Lesson Plan 6.1 – Analyzing and Interpreting
Financial Statements
Course Title: Accounting II
Lesson Title: Analyzing and Interpreting Financial Statements
Specific Objective: Understand and explain concepts, procedures, and
applications related to financial statement analysis.
Performance Objectives:

Identify accounting concepts and practices related to financial statement
analysis;
 Prepare a comparative income statement for horizontal analysis;
 Prepare a comparative income statement and balance sheet for vertical
analysis;
 Calculate earnings performance;
 Calculate commonly used ratios;
 Use ratios to analyze the business performance ;
 Analyze the long-term financial strength of a business;
 Define accounting terms related to the lesson.
TEKS: 130.167.c.2:
G – complete a work sheet for a corporation;
H – generate an income statement for a corporation;
I – develop a statement of equity for a corporation;
J – produce a balance sheet for a corporation.
TAKS: R1, M2, M9, M10
Preparation
Materials Needed:




Overhead projector
Glencoe’s Textbook, Chapter 12, and Demonstration Problems
Century 21’s Textbook, Chapter 16.
Accounting software and spreadsheet software
Sponge/Focus Activity:

Inform your students that they have been offered two jobs. If they were
provided financial statements of both companies, ask the student’s “How can
you use this information to help you decide which job offer to accept?”

Exploring the Real World of Business, p. 366, in Glencoe’s Textbook

A possible end of class activity is to give each student a 3 x 5 card and give
them several minutes to answer the following question:
o “What is the most important item you learned today?” Have them
turn in the 3 x 5 card before they leave class. (You can use this
activity whenever you want feedback on what your students
Lesson Plan 6.1 – Analyzing and Interpreting
Financial Statements
Copyright
© Texas Education Agency, 2011. All rights reserved.
ACCOUNTING II
learned.)
Lesson Content:
See Glencoe’s Textbook, Chapter 12, or Century 21’s Textbook, Chapter 16.
Here is an outline:
I.
II.
III.
Horizontal Analysis
A. Interpreting financial data
B. Performing horizontal analysis
Vertical Analysis
A. Performing vertical analysis
Working capital and ratio analysis
A. Working capital
B. Ratio analysis
C. Liquidity ratios
1.
Current ratio
2.
Quick ratio
3.
Merchandise inventory turnover
4.
Accounts receivable turnover
D. Profitability ratios
1.
Return on common stockholders’ equity
2.
Earnings per share of common stock
3.
Price-earnings ratio
E. Financial strength ratios
1.
Ratio of stockholders’ equity to liabilities
2.
Ratio of property, plant, and equipment to long-term liabilities
3.
Equity per share
Teaching Strategies:


Glencoe’s Demonstration Problems.
With the Century 21 textbook, complete the Work Together problems with
your students, then have students work On Your Own problems by
themselves and go over the answers with the class.
Assessment:

For problems you can use Peachtree Accounting from Glencoe, Glencoe
Accounting Software, Century 21 Accounting Software, or a spreadsheet.

From Glencoe’s Textbook Problems
o Guided Practice
 12-1 Preparing a Horizontal Analysis of an Income
Statement
 12-2 Preparing a Vertical Analysis of an Income Statement
 12-3 Preparing a Vertical Analysis of a Balance Sheet
 12-4 Calculating Liquidity Ratios
 12-5 Merchandise Inventory Turnover
Lesson Plan 6.1 – Analyzing and Interpreting
Financial Statements
Copyright
© Texas Education Agency, 2011. All rights reserved.
ACCOUNTING II

o Independent Practice
 12-6 Calculating Profitability Ratios
 12-7 Calculating Financial Strength Ratios
 12-8 Preparing a Horizontal Analysis of an Income
Statement,
 12-9 Preparing a Vertical Analysis of a Balance Sheet
 12-10 Preparing Comparative Financial Statements
 12-11 Using Ratio Analysis of Financial Statements
 12-12 Interpreting Financial Data
o Additional Activities
 Using Key Terms
 Understanding Accounting Concepts and Procedures
 Case Study
 Conducting an Audit with Alex
 Internet Connection
 Workplace Skills
o Open Notes and textbook Quiz: Study Guide for Chapter
From Century 21’s Textbook
o Guided Practice
 Work Together: Analyzing comparative financial statements
 On Your Own: Analyzing comparative financial statements
 Work Together: Calculating earnings performance and
efficiency analysis ratios
 On Your Own: Calculating earnings performance and
efficiency analysis ratios.
 Work Together: Analyzing short-term and long-term
financial strength
 On Your Own: Analyzing short-term and long-term financial
strength
Additional Resources:
Textbooks:
Guerrieri, Donald J., F. Barry Haber, William B. Hoyt, and Robert E. Turner,
Glencoe Accounting Real-World Applications & Connections, Advanced
Course, Fourth Edition, Glencoe McGraw-Hill: New York, New York.
Ross, Kenton E., CPA, Mark W. Lehman, CPA, Claudia Bienias Gilbertson, CPA,
Robert D. Hanson, Century 21 Accounting Advanced, Anniversary Edition,
Thomson South-Western: Mason, OH, 2003.
Multimedia:
Century 21’s Teacher Resource CD
Lesson Plan 6.1 – Analyzing and Interpreting
Financial Statements
Copyright
© Texas Education Agency, 2011. All rights reserved.
ACCOUNTING II
Activity 6.1.1 – Performance Task –
Determine Taxes, Dividends, and Retained Earnings
Course Title – Accounting II
Lesson Title – Understanding Business Information
Specific Objective –Students apply related accounting procedures to
determine taxes, dividends, and retainedearnings.
TEKS: 130.167.c.:
2.G.-J. – complete a work sheet for a corporation; generate an income statement
for a corporation; develop a statement of equity for a corporation; produce a
balance sheet for a corporation
TAKS: R1, M2, M9, M10
Preparation
Materials Needed:




Paper and/or printing supplies for stock certificates
Donated or other items to sell
Accounting software or working papers
White board, flip chart, or presentation system for presentation to Board of
Directors.
Teaching Strategies:
Students learn about the accounting procedures related to determining taxes,
dividends, and retained earnings for a corporation then apply these procedures
to their own corporation.
Activity Outline:
1. Students create a corporation from which they can produce or sell goods. An
example is making cookies and selling them during lunch hour at school.
2. Students apply for a charter for the corporation and write bylaws which will act
as the constitutionfor governing the corporation.
3. Students prepare stock certificates. The kinds of stock, value of stock, and
number of shares ofstock are specified with approval in charter.
4. Members of the class can buy stock and issue stock certificates. Supplies
donated can be paid for with stock, and personnel baking cookies can be paid
with stock.
5. Stockholders can elect a Board of Directors. The Board can elect a
Activity 6.1.1 –Performance Task – Determine Taxes,
Dividends and Retained Earnings Copyright ©
Texas Education Agency, 2011. All rights reserved.
ACCOUNTING II
chairperson who is CEO in charge of managing operations. Vice-Presidents
can be in charge of sales, manufacturing,accounting and finance, advertising,
and other key business areas.
6. Students conduct business and journalize transactions.
7. Students complete end-of-period work, calculate taxes due, and prepare
financial statements.
8. Management team makes a presentation to the Board of Directors on the
balance in the cash account and the amount of net income earned after costs
and expenses are deducted. Recommendations for dividends to be declared
and distributed are voted on by the Board ofDirectors.
Activity 6.1.1 –Performance Task – Determine Taxes,
Dividends and Retained Earnings Copyright ©
Texas Education Agency, 2011. All rights reserved.
ACCOUNTING II
Assessment:
Determine Taxes, Dividends, and Retained Earnings Rubric
Performance
Element
Exemplary
Acceptable
Students create a
corporationand make
application for it.
(10 pts.)
Student participated
increation of
corporation and
process of making
applicationfor its
approval. (10 pts.)
Students in class buy
stock and issue stock
certificates.(10 pts.)
Student bought stock
andcompleted stock
certificate.(10 pts.)
Students elect Board
of Directors, a CEO,
and Vice-Presidents
in key areas. (10pts.)
Student participated
in correct
consideration of
Board of Directors, a
CEO, and VicePresidents for key
areas. (10pts.)
Students conduct
business and
Journalize
transactions. (20pts.)
Student helped
conductbusiness and
correctly journalized
transactions. (20pts.)
Students complete
end-of-periodwork.
(30 pts.)
Student accurately
completedend-ofperiod work. (30 pts.)
Students declare and
paydividends.
(20 pts.)
Student helped Board
of Directors
accurately declare
and pay dividends.
(20 pts.)
Student participated
in creation of
corporation and
process of making
application for its
approval but was out
of order on two
points. (7 pts.)
Student bought stock
but madeerror in
completion of
stockcertificate. (7
pts.)
Unacceptable
Student did not
participate increation
of corporation and
process of making
application for its
approval. (0 pts.)
Student did not buy
stock norcomplete
stock certificate.
(0pts.)
Student was out of
line on one point in
selection of Board of
Directors, a CEO,
and Vice-Presidents
for key areas. (7pts.)
Student did not
participate in
selection of Board of
Directors, a CEO,
and Vice-Presidents
for key areas. (0pts.)
Student helped
conduct business but
incorrectly journalized
two transactions.
(13 pts.)
Student made two
errors incompletion of
end-of-period
work. (20 pts.)
Student did not
participate in
conducting business
norjournalizing
transactions. (0pts.)
Student helped Board
of Directors declare
and paydividends but
had one error.
(16 pts.)
Student did not help
incalculation of
dividends and
payment of them.
(0 pts.)
Student did not help
complete end-ofperiod work. (0 pts.)
Additional Resources:
Web Sites
http://www.intuit.com
Intuit offers tax tips and advice for businesses.
http://www.ssa.gov
Taxes for preparing payroll.
Social Security Administration
Activity 6.1.1 –Performance Task – Determine Taxes,
Dividends and Retained Earnings Copyright ©
Texas Education Agency, 2011. All rights reserved.
ACCOUNTING II
Activity 6.1.1 –Performance Task – Determine Taxes,
Dividends and Retained Earnings Copyright ©
Texas Education Agency, 2011. All rights reserved.
ACCOUNTING II