New York University
Leonard N. Stern School of Business
Financial Accounting and Reporting – B.01.1306.34
Spring 2007– Thursday 6:00 P.M. – 9:00 P.M.
Professor April Klein
Office: KMEC 10-93
Office Hours: by appointment
E-Mail: aklein@stern.nyu.edu
Phone: 998 – 0014
Teaching Fellow: Stephanie Barker
E-Mail
1. Course Objective
This course provides an introduction to the principles of financial accounting. I assume
no prior academic knowledge of accounting. The course objective is to help you become
intelligent readers of the three main financial statements: the balance sheet, the income
statement, and the statement of cash flows. Achievement of this goal requires an
understanding of the basic principles that underlie accrual accounting, as well as an
appreciation of the amount of judgment required in applying these principles.
2. Required Textbook
The textbook is Horngren, Sundem, Elliott and Philbrick, Introduction to Financial
Accounting, 9th edition (2006).
We will be using the Dell Computer 10-K report throughout the semester. A pdf version
of the report will be on Blackboard.
Other handouts will be given out in class.
3. Course Format
A combination of lectures and in-class problems will be used. The first few weeks
provide an overview of the accounting system; the remainder of the semester will be used
to examine specific accounting measurement topics. Illustrations using financial
statements will be incorporated throughout the semester.
Bring your chapter notes to class. The notes will be available on Blackboard (see below).
Bring a calculator to class.
4. Preparation for Class Sessions
Prior to each class, you should read the assigned chapters. In addition, there will a few
“preparation problems” assigned prior to each class. These problems will not be
collected; however, I will assume that you will do them prior to coming to the class.
These problems cover some of the basic concepts in the chapter. The concepts will be
reviewed in class, but at a quicker pace.
A nice feature of the book is the glossary of terms in the back of the book. Much of the
“sticking points” in accounting is getting used to a whole new language. I suggest that
you use this glossary extensively and frequently when approaching each topic.
It is important that you do all of the assigned exercises, homework problems, and
additional questions. Doing problems is the best way to learn accounting. Keep up with
the coursework! Accounting is not conducive to cramming for exams because new
material builds on prior concepts.
Again, please bring both the textbook and the Dell 2006 10-K report to each and every
class.
5. Grading
Final grades will be determined as follows
Midterm Exam (40%) Thursday March 22, 2007
6:00 P.M. – 7:30 P.M.
Final Exam (60%)
6:00 P.M. – 8:00 P.M.
Thursday May 3, 2007
Both exams are open book/open note. Bring a calculator to the tests. There are no makeups.
If you would like to have any test question regraded, I require a written request clearly
stating your reasoning within one week of receiving the graded quiz. No crossed out
answers or erased answers will be considered for regrading. So, be careful when
putting your answers on the quiz sheets.
6. Blackboard
The solutions manual and class notes are available through Blackboard, a web-based
course administration package. I provide copies of the power point slides I use in class.
You are free to copy them and bring them to class.
The web address for this course is http://sternclasses.nyu.edu. You need to log in using
your Stern user ID and password. Click on “Course Documents” to access course
materials.
Class Schedule
Note: This schedule is approximate. Depending on the class, we may be ahead or
behind the schedule at any time.
Session # 1 - February 8: What is a Balance Sheet? Basics
Read: Chapter 1: pp. 8-10, 16, 18-24; Chapter 4: pp. 154-155; Chapter 10: p. 471
(market-to-book ratio only)
Preparation Problem: 1-40
Homework Problems: 1-41, 1-43, 4-50 (part 1 only);
Next Class:
1. Pick a publicly-traded U.S. company and calculate its market-to-book ratio as of
today (use its latest quarterly [10-Q] shareholders’ equity). In the next class, be
prepared to report them out in rapid fire. Why is the firm’s market-to-book ratio
close or far from 1.0?
2. Find the latest 10-Q reports for Wal-Mart and for McDonalds. Calculate their current
and quick ratios. Answer the two following questions:
1. Which company has the highest current ratio, and why?
2. Why are the current and quick ratios very different for Wal-Mart, but not for
McDonalds?
Session #2 – February 15: What is a Balance Sheet? Accounting and Application
Read: Chapter 1: pp. 10-15; Chapter 4: pp. 155-157
Preparation Problem: 1-31
Homework Problems: 1-36, 4-50 (parts 2-4);
Next Class:
Compute the updated P-E ratios (see page 70 for the definition) for the firms on page 72
(use the last 10-K report for earnings per share). If your last name begins with the letters
A-K, update the EPS and P-E ratios on page 72 for Microsoft through Pfizer. If your last
name begins with the letters L-Z, update the EPS and P-E ratios for Johnson & Johnson
through Proctor & Gamble.
Session #3 – February 22: What is an Income Statement? Basics, Accounting and
Application
Read: Chapter 2; Chapter 4: pp. 159-162; Chapter 6: pp. 232-239
Preparation Problems: Read handouts on Krispy Kreme and Corinthian College;
2-34, 2-35
Homework Problems: Handout (Answers posted on blackboard); 2-39, 2-46, 2-48; 6-39
Session #4 – March 1: Double-Entry Accounting, Adjusting Entries, and Financial
Statements
Read: Chapter 3: pp. 90-117; Chapter 4: pp. 138-154
Preparation Problems: 3-23; 4-21, 4-22
Homework Problems: 3-25, 3-32, 3-36; 4-23, 4-27, 4-29 (important problem to do)
If you want practice with a big problem, 4-43 is an excellent overview
Next Class:
Using Dell’s cash flows statement, answer the following questions:
1. Do they use an indirect or direct method for cash flows from operations?
2. Is net income greater than or less than CFO? Why?
3. Look at p. 206 in your book – Is Dell a growth firm, a mature firm, or a shrinking
firm?
Session #5 – March 8: What is the Statement of Cash Flows? Basics, Accounting,
Application
Read: Chapter 5; Chapter 6: pp. 239-241
Preparation Problems: 5-40, 5-41, 5-45 (In 5-45, calculate both the net income and the
CFO. Try to figure out why the two numbers are different)
Homework: 5-46; Continue question 3.23 (from handout)
March 15: Spring Break – No Class
Session #6 – March 22: Midterm (6-7:30) and What are Receivables? Basics,
Accounting, Application
Read: Chapter 6: pp. 241-251
Preparation Problems: 6-65 (parts 1 and 2): you may have some problems with 6-65 but
give it your best effort; 6-56, 6-51
Homework: 6-48, 6-49, 6-60, 6-55
Next Class:
1. Which cost flow assumption does Dell use? Why?
2. Go into the 10-K report for International Paper. What effect did LIFO have on
their income? How?
3. Go into the 10-K report for Wal-Mart. Why is there no tangible difference
between LIFO and FIFO income numbers?
4. Go into the 10-K report for General Motors. What effect did LIFO have on their
income? How?
Session #7 – March 29: Inventories, the World of LIFO and FIFO – Basics,
Accounting, Application
Read: Chapter 7: pp. 278-309 (we will not discuss periodic and perpetual inventories)
Preparation Problems: 7-34; 7-50
Homework: 7-56, 7-58, 7-61, 7-75, 7-76
Session #8 – April 5: Non-current Assets: Tangible and Intangible Assets
Session #9 – April 12 – Marketable Securities and Investments in Other Companies
Session #10 – April 19 – Liabilities: On and Off-Balance Sheet
Session #11 – April 26 – Stockholders’ Equity
Session #12 – Final Exam