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Financial &
Managerial
Accounting
The Basis for Business Decisions
13/e
Jan R. Williams
University of Tennessee—Knoxville
Susan F. Haka
Michigan State University
Mark S. Bettner
Bucknell University
Boston Burr Ridge, IL Dubuque, IA Madison, WI New York San Francisco St. Louis
Bangkok Bogotá Caracas Kuala Lumpur Lisbon London Madrid Mexico City
Milan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto
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FINANCIAL & MANAGERIAL ACCOUNTING: THE BASIS FOR BUSINESS DECISIONS
Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020.
Copyright © 2005, 2002, 1999, 1996, 1993, 1990, 1987, 1984, 1981, 1972, 1967, 1962 by The McGraw-Hill Companies, Inc. All rights reserved.
No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the
prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission,
or broadcast for distance learning.
Some ancillaries, including electronic and print components, may not be available to customers outside the United States.
This book is printed on acid-free paper.
domestic 1 2 3 4 5 6 7 8 9 0 VNH/VNH 0 9 8 7 6 5 4 3
international 1 2 3 4 5 6 7 8 9 0 VNH/VNH 0 9 8 7 6 5 4 3
ISBN 0-07-285659-9
Editorial director: Brent Gordon
Publisher: Stewart Mattson
Executive editor: Tim Vertovec
Developmental editor: Heather Sabo
Marketing manager: Katherine Mattison
Senior producer, Media technology: Ed Przyzycki
Senior project manager: Lori Koetters
Production supervisor: Gina Hangos
Coordinator freelance design: Artemio Ortiz Jr.
Photo research coordinator: Kathy Shive
Photo researcher: Mary Reeg
Senior supplement producer: Carol Loreth
Senior digital content specialist: Brian Nacik
Cover design: Krista Lehmkuhl
Interior Design: Maureen McCutcheon
Typeface: 10.5/12 Times Roman
Compositor: The GTS Companies/York, PA Campus
Printer: Von Hoffmann Corporation
Library of Congress Cataloging-in-Publication Data
Williams, Jan R.
Financial and managerial accounting : the basis for business decisions / Jan R. Williams,
Susan F. Haka, Mark S. Bettner.-- 13th ed.
p. cm.
Rev. ed. of: Financial and managerial accounting / Jan R. Williams ... [et al.]. 12th ed. 2002.
ISBN 0-07-285659-9 (alk. paper)
1. Accounting. I. Haka, Susan F. (Susan Frances) II. Bettner, Mark S. III. Financial and
managerial accounting. IV. Title.
HF5635.M4887 2005
2003060360
657--dc22
INTERNATIONAL EDITION ISBN 0-07-111222-7
Copyright © 2005. Exclusive rights by The McGraw-Hill Companies, Inc. for manufacture and
export. This book cannot be re-exported from the country to which it is sold by McGraw-Hill.
The International Edition is not available in North America.
www.mhhe.com
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To Benjamin Taylor Wishart, Asher Williams Hunt, and
Margaret Elaine Wishart, who have taught me the joys
of being a grandfather.
— Jan R. Williams
For Cliff, Abi, and my mother, Fran.
— Susan F. Haka
To my parents, Fred and Marjorie.
— Mark S. Bettner
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preface
About the Authors
Jan R. Williams Jan R. Williams is Ernst & Young
Professor of Accounting and Dean of the College of Business
Administration, University of Tennessee. He received a BS
degree from George Peabody College, an MBA from Baylor
University and a Ph.D. from the University of Arkansas. Dr.
Williams’s primary teaching and research interest is corporate finance reporting. He is currently the author or coauthor of four books
and more than 70 articles and other publications about financial reporting and accounting education. Dr. Williams has been extensively involved in professional accounting activities with the American Accounting Association (AAA), the American
Institute of CPAs (AICPA), the Tennessee Society of CPAs, and other organizations.
In 1999–2000, he served as president of the AAA and recently served on two task
forces of the AICPA to redesign the CPA examination.
Susan F. Haka
The Ernst & Young Professor of Accounting in the Department of Accounting and Information
Systems at Michigan State University, Sue Haka received her
Ph.D. from the University of Kansas and a master’s degree
in accounting from the University of Illinois. She is an active
member of the American Accounting Association, was recently
elected to be vice president of finance, has served as Director of
the Doctoral Consortium, and has served as president of the Management Accounting Section. Dr. Haka is active in editorial processes and has been editor of Behavioral Research in Accounting and an associate editor for Journal of Management Accounting Research, Accounting Horizons, Management Accounting Research, and
Contemporary Accounting Research. Dr. Haka has been honored with several teaching and research awards including a University-wide Teacher-Scholar award.
Mark S. Bettner Associate Professor at Bucknell
University, Mark Bettner has received numerous teaching and
research awards. In addition to his work on the Williams titles, he has written many ancillary materials, published in
scholarly journals, and presented at numerous academic and
practitioner conferences. Bettner is also on the editorial
advisory boards of several academic journals, including the
International Journal of Accounting and Business Society.
V
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preface
BUILDING A SOLID FOUNDATION
Redwood trees
represent strength,
stability, and a
solid foundation.
The same can be said for
Williams/Haka/Bettner, Financial and
Managerial Accounting, 13e. It helps
students learn the basics of financial
and managerial accounting by providing a solid presentation of the root of
the principles course, the accounting
cycle. Financial and Managerial
Accounting helps students build a foundation upon which they’ll continue to
learn and grow in their study of business.
Students who use this text know where
the numbers come from and how to
find the information they need to make
important decisions. The Williams
team’s solid foundation is comprised of
the following four qualities:
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preface
Accounting Cycle Presentation In the first five chapters
of Financial and Managerial Accounting, the authors’ presentation of the
Accounting Cycle provides a solid foundation for learning accounting concepts.
Central to this presentation is the authors’ treatment of the 4-step process involved in all business transactions. Making their hallmark coverage of transactions even clearer, the Williams team places the accounting equation in the
margin as the perfect accompaniment to their solid presentation of the accounting cycle.
Student Motivation The Williams team has put together a
market-leading student package that will not only motivate your students, but
help you see greater retention rates in your accounting courses. Vital pieces of
technology, such as My Mentor—a visual learning tool; the Online Learning
Center, packed with tools for both students and instructors; and McGraw-Hill
Homework Manager—online practice/testing tied directly to text end-ofchapter material, complement the text, encouraging students to apply what
they’re learning and improve their grades.
Problem-Solving Skills Financial and Managerial Accounting
challenges your students to think about real-world situations and put themselves in the role of the decision maker through Case-In-Point, Your Turn,
and Management Strategy and Financial Reporting boxes. Students are
driven to the Tootsie Roll Annual Report included in the text and other sources
to further hone problem-solving skills by evaluating real-world financial data.
The authors’ attention to detail in creating high quality end-of-chapter material,
such as the Critical Thinking Cases and Problems, ensures that all homework is
tied directly back to chapter topics.
Balanced Coverage The 13th edition of Williams provides the
most balanced coverage of financial and managerial topics on the market. The
author team has refined the presentation of traditional financial accounting
topics—such as updating to reflect important changes made as a result of the
Sarbanes/Oxley Act, enhancing their focus on ethics in accounting, and improving the explanation of stockholders’ equity. The authors have extended
the coverage of managerial topics by adding a separate chapter on Process
Costing and presenting Job Order Costing and Activity-Based Costing in
Chapter 17, as well as enhanced coverage of just-in-time systems, activitybased management, and the balanced scorecard.
VII
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preface
Why is the Williams presentation of the
accounting cycle so effective?
Williams breaks down the Accounting Cycle into 3 full chapters to help
students absorb and understand this
material: recording entries (chapter
3), adjusting entries (chapter 4), and
closing entries (chapter 5).
Williams helps students conquer
recording transactions by showing
students the 4 steps in the process visually:
Step 1: Analysis—shows which accounts recorded with an increase/descrease
Step 2: Debit/Credit Rules—helps students to remember the account should
be debited/credited
Step 3: Journal Entry—shows the result of the two previous steps
Step 4: Ledger T-accounts—shows
students what was recorded and
where
Williams was the FIRST to illustrate this 4-step process to work students through any Balance Sheet or
Income Statement transaction. And,
this hallmark coverage has been even
further enhanced for Williams 13e!
Williams puts the Accounting Equation (A = L + OE) in the margin by
transaction illustrations to show students the big picture!
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IX
How does the Williams author team
treat end-of-chapter material?
Five Comprehensive Problems, ranging
from two to five pages in length, challenge students to use what they’ve learned
in the chapters leading up to them in a
real-world scenario.
KEY TERMS INTRODUCED OR
EMPHASIZED IN CHAPTER 17
activity-based costing (p. 743) Cost accounting method that
tracks indirect costs to the activities that consume resources.
activity cost pools (p. 751) Overhead categories that represent
the costs associated with an activity that consumes overhead
resources.
cost accounting systems (p. 740) The methods and techniques
used by enterprises to track resources consumed in creating and
delivering products and services to customers.
Defined Key Terms and Self-Test Questions review and reinforce chapter material.
job cost sheet (p. 744) A record used in job order costing to
summarize the manufacturing costs (materials, labor, and overhead) applicable to each job or batch of production. Job cost
sheets may be viewed as a subsidiary ledger supporting the balance of the Work in Process Inventory control account.
job order costing (p. 741) A cost accounting method under
which the focal point of costing is a quantity of product known
as a job or lot. Costs of direct materials, direct labor, and manufacturing overhead applicable to each job are compiled to arrive
at average unit cost.
Demonstration Problems and their solutions allow students to test their knowledge of key points in the chapters.
overhead application rate (p. 741) A device
used to apply a
⫽ 44%
normal amount of overhead costs to work in process The rate is
SELF-TEST QUESTIONS
The answers to these questions appear on page 261.
1. Mark and Amanda Carter own an appliance store and a restaurant. The appliance store sells
merchandise on a 12-month installment plan; the restaurant sells only for cash. Which of the
following statements are true? (More than one answer may be correct.)
a. The appliance store has a longer operating cycle than the restaurant.
b. The appliance store probably uses a perpetual inventory system, whereas the restaurant
probably uses a periodic system.
c. Both businesses require subsidiary ledgers for accounts receivable and inventory.
d. Both businesses probably have subsidiary ledgers for accounts payable.
2. Which of the following statements about merchandising activities is true? (More than one answer may be correct.)
a. As inventory is purchased, the Inventory Expense account is debited and Cash (or Acis credited.
Oceanview Enterprises is a print shop thatcounts
uses jobPayable)
order costing.
Overhead is applied to individual jobs
at a predetermined rate based on direct
costs. The
job cost as
sheet
for jobwhen
no. 21
appears
below.
b. labor
Inventory
is recorded
an asset
it is
first purchased.
Critical Thinking Cases and Problems
put students’ analytical skills to the test by
having them think critically about key
concepts from the chapter and apply them
to business decisions.
DEMONSTRATION PROBLEM
c. As inventory is sold, its cost is transferred from the balance sheet to the income statement.
d. JOB
As inventory
is sold, its cost is transferred from the income statement to the balance sheet.
COST SHEET
3. Marietta Corporation uses a perpetual inventory system. All of its sales are made on account.
The company sells merchandise costing $3,000
at a sales price of $4,300. In recording this
DATE STARTED: Feb. 1
JOB NUMBER: 21
transaction, Marietta will make all of the following entries except:
Feb. 6
PRODUCT: Income Tax Handbook
a. Credit Sales, $4,300. DATE COMPLETED:
UNITS COMPLETED: 2,500 b. Credit Inventory, $4,300.
c. Debit Cost of Goods Sold, $3,000.
d Debit Accounts Receivable $4 300
$
Business Week Assignments are pulled
from recent headlines and require students
to relate accounting concepts to current
events.
The 2002 Tootsie Roll Industries, Inc.,
Annual Report is included in its entirety
in Appendix A. Students are referred to it
both in the text material and in exercises
and problems to help them realize actual
business applications of chapter concepts.
Ethics Assignments challenge students to
explore the impact of decisions made in
business.
Icons identify text and EOC material
involving Carol Yacht’s General Ledger
and Peachtree Complete 2004, Excel
spreadsheets templates, ethical issues,
group activities, international issues, My
Mentor topics, and McGraw-Hill Homework Manager problem material.
My Mentor
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preface
What makes Williams
Williams features
RELEVANT examples:
• High-tech companies frame the
chapter discussion through the use
of the CHAPTER OPENER and
SECOND LOOK features which
open and close each chapter.
• Special CASH EFFECTS boxes
break down the impact of transactions on cash flow of an organization, so students truly understand
the concept of liquidity.
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preface
?
pedagogy work for students?
1030
Chapter 25 Rewarding Business Performance
they would have some invested capital in administration and research and development.
Organizations constantly struggle with how to make capital allocations in their attempt to
evaluate business performance.
CASE IN
POINT
Measurement problems also occur when managers do not follow the accounting rules. For example, after WorldCom Inc. (now MCI) filed for
bankruptcy in 2002 it became clear that the company manipulated its financial results through a variety of tricks. Interviews with current and former employees uncovered that
it was routine to double-count revenue from a single cus- AP Wide World Photo
tomer, which inflated return on sales and ROI. In addition,
millions of dollars in uncollectable accounts were kept on the books to artificially inflate revenue
and reduce liabilities. The SEC investigations uncovered $3.8 billion in accounting misstatements. The proposed $500 million penalty is the heaviest ever levied on a company accused
of accounting fraud and the proposed penalty is designed to compensate misled investors.
Williams uses REAL-WORLD examples to keep your
students’ attention:
• Real-world companies and the actual business events they
encounter are illustrated in the CASE IN POINT boxes to
link accounting concepts in the chapter to their use in the
real world. These are sometimes of an international flavor
to show students practices outside the U.S.
Williams puts the student in the
role of the DECISION MAKER:
• Often including an ethical issue, YOUR TURN boxes
challenge students to be the
problem solver—they must
apply what they’ve learned
to real situations faced by investors, creditors, and managers.
You as a Production Manager
You are the production manager of the Assembly Department described in this chapter.
One of your responsibilities is to determine if costs are remaining relatively stable from
month to month. Assume the $25,000 that is associated with the 1,000 units in beginning
work in process for March is composed of $5,050 of direct labor, $15,450 of direct materials, and $4,500 for Overhead. Determine the cost per equivalent unit for the work done in
February on the beginning work in process units. Were direct materials and conversion
costs higher or lower in February or March? Speculate about why these costs might differ
from one month to the next.
(Our comments appear on page 800.)
Tracking Costs in Process Costing Using a Production
Report
YOUR TURN
• Students are shown the link
between management decisions and financial reporting
through the MANAGEMENT STRATEGY boxes.
XI
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XII
What’s New about the 13th Edition
1
Chapter 1 :
• Expanded chapter opener
emphasizes importance of financial information for both internal
& external parties
trate effects of adjusting entries
on elements of income statement
& balance sheet
• Extensive EOC material reinforces understanding of effects of
adjusting entries on elements of
income statement & balance sheet
• New EOC materials emphasize
preparation & interpretation of
income statement issued by merchandising companies
chapter body
• Estimated liabilities, loss contingencies, & commitments covered
in chapter body
7
11
5
12
2 6 813
14
3 9 15
4
• Relationship among financial, managerial, & tax information clarified
• Relationship of investment &
return on investment clarified in
text, exhibit
• Some information regarding
financial statements moved to Ch. 2
• Information about recent legislation affecting accounting profession (Sarbanes-Oxley) added
• Information about new/computerized CPA examination added
• Information about careers
moved from supplemental topic
to chapter body
Chapter 2 :
• High-tech companies featured in
almost all illustrations, including
chapter opener, to allow mention
of differences between information-age companies and traditional manufacturing & other companies; Companies include Intel,
Microsoft, Cisco Systems
• Some material moved from Ch. 1
to Ch. 2 to strengthen introduction
to financial statements, make relationship of three primary financial
statements more understandable
Chapter 3 :
• EOC material revised to reinforce understanding of effects of
economic events on income
statement & balance sheet
• New, short comprehensive EOC
items require students to integrate concepts & learning objectives from entire chapter
• New & revised real world EOC
materials
Chapter 4 :
• Revised exhibit illustrates how accruals & deferrals of revenue & expense
affect multiple accounting periods
• New exhibit & discussion illus-
• New & revised real world EOC
materials
Chapter 7 :
• Coverage of leases, pensions, &
deferred taxes streamlined and
moved to supplemental topic
• New short comprehensive EOC
items require students to integrate concepts & learning objectives from entire chapter
• Coverage of cash management
& internal controls condensed;
Procedural discussion of voucher
systems eliminated
• New & revised real-world EOC
materials
• Presentation of bank reconciliation revised for added clarity
Chapter 5 :
• Presentation of accounting for
doubtful accounts revised to
include new diagrams, illustrations, & tables for added clarity
• Coverage of capital stock,
including preferred stock, streamlined to eliminate less important
information and strengthen coverage of primary topics
• Coverage of notes receivable &
interest revenue moved from supplemental topic, integrated into
chapter body; Added more EOC
materials related to these topics
• Increased coverage of importance
of stock option plans as a part of
executive compensation & rationale
for purchasing treasury stock
• Expanded discussion & presentation of Financial Analysis section
• New short comprehensive EOC
items require students to integrate concepts & learning objectives from Chapter 4 (adjustments for accruals & deferrals)
with concepts & learning objectives from Chapter 5 (financial
statement preparation, financial
analysis, & closing process)
• New & revised real-world EOC
materials
Chapter 6 :
• New exhibits & discussions of:
1) income statements issued by
merchandising companies, 2) to
illustrate flow of inventory costs
from income statement to balance
sheet, and 3) to illustrate differences between income statements
issued by service companies &
merchandising companies
• Revision of subsidiary ledger
presentation focuses less on specific details & mechanical issues,
more on developing conceptual
understanding of what subsidiary
ledgers are
• Revision of end-of-year closing
process in both perpetual & periodic inventory environments
• New exhibit & discussion illustrate closing process using T
account format
• Revised placement of discussion on special journals
• Revised & updated EOC material
includes new comprehensive
problem that integrates multiple
learning objectives
• Significant revision of EOC
materials
Chapter 1 1 :
• General updating of chapter
material
Chapter 1 2 :
• General updating of chapter material
• Explanation of similarity of large
stock dividends & stock splits added
Chapter 8 :
Chapter 1 3 :
• Expanded discussion of inventory write-downs & lower-of-costor market (LCM) rule; New LCM
illustration & exhibit included in
chapter body
• General updating of chapter material
• Expanded discussion of retail inventory estimation method, new illustration included in chapter body
• General updating of chapter material
• Extensive revision of EOC material—most new items feature real
world companies
Chapter 9 :
• New chapter opener features
Kraft Foods
Chapter 1 4 :
Chapter 1 5 :
• Coverage of general business
topics condensed; Discussion of
international accounting standards
board & difference in international
reporting requirements added
• New chapter opener features
United Parcel Service
• Added graphics illustrating different economic systems
• Expansion of boxed material to
emphasize calculation of "book value"
• Revised presentation of foreign
exchange conversions and
accounting for transactions with
foreign companies includes new
diagrams, illustrations, & tables
for added clarity
• General updating of chapter material
10
Chapter 1 0 :
• Expanded coverage of payroll
issues & activities
• Significant expansion of bonds
payable; Accounting for bond discounts & premiums covered in
• New chapter opener & additional EOC materials related to opener
added
• Revised & updated EOC material
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XIII
of Financial and Managerial Accounting?
includes exercises for practice of
foreign exchange conversions,
new comprehensive problem
about foreign exchange impacts
on projected budgets
cussion of equivalent units—why
useful, how to do computations
• Introduces Periodic Production
Cost Report that managers use to
track & manage processes over
time introduced
• New exhibit links relevant financial & non-financial information
to various categories of incremental decisions
ing standard costs
• New exhibit shows graphical
presentation of direct materials &
direct labor variances
22
1619 25
Chapter 1 6 :
• Introduction to and details
about overhead allocation moved
to Ch. 17
• Revised chapter opener
• Several new exhibits explain
and illustrate 1) management
accounting framework, 2) Flow
of physical goods in production,
& 3) Flow of costs associated
with production
• New exhibits & end-of-chapter
materials
Chapter 1 9 :
• Chapter opening company
accompanying story is new
• New exhibit clarifies the value
chain & value-added versus nonvalue-added activities in the
value chain
• Multiple additional new
exercises
Chapter 2 2 :
• New end-of-chapter material
Chapter 2 5 :
• New chapter opener features
Northwest Airlines & frequent
flier mile programs
• New chapter opener features
AT&T Wireless changing performance goals to make sure
employees receive bonuses
• New exhibit illustrates responsibility hierarchy to show how
cost, profit, & revenue centers
are related
• Several additional ethics-based
Case In Points about WorldCom,
Enron, Tyco
• Discussion about components
of management compensation
added
17 23
20 26
1821 24
• New end-of-chapter material
related to chapter opener company (Boeing)
Chapter 1 7 :
• New Title: Job Order Cost
Systems and Overhead
Allocations
• New chapter opener features
GM Goodwrench to emphasize a
business using job order costing
• Development & discussion of
overhead application rates
moved here from Ch. 16
• Process costing text & EOC
material moved to new Ch. 18 on
process costing
• Activity-based management discussion completely revised to
simplify, clarify; New related
exhibits
• New exhibit clarifies how ABC
relates to activity-based management
• New Case in Points provide
current real-world examples
• New end-of-chapter materials
related to Tootsie Roll, Dell
Computer, and lean manufacturing
Chapter 2 0 :
• New chapter opener features
Puma
• New end-of-chapter material,
Second Look, Concluding Comments, Business Week case, etc.
• ABC discussion clarified by
rearranging ABC method into two
stages—definition of activity cost
pools & allocation of cost pools
to products; Also includes new
exhibits
• New illustration about impact of
volume fluctuation on fixed &
variable costs
Chapter 1 8 :
Chapter 2 1 :
• New Title: Process Costing
• New chapter opener features
Blue Cross and Blue Shield & rising cost of health care
• New chapter opener features
Kellogg Company to emphasize a
business using process costing
• Separate costing chapters created to introduce costing systems separately; Gives more time
to distinguish between approaches & understand when they’re
appropriate to help manage different types of processes
• Clearer introduction to & dis-
• New exhibit emphasizes importance of decision-making focus
when identifying relevant costs,
sunk costs, opportunity costs,
etc.
• New Case In Point about individual, incremental healthcarerelated decisions
• New ethical Your Turn about
downsizing employees and linking to Federal Family & Medical
Leave Act
• Revision, clarification of transfer pricing discussion
Chapter 2 3 :
• New chapter opener features
Yahoo! and their new success
based on traditional business
tools like budgeting
• Entire budgeting process
new—uses four quarters; Uses
arrows to identify how budget
information flows between
operating budgets & financial
budgets
• New ethics Your Turn about
budget motivations for earnings
management
• New Case In Point about CFO’s
role post Enron
• New exhibit linking all parts of
master budget, operating, &
financial budgets
• New end-of-chapter material
Chapter 2 4 :
• New chapter opener features
U.S. Navy & their need to comply
with Cost Accounting Standards
Board when acquiring new
weaponry
• New exhibit shows standard
cost system components
• New management strategy box
about role of Six Sigma in revis-
• Discussion about accounting &
nonaccounting-based components of AT&T Wireless’ compensation program in Second
Look feature
• Tootsie Roll Internet assignment added—students asked to
access proxy statement & view
components of management
compensation
• Other new end-of-chapter
material
Chapter 26 :
• New chapter opener features
Navistar, a bus and truck company that recently made major capital investments
• Two new exhibits help students
understand time-value of money
concepts
• New Case in Point about ROI
analyses & technology investments
• Other new end-of-chapter
material
Appendix B :
• Bond coverage expanded to
better augment Chapter 10
materials
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preface
What Can McGraw-Hill
Technology Offer You?
How Will McGraw-Hill
Text Resources Enhance
Your Course?
Today, hundreds of thousands of college
ONLINE LEARNING
CENTER (OLC)
instructors use the Internet in their respective
courses. Some are just getting started while
others are ready to embrace the very latest advances in educational content delivery and
course management.
That’s why we at McGraw-Hill/Irwin offer
you a complete range of digital solutions. Your
students can access Williams/Haka/Bettner,
Financial and Managerial Accounting: The
Basis for Business Decisions 13e’s robust Online Learning Center with PowerWeb on their
own or we can help you create your own
course website using McGraw-Hill’s PageOut.
Also available with Financial and Managerial Accounting are NetTutor and My Mentor,
created to help students learn important concepts.
In addition, Financial and Managerial Accounting boasts McGraw-Hill Homework
Manager, an optional online supplement that
uses an intelligent algorithm to generate an infinite number of problems for students based
on problem structures from the text, enabling
students to practice particular types of problems repeatedly until they master key concepts.
With McGraw-Hill’s Instructor’s Resource
CD-ROM, instructors have electronic access
to all crucial supplements (for details, see Supplements page). McGraw-Hill is a leader in
bringing helpful technology into the classroom. With Financial and Managerial Accounting, your class gets all the benefits of the
digital age.
My Mentor
More and more students are studying online.
That’s why we offer an Online Learning Center (OLC) that follows Financial and Managerial Accounting chapter by chapter. It
doesn’t require any building or maintenance
on your part, and it’s ready to go the moment
you and your students type in the URL:
www.mhhe.com/williams_basis13e
www.mhhe.com/
williams_basis13e
XIV
11/6/03
As your students study, they can refer to the
OLC website for such benefits as:
Chapter Summaries
Online Quizzing
Key Term Reviews
Internet Exercises
PowerPoint Presentations
Alternate Problems
Check Figures
Tootsie Roll Exercises
Excel Templates
Help from Net Tutor and
Homework Manager
NY Times and PowerWeb
News Feeds
Links to Professional Resources
Text Updates
A secured Instructor Resource Center stores
your essential course materials to save you
prep time before class. Key supplements,
such as the Instructor’s Resource Manual and
Solutions Manual, are all just a couple of
clicks away.
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How Can Your Students
Use Their Study Time More
Effectively?
How Can Busy Students
Get Text-Specific Help at
Their Convenience?
M C G R AW- H I L L
H O M E WO R K M A N A G E R
N E T T U TO R
McGraw-Hill Homework Manager is an exciting new Webbased supplement available with
Financial and Managerial Accounting: The Basis for Business
Decisions by Williams/Haka/Bettner. McGraw-Hill
Homework Manager will help your students learn
the basics of accounting by allowing them to work
through selected problem structures pulled from the
text and powered by algorithms. Providing a wealth
of these textbook-quality questions enables students to work on fresh problems with the same
problem structure until they master the topics covered. Each student also receives immediate scoring
and feedback from the program to guide their studies. The problem structures available in McGrawHill Homework Manager can easily be identified
in the text by the icon found in the margin.
McGraw-Hill Homework Manager may be used in
practice, homework, or exam mode, as well as a
variety of other standard assignment modes. In the
practice mode, students receive feedback and work
as many iterations of each problem as they like
without entering a record in the class grade book.
In the homework mode, students receive a customized level of feedback and their grades and individual responses are recorded in the class grade
book. In the exam mode, instructors can create an
online exam. McGraw-Hill Homework Manager
will then record all the individual responses, grade
the exams, and record the grades in the online grade
book. So, you not only know how your class performed on the exam but also know which topics or
learning objectives your students struggled with.
Access this supplement at
www.mhhe.com/williams_basis13e
NetTutor is a breakthrough program that allows
one-on-one assistance completely online. Qualified
accounting tutors equipped with Financial and
Managerial Acounting: The Basis for Business Decisions work online with your students on specific
problems or concepts from the text. The Live Tutor Center via NetTutor’s WWWhiteboard enables
a tutor to hold an interactive, online tutorial session
with a student or several students. The Q&A Center allows students to submit questions at any time
and retrieve answers within 24 hours. Finally, the
Archive Center allows students to browse for answers to previously asked questions. They can also
search for questions pertinent to a particular topic
and ask a follow-up question if they encounter an
answer they do not understand.
Students are issued five hours of NetTutor time
FREE when they purchase a new copy of Financial and Managerial Accounting. Additional time
may be purchased in five-hour increments. Tutors
are available during the week to help students clear
those afternoon and evening study hurdles. NetTutor can be accessed through
www.mhhe.com/williams_basis13e.
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Does McGraw-Hill Have a Tool to
Help Your Students Brush Up on
Their Financial Accounting Skills?
Is There a Way to Easily
Create an Online Course?
ALEKS is an assessment and learning system
For the instructor needing to edu-
that provides individual instruction in Financial Accounting. Available from McGraw-Hill/Irwin over
the World Wide Web, ALEKS helps your students
learn and strengthen the fundamental concepts and
problem-solving skills needed to succeed in your accounting courses.
uses assessments to determine which skills your students have mastered in
accounting – and which ones they’re ready to learn
next. By focusing precisely on what your students
are ready to learn, ALEKS for Financial Accounting
motivates them to develop and sharpen their critical
skills on topics such as Financial Statements,
Accounting Cycle, Liabilities, Bonds, and
Shareholder Equity. ALEKS teaches your students
to work with real financial accounting data, spreadsheets, and journal entries, avoiding abstract formulas and focusing on the key concepts. If a student
needs additional practice or reinforcement, ALEKS
is available 24/7 to provide new problems with algorithmically generated data sets.
ALEKS is available with the Williams, Financial and
Managerial Accounting text in two different versions:
the ALEKS for the Accounting Cycle product, which
covers only the Accounting Cycle portion of the principles course and the complete ALEKS for Financial
Accounting product which covers the entire financial
accounting portion of your principles of accounting
course.
Visit the ALEKS website at
http://www.business.aleks.com for more information.
Williams Basis 13/e + ALEKS for The Accounting Cycle – 0073665525
Williams Basis 13/e + ALEKS for Financial Accounting – 0073666068
ALEKS ® The Accounting Cycle ISBN 0072975326
ALEKS ® for Financial Accounting ISBN 0072841966
cate students online, we offer Financial and Managerial Accounting content for complete online courses.
To make this possible, we have joined forces with the
most popular delivery platforms currently available.
These platforms are designed for instructors who want
complete control over course content and how it is presented to students. You can customize the Financial
and Managerial Accounting Online Learning Center
content and author your own course materials. It’s entirely up to you.
Products like WebCT, Blackboard, eCollege, and TopClass (a product of WBT) all expand the reach of your
course. Online discussion and message boards will now
complement your office hours. Thanks to a sophisticated tracking system, you will know which students
need more attention—even if they don’t ask for help.
That’s because online testing scores are recorded and
automatically placed in your grade book, and if a student is struggling with course work, a special alert message lets you know.
Remember, Financial and Managerial Accounting’s
content is flexible enough to use with any platform currently available. If your department or school is already
using a platform, we can help. For information on McGraw-Hill/Irwin’s course management materials including Knowledge Gateway, Instructor Advantage,
and PageOut, please see the next page.
.
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What Help Will McGraw-Hill Provide in
Setting Up an Online Course?
Developed with the
help of our partner
Eduprise, the McGrawHill Knowledge Gateway is an all-purpose
service and resource center for instructors teaching
online. While training programs from WebCT and
Blackboard will help teach you their software, only
McGraw-Hill has services to help you actually manage and teach your online course as well as run and
maintain the software. To see how these platforms can
assist your online course, visit www.mhhe.com/solutions.
ONLINE COURSE
MANAGEMENT
No matter which online course solution you choose,
you can count on the highest level of service from
McGraw-Hill. Our specialists offer free training and
answer any questions you have throughout the life of
your adoption through Instructor Advantage and Instructor Advantage Plus.
PAGEOUT
McGraw-Hill’s Course Management System
is the easiest way to create a
website for your accounting
course. There is no need for
HTML coding, graphic design, or a thick how-to book.
Just fill in a series of boxes with simple English and
click on one of our professional designs. In no time,
your course is online with a website that contains your
syllabus!
Should you need assistance in preparing your website, we can help. Our team of product specialists is
ready to take your course materials and build a custom website to your specifications. You simply need
to call a McGraw-Hill/Irwin PageOut specialist to
start the process. To learn more, please visit www.pageout.net and see “PageOut Service” below. Best of
all, PageOut is FREE when you adopt Financial and
Managerial Accounting!
Instructor Advantage is a special level of service McGraw-Hill offers in conjunction with WebCT and
Blackboard. A team of platform specialists is always
available, either by toll-free phone or e-mail, to ensure everything runs smoothly. Instructor Advantage
is available FREE to all McGraw-Hill customers.
Instructor Advantage Plus guarantees you a full day
of on-site training by a Blackboard or WebCT specialist for yourself and up to nine colleagues. Thereafter, you will enjoy the benefits of unlimited telephone and e-mail support throughout the life of your
adoption. Instructor Advantage Plus is available to
qualifying McGraw-Hill adopters (see your representative for details). Users of this service also have the
opportunity to access the McGraw-Hill Knowledge
Gateway (see above).
PAGEOUT SERVICE Our team of product specialists is happy to help you design your own course
website. Just call 1-800-634-3963, press 0, and ask
to speak with a PageOut specialist. You will be asked
to send in your course materials and then participate
in a brief telephone consultation. Once we have your
information, we build your website for you, from
scratch.
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XVIII
SUPPLEMENTS for Financial and Managerial Accounting
I N S T RU C T O R
SUPPLEMENTS
Solutions
Manual
to accompany
I n s t r u c t o r ’s R e s o u r c e
C D - RO M
www.mhhe.com/williams_basis/13e
All essential instructor supplements are
available here, password protected.
Vol.1, ISBN: 007292277X
Full Version, ISBN: 0072969857
Contains the Computerized Testbank,
Testbank Word files, PowerPoint ®
Slides, Instructor’s Resource Manual,
Solutions Manual, MY MENTOR
Using Excel Professor Templates, and
Excel Templates.
I n s t r u c t o r ’s R e source
Manual
Solutions Manual
Vol.1, ISBN: 0072922729
Vol.2, ISBN: 0072922273
This comprehensive manual provides
solutions to all Discussion Questions,
Exercises, Problems, Cases, and
Comprehensive Problems.
to accompany
Solutions
Tr a n s p a r e n c i e s
I n s t r u c t o r ’s R e s o u r c e
Manual
Vol.1, ISBN: 0072922710
Vol.2, ISBN: 0072922788
Acetates of the Solutions Manual pages
are available for instructors’ convenience.
Vol.1, ISBN: 007292263X
Vol.2, ISBN: 0072922648
For each chapter and appendix, you will
find:
• A brief topical outline that indicates
topics to discuss in class.
• An assignment guide that provides at a
glance the topical content of each
exercise, problem, and case.
• Comments and observations concerning the chapter content, methods of
presentation, and usefulness of specific
assignment material.
• Many real-world examples not found
in the text, including additional
Business Week and Internet assignments,
sample assignment schedules, and suggestions for using each element of the
supplemental package.
Online Learning
C e n t e r ( web s i t e )
Te s t b a n k ( P r i n t )
Vol.1, ISBN: 0072922672
Vol.2, ISBN: 0072922664
With an abundance of objective questions and short exercises, this supplement
is a valuable resource for instructors who
prepare their own quizzes and examinations.
B row n s t o n e
C o m p u t e r i z e d Te s t
Bank
ISBN: 007292232X
This computerized version of the printed testbank is available in Windows®
format.
Powe r Po i n t ® S l i d e s
This important tool uses PowerPoint®
software to illustrate chapter concepts.
The PowerPoint® Slides are available on
the Instructor CD-ROM and on the
website
www.mhhe.com/williams_basis13e
Financial Accounting
Video Library
ISBN: 0072376163
This diverse array of videos prepared by
Dallas County Community College
District Telecourse can be used to stimulate classroom discussion, illustrate key
concepts, or review critical material.
Instructor Excel
Te m p l a t e s
These are solutions to the Student Excel
Templates available for selected end-ofchapter material (noted with an icon in
the text).Available password protected
on the Online Learning Center:
www.mhhe.com/williams_basis13e
and on the Instructor's Resource CDROM.
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STUDENT
SUPPLEMENTS
E x c e l Te m p l a t e s
Study Guide
to accompany
Study Guide
My Mentor
This interactive accounting software is
packaged for FREE with new copies of
Financial and Managerial Accounting:The
Basis for Business Decisions, 13e. It makes
accounting visual and helps students
learn key concepts for each chapter of
this textbook!
McGraw-Hill
H o m ewo r k M a n a ge r
This optional online supplement uses an
intelligent algorithm to generate an infinite number of problems, based on problem structures from the text.This enables
students to practice particular types of
problems repeatedly until they master key
concepts.
Online Learning
C e n t e r ( web s i t e )
www.mhhe.com/williams_basis13e
The OLC is full of resources for students, including Chapter Summaries,
Online Quizzing, Key Term Reviews,
Internet Exercises, PowerPoint
Presentations,Alternate Problems, Check
Figures,Tootsie Roll Exercises, Excel
Templates, Help from Net Tutor and
McGraw-Hill Homework Manager, NY
Times and PowerWeb News Feeds, Links
to Professional Resources, and Text
Updates.
to accompany
Excel Templates are tied directly to
selected end-of-chapter material.They
help students develop important spreadsheet skills by using the templates to
solve assignments.Available on the
Online Learning Center:
www.mhhe.com/williams_basis13e
Study Guide
Vol.1, ISBN: 0072922656
Vol.2, ISBN: 0072922680
For each chapter, students can measure
their progress through a wealth of selftest material (with solutions) and a summary of each chapter’s key points.
Wo r k i n g P a p e r s
Practice Sets
Manual Practice Set
Prepared by William R. Pasewark,Texas Tech
University
Understanding Corporate
Annual Reports
Instructor ISBN: 0072868228
Student ISBN: 007286821X
to accompany
Computerized Practice Sets
Prepared by Leland Mansuetti and Keith
Weidkamp, Sierra College
Wo r k i n g P a p e r s
Vol.1, ISBN: 0072922702
Vol.2, ISBN: 0072922699
This softcover booklet is filled with
columnar paper for each problem and
comprehensive problem in Financial and
Managerial Accounting. Checkpoints are
included to assure students that they are
on the right track.
C a r o l Ya c h t ’s
General Ledger and
Pe a c h t re e C o m p l e t e
2004
ISBN: 0072922761
This new software includes both an easy
to use, modern general ledger software
tool and a real-world accounting software package all on one CD-Rom! It
will help students learn how to record
transactions and create financial statements. Icons in the text denote selected
end-of-chapter problems where both
Yacht’s general ledger software and the
Peachtree Complete 2004 software are
available to help students work through
the problem.
Granite Bay Jet Ski Inc., Level 1
Instructor ISBN: 0072426896
Student ISBN: 0072426942
Granite Bay Jet Ski Inc., Level 2
Instructor ISBN: 0072426209
Student ISBN: 0072426950
Wheels Exquisite, Inc., Level 1
Instructor ISBN: 0072922605
Student ISBN: 0072428457
Thunder Mountain Snowmobile
Instructor ISBN: 0072922605
Student ISBN: 0072931884
Gold Run Snowmobile, Inc.
Instructor ISBN: 0072341092
Student ISBN: 0072341076
ALEKS™ for Financial
Accounting
ISBN: 0072841966
ALEKS™ for the
Accounting Cycle
ISBN:
ISBN: 0072975326
Or check out the ALEKS Website
www.business.aleks.com
XIX
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Acknowledgements
Many of our colleagues reviewed Financial and Managerial Accounting: The Basis for Business Decisions and we wish to
thank each of you. Your comments and suggestions are invaluable to us as they help us identify areas needing
improvement, help to highlight our strengths, and offer direction for potential change. Our sincerest thanks to . . .
Thirteenth edition reviewers:
Kim Belden,
Daytona Beach Community College
Nat R. Briscoe,
Northwestern State University
James J. Chimenti,
Jamestown Community College
Marcia Croteau,
University of Maryland, Baltimore County
Reviewed Previous editions:
Elenito Ayuyao,
Los Angeles City College
Sharla Bailey,
Southwest Baptist University
Walter Baggett,
Manhattan College
Jill Bale, Doane College
Scott Barhight,
Northampton County Area Community
College
Steve Czarsty,
Mary Washington College
Larry Davis,
Southwest Virginia County College
Victoria Doby,
Villa Julie College
Carlton Donchess,
Bridgewater State College
Steve Driver,
Horry-Georgetown Tech
Pamela Druger,
Augustana College
Mary B. Davis,
University of Maryland, Baltimore County
William Barze,
St. Petersburg Junior College
Ana M. Cruz,
Miami-Dade Community College
John Bayles,
Oakton Community College
Anthony Daly-Leonard, Delaware County
Community College
Janet Becker,
University of Pittsburg
Calvin Fink,
Daytona Beach Community College
Jerard Berardino,
Community College of Allegheny
Mary L. Hollars,
Vincennes University
Teri Bernstein,
Santa Monica College
Rosemary Lanahan, Schenectady County
Community College
Cynthia Bolt-Lee, The Citadel
Mary Lou Gamma,
East Tennessee State University
Nancy Boyd,
Middle Tennessee State University
Brother Gerald Fitzgerald,
LaSalle University
Sallie Branscom,
Virginia Western Community College
Ralph Fritsch,
Midwestern State University
Russell Bresslauer, Chabot College
Mike Fujita,
Leeward Community College
Susan Logorda,
Lehigh Carbon Community College
Benjamin L. Sadler,
Miami-Dade Community College
Joseph W. Sejnoha,
Mount Mary College
Andy Williams,
Edmonds Community College
R. E. Bryson,
University of Alabama
Priscilla Burnaby, Bentley College
Bryan Burks, Harding University
Loring Carlson,
Western New England College
David Chu,
College of the Holy Cross
Stanley Chu,
Borough Manhattan Community College
William Cravey,
Jersey City State College
Brian Curtis,
Raritan Valley Community College
Anita Ellzey,
Hartford Community College
Emmanuel Emenyonu,
Sacred Heart University
David Erlach,
CUNY – Queens College
Paul Everson,
Northern State University
Don Van Gieson,
Kapiolani Community College
Peter Gilbert, Thomas College
Penny Hanes, Mercyhurst College
Lyle Hicks,
Danville Area Community College
Richard Hanna,
Ferris State University
Stephen Hano,
Rockland Community College
Sara Harris,
Arapahoe Community College
Jeannelou Hodgens,
Florence-Darlington Technical College
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Patricia H. Holmes,
Des Moines Area Community College
Philip Little,
Western Carolina University
Michael Holt,
Eastern Nazarene College
J.Thomas Love,
Walters State Community College
Evelyn Honaker,
Walters State Community College
Josie Miller,
Mercer Community College
Dave Jensen,
Bucknell University
Merrill Moore,
Delaware Tech & Community College
Dewey Martin,
Husson College
Deborah Most,
Dutchess Community College
David Junnola,
Eastern Michigan University
Haim Mozes, Fordham University
Barbara Sturdevant, SUNY
Frank Olive, Nicholas College
Gene Sullivan,
Liberty University and Central Virginia Community College
Leo Jubb,
Essex Community College
Khondkar Karim,
Monmouth University
James Kennedy,
Texas A&M University
Jane Kingston,
Piedmont Virginia Community College
Bruce Oliver,
Rochester Institute of Technology
Monica Seiler,
Queensborough Community College
Stan Stanley, Skagit Valley College
Jim Stanton, Mira Costa College
Carolyn Strickler, Ohlone College
Robert Stilson, CUNY
Mary Ann Swindlehurst,
Carroll Community College
Michael Prockton,
Finger Lakes Community College
Larry Tartaglino, Cabrillo College
Annette M. Leps, Goucher College
Martin Taylor,
University of Texas at Arlington
Gary Reynolds, Ozard Technical College
Renee Rigoni,
Monroe Community College
Raymond Krasniewski,
Ohio State University
Earl Roberts,
Delaware Tech & Community College
David Lardie,
Tunxis Community College
Julie Rosenblatt,
Delaware Tech & Community College
Bill Lasher,
Jamestown Community College
Bob Rothenberg, SUNY – Oneonta
Eric Lewis, Union College
Mike Schoderbek,
Rutgers University – New Brunswick
Ginger Parker, Creighton University
Ed Knudson,
Linn Benton Community College
Suk Jun Lee, Chapman University
Linda Schain, Hofstra University
Victoria Rymer, University of Maryland
Anne Tippett,
Tarrant County College South
Bruce Toews, Walla Walla College
Cynthia Tomes,
Des Moines Area Community College
Harold Wilson,
Middle Tennessee State University
Steve Wilts, Bucknell University
Teri Yohn, Georgetown University
Francis A. Sakiey,
Mercer County Community College
We are grateful . . .
We would like to acknowledge the following individuals for their help authoring some of the text’s supplements: PowerPoint Presentations: Jon Booker, Charles W. Caldwell both of Tennessee Technological
University, and Susan C. Galbreath of David Lipscomb University; Excel Templates and General Ledger
Accounting Software: Jack Terry, Comsource Associates; Instructor’s Resource Manual: Alice Sineath,
Forsyth Technical Community College; Testbank: Carol Klinger, Queens College-CUNY; and My Mentor:
Craig Miller, Normandale Community College.
Our special thanks go to Barbara Schnathorst, The Write Solution, Inc., and Beth Woods, Accuracy Counts!
for accuracy checking the text manuscript and solutions manual.
We appreciate the expert attention given to this project by the staff at McGraw-Hill/Irwin, especially
Stewart Mattson, Publisher; Tim Vertovec, Executive Editor; Heather Sabo, Developmental Editor; Katherine Mattison, Marketing Manager; Judy Besser, Senior Administrative Assistant; Lori Koetters, Project
Manager; Carol Loreth, Supplements Producer; Kathy Shive, Photo Research Coordinator; Artemio Ortiz, Designer; Gina Hangos, Production Supervisor; and Edward Przyzycki, Lead Media Producer.
S i n c e r e l y,
J a n R . W i l l i a m s, S u s a n F. H a k a , a n d M a r k S . B e t t n e r
XXI
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Contents in Brief
1
Accounting: Information for Decision Making
2
2
Basic Financial Statements
40
3
The Accounting Cycle: Capturing Economic Events
86
4
The Accounting Cycle: Accruals and Deferrals
134
5
The Accounting Cycle: Reporting Financial Results
176
Comprehensive Problem 1: West Branch Rent All
221
6
Merchandising Activities
224
7
Financial Assets
262
8
Inventories and the Cost of Goods Sold
318
Comprehensive Problem 2: Guitar Universe, Inc.
363
9
Plant and Intangible Assets
366
10
Liabilities
410
11
Stockholders’ Equity: Paid-In Capital
464
12
Income and Changes in Retained Earnings
502
13
Statement of Cash Flows
542
14
Financial Statement Analysis
600
Comprehensive Problem 3: Tootsie Roll Industries, Inc.
665
15
Global Business and Accounting
668
16
Management Accounting: A Business Partner
704
17
Job Order Cost Systems and Overhead Allocations
738
18
Process Costing
774
19
Costing and the Value Chain
802
20
Cost-Volume-Profit Analysis
836
21
Incremental Analysis
872
Comprehensive Problem 4: The Gilster Company
901
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Contents in Brief
22
Responsibility Accounting and Transfer Pricing
904
23
Operational Budgeting
946
24
Standard Cost Systems
988
25
Rewarding Business Performance
1022
Comprehensive Problem 5: Utease Corporation
1050
Capital Budgeting
1052
Appendix A: Annual Report of Tootsie Roll Industries, Inc., 2002
1079
Appendix B: The Time Value of Money: Future Amounts and Present Values
1102
Appendix C: Forms of Business Organization
1120
Index
1151
26
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Contents
1
Accounting: Information for
Decision Making
2
Accounting Information: A Means to an End
4
Accounting from a User’s Perspective
Types of Accounting Information
Accounting Systems
5
6
Determining Information Needs
7
The Cost of Producing Accounting Information
8
Basic Functions of an Accounting System
8
Who Designs and Installs Accounting Systems?
8
Financial Accounting Information
External Users of Accounting Information
9
12
57
Financial Analysis
60
Forms of Business Organization
61
Sole Proprietorships
61
Partnerships
61
Corporations
61
Reporting Ownership Equity in the Statement
of Financial Position
62
The Need for Adequate Disclosure
Management’s Interest in Financial Statements
8
Characteristics of Externally Reported Information
56
Relationships among Financial Statements
The Use of Financial Statements by External Parties 63
8
Objectives of External Financial Reporting
63
64
Concluding Remarks
65
End-of-Chapter Review
66
Assignment Material
70
Management Accounting Information
13
Users of Internal Accounting Information
14
Objectives of Management Accounting Information
15
Characteristics of Management Accounting Information
16
The Accounting Cycle: Capturing
Economic Events
86
17
The Accounting Cycle
88
Integrity of Accounting Information
2
4
Statement of Cash Flows
Institutional Features
18
Professional Organizations
20
Competence, Judgment, and Ethical Behavior
21
3
The Role of Accounting Records
88
The Ledger
88
The Use of Accounts
89
Debit and Credit Entries
89
Careers in Accounting
24
Public Accounting
24
Management Accounting
25
Governmental Accounting
25
Accounting Education
26
What about Bookkeeping?
26
Accounting as a Stepping-Stone
27
Recording Balance Sheet Transactions: An Illustration 93
Concluding Remarks
27
Ledger Accounts after Posting
96
End-of-Chapter Review
28
What Is Net Income?
98
Assignment Material
32
Retained Earnings
98
The Income Statement: A Preview
99
Basic Financial Statements
40
Introduction to Financial Statements
42
A Starting Point: Statement of Financial Position
43
Assets
44
Liabilities
46
Owners’ Equity
47
The Accounting Equation
47
The Effects of Business Transactions: An Illustration
48
Effects of These Business Transactions
on the Accounting Equation
53
Income Statement
55
Double-Entry Accounting—The Equality of
Debits and Credits
The Journal
Posting Journal Entries to the Ledger Accounts
(and How to “Read” a Journal Entry)
90
91
92
Revenue
100
Expenses
101
The Accrual Basis of Accounting
102
Debit and Credit Rules for Revenue and Expenses
103
Dividends
103
Recording Income Statement Transactions:
An Illustration
104
The Journal
110
February’s Ledger Balances
111
The Trial Balance
113
Uses and Limitations of the Trial Balance
113
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Contents
Concluding Remarks
The Accounting Cycle in Perspective
End-of-Chapter Review
Assignment Material
4
Supplemental Topic: The Worksheet
195
114
Isn’t This Really a Spreadsheet?
195
115
How Is a Worksheet Used?
195
120
The Mechanics: How It’s Done
196
What If: A Special Application of Worksheet Software
198
The Accounting Cycle: Accruals and
Deferrals
134
Adjusting Entries
136
The Need for Adjusting Entries
136
Types of Adjusting Entries
136
Characteristics of Adjusting Entries
138
Year-End at Overnight Auto Service
139
End-of-Chapter Review
199
Assignment Material
206
Comprehensive Problem 1
West Branch Rent All
221
6
Merchandising Activities
224
Merchandising Companies
226
Converting Assets to Expenses
140
The Concept of Depreciation
142
The Operating Cycle of a Merchandising Company
226
Converting Liabilities to Revenue
145
Income Statement of a Merchandising Company
227
Accruing Unpaid Expenses
147
Accruing Uncollected Revenue
149
Accounting System Requirements for Merchandising
Companies
228
150
Two Approaches Used in Accounting for
Merchandise Transactions
Accruing Income Taxes Expense: The Final
Adjusting Entry
Adjusting Entries and Accounting Principles
The Concept of Materiality
Effects of the Adjusting Entries
Concluding Remarks
End-of-Chapter Review
Assignment Material
5
114
229
151
Perpetual Inventory Systems
152
Taking a Physical Inventory
232
153
Closing Entries in a Perpetual Inventory System
232
Periodic Inventory Systems
156
157
162
230
233
Operation of a Periodic Inventory System
233
Closing Process in a Periodic Inventory System
234
Comparison of Perpetual and Periodic
Inventory Systems
235
Selecting an Inventory System
237
The Accounting Cycle: Reporting
Financial Results
Transactions Relating to Purchases
238
176
Credit Terms and Cash Discounts
238
Preparing Financial Statements
178
Returns of Unsatisfactory Merchandise
240
The Income Statement
179
The Statement of Retained Earnings
181
Transactions Relating to Sales
241
The Balance Sheet
182
Sales Returns and Allowances
241
182
Sales Discounts
242
Relationships among the Financial Statements
Drafting the Notes That Accompany Financial
Statements
What Types of Information Must Be Disclosed?
182
183
Closing the Temporary Equity Accounts
184
Closing Entries for Revenue Accounts
185
Closing Entries for Expense Accounts
185
Closing the Income Summary Account
187
Closing the Dividends Account
187
Summary of the Closing Process
188
After-Closing Trial Balance
189
A Last Look at Overnight: Was 2005 a Good Year?
Financial Analysis
Preparing Financial Statements Covering
Different Periods of Time
Concluding Remarks
Transportation Costs on Purchases
Delivery Expenses
243
Accounting for Sales Taxes
243
Modifying an Accounting System
Special Journals Provide Speed and Efficiency
Financial Analysis
Net Sales
190
241
243
244
244
244
Gross Profit Margins
245
Concluding Remarks
246
End-of-Chapter Review
247
Assignment Material
251
Financial Assets
262
192
7
193
How Much Cash Should a Business Have?
264
194
The Valuation of Financial Assets
264
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265
Last-In, First-Out Method
324
Reporting Cash in the Balance Sheet
265
Evaluation of the Methods
325
The Statement of Cash Flows
266
Do Inventory Methods Really Affect Performance?
327
Cash Management
266
The Principle of Consistency
328
Internal Control over Cash
267
Just-in-Time (JIT) Inventory Systems
328
Cash
Bank Statements
268
Taking a Physical Inventory
329
Reconciling the Bank Statement
269
Recording Shrinkage Losses
329
Petty Cash Funds
272
LCM and Other Write-Downs of Inventory
330
The Cash Budget as a Control Device
273
The Year-End Cutoff of Transactions
331
273
Periodic Inventory Systems
332
274
Importance of an Accurate Valuation of Inventory
335
275
Techniques for Estimating the Cost of Goods
Sold and the Ending Inventory
337
The Gross Profit Method
337
The Retail Method
338
“Textbook” Inventory Systems Can Be
Modified . . . and They Often Are
338
Short-Term Investments
Mark-to-Market: A Principle of Asset Valuation
Accounts Receivable
Uncollectible Accounts
276
The Allowance for Doubtful Accounts
277
Writing Off an Uncollectible Account Receivable
278
Monthly Estimates of Credit Losses
278
Concentrations of Credit Risk
281
Recovery of an Account Receivable Previously
Written Off
282
Direct Write-off Method
282
Inventory Turnover Rate
Accounting Methods Can Affect Financial Ratios
339
339
341
Internal Controls for Receivables
283
Concluding Remarks
Management of Accounts Receivable
283
Supplemental Topic: LIFO Reserves
342
Factoring Accounts Receivable
283
The Significance of a LIFO Reserve
342
Credit Card Sales
Notes Receivable and Interest Revenue
341
284
End-of-Chapter Review
345
285
Assignment Material
349
Comprehensive Problem 2
Guitar Universe, Inc.
363
9
366
Nature of Interest
286
Accounting for Notes Receivable
286
The Decision of Whether to Accrue Interest
288
Financial Analysis
289
Concluding Remarks
290
Supplemental Topic: Accounting for
Marketable Securities
292
Purchases of Marketable Securities
292
Plant Assets as a “Stream of Future Services”
Recognition of Investment Revenue
292
Major Categories of Plant Assets
368
Sales of Investments
293
Accountable Events in the Lives of Plant Assets
368
Adjusting Marketable Securities to Market Value
293
Reporting Investment Transactions in the
Financial Statements
8
Financial Analysis
295
End-of-Chapter Review
296
Assignment Material
301
Plant and Intangible Assets
368
Acquisitions of Plant Assets
368
Determining Cost: An Example
369
Some Special Considerations
369
Capital Expenditures and Revenue Expenditures
370
Depreciation
371
Allocating the Cost of Plant and Equipment
over the Years of Use
371
318
Causes of Depreciation
372
320
Methods of Computing Depreciation
373
The Flow of Inventory Costs
320
The Straight-Line Method
373
Which Unit Did We Sell?
321
The Declining-Balance Method
376
Data for an Illustration
321
Specific Identification
322
Which Depreciation Methods Do Most
Businesses Use?
378
Cost Flow Assumptions
322
Financial Statement Disclosures
379
Average-Cost Method
322
The Impairment of Plant Assets
380
First-In, First-Out Method
323
Disposal of Plant and Equipment
381
Inventories and the Cost of
Goods Sold
Inventory Defined
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Gains and Losses on Disposals of Plant
and Equipment
Bond Discount and Premium in Perspective
432
381
The Concept of Present Value
432
Trading in Used Assets for New Ones
382
Bond Prices after Issuance
433
Intangible Assets
383
Early Retirement of Bonds Payable
434
Characteristics
383
Operating Expenses versus Intangible Assets
383
Amortization
384
Estimated Liabilities
435
Goodwill
384
Loss Contingencies
435
Patents
386
Commitments
436
Trademarks and Trade Names
387
Evaluating the Safety of Creditors’ Claims
437
Franchises
387
How Much Debt Should a Business Have?
438
Copyrights
387
Other Intangibles and Deferred Charges
387
Research and Development (R&D) Costs
388
Financial Analysis
388
Natural Resources
389
Accounting for Natural Resources
389
Depreciation, Amortization, and Depletion—
A Common Goal
390
Plant Transactions and the Statement of
Cash Flows
390
Concluding Remarks
390
Supplemental Topic: Other Depreciation Methods
391
The Units-of-Output Method
391
MACRS
392
Sum-of-the-Years’ Digits
392
Decelerated Depreciation Methods
393
Depreciation Methods in Use: A Survey
393
End-of-Chapter Review
394
Assignment Material
398
Estimated Liabilities, Loss Contingencies,
and Commitments
11
Financial Analysis
438
Concluding Remarks
439
Supplemental Topic: Special Types of Liabilities
440
Lease Payment Obligations
440
Operating Leases
440
Capital Leases
440
Liabilities for Pensions and Other
Postretirement Benefits
441
Deferred Income Taxes
443
End-of-Chapter Review
445
Assignment Material
450
Stockholders’ Equity:
Paid-In Capital
464
Corporations
466
Why Businesses Incorporate
Liabilities
The Nature of Liabilities
410
412
467
Publicly Owned Corporations
468
Formation of a Corporation
468
Stockholder Records in a Corporation
10
435
Paid-In Capital of a Corporation
471
472
Authorization and Issuance of Capital Stock
472
Current Liabilities
413
Common Stocks and Preferred Stocks
474
Accounts Payable
413
Characteristics of Preferred Stock
474
Notes Payable
413
Book Value per Share of Common Stock
478
The Current Portion of Long-Term Debt
415
Accrued Liabilities
415
Payroll Liabilities
415
Unearned Revenue
417
Long-Term Liabilities
418
Maturing Obligations Intended to Be Refinanced
418
Installment Notes Payable
419
Bonds Payable
421
What Are Bonds?
421
Tax Advantage of Bond Financing
423
Market Value
Market Price of Preferred Stock
479
480
Market Price of Common Stock
481
Book Value and Market Price
481
Stock Splits
482
Treasury Stock
482
Recording Purchases of Treasury Stock
483
Reissuance of Treasury Stock
483
Stock Buyback Programs
484
Financial Analysis
485
Accounting for Bonds Payable
423
Bonds Issued at a Discount or a Premium
426
Concluding Remarks
486
Accounting for a Bond Discount: An Illustration
426
End-of-Chapter Review
487
Accounting for a Bond Premium: An Illustration
429
Assignment Material
491
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563
The Statement of Cash Flows: A Second Look
563
502
Reporting the Results of Operations
504
Developing Predictive Information
504
Reporting Irregular Items: An Illustration
505
Continuing Operations
506
Budgeting: The Primary Cash Management Tool
568
Discontinued Operations
506
What Priority Should Managers Give to
Increasing Net Cash Flows?
568
Extraordinary Items
506
Changes in Accounting Principles
508
Earnings per Share (EPS)
509
Financial Analysis
Basic and Diluted Earnings per Share
Other Transactions Affecting Retained Earnings
Cash Dividends
13
Indirect Method May Be Required in a Supplementary
Schedule
Income and Changes in Retained
Earnings
Financial Analysis
Annotated Statement of Cash Flows: Arden Group, Inc.
Managing Cash Flows
Some Strategies for Permanent Improvements
in Cash Flow
565
566
568
569
511
Concluding Remarks
571
512
Supplemental Topic: A Worksheet for Preparing
a Statement of Cash Flows
572
513
513
Dividend Dates
513
Liquidating Dividends
514
Data for an Illustration
572
The Worksheet
573
Entry
573
Stock Dividends
515
End-of-Chapter Review
Statement of Retained Earnings
517
Assignment Material
583
Prior Period Adjustments
518
Financial Statement Analysis
600
Comprehensive Income
519
Statement of Stockholders’ Equity
520
Stockholders’ Equity Section of the Balance Sheet
521
Concluding Remarks
521
End-of-Chapter Review
Assignment Material
14
Financial Statements Are Designed for Analysis
Tools of Analysis
577
602
603
Dollar and Percentage Changes
603
523
Trend Percentages
604
527
Component Percentages
605
Ratios
606
Standards of Comparison
606
Quality of Earnings
607
Statement of Cash Flows
542
Statement of Cash Flows
544
Purposes of the Statement
544
Example of a Statement of Cash Flows
544
A Classified Balance Sheet
608
Classification of Cash Flows
545
Working Capital
610
The Approach to Preparing a Statement of Cash Flows
547
Current Ratio
611
Quick Ratio
611
Preparing a Statement of Cash Flows:
An Illustration
Quality of Assets and the Relative Amount of Debt
Measures of Liquidity and Credit Risk
608
608
548
Debt Ratio
611
549
Evaluating Financial Ratios
612
Investing Activities
549
Liquidity, Credit Risk, and the Law
614
Financing Activities
551
Cash and Cash Equivalents
551
Cash Flows from Operating Activities
551
Cash Payments for Merchandise and for Expenses
Cash Flows from Investing Activities
Operating Activities
Measures of Profitability
615
Classifications in the Income Statement
615
552
Some Specific Examples of Corporate Earnings
and Losses
616
555
Multiple-Step Income Statements
617
Cash Flows from Financing Activities
557
Earnings per Share
619
Relationship between the Statement of Cash
Flows and the Balance Sheet
Price-Earnings Ratio
620
559
Reporting Operating Cash Flows
by the Indirect Method
559
Single-Step Income Statements
620
Evaluating the Adequacy of Net Income
621
Return on Investment (ROI)
621
Differences between Net Income and Net Cash Flows
from Operating Activities
560
Return on Assets (ROA)
622
Reconciling Net Income with Net Cash Flows
561
Return on Equity (ROE)
622
The Indirect Method: A Summary
563
Comprehensive Illustration: Seacliff Company
623
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Analysis by Common Stockholders
626
Product Costs and the Matching Principle
Return on Investment (ROI)
628
Inventories of a Manufacturing Business
712
Leverage
629
The Flow of Costs Parallels the Flow of Physical Goods
712
Analysis by Long-Term Creditors
630
Accounting for Manufacturing Costs: An Illustration
713
Analysis by Short-Term Creditors
632
Direct Materials
713
Cash Flow Analysis
635
Direct Labor
714
Usefulness of Notes to Financial Statements
636
Manufacturing Overhead
715
Summary of Analytical Measurements
637
Direct and Indirect Manufacturing Costs
717
Concluding Remarks
639
End-of-Chapter Review
641
Work in Process Inventory, Finished Goods Inventory,
and the Cost of Goods Sold
717
Assignment Material
645
The Need for Per-Unit Cost Data
718
Determining the Cost of Finished Goods Manufactured
718
Financial Statements of a Manufacturing Company
Comprehensive Problem 3
Tootsie Roll Industries, Inc.
15
Global Business and Accounting
668
Globalization
670
Environmental Forces Shaping Globalization
Political and Legal Systems
676
Foreign Currencies and Exchange Rates
678
Exchange Rates
678
Accounting for Transactions with Foreign
Companies
680
Foreign Corrupt Practices Act
End-of-Chapter Review
Assignment Material
724
672
676
Concluding Remarks
Assignment Material
738
Harmonization of Financial Reporting Standards
Global Sourcing
721
740
673
Consolidated Financial Statements That Include
Foreign Subsidiaries
End-of-Chapter Review
Cost Accounting Systems
674
Currency Fluctuations—Who Wins and Who
Loses?
720
672
Culture
17
719
Concluding Remarks
Job Order Cost Systems and
Overhead Allocations
Economic Systems
Technology and Infrastructure
16
665
711
Job Order Cost Systems and the Creation of Goods
and Services
740
Overhead Application Rates
741
What “Drives” Overhead Costs?
684
686
744
The Job Cost Sheet
744
Flow of Costs in Job Costing:
An Illustration
745
Accounting for Direct Materials
745
Accounting for Direct Labor Costs
746
Accounting for Overhead Costs
746
Accounting for Completed Jobs
747
Job Order Costing in Service Industries
686
Activity-Based Costing (ABC)
688
743
Job Order Costing
750
750
689
ABC Versus a Single Application Rate: A Comparison
690
Stage 1: Separate Activity Cost Pools
752
Stage 2: Allocate Activity Cost Pools to the Products
754
Determining Unit Costs Using ABC
757
693
751
The Trend toward More Informative Cost
Accounting Systems
758
704
Concluding Remarks
759
706
End-of-Chapter Review
760
Assignment Material
763
Management Accounting:
A Business Partner
Management Accounting: Basic Framework
Management Accounting’s Role in Assigning
Decision-Making Authority
706
Management Accounting’s Role in Decision Making
706
Management Accounting’s Role in Performance
Evaluation and Rewards
707
Accounting Systems: A Business Partner
18
Process Costing
774
707
Production of Goods and Services and
Costing Systems
776
Accounting for Manufacturing Operations
709
Process Costing
777
Classifications of Manufacturing Costs
710
Product Costs versus Period Costs
710
Tracking the Physical Flow and Related Production
Costs
777
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Process Costing and Equivalent Units
779
CVP Analysis When a Company Sells Many Products
852
Cost per Equivalent Unit
781
Tracking Costs in Process Costing Using a
Production Report
Determining Semivariable Cost Elements:
The High-Low Method
853
783
Evaluating Departmental Efficiency
787
Assumptions Underlying Cost-Volume-Profit
Analysis
854
Concluding Remarks
787
End-of-Chapter Review
789
Assignment Material
793
Costing and the Value Chain
802
The Value Chain
804
Value- and Non-Value-Added Activities
Activity-Based Management
21
854
Concluding Remarks
855
End-of-Chapter Review
856
Assignment Material
859
Incremental Analysis
872
804
The Challenge of Changing Markets
874
805
The Concept of Relevant Cost Information
874
Activity-Based Management across the Value Chain
806
Relevant Information in Business Decisions
875
ABC: A Subset of Activity-Based Management
808
Opportunity Costs
876
809
Sunk Costs versus Out-of-Pocket Costs
877
The Target Costing Process
Incremental Analysis in Common
Business Decisions
Components of the Target Costing Process
810
Target Costing: An Illustration
811
Characteristics of the Target Costing Process
814
Special Order Decisions
878
814
Production Constraint Decisions
879
815
Make or Buy Decisions
881
Measures of Efficiency in a JIT System
816
Sell, Scrap, or Rebuild Decisions
882
A Concluding Comment
816
Just-in-Time Inventory Procedures
JIT, Supplier Relationships, and Product Quality
Joint Product Decisions
878
883
817
Concluding Remarks
Components of the Cost of Quality
817
End-of-Chapter Review
886
Measuring the Cost of Quality
818
Assignment Material
889
Productivity and Quality
820
901
Total Quality Management and the Value Chain
20
Summary of Basic Cost-Volume-Profit
Relationships
Concluding Remarks
820
End-of-Chapter Review
821
Assignment Material
824
Comprehensive Problem 4
The Gilster Company
Cost-Volume-Profit Analysis
836
22
Cost-Volume Relationships
Cost-Volume Relationships: A Graphic Analysis
884
838
Responsibility Accounting and
Transfer Pricing
904
839
Responsibility Centers
906
The Behavior of Per-Unit Costs
841
Economies of Scale
842
The Need for Information about Responsibility
Center Performance
906
Additional Cost Behavior Patterns
843
Cost Centers, Profit Centers, and Investment Centers
907
Cost Behavior and Operating Income
844
Responsibility Accounting Systems
910
Responsibility Accounting: An Illustration
910
Assigning Revenue and Costs to Responsibility Centers
911
Cost-Volume-Profit Analysis: An Illustration
844
Preparing and Using a Cost-Volume-Profit
Graph
845
Variable Costs
912
Contribution Margin: A Key Relationship
846
Contribution Margin
912
How Many Units Must We Sell?
847
Fixed Costs
913
How Many Dollars in Sales Must We Generate?
848
Traceable Fixed Costs
913
What Is Our Margin of Safety?
848
Common Fixed Costs
913
What Change in Operating Income Do We Anticipate?
849
Responsibility Margin
915
Business Applications of CVP
849
When Is a Responsibility Center “Unprofitable”?
916
Additional Considerations in CVP
852
Evaluating Responsibility Center Managers
917
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Arguments against Allocating Common Fixed
Costs to Business Centers
918
Transfer Prices
918
Nonfinancial Objectives and Information
921
Responsibility Center Reporting in Financial
Statements
922
Supplemental Topic: Variable Costing
922
25
1000
1004
Concluding Remarks
1004
End-of-Chapter Review
1005
Assignment Material
1008
Rewarding Business Performance
1022
Motivation and Aligning Goals and Objectives
1024
Full Costing: The Traditional View of Product Costs
923
Variable Costing: A Different View of Product Costs
923
Communicating Goals and Objectives
An Illustration of Variable Costing
923
Fluctuation in the Level of Production
926
Accounting Information and Feedback about
Goal Achievement
1024
Rewarding Goal Achievement
1024
The DuPont System
929
1024
1025
Return on Investment
1025
The Components of Return on Investment
1027
Return on Sales
1027
End-of-Chapter Review
930
Assignment Material
933
Operational Budgeting
946
Profit Rich, Yet Cash Poor
948
The Short Horizon Problem
1029
949
Failing to Undertake Profitable Investments
1029
949
Measurement Problems
1029
Operating Cash Flows: The Lifeblood of Survival
Budgeting: The Basis for Planning and Control
24
A Final Note: JIT Systems and Variance Analysis
921
Concluding Remarks
Why Is Variable Costing Unacceptable for
Use in Financial Statements and Income
Tax Returns?
23
Evaluating Cost Variances from Different Perspectives
Capital Turnover
1028
Criticisms of ROI
1028
Residual Income and Economic Value Added
1030
Benefits Derived from Budgeting
950
Establishing Budgeted Amounts
951
Residual Income
1030
The Budget Period
952
Economic Value Added
1031
The Master Budget: A Package of Related Budgets
952
The Balanced Scorecard
1031
Steps in Preparing a Master Budget
953
The Financial Perspective
1033
Preparing the Master Budget: An Illustration
955
The Customer Perspective
1033
Operating Budget Estimates
955
The Business Process Perspective
1033
Budgeted Income Statement
960
The Learning and Growth Perspective
1033
Cash Budget Estimates
960
Difficulties with the Balanced Scorecard
1034
The Cash Budget
965
Budgeted Balance Sheets
965
Components of Management Compensation
1035
Using Budgets Effectively
965
Design Choices for Management Compensation
1036
Flexible Budgeting
968
Goals and Rewards in Life
1038
Concluding Remarks
970
Concluding Remarks
1038
End-of-Chapter Review
971
End-of-Chapter Review
1039
Assignment Material
974
Assignment Material
1043
Standard Cost Systems
988
Standard Cost Systems
990
Comprehensive Problem 5
Utease Corporation
1050
26
Capital Budgeting
1052
Capital Investment Decisions
1054
Establishing and Revising Standard Costs
Management Compensation
1035
990
Direct Material Standards
992
Direct Labor Standards
992
Manufacturing Overhead Standards
992
Standard Costs and Variance Analysis: An Illustration
993
Financial and Nonfinancial Considerations
1054
Materials Price and Quantity Variances
994
Labor Rate and Efficiency Variances
996
Evaluating Capital Investment Proposals:
An Illustration
1054
Manufacturing Overhead Variances
997
Payback Period
1056
Valuation of Finished Goods
1000
Return on Average Investment
1056
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Discounting Future Cash Flows
A
B
1057
Partnerships That Limit Personal Liability
Replacing Assets
1060
Accounting Practices of Partnerships
1125
Behavioral Considerations in Capital Budgeting
1063
Evaluating the Financial Statements of a Partnership
1126
Concluding Remarks
1064
A Concluding Comment from the Authors
1064
What Is a Corporation?
1127
End-of-Chapter Review
1065
Stockholders’ Liability for Debts of a Corporation
1128
Assignment Material
1068
What Types of Businesses Choose the
Corporate Form of Organization?
1128
Accounting for Corporate Income Taxes
1129
Salaries Paid to Owners
1131
Owners’ Equity in a Corporate Balance Sheet
1131
The Issuance of Capital Stock
1131
Appendix A Annual Report of Tootsie
Roll Industries, Inc., 2002
1079
Appendix B The Time Value of Money:
Future Amounts and Present Values 1102
The Concept
1127
Retained Earnings
1131
Accounting for Dividends
1132
Closing Entries and the Statement of
Retained Earnings
1133
Evaluating the Financial Statements of a Corporation
1133
Relationships between Present Values and
Future Amounts
1103
Compound Interest
1104
The Concept—and the Problem—of
“Double Taxation”
1134
1104
S Corporations
1135
Applications of the Time Value of Money Concept
Future Amounts
The Tables Approach
1104
1105
Selecting an Appropriate Form of Business
Organization
1135
The Future Amount of an Annuity
1106
Incorporating an Established Business
Interest Periods of Less than One Year
1107
Supplemental Topic:
Partnership Accounting—A Closer Look
1137
Opening the Accounts of a New Partnership
1137
Present Values
Using Present Value Tables
1108
1109
What Is the Appropriate Discount Rate?
1109
The Present Value of an Annuity
1110
Discount Periods of Less than One Year
1111
Valuation of Financial Instruments
1111
Interest-Bearing Receivables and Payables
1112
“Non-Interest-Bearing” Notes
1112
Market Prices of Bonds
1113
Capital Leases
1115
Obligations for Postretirement Benefits
1116
Disclosure of Up-to-Date Present Value Information
1116
Deferred Income Taxes
C
1103
Corporations
1125
1117
Assignment Material
1117
Appendix C Forms of
Business Organization
1120
Importance of Business Form
1121
Sole Proprietorships
1121
The Concept of the Separate Business Entity
1121
Characteristics of a Sole Proprietorship
1121
Unlimited Personal Liability (Subtitle:
The Owner Could Lose EVERYTHING! )
1122
Accounting Practices of Sole Proprietorships
1122
Evaluating the Financial Statements of a Proprietorship 1122
Partnerships
General Partnerships
1123
1124
1136
Allocating Partnership Net Income among the Partners 1140
Assignment Material
1144
Index
1151
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Financial &
Managerial
Accounting
The Basis for Business Decisions