Chapter 6
Cash Flow, Profitability, and the Cash Flow Statement 285
  Introduction 286
  Cash Versus Accrual Accounting and the Cash Cycle 286
    The Cash Cycle 286
    Example: Cash Flow Scenarios at Peabody Corp. 289
  Understanding the Cash Flow Statement: An Overview 293
  Understanding the Cash Flow Statement: Specific Activities 296
    Cash from Investing and Financing Activities 296
    Cash from Operations 297
  Interpreting and Using the Cash Flow Statement 306
  Manipulating Cash Flow Information and the Effect of Accrual Accounting Choices on the Cash Flow
    Statement 308
  Solved Problem 311
  Summary of Key Points 314
  Key Terms 315
  Similar Terms 315
  Assignment Materials 315
    Questions 315
    Exercises 317
    Problems 321
    Using Financial Statements 330
    Analyzing Rogers Communications Inc. 333
  Endnotes 334


Chapter 7
Cash, Receivables, and the Time Value of Money 335
  Introduction 336
  Cash 336
    Cash Management and Controls Over Cash 338
    Is a Dollar a Dollar? 339
  The Time Value of Money 341
    Future Value 341
    Present Value 343
    Present Value of an Annuity 346
  Receivables 348
    Accounting for Uncollectible Receivables 353
    Long-Term Receivables 360
  Financial Statement Analysis Issues 362
    Hidden Reserves 362
    Current and Quick Ratios 364
    Accounts Receivable Turnover Ratio 366
  Solved Problem 368
  Summary of Key Points 370
  Key Terms 371
  Similar Terms 371
  Assignment Materials 371
    Questions 371
    Exercises 373
    Problems 379
    Using Financial Statements 387
    Analyzing Rogers Communications Inc. 391
  Endnotes 391


Chapter 8
Inventory 392
  Introduction 393
  What is Inventory? 393
  What Does GAAP Say? 394
  Perpetual and Periodic Inventory Control Systems 395
    Internal control 397
  Inventory Valuation Methods 397
    First In, First Out (FIFO) 399
    Last In, First Out (LIFO) 400
    Average Cost 400
    Specific Identification 401
    Comparison of the Different Cost Flow Assumptions 402
    Which Method is Best? 406
  The Lower of Cost and Market Rule 409
  Valuing Inventory at Other Than Cost 414
  Examples of Inventory Disclosures in Financial Statements 415
  Inventory and the Services Industry 416
  Consignment Inventory 416
  Inventory Accounting and Income Taxes 419
  Financial Statement Analysis Issues 420
    A Banker’s View of Inventory 423
  Solved Problem 423
  Summary of Key Points 426
  Key Terms 427
  Assignment Materials 428
    Questions 428
    Exercises 430
    Problems 436
    Using Financial Statements 448
    Analyzing Rogers Communications Inc. 451
  Endnotes 451


Chapter 9
Capital Assets 453
  Introduction 454
  Measuring Capital Assets and Limitations to Historical Cost Accounting 454
  What is Cost? 456
    Basket Purchases 459
  Amortization 460
    Amortization and Market Values 461
    Amortization Methods 462
    Comparing Methods 466
    Financial Statement Disclosure 470
  Intangible Assets 474
    Goodwill 477
    A Contrast with Oil and Gas Accounting 479
  Disposal of Capital Assets 481
  Write-Downs 482
  Capital Assets and the Cash Flow Statement 485
    Does the Way Capital Assets are Accounted for Affect the Cash Flow Statement? 485
  Why Accounting Choice? 486
  Financial Statement Analysis Issues 488
  Solved Problem 489
  Summary of Key Points 494
  Appendix: Amortization and Taxes 495
  Key Terms 496
  Similar Terms 496
  Assignment Materials 496
    Questions 496
    Exercises 499
    Problems 505
    Using Financial Statements 515
    Analyzing Rogers Communications Inc. 518
  Endnotes 519


Chapter 10
Liabilities 520
  Introduction 521
  What Are Liabilities? 521
    Valuation of Liabilities 522
  Current Liabilities 523
    Bank and Other Current Loans 523
    Accounts Payable 524
    Collections on Behalf of Third Parties 524
    Income Taxes Payable 525
    Dividends Payable 525
    Accrued Liabilities 525
    Unearned Revenue 527
    Disclosure 528
  Bonds and Other Forms of Long-Term Debt 528
    Characteristics of Bonds 530
    Pricing of Bonds 531
    Accounting for Bonds 533
    Accruing Interest on Long-Term Debt 536
    Early Retirement of Debt 537
    Disclosure 537
  Leases 538
  Pensions and Other Post-Retirement Benefits 543
  Contingencies 545
  Commitments 547
  Subsequent Events 549
  Debt and Taxes 549
  Financial Statement Analysis Issues 550
    Debt-to-Equity Ratio 550
    Interest Coverage Ratio 551
    Other Issues 553
  Solved Problem 553
  Summary of Key Points 556
  Appendix—Future Income Taxes 557
  Key Terms 565
  Similar Terms 566
  Assignment Materials 566
    Questions 566
    Exercises 568
    Problems 576
    Using Financial Statements 586
    Analyzing Rogers Communications Inc. 594
  Endnotes 596
Chapter 11
Owners’ Equity 597
  Introduction 598
  Corporations, Partnerships, and Proprietorships 598
  Characteristics of Equity 603
    Common and Preferred Shares 604
    Share Repurchases 607
  Retained Earnings, Dividends, and Stock Splits 608
    Retained Earnings 608
    Dividends 609
    Stock Splits 612
  Accounting Changes—Policies and Estimates 614
  Comprehensive Income 616
  Leverage 616
  Employee Stock Options 619
  Economic Consequences 622
  Financial Statement Analysis Issues 623
    Earnings Per Share 624
    Return on Shareholders’ Equity 625
  Solved Problem 626
  Summary of Key Points 629
  Key Terms 630
  Similar Terms 631
  Assignment Materials 631
    Questions 631
    Exercises 633
    Problems 640
    Using Financial Statements 649
    Analyzing Rogers Communications Inc. 655
  Endnotes 656


Chapter 12
Investments in Other Companies 657
  Introduction 658
  Why Do Companies Invest in Other Companies? 658
  Accounting for Investments in Other Corporations: Introduction 659
  Control: Accounting for Subsidiaries 660
    The Consolidated Balance Sheet on the Date the Subsidiary is Purchased 663
    Non-Controlling Interest 665
    Are Consolidated Financial Statements Useful? 666
    Purchasing Assets Instead of Shares 668
  Significant Influence 668
  Passive Investments 669
  Solved Problem 675
  Appendix 677
  Summary of Key Points 684
  Key Terms 685
  Similar Terms 685
  Assignment Materials 685
     Questions 685
     Exercises 686
     Problems 690
     Using Financial Statements 697
     Analyzing Rogers Communications Inc. 702
  Endnotes 703


Chapter 13
Analyzing and Interpreting Financial
Statements 704
  Introduction 705
  Why Analyze and Interpret Financial Statements? 705
  Know the Entity 707
  Permanent Earnings and the Quality of Earnings 709
     Permanent Earnings 709
     Quality of Earnings 716
  Using Ratios to Analyze Accounting Information 719
     Common Size Financial Statements and Trend Analysis 721
     Evaluating Performance 727
     Liquidity 734
     Example: Analyzing Leon’s Furniture Ltd.’s Inventory 738
     Solvency and Leverage 739
     Other Common Ratios 741
  Some Limitations and Caveats About Financial Statements and Financial Statement Analysis 743
  Earnings Management 745
  Solved Problem 746
  Summary of Key Points 753
  Key Terms 754
  Similar Terms 754
  Assignment Materials 754
     Questions 754
     Exercises 756
     Problems 765
     Using Financial Statements 776
     Analyzing Rogers Communications Inc. 781
  Endnotes 782


Appendix A -Rogers Communications Inc. 2005 Annual Report A-1

Appendix B Comprehensive Cases B-1

Photo Credits PC-1
Glossary G-1

Index I-1

				
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