![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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- 1. The Basis for Business Decisions Jan R. Williams University of Tennessee—Knoxville Susan F. Haka Michigan State University Mark S. Bettner Bucknell University 13/e Financial & Managerial Accounting 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 wiL56599_fm_i-xxxii 11/6/03 11:24 AM Page i Mac113 mac113:122_EDL:
- 2. 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 wiL56599_fm_i-xxxii 11/6/03 11:24 AM Page ii Mac113 mac113:122_EDL:
- 3. 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 wiL56599_fm_i-xxxii 11/6/03 11:24 AM Page iii Mac113 mac113:122_EDL:
- 4. wiL56599_fm_i-xxxii 11/6/03 11:24 AM Page iv Mac113 mac113:122_EDL:
- 5. preface V 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 fi- nance reporting. He is currently the author or coauthor of four books and more than 70 articles and other publications about financial reporting and ac- counting education. Dr. Williams has been extensively involved in professional ac- counting 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 Ac- counting 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 Account- ing Section. Dr. Haka is active in editorial processes and has been editor of Behav- ioral Research in Accounting and an associate editor for Journal of Management Ac- counting Research, Accounting Horizons, Management Accounting Research, and Contemporary Accounting Research. Dr. Haka has been honored with several teach- ing 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 ti- tles, 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. wiL56599_fm_i-xxxii 11/6/03 11:24 AM Page v Mac113 mac113:122_EDL:
- 6. 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 provid- ing a solid presentation of the root of the principles course, the accounting cycle. Financial and Managerial Accounting helps students build a foun- dation upon which they’ll continue to learn and grow in their study of busi- ness. 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: VI preface wiL56599_fm_i-xxxii 11/6/03 11:24 AM Page vi Mac113 mac113:122_EDL:
- 7. 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 in- volved in all business transactions. Making their hallmark coverage of transac- tions even clearer, the Williams team places the accounting equation in the margin as the perfect accompaniment to their solid presentation of the account- ing 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-of- chapter 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 them- selves 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 im- proving 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, activity- based management, and the balanced scorecard. preface VII wiL56599_fm_i-xxxii 11/7/03 10:57 AM Page vii Mac113 mac113:122_EDL:
- 8. preface VIII Why is the Williams presentation of the accounting cycle so effective? Williams breaks down the Account- ing 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 vi- sually: Step 1: Analysis—shows which ac- counts recorded with an increase/de- screase Step 2: Debit/Credit Rules—helps stu- dents to remember the account should be debited/credited Step 3: Journal Entry—shows the re- sult of the two previous steps Step 4: Ledger T-accounts—shows students what was recorded and where Williams was the FIRST to illus- trate this 4-step process to work stu- dents through any Balance Sheet or Income Statement transaction. And, this hallmark coverage has been even further enhanced for Williams 13e! Williams puts the Accounting Equa- tion (A = L + OE) in the margin by transaction illustrations to show stu- dents the big picture! wiL56599_fm_i-xxxii 11/6/03 11:24 AM Page viii Mac113 mac113:122_EDL:
- 9. preface IX How does the Williams author team treat end-of-chapter material? Five Comprehensive Problems, ranging from two to five pages in length, chal- lenge students to use what they’ve learned in the chapters leading up to them in a real-world scenario. Defined Key Terms and Self-Test Ques- tions review and reinforce chapter mate- rial. Demonstration Problems and their solu- tions allow students to test their knowl- edge of key points in the chapters. 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. 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 Home- work Manager problem material. My Mentor 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. job cost sheet (p. 744) A record used in job order costing to summarize the manufacturing costs (materials, labor, and over- head) applicable to each job or batch of production. Job cost sheets may be viewed as a subsidiary ledger supporting the bal- ance 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 manu- facturing overhead applicable to each job are compiled to arrive at average unit cost. overhead application rate (p. 741) A device used to apply a normal amount of overhead costs to work in process The rate is DEMONSTRATION PROBLEM Oceanview Enterprises is a print shop that uses job order costing. Overhead is applied to individual jobs at a predetermined rate based on direct labor costs. The job cost sheet for job no. 21 appears below. JOB COST SHEET JOB NUMBER: PRODUCT: UNITS COMPLETED: DATE STARTED: DATE COMPLETED: $ 21 2,500 Feb. 6 Feb. 1 Income Tax Handbook ⫽ 44% 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 an- swer may be correct.) a. As inventory is purchased, the Inventory Expense account is debited and Cash (or Ac- counts Payable) is credited. b. Inventory is recorded as an asset when it is first purchased. c. As inventory is sold, its cost is transferred from the balance sheet to the income statement. d. As inventory is sold, its cost is transferred from the income statement to the balance 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 transaction, Marietta will make all of the following entries except: a. Credit Sales, $4,300. b. Credit Inventory, $4,300. c. Debit Cost of Goods Sold, $3,000. d Debit Accounts Receivable $4 300 wiL56599_fm_009 11/14/03 8:15 AM Page ix mac78 mac78:385_REB:
- 10. What makes Williams X preface 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 transac- tions on cash flow of an organiza- tion, so students truly understand the concept of liquidity. wiL56599_fm_i-xxxii 11/6/03 11:24 AM Page x Mac113 mac113:122_EDL:
- 11. pedagogy work for students? ? preface XI 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 roleoftheDECISIONMAKER: • Often including an ethical is- sue, YOUR TURN boxes challenge students to be the problem solver—they must apply what they’ve learned to real situations faced by in- vestors, creditors, and managers. • Students are shown the link between management deci- sions and financial reporting through the MANAGE- MENT STRATEGY boxes. 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. 1030 Chapter 25 Rewarding Business Performance C A S E I N P O I N T Measurement problems also occur when man- agers do not follow the accounting rules. For ex- ample, after WorldCom Inc. (now MCI) filed for bankruptcy in 2002 it became clear that the company ma- nipulated its financial results through a variety of tricks. In- terviews with current and former employees uncovered that it was routine to double-count revenue from a single cus- 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 misstate- ments. 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. AP Wide World Photo Y O U R T U R N 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 materi- als, 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 wiL56599_fm_011 11/14/03 8:15 AM Page xi mac78 mac78:385_REB:
- 12. 1 What’s New about the 13th Edition 6 5 2 4 7 8 10 9 11 12 14 13 15 3 C hapter 1: • Expanded chapter opener emphasizes importance of finan- cial information for both internal external parties • Relationship among financial, man- agerial, 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 legis- lation affecting accounting pro- fession (Sarbanes-Oxley) added • Information about new/comput- erized CPA examination added • Information about careers moved from supplemental topic to chapter body C hapter 2: • High-tech companies featured in almost all illustrations, including chapter opener, to allow mention of differences between informa- tion-age companies and tradition- al manufacturing other compa- nies; Companies include Intel, Microsoft, Cisco Systems • Some material moved from Ch. 1 to Ch. 2 to strengthen introduction to financial statements, make rela- tionship of three primary financial statements more understandable C hapter 3: • EOC material revised to rein- force understanding of effects of economic events on income statement balance sheet • New, short comprehensive EOC items require students to inte- grate concepts learning objec- tives from entire chapter •New revised real world EOC materials C hapter 4: •Revisedexhibitillustrateshowaccru- alsdeferralsofrevenueexpense affectmultipleaccountingperiods • New exhibit discussion illus- trate effects of adjusting entries on elements of income statement balance sheet • Extensive EOC material rein- forces understanding of effects of adjusting entries on elements of income statement balance sheet • New short comprehensive EOC items require students to inte- grate concepts learning objec- tives from entire chapter • New revised real-world EOC materials C hapter 5: • Expanded discussion presen- tation of Financial Analysis section • New short comprehensive EOC items require students to inte- grate concepts learning objec- tives from Chapter 4 (adjust- ments for accruals deferrals) with concepts learning objec- tives from Chapter 5 (financial statement preparation, financial analysis, closing process) • New revised real-world EOC materials C hapter 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 differ- ences between income statements issued by service companies merchandising companies • Revision of subsidiary ledger presentation focuses less on spe- cific details mechanical issues, more on developing conceptual understanding of what subsidiary ledgers are • Revision of end-of-year closing process in both perpetual peri- odic inventory environments • New exhibit discussion illus- trate closing process using T account format • Revised placement of discus- sion on special journals • New EOC materials emphasize preparation interpretation of income statement issued by mer- chandising companies • New revised real world EOC materials C hapter 7: • Coverage of cash management internal controls condensed; Procedural discussion of voucher systems eliminated • Presentation of bank reconcilia- tion revised for added clarity • Presentation of accounting for doubtful accounts revised to include new diagrams, illustra- tions, tables for added clarity • Coverage of notes receivable interest revenue moved from sup- plemental topic, integrated into chapter body; Added more EOC materials related to these topics • Revised updated EOC material includes new comprehensive problem that integrates multiple learning objectives C hapter 8: • Expanded discussion of invento- ry write-downs lower-of-cost- or market (LCM) rule; New LCM illustration exhibit included in chapter body • Expanded discussion of retail in- ventory estimation method, new il- lustration included in chapter body • Extensive revision of EOC mater- ial—most new items feature real world companies C hapter 9: • New chapter opener features United Parcel Service • Expansion of boxed material to emphasize calculation of book value •Generalupdatingofchaptermaterial C hapter 10 : • Expanded coverage of payroll issues activities • Significant expansion of bonds payable; Accounting for bond dis- counts premiums covered in chapter body • Estimated liabilities, loss contin- gencies, commitments covered in chapter body • Coverage of leases, pensions, deferred taxes streamlined and moved to supplemental topic • Significant revision of EOC materials C hapter 1 1: • General updating of chapter material • Coverage of capital stock, including preferred stock, stream- lined to eliminate less important information and strengthen cov- erage of primary topics • Increased coverage of importance of stock option plans as a part of executive compensation rationale for purchasing treasury stock C hapter 12 : • General updating of chapter material •Explanationofsimilarityoflarge stockdividendsstocksplitsadded C hapter 1 3: •Generalupdatingofchaptermaterial • New chapter opener features Kraft Foods C hapter 14: • General updating of chapter material C hapter 15: • Coverage of general business topics condensed; Discussion of international accounting standards board difference in international reporting requirements added • Added graphics illustrating dif- ferent economic systems • Revised presentation of foreign exchange conversions and accounting for transactions with foreign companies includes new diagrams, illustrations, tables for added clarity • New chapter opener addition- al EOC materials related to opener added • Revised updated EOC material XII preface wiL56599_fm_i-xxxii 11/7/03 10:57 AM Page xii Mac113 mac113:122_EDL:
- 13. preface XIII of Financial and Managerial Accounting? 16 17 18 19 20 21 22 23 24 25 26 includes exercises for practice of foreign exchange conversions, new comprehensive problem about foreign exchange impacts on projected budgets C hapter 16: • 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 end-of-chapter material related to chapter opener compa- ny (Boeing) C hapter 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 • 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 C hapter 1 8: • New Title: Process Costing • New chapter opener features Kellogg Company to emphasize a business using process costing • Separate costing chapters cre- ated to introduce costing sys- tems separately; Gives more time to distinguish between approach- es understand when they’re appropriate to help manage dif- ferent types of processes • Clearer introduction to dis- 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 exhibits end-of-chapter materials C hapter 1 9: • Chapter opening company accompanying story is new • New exhibit clarifies the value chain value-added versus non- value-added activities in the value chain • Activity-based management dis- cussion completely revised to simplify, clarify; New related exhibits • New exhibit clarifies how ABC relates to activity-based manage- ment • New Case in Points provide current real-world examples • New end-of-chapter materials related to Tootsie Roll, Dell Computer, and lean manu- facturing C hapter 20: • New chapter opener features Puma • New end-of-chapter material, Second Look, Concluding Com- ments, Business Week case, etc. • New illustration about impact of volume fluctuation on fixed variable costs C hapter 21 : • New chapter opener features Blue Cross and Blue Shield ris- ing cost of health care • New exhibit emphasizes impor- tance of decision-making focus when identifying relevant costs, sunk costs, opportunity costs, etc. • New Case In Point about indi- vidual, incremental healthcare- related decisions • New exhibit links relevant finan- cial non-financial information to various categories of incre- mental decisions • Multiple additional new exercises C hapter 22: • New chapter opener features Northwest Airlines frequent flier mile programs • New exhibit illustrates respon- sibility hierarchy to show how cost, profit, revenue centers are related • New ethical Your Turn about downsizing employees and link- ing to Federal Family Medical Leave Act • Revision, clarification of trans- fer pricing discussion C hapter 23: • 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 C hapter 24 : • 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- ing standard costs • New exhibit shows graphical presentation of direct materials direct labor variances • New end-of-chapter material C hapter 25: • New chapter opener features ATT Wireless changing per- formance goals to make sure employees receive bonuses • Several additional ethics-based Case In Points about WorldCom, Enron, Tyco • Discussion about components of management compensation added • Discussion about accounting nonaccounting-based compo- nents of ATT Wireless’ com- pensation program in Second Look feature • Tootsie Roll Internet assign- ment added—students asked to access proxy statement view components of management compensation • Other new end-of-chapter material C hapter 26: • New chapter opener features Navistar, a bus and truck compa- ny that recently made major cap- ital investments • Two new exhibits help students understand time-value of money concepts • New Case in Point about ROI analyses technology invest- ments • Other new end-of-chapter material Append ix B: • Bond coverage expanded to better augment Chapter 10 materials wiL56599_fm_i-xxxii 11/6/03 11:25 AM Page xiii Mac113 mac113:122_EDL:
- 14. preface XIV Today, hundreds of thousands of college instructors use the Internet in their respective courses. Some are just getting started while others are ready to embrace the very latest ad- vances 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 On- line 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 Manager- ial Accounting are NetTutor and My Mentor, created to help students learn important con- cepts. In addition, Financial and Managerial Ac- counting boasts McGraw-Hill Homework Manager, an optional online supplement that uses an intelligent algorithm to generate an in- finite number of problems for students based on problem structures from the text, enabling students to practice particular types of prob- lems repeatedly until they master key con- cepts. With McGraw-Hill’s Instructor’s Resource CD-ROM, instructors have electronic access to all crucial supplements (for details, see Sup- plements page). McGraw-Hill is a leader in bringing helpful technology into the class- room. With Financial and Managerial Ac- counting, your class gets all the benefits of the digital age. What Can McGraw-Hill Technology Offer You? ONLINE LEARNING CENTER (OLC) More and more students are studying online. That’s why we offer an Online Learning Cen- ter (OLC) that follows Financial and Man- agerial 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 As your students study, they can refer to the OLC website for such benefits as: 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. How Will McGraw-Hill Text Resources Enhance Your Course? www.mhhe.com/ williams_basis13e 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 Re- sources Text Updates My Mentor wiL56599_fm_i-xxxii 11/6/03 11:25 AM Page xiv Mac113 mac113:122_EDL:
- 15. preface XV How Can Your Students Use Their Study Time More Effectively? How Can Busy Students Get Text-Specific Help at Their Convenience? MCGRAW-HILL HOMEWORK MANAGER McGraw-Hill Homework Man- ager is an exciting new Web- based supplement available with Financial and Managerial Ac- counting: 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 stu- dents to work on fresh problems with the same problem structure until they master the topics cov- ered. Each student also receives immediate scoring and feedback from the program to guide their stud- ies. The problem structures available in McGraw- Hill 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 cus- tomized level of feedback and their grades and in- dividual 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 per- formed 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 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 De- cisions work online with your students on specific problems or concepts from the text. The Live Tu- tor Center via NetTutor’s WWWhiteboard enables a tutor to hold an interactive, online tutorial session with a student or several students. The QA Cen- ter allows students to submit questions at any time and retrieve answers within 24 hours. Finally, the Archive Center allows students to browse for an- swers 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 Finan- cial 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. Net- Tutor can be accessed through www.mhhe.com/williams_basis13e. wiL56599_fm_i-xxxii 11/6/03 11:25 AM Page xv Mac113 mac113:122_EDL:
- 16. preface ALEKS is an assessment and learning system that provides individual instruction in Financial Ac- counting. 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 ac- counting courses. uses assessments to deter- mine which skills your stu- dents 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, spread- sheets, and journal entries, avoiding abstract formu- las and focusing on the key concepts. If a student needs additional practice or reinforcement, ALEKS is available 24/7 to provide new problems with algo- rithmically 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 prin- ciples 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. For the instructor needing to edu- cate students online, we offer Financial and Manage- rial 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 pre- sented to students. You can customize the Financial and Managerial Accounting Online Learning Center content and author your own course materials. It’s en- tirely up to you. Products like WebCT, Blackboard, eCollege, and Top- Class (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 sophisti- cated 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 stu- dent is struggling with course work, a special alert mes- sage lets you know. Remember, Financial and Managerial Accounting’s content is flexible enough to use with any platform cur- rently available. If your department or school is already using a platform, we can help. For information on Mc- Graw-Hill/Irwin’s course management materials in- cluding Knowledge Gateway, Instructor Advantage, and PageOut, please see the next page. . 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? XVI Williams Basis 13/e +ALEKS for TheAccounting Cycle – 0073665525 Williams Basis 13/e +ALEKS for FinancialAccounting – 0073666068 ALEKS ® The Accounting Cycle ISBN 0072975326 ALEKS ® for Financial Accounting ISBN 0072841966 wiL56599_fm_i-xxxii 11/6/03 11:25 AM Page xvi Mac113 mac113:122_EDL:
- 17. Developed with the help of our partner Eduprise, the McGraw- Hill Knowledge Gate- way 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 man- age 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/solu- tions. 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 In- structor Advantage Plus. Instructor Advantage is a special level of service Mc- Graw-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 en- sure 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 spe- cialist for yourself and up to nine colleagues. There- after, you will enjoy the benefits of unlimited tele- phone and e-mail support throughout the life of your adoption. Instructor Advantage Plus is available to qualifying McGraw-Hill adopters (see your represen- tative for details). Users of this service also have the opportunity to access the McGraw-Hill Knowledge Gateway (see above). 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 de- sign, 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 web- site, we can help. Our team of product specialists is ready to take your course materials and build a cus- tom 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.pa- geout.net and see “PageOut Service” below. Best of all, PageOut is FREE when you adopt Financial and Managerial Accounting! PAGEOUT SERVICE Our team of product spe- cialists 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. What Help Will McGraw-Hill Provide in Setting Up an Online Course? preface XVII wiL56599_fm_i-xxxii 11/6/03 11:25 AM Page xvii Mac113 mac113:122_EDL:
- 18. preface XVIII INSTRUCTOR SUPPLEMENTS Instr uctor’s Resource CD-ROM Vol.1, ISBN: 007292277X FullVersion, 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. Instr uctor’s Resource Manual 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 concern- ing the chapter content, methods of presentation, and usefulness of specific assignment material. • Many real-world examples not found in the text, including additional BusinessWeek and Internet assignments, sample assignment schedules, and sug- gestions for using each element of the supplemental package. 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. Solutions Transparencies Vol.1, ISBN: 0072922710 Vol.2, ISBN: 0072922788 Acetates of the Solutions Manual pages are available for instructors’ convenience. Testbank (Pr int) Vol.1, ISBN: 0072922672 Vol.2, ISBN: 0072922664 With an abundance of objective ques- tions and short exercises, this supplement is a valuable resource for instructors who prepare their own quizzes and examina- tions. Brownstone Computer ized Test Bank ISBN: 007292232X This computerized version of the print- ed testbank is available in Windows® format. PowerPoint® Slides 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 Online Lear ning Center (website) www.mhhe.com/williams_basis/13e All essential instructor supplements are available here, password protected. Financial Accounting Video Librar y ISBN: 0072376163 This diverse array of videos prepared by Dallas County Community College District Telecourse can be used to stimu- late classroom discussion, illustrate key concepts, or review critical material. Instr uctor Excel Templates These are solutions to the Student Excel Templates available for selected end-of- chapter 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 CD- ROM. SUPPLEMENTS for Financial and Managerial Accounting Instructor ’s Re- source Manual to accompany Solutions Manual to accompany wiL56599_fm_i-xxxii 11/6/03 11:25 AM Page xviii Mac113 mac113:122_EDL:
- 19. preface XIX Working Papers to accompany STUDENT SUPPLEMENTS 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 Homework Manager This optional online supplement uses an intelligent algorithm to generate an infi- nite number of problems, based on prob- lem structures from the text.This enables students to practice particular types of problems repeatedly until they master key concepts. Online Lear ning Center (website) www.mhhe.com/williams_basis13e The OLC is full of resources for stu- dents, 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. Study Guide Vol.1, ISBN: 0072922656 Vol.2, ISBN: 0072922680 For each chapter, students can measure their progress through a wealth of self- test material (with solutions) and a sum- mary of each chapter’s key points. Working Paper 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. Carol Yacht’s General Ledger and Peachtree Complete 2004 ISBN: 0072922761 This new software includes both an easy to use, modern general ledger software tool and a real-world accounting soft- ware package all on one CD-Rom! It will help students learn how to record transactions and create financial state- ments. 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. Excel Templates Excel Templates are tied directly to selected end-of-chapter material.They help students develop important spread- sheet skills by using the templates to solve assignments.Available on the Online Learning Center: www.mhhe.com/williams_basis13e Practice Sets Manual Practice Set Prepared byWilliam R. Pasewark,TexasTech University Understanding Corporate Annual Reports Instructor ISBN: 0072868228 Student ISBN: 007286821X Computerized Practice Sets Prepared by Leland Mansuetti and Keith Weidkamp, Sierra College 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 ALEKSWebsite www.business.aleks.com Study Guide to accompany Study Guide to accompany wiL56599_fm_i-xxxii 11/6/03 11:25 AM Page xix Mac113 mac113:122_EDL:
- 20. 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 Mary B. Davis, University of Maryland, Baltimore County Ana M. Cruz, Miami-Dade Community College Anthony Daly-Leonard, Delaware County Community College Calvin Fink, Daytona Beach Community College Mary L. Hollars, Vincennes University Rosemary Lanahan, Schenectady County 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 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 William Barze, St. Petersburg Junior College John Bayles, Oakton Community College Janet Becker, University of Pittsburg Jerard Berardino, Community College of Allegheny Teri Bernstein, Santa Monica College Cynthia Bolt-Lee, The Citadel Nancy Boyd, MiddleTennessee State University Sallie Branscom, VirginiaWestern Community College Russell Bresslauer, Chabot 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, RaritanValley Community College Steve Czarsty, MaryWashington College Larry Davis, SouthwestVirginia County College Victoria Doby, Villa Julie College Carlton Donchess, Bridgewater State College Steve Driver, Horry-GeorgetownTech Pamela Druger, Augustana College Anita Ellzey, Hartford Community College Emmanuel Emenyonu, Sacred Heart University David Erlach, CUNY – Queens College Paul Everson, Northern State University Mary Lou Gamma, EastTennessee State University Brother Gerald Fitzgerald, LaSalle University Ralph Fritsch, Midwestern State University Mike Fujita, Leeward Community College DonVan 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-DarlingtonTechnical College Acknowledgements XX preface wiL56599_fm_i-xxxii 11/6/03 11:25 AM Page xx Mac113 mac113:122_EDL:
- 21. XXI preface We are grateful . . . We would like to acknowledge the following individuals for their help authoring some of the text’s sup- plements: 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; Kather- ine Mattison, Marketing Manager; Judy Besser, Senior Administrative Assistant; Lori Koetters, Project Manager; Carol Loreth, Supplements Producer; Kathy Shive, Photo Research Coordinator; Artemio Or- tiz, Designer; Gina Hangos, Production Supervisor; and Edward Przyzycki, Lead Media Producer. Sincerely, Jan R. Williams, Susan F. Haka, and Mark S. Bettner Patricia H. Holmes, Des Moines Area Community College Michael Holt, Eastern Nazarene College Evelyn Honaker, Walters State Community College Dave Jensen, Bucknell University Dewey Martin, Husson College David Junnola, Eastern Michigan University Leo Jubb, Essex Community College Khondkar Karim, Monmouth University James Kennedy, Texas AM University Jane Kingston, PiedmontVirginia Community College Ed Knudson, Linn Benton Community College Raymond Krasniewski, Ohio State University David Lardie, Tunxis Community College Bill Lasher, Jamestown Community College Suk Jun Lee, Chapman University Eric Lewis, Union College Philip Little, Western Carolina University J.Thomas Love, Walters State Community College Josie Miller, Mercer Community College Merrill Moore, DelawareTech Community College Deborah Most, Dutchess Community College Haim Mozes, Fordham University Frank Olive, Nicholas College Bruce Oliver, Rochester Institute ofTechnology Ginger Parker, Creighton University Michael Prockton, Finger Lakes Community College Annette M. Leps, Goucher College Gary Reynolds, OzardTechnical College Renee Rigoni, Monroe Community College Earl Roberts, DelawareTech Community College Julie Rosenblatt, DelawareTech Community College Bob Rothenberg, SUNY – Oneonta Victoria Rymer, University of Maryland Francis A. Sakiey, Mercer County Community College Linda Schain, Hofstra University Mike Schoderbek, Rutgers University – New Brunswick Monica Seiler, Queensborough Community College Stan Stanley, SkagitValley College Jim Stanton, Mira Costa College Carolyn Strickler, Ohlone College Robert Stilson, CUNY Barbara Sturdevant, SUNY Gene Sullivan, Liberty University and CentralVirginia Com- munity College Mary Ann Swindlehurst, Carroll Community College Larry Tartaglino, Cabrillo College Martin Taylor, University ofTexas at Arlington Anne Tippett, Tarrant County College South Bruce Toews, WallaWalla College Cynthia Tomes, Des Moines Area Community College Harold Wilson, MiddleTennessee State University Steve Wilts, Bucknell University TeriYohn, Georgetown University wiL56599_fm_i-xxxii 11/7/03 10:57 AM Page xxi Mac113 mac113:122_EDL:
- 22. 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 wiL56599_fm_i-xxxii 11/6/03 11:25 AM Page xxii Mac113 mac113:122_EDL:
- 23. 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 26 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 Contents in Brief xxiii wiL56599_fm_i-xxxii 11/6/03 11:25 AM Page xxiii Mac113 mac113:122_EDL:
- 24. Contents Accounting: Information for Decision Making 2 Accounting Information: A Means to an End 4 Accounting from a User’s Perspective 4 Types of Accounting Information 5 Accounting Systems 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 8 External Users of Accounting Information 8 Objectives of External Financial Reporting 9 Characteristics of Externally Reported Information 12 Management Accounting Information 13 Users of Internal Accounting Information 14 Objectives of Management Accounting Information 15 Characteristics of Management Accounting Information 16 Integrity of Accounting Information 17 Institutional Features 18 Professional Organizations 20 Competence, Judgment, and Ethical Behavior 21 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 Concluding Remarks 27 End-of-Chapter Review 28 Assignment Material 32 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 2 1 Statement of Cash Flows 56 Relationships among Financial Statements 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 Use of Financial Statements by External Parties 63 The Need for Adequate Disclosure 63 Management’s Interest in Financial Statements 64 Concluding Remarks 65 End-of-Chapter Review 66 Assignment Material 70 The Accounting Cycle: Capturing Economic Events 86 The Accounting Cycle 88 The Role of Accounting Records 88 The Ledger 88 The Use of Accounts 89 Debit and Credit Entries 89 Double-Entry Accounting—The Equality of Debits and Credits 90 The Journal 91 Posting Journal Entries to the Ledger Accounts (and How to “Read” a Journal Entry) 92 Recording Balance Sheet Transactions: An Illustration 93 Ledger Accounts after Posting 96 What Is Net Income? 98 Retained Earnings 98 The Income Statement: A Preview 99 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 3 wiL56599_fm_i-xxxii 11/6/03 11:25 AM Page xxiv Mac113 mac113:122_EDL:
- 25. Concluding Remarks 114 The Accounting Cycle in Perspective 114 End-of-Chapter Review 115 Assignment Material 120 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 Converting Assets to Expenses 140 The Concept of Depreciation 142 Converting Liabilities to Revenue 145 Accruing Unpaid Expenses 147 Accruing Uncollected Revenue 149 Accruing Income Taxes Expense: The Final Adjusting Entry 150 Adjusting Entries and Accounting Principles 151 The Concept of Materiality 152 Effects of the Adjusting Entries 153 Concluding Remarks 156 End-of-Chapter Review 157 Assignment Material 162 The Accounting Cycle: Reporting Financial Results 176 Preparing Financial Statements 178 The Income Statement 179 The Statement of Retained Earnings 181 The Balance Sheet 182 Relationships among the Financial Statements 182 Drafting the Notes That Accompany Financial Statements 182 What Types of Information Must Be Disclosed? 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? 190 Financial Analysis 192 Preparing Financial Statements Covering Different Periods of Time 193 Concluding Remarks 194 5 4 Contents xxv Supplemental Topic: The Worksheet 195 Isn’t This Really a Spreadsheet? 195 How Is a Worksheet Used? 195 The Mechanics: How It’s Done 196 What If: A Special Application of Worksheet Software 198 End-of-Chapter Review 199 Assignment Material 206 Comprehensive Problem 1 West Branch Rent All 221 Merchandising Activities 224 Merchandising Companies 226 The Operating Cycle of a Merchandising Company 226 Income Statement of a Merchandising Company 227 Accounting System Requirements for Merchandising Companies 228 Two Approaches Used in Accounting for Merchandise Transactions 229 Perpetual Inventory Systems 230 Taking a Physical Inventory 232 Closing Entries in a Perpetual Inventory System 232 Periodic Inventory Systems 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 Transactions Relating to Purchases 238 Credit Terms and Cash Discounts 238 Returns of Unsatisfactory Merchandise 240 Transportation Costs on Purchases 241 Transactions Relating to Sales 241 Sales Returns and Allowances 241 Sales Discounts 242 Delivery Expenses 243 Accounting for Sales Taxes 243 Modifying an Accounting System 243 Special Journals Provide Speed and Efficiency 244 Financial Analysis 244 Net Sales 244 Gross Profit Margins 245 Concluding Remarks 246 End-of-Chapter Review 247 Assignment Material 251 Financial Assets 262 How Much Cash Should a Business Have? 264 The Valuation of Financial Assets 264 7 6 wiL56599_fm_i-xxxii 11/6/03 11:25 AM Page xxv Mac113 mac113:122_EDL:
- 26. Cash 265 Reporting Cash in the Balance Sheet 265 The Statement of Cash Flows 266 Cash Management 266 Internal Control over Cash 267 Bank Statements 268 Reconciling the Bank Statement 269 Petty Cash Funds 272 The Cash Budget as a Control Device 273 Short-Term Investments 273 Mark-to-Market: A Principle of Asset Valuation 274 Accounts Receivable 275 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 Internal Controls for Receivables 283 Management of Accounts Receivable 283 Factoring Accounts Receivable 283 Credit Card Sales 284 Notes Receivable and Interest Revenue 285 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 Recognition of Investment Revenue 292 Sales of Investments 293 Adjusting Marketable Securities to Market Value 293 Reporting Investment Transactions in the Financial Statements 295 End-of-Chapter Review 296 Assignment Material 301 Inventories and the Cost of Goods Sold 318 Inventory Defined 320 The Flow of Inventory Costs 320 Which Unit Did We Sell? 321 Data for an Illustration 321 Specific Identification 322 Cost Flow Assumptions 322 Average-Cost Method 322 First-In, First-Out Method 323 8 xxvi Contents Last-In, First-Out Method 324 Evaluation of the Methods 325 Do Inventory Methods Really Affect Performance? 327 The Principle of Consistency 328 Just-in-Time (JIT) Inventory Systems 328 Taking a Physical Inventory 329 Recording Shrinkage Losses 329 LCM and Other Write-Downs of Inventory 330 The Year-End Cutoff of Transactions 331 Periodic Inventory Systems 332 Importance of an Accurate Valuation of Inventory 335 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 Financial Analysis 339 Inventory Turnover Rate 339 Accounting Methods Can Affect Financial Ratios 341 Concluding Remarks 341 Supplemental Topic: LIFO Reserves 342 The Significance of a LIFO Reserve 342 End-of-Chapter Review 345 Assignment Material 349 Comprehensive Problem 2 Guitar Universe, Inc. 363 Plant and Intangible Assets 366 Plant Assets as a “Stream of Future Services” 368 Major Categories of Plant Assets 368 Accountable Events in the Lives of Plant 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 Causes of Depreciation 372 Methods of Computing Depreciation 373 The Straight-Line Method 373 The Declining-Balance Method 376 Which Depreciation Methods Do Most Businesses Use? 378 Financial Statement Disclosures 379 The Impairment of Plant Assets 380 Disposal of Plant and Equipment 381 9 wiL56599_fm_i-xxxii 11/6/03 11:25 AM Page xxvi Mac113 mac113:122_EDL:
- 27. Gains and Losses on Disposals of Plant and Equipment 381 Trading in Used Assets for New Ones 382 Intangible Assets 383 Characteristics 383 Operating Expenses versus Intangible Assets 383 Amortization 384 Goodwill 384 Patents 386 Trademarks and Trade Names 387 Franchises 387 Copyrights 387 Other Intangibles and Deferred Charges 387 Research and Development (RD) 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 Liabilities 410 The Nature of Liabilities 412 Current Liabilities 413 Accounts Payable 413 Notes Payable 413 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 Accounting for Bonds Payable 423 Bonds Issued at a Discount or a Premium 426 Accounting for a Bond Discount: An Illustration 426 Accounting for a Bond Premium: An Illustration 429 10 Contents xxvii Bond Discount and Premium in Perspective 432 The Concept of Present Value 432 Bond Prices after Issuance 433 Early Retirement of Bonds Payable 434 Estimated Liabilities, Loss Contingencies, and Commitments 435 Estimated Liabilities 435 Loss Contingencies 435 Commitments 436 Evaluating the Safety of Creditors’ Claims 437 How Much Debt Should a Business Have? 438 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 467 Publicly Owned Corporations 468 Formation of a Corporation 468 Stockholder Records in a Corporation 471 Paid-In Capital of a Corporation 472 Authorization and Issuance of Capital Stock 472 Common Stocks and Preferred Stocks 474 Characteristics of Preferred Stock 474 Book Value per Share of Common Stock 478 Market Value 479 Market Price of Preferred Stock 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 Concluding Remarks 486 End-of-Chapter Review 487 Assignment Material 491 11 wiL56599_fm_i-xxxii 11/6/03 11:25 AM Page xxvii Mac113 mac113:122_EDL:
- 28. Income and Changes in Retained Earnings 502 Reporting the Results of Operations 504 Developing Predictive Information 504 Reporting Irregular Items: An Illustration 505 Continuing Operations 506 Discontinued Operations 506 Extraordinary Items 506 Changes in Accounting Principles 508 Earnings per Share (EPS) 509 Financial Analysis 511 Basic and Diluted Earnings per Share 512 Other Transactions Affecting Retained Earnings 513 Cash Dividends 513 Dividend Dates 513 Liquidating Dividends 514 Stock Dividends 515 Statement of Retained Earnings 517 Prior Period Adjustments 518 Comprehensive Income 519 Statement of Stockholders’ Equity 520 Stockholders’ Equity Section of the Balance Sheet 521 Concluding Remarks 521 End-of-Chapter Review 523 Assignment Material 527 Statement of Cash Flows 542 Statement of Cash Flows 544 Purposes of the Statement 544 Example of a Statement of Cash Flows 544 Classification of Cash Flows 545 The Approach to Preparing a Statement of Cash Flows 547 Preparing a Statement of Cash Flows: An Illustration 548 Operating Activities 549 Investing Activities 549 Financing Activities 551 Cash and Cash Equivalents 551 Cash Flows from Operating Activities 551 Cash Payments for Merchandise and for Expenses 552 Cash Flows from Investing Activities 555 Cash Flows from Financing Activities 557 Relationship between the Statement of Cash Flows and the Balance Sheet 559 Reporting Operating Cash Flows by the Indirect Method 559 Differences between Net Income and Net Cash Flows from Operating Activities 560 Reconciling Net Income with Net Cash Flows 561 The Indirect Method: A Summary 563 13 12 xxviii Contents Indirect Method May Be Required in a Supplementary Schedule 563 The Statement of Cash Flows: A Second Look 563 Financial Analysis 565 Annotated Statement of Cash Flows: Arden Group, Inc. 566 Managing Cash Flows 568 Budgeting: The Primary Cash Management Tool 568 What Priority Should Managers Give to Increasing Net Cash Flows? 568 Some Strategies for Permanent Improvements in Cash Flow 569 Concluding Remarks 571 Supplemental Topic: A Worksheet for Preparing a Statement of Cash Flows 572 Data for an Illustration 572 The Worksheet 573 Entry 573 End-of-Chapter Review 577 Assignment Material 583 Financial Statement Analysis 600 Financial Statements Are Designed for Analysis 602 Tools of Analysis 603 Dollar and Percentage Changes 603 Trend Percentages 604 Component Percentages 605 Ratios 606 Standards of Comparison 606 Quality of Earnings 607 Quality of Assets and the Relative Amount of Debt 608 Measures of Liquidity and Credit Risk 608 A Classified Balance Sheet 608 Working Capital 610 Current Ratio 611 Quick Ratio 611 Debt Ratio 611 Evaluating Financial Ratios 612 Liquidity, Credit Risk, and the Law 614 Measures of Profitability 615 Classifications in the Income Statement 615 Some Specific Examples of Corporate Earnings and Losses 616 Multiple-Step Income Statements 617 Earnings per Share 619 Price-Earnings Ratio 620 Single-Step Income Statements 620 Evaluating the Adequacy of Net Income 621 Return on Investment (ROI) 621 Return on Assets (ROA) 622 Return on Equity (ROE) 622 Comprehensive Illustration: Seacliff Company 623 14 wiL56599_fm_028 11/14/03 8:16 AM Page xxviii mac78 mac78:385_REB:
- 29. Analysis by Common Stockholders 626 Return on Investment (ROI) 628 Leverage 629 Analysis by Long-Term Creditors 630 Analysis by Short-Term Creditors 632 Cash Flow Analysis 635 Usefulness of Notes to Financial Statements 636 Summary of Analytical Measurements 637 Concluding Remarks 639 End-of-Chapter Review 641 Assignment Material 645 Comprehensive Problem 3 Tootsie Roll Industries, Inc. 665 Global Business and Accounting 668 Globalization 670 Environmental Forces Shaping Globalization 672 Political and Legal Systems 672 Economic Systems 673 Culture 674 Technology and Infrastructure 676 Harmonization of Financial Reporting Standards 676 Foreign Currencies and Exchange Rates 678 Exchange Rates 678 Accounting for Transactions with Foreign Companies 680 Currency Fluctuations—Who Wins and Who Loses? 684 Consolidated Financial Statements That Include Foreign Subsidiaries 686 Global Sourcing 686 Foreign Corrupt Practices Act 688 Concluding Remarks 689 End-of-Chapter Review 690 Assignment Material 693 Management Accounting: A Business Partner 704 Management Accounting: Basic Framework 706 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 707 Accounting for Manufacturing Operations 709 Classifications of Manufacturing Costs 710 Product Costs versus Period Costs 710 16 15 Contents xxix Product Costs and the Matching Principle 711 Inventories of a Manufacturing Business 712 The Flow of Costs Parallels the Flow of Physical Goods 712 Accounting for Manufacturing Costs: An Illustration 713 Direct Materials 713 Direct Labor 714 Manufacturing Overhead 715 Direct and Indirect Manufacturing Costs 717 Work in Process Inventory, Finished Goods Inventory, and the Cost of Goods Sold 717 The Need for Per-Unit Cost Data 718 Determining the Cost of Finished Goods Manufactured 718 Financial Statements of a Manufacturing Company 719 Concluding Remarks 720 End-of-Chapter Review 721 Assignment Material 724 Job Order Cost Systems and Overhead Allocations 738 Cost Accounting Systems 740 Job Order Cost Systems and the Creation of Goods and Services 740 Overhead Application Rates 741 What “Drives” Overhead Costs? 743 Job Order Costing 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 750 Activity-Based Costing (ABC) 750 ABC Versus a Single Application Rate: A Comparison 751 Stage 1: Separate Activity Cost Pools 752 Stage 2: Allocate Activity Cost Pools to the Products 754 Determining Unit Costs Using ABC 757 The Trend toward More Informative Cost Accounting Systems 758 Concluding Remarks 759 End-of-Chapter Review 760 Assignment Material 763 Process Costing 774 Production of Goods and Services and Costing Systems 776 Process Costing 777 Tracking the Physical Flow and Related Production Costs 777 18 17 wiL56599_fm_i-xxxii 11/7/03 10:57 AM Page xxix Mac113 mac113:122_EDL:
- 30. Process Costing and Equivalent Units 779 Cost per Equivalent Unit 781 Tracking Costs in Process Costing Using a Production Report 783 Evaluating Departmental Efficiency 787 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 804 Activity-Based Management 805 Activity-Based Management across the Value Chain 806 ABC: A Subset of Activity-Based Management 808 The Target Costing Process 809 Components of the Target Costing Process 810 Target Costing: An Illustration 811 Characteristics of the Target Costing Process 814 Just-in-Time Inventory Procedures 814 JIT, Supplier Relationships, and Product Quality 815 Measures of Efficiency in a JIT System 816 A Concluding Comment 816 Total Quality Management and the Value Chain 817 Components of the Cost of Quality 817 Measuring the Cost of Quality 818 Productivity and Quality 820 Concluding Remarks 820 End-of-Chapter Review 821 Assignment Material 824 Cost-Volume-Profit Analysis 836 Cost-Volume Relationships 838 Cost-Volume Relationships: A Graphic Analysis 839 The Behavior of Per-Unit Costs 841 Economies of Scale 842 Additional Cost Behavior Patterns 843 Cost Behavior and Operating Income 844 Cost-Volume-Profit Analysis: An Illustration 844 Preparing and Using a Cost-Volume-Profit Graph 845 Contribution Margin: A Key Relationship 846 How Many Units Must We Sell? 847 How Many Dollars in Sales Must We Generate? 848 What Is Our Margin of Safety? 848 What Change in Operating Income Do We Anticipate? 849 Business Applications of CVP 849 Additional Considerations in CVP 852 20 19 xxx Contents CVP Analysis When a Company Sells Many Products 852 Determining Semivariable Cost Elements: The High-Low Method 853 Assumptions Underlying Cost-Volume-Profit Analysis 854 Summary of Basic Cost-Volume-Profit Relationships 854 Concluding Remarks 855 End-of-Chapter Review 856 Assignment Material 859 Incremental Analysis 872 The Challenge of Changing Markets 874 The Concept of Relevant Cost Information 874 Relevant Information in Business Decisions 875 Opportunity Costs 876 Sunk Costs versus Out-of-Pocket Costs 877 Incremental Analysis in Common Business Decisions 878 Special Order Decisions 878 Production Constraint Decisions 879 Make or Buy Decisions 881 Sell, Scrap, or Rebuild Decisions 882 Joint Product Decisions 883 Concluding Remarks 884 End-of-Chapter Review 886 Assignment Material 889 Comprehensive Problem 4 The Gilster Company 901 Responsibility Accounting and Transfer Pricing 904 Responsibility Centers 906 The Need for Information about Responsibility Center Performance 906 Cost Centers, Profit Centers, and Investment Centers 907 Responsibility Accounting Systems 910 Responsibility Accounting: An Illustration 910 Assigning Revenue and Costs to Responsibility Centers 911 Variable Costs 912 Contribution Margin 912 Fixed Costs 913 Traceable Fixed Costs 913 Common Fixed Costs 913 Responsibility Margin 915 When Is a Responsibility Center “Unprofitable”? 916 Evaluating Responsibility Center Managers 917 22 21 wiL56599_fm_i-xxxii 11/7/03 10:57 AM Page xxx Mac113 mac113:122_EDL:
- 31. Arguments against Allocating Common Fixed Costs to Business Centers 918 Transfer Prices 918 Nonfinancial Objectives and Information 921 Responsibility Center Reporting in Financial Statements 921 Concluding Remarks 922 Supplemental Topic: Variable Costing 922 Full Costing: The Traditional View of Product Costs 923 Variable Costing: A Different View of Product Costs 923 An Illustration of Variable Costing 923 Fluctuation in the Level of Production 926 Why Is Variable Costing Unacceptable for Use in Financial Statements and Income Tax Returns? 929 End-of-Chapter Review 930 Assignment Material 933 Operational Budgeting 946 Profit Rich, Yet Cash Poor 948 Operating Cash Flows: The Lifeblood of Survival 949 Budgeting: The Basis for Planning and Control 949 Benefits Derived from Budgeting 950 Establishing Budgeted Amounts 951 The Budget Period 952 The Master Budget: A Package of Related Budgets 952 Steps in Preparing a Master Budget 953 Preparing the Master Budget: An Illustration 955 Operating Budget Estimates 955 Budgeted Income Statement 960 Cash Budget Estimates 960 The Cash Budget 965 Budgeted Balance Sheets 965 Using Budgets Effectively 965 Flexible Budgeting 968 Concluding Remarks 970 End-of-Chapter Review 971 Assignment Material 974 Standard Cost Systems 988 Standard Cost Systems 990 Establishing and Revising Standard Costs 990 Direct Material Standards 992 Direct Labor Standards 992 Manufacturing Overhead Standards 992 Standard Costs and Variance Analysis: An Illustration 993 Materials Price and Quantity Variances 994 Labor Rate and Efficiency Variances 996 Manufacturing Overhead Variances 997 Valuation of Finished Goods 1000 24 23 Contents xxxi Evaluating Cost Variances from Different Perspectives 1000 A Final Note: JIT Systems and Variance Analysis 1004 Concluding Remarks 1004 End-of-Chapter Review 1005 Assignment Material 1008 Rewarding Business Performance 1022 Motivation and Aligning Goals and Objectives 1024 Communicating Goals and Objectives 1024 Accounting Information and Feedback about Goal Achievement 1024 Rewarding Goal Achievement 1024 The DuPont System 1025 Return on Investment 1025 The Components of Return on Investment 1027 Return on Sales 1027 Capital Turnover 1028 Criticisms of ROI 1028 The Short Horizon Problem 1029 Failing to Undertake Profitable Investments 1029 Measurement Problems 1029 Residual Income and Economic Value Added 1030 Residual Income 1030 Economic Value Added 1031 The Balanced Scorecard 1031 The Financial Perspective 1033 The Customer Perspective 1033 The Business Process Perspective 1033 The Learning and Growth Perspective 1033 Difficulties with the Balanced Scorecard 1034 Management Compensation 1035 Components of Management Compensation 1035 Design Choices for Management Compensation 1036 Goals and Rewards in Life 1038 Concluding Remarks 1038 End-of-Chapter Review 1039 Assignment Material 1043 Comprehensive Problem 5 Utease Corporation 1050 Capital Budgeting 1052 Capital Investment Decisions 1054 Financial and Nonfinancial Considerations 1054 Evaluating Capital Investment Proposals: An Illustration 1054 Payback Period 1056 Return on Average Investment 1056 26 25 wiL56599_fm_i-xxxii 11/7/03 10:57 AM Page xxxi Mac113 mac113:122_EDL:
- 32. Discounting Future Cash Flows 1057 Replacing Assets 1060 Behavioral Considerations in Capital Budgeting 1063 Concluding Remarks 1064 A Concluding Comment from the Authors 1064 End-of-Chapter Review 1065 Assignment Material 1068 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 1103 Relationships between Present Values and Future Amounts 1103 Compound Interest 1104 Applications of the Time Value of Money Concept 1104 Future Amounts 1104 The Tables Approach 1105 The Future Amount of an Annuity 1106 Interest Periods of Less than One Year 1107 Present Values 1108 Using Present Value Tables 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 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 1123 General Partnerships 1124 C B A xxxii Contents Partnerships That Limit Personal Liability 1125 Accounting Practices of Partnerships 1125 Evaluating the Financial Statements of a Partnership 1126 Corporations 1127 What Is a Corporation? 1127 Stockholders’ Liability for Debts of a Corporation 1128 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 Retained Earnings 1131 Accounting for Dividends 1132 Closing Entries and the Statement of Retained Earnings 1133 Evaluating the Financial Statements of a Corporation 1133 The Concept—and the Problem—of “Double Taxation” 1134 S Corporations 1135 Selecting an Appropriate Form of Business Organization 1135 Incorporating an Established Business 1136 Supplemental Topic: Partnership Accounting—A Closer Look 1137 Opening the Accounts of a New Partnership 1137 Allocating Partnership Net Income among the Partners 1140 Assignment Material 1144 Index 1151 wiL56599_fm_i-xxxii 11/6/03 11:25 AM Page xxxii Mac113 mac113:122_EDL:
- 33. The Basis for Business Decisions Financial Managerial Accounting wiL56599_fm_i-xxxii 11/6/03 11:25 AM Page 1 Mac113 mac113:122_EDL: