Fundamental Financial and Manageria Accounting Concepts

Transcription

1 Fundamental Financial and Manageria Accounting Concepts 1-; *Th<tMnas # P,, ; Edmonds' «:j :..-.v?^'%v : :' '*. " ' Univers ity )f::ajabama Birmingham Oniyersity of i. Edmonds' Birmingham ^i:^'-^tv-r' PhilipR..OldS' :':v,virgit1i:a:commo«weatthi3nivers:ity 'IO;;.^^" Frances M. McNair ^';I'SC' Mississippi'StatesUriiversity?'"University,6f Alabama- Birmihgham... '' :.! J^ Nancy W. Schneider JJ«.. ', Lynchburg College. xj«i Edward E. Mi lam Mississippi State University McGraw-Hill Irwin Boston Burr Ridge, IL Dubuque, IA Madison, Wl New York San Francisco St. Louis Bangkok Bogota Caracas Kuala Lumpur Lisbon London Madrid Mexico City Milan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto

2 Contents Chapter 1 Elements of Financial Statements 2 Chapter Opening 3 Role of Accounting in Society 4 Using Free Markets to Set Resource Priorities 4 Accounting Provides Information 5 Types of Accounting Information 6 Nonbusiness Resource Usage 6 Measurement Rules 6 Reporting Entities 8 Elements of Financial Statements 8 Accounting Equation 9 Recording Business Events Under the Accounting Equation 11 Asset Source Transactions 11 Asset Exchange Transactions 12 Another Asset Source Transaction 12 Asset Use Transactions 13 Historical Cost and Reliability Concepts 14 Recap: Types of Transactions 14 Summary of Transactions 14 Preparing Financial Statements 15 Income Statement and the Matching Concept 17 Statement of Changes in Stockholders' Equity 17 Balance Sheet 18 Statement of Cash Flows 18 The Horizontal Financial Statements Model 19 Careers in Accounting 20 Public Accounting 20 Private Accounting 21 The Financial Analyst 21 Importance of Ethics 21 Sarbanes-Oxley Act of 2002 Common Features of Ethical Misconduct 22 Real-World Financial Reports 24 Annual Report for The Topps Company, Inc. 25 Special Terms in Real-World Reports 26 A Look Back 26 A Look Forward 26 Self-Study Review Problem Key Terms 28 Questions 28 Exercises Series A Problems-Series A Exercises-Series B Problems-Series B Analyze, Think, Communicate Comprehensive Problem eaders Chapter 2 Understanding the Accounting Cycle 58 Chapter Opening 59 Accrual Accounting 60 Accounting for Accounts Receivable 60 Other Events 61 Accounting for Accrued Salary Expense (Adjusting Entry) 62 Summary of Events 63 The General Ledger 63 Vertical Statements Model 63

3 The C/os/'ng Process 66 Steps in an Accounting Cycle 67 The Matching Concept 67 The Conservatism Principle 67 Second Accounting Cycle 68 Prepaid Items (Cost versus Expense) 68 Accounting for Receipt of Unearned Revenue 69 Accounting for Supplies Purchase 69 Other 2009 Events 69 Adjusting Entries 71 Accounting for Supplies (Adjusting Entry) 71 Accounting for Prepaid Rent (Adjusting Entry) 72 Accounting for Unearned Revenue (Adjusting Entry) 72 Accounting for Accrued Salary Expense (Adjusting Entry) 73 Summary of Events 74 The General Ledger 75 Vertical Statements Model 75 The Financial Analyst 77 Price-earnings Ratio 77 Measuring Growth Through Percentage Analysis 79 A Look Back 81 A Look Forward 82 Self-Study Review Problem 82 Key Terms 84 Questions 84 Exercises-Series A 85 Problems-Series A 93 Exercises-Series B 98 Problems-Series B 106 Analyze, Think, Communicate 111 Comprehensive Problem 115 Chapter 3 The Double-Entry Accounting System 116 Chapter Opening 117 Debit/Credit Terminology 118 Collins Consultants Case 118 Asset Source Transactions 118 Asset Exchange Transactions 121 Asset Use Transactions 123 Claims Exchange Transactions 125 Adjusting the Accounts 126 Overview of Debit/Credit Relationships 128 The General Ledger 128 The General Journal 128 Trial Balance 131 Financial Statements 131 Closing Entries 132 Trial Balance 136 The Financial Analyst 136 Assessing the Effective Use of Assets 136 Assessing Debt Risk 137 Real-World Data 138 Scope of Coverage 140 A Look Back 140 A Look Forward 141 Self-Study Review Problem 141 Key Terms 145 Questions 145 Exercises-Series A 146 Problems-Series A 154 Exercises-Series B 161 Problems-Series B 168 Analyze, Think, Communicate 175 Comprehensive Problem 179

4 #?/$& &" & #:,**.*»; m lg?fp Chapter 4 Accounting for Merchandising Businesses 180 Chapter Opening 181 Product Costs Versus Selling and Administrative Costs 182 Allocating Inventory Cost Between Asset and Expense Accounts 182 Perpetual Inventory System 184 Effects of 2006 Events on Financial Statements 184 Recording and Reporting Inventory Events in the Double-Entry System 185 Financial Statements for Transportation Cost, Purchase Returns and Allowances, and Cash Discounts Related to Inventory Purchases 187 Effects of 2007 Events on Financial Statements 188 Recording and Reporting Inventory Events in the Double-Entry System 193 Financial Statements 195 Events Affecting Sales 195 Lost, Damaged, or Stolen Inventory 198 Adjustment for Lost, Damaged, or Stolen Inventory 198 Recognizing Gains and Losses 199 The Financial Analyst 200 Common Size Financial Statements 200 Comparisons between Companies 201 Gross Margin Percentage 201 Net Income Percentage 202 Comparisons within a Particular Company 202 Real-World Data 202 Financing Merchandise Inventory 203 A Look Back 204 A Look Forward 205 Appendix 205 Self-Study Review Problem 207 Key Terms 208 Questions 208 Exercises Series A 209 Problems-Series A 216 Exercises-Series B 220 Problems-Series B 227 Analyze, Think, Communicate 231 Comprehensive Problem 234 Chapter 5 Accounting for Inventories 236 Chapter Opening 237 Inventory Cost Flow Methods 238 Specific Identification 238 First-ln, First-Out (FIFO) 238 Last-In, First-Out (UFO) 238 Weighted Average 238 Physical Flow 238 Effect of Cost Flow on Financial Statements 239 Effect on Income Statement 239 Effect on Balance Sheet 239 inventory Cost Flow under a Perpetual System 240 Multiple Layers with Multiple Quantities 240 Allocating Cost of Goods Available for Sale 240 Effect of Cost Flow on Financial Statements 242 Inventory Cost Flow When Sales and Purchases Occur Intermittently 244

5 FIFO Cost Flow 244 Weighted-Average and UFO Cost Flows 245 Lower-of-Cost-or-Market Rule 246 Avoiding Fraud in Merchandising Businesses 248 Estimating the Ending Inventory Balance 249 The Financial Analyst 251 /Average Number of Days to Sell Inventory 251 Is It a Marketing or an Accounting Decision? 252 A Look Back 253 A Look Forward 253 Appendix 253 Self-Study Review Problem 258 Key Terms 259 Questions 260 Exercises-Series A 261 Problems-Series A 267 Exercises Series B 271 Problems-Series B 277 Analyze, Think, Communicate 281 Comprehensive Problem 284 Real-World Data 252 Effects of Cost Flow on Ratio Analysis 253 Chapter 6 Internal Control and Accounting for Cash 286 Chapter Opening 287 Key Features of Internal Control Systems 288 Separation of Duties 288 Quality of Employees 288 Bonded Employees 288 Required Absences 288 Procedures Manual 289 Authority and Responsibility 289 Prenumbered Documents 289 Physical Control 289 Performance Evaluations 290 Limitations 290 Accounting for Cash 290 Controlling Cash 291 Cash Payments 291 Checking Account Documents 292 Reconciling the Bank Account 293 Illustrating a Bank Reconciliation 296 Cash Short and Over 298 Using Petty Cash Funds 299 The Financial Analyst 301 The Financial Audit 302 Materiality and Financial Audits 302 Types of Audit Opinions 303 Confidentiality 304 A Look Back 304 A Look Forward 305 Self-Study Review Problem 306 Key Terms 307 Questions 307 Exercises-Series A 308 Problems-Series A 312 Exercises-Series B 316 Problems-Series B 319 Analyze, Think, Communicate 324 Comprehensive Problem 327

6 li% Chapter 7 Accounting for Receivables 330 Chapter Opening 331 Allowance Method of Accounting for Uncollectible Accounts 332 Accounting Events Affecting the 2006 Period 332 Recording and Reporting Uncollectible Accounts Events in the Double-Entry System 334 Financial Statements 335 Accounting Events Affecting the 2007 Period 335 Estimating Uncollectible Accounts Expense Using the Percent of Revenue (Sales) Method 337 Recording and Reporting Uncollectible Accounts Events in the Double-Entry System 338 Analysis of Financial Statements 338 Estimating Uncollectible Accounts Expense Using the Percent of Receivables Method 340 Matching Revenues and Expenses versus Asset Measurement 342 Recognizing Uncollectible Accounts Expense Using the Direct Write-Off Method 342 Characteristics of Notes Receivable (Promissory Notes) 343 Accounting for Notes Receivable 344 Financial Statements 347 Accounting for Credit Card Sales 348 The Financial Analyst 349 Costs of Credit Sales 349 /Average Number of Days to Collect Accounts Receivable 350 Real-World Data 351 A Look Back 353 A Look Forward 354 Self-Study Review Problem 354 Key Terms 355 Questions 355 Exercises-Series A 356 Problems-Series A 362 Exercises-Series B 368 Problems-Series B 374 Analyze, Think, Communicate 379 Comprehensive Problem 382 Chapter 8 Accounting for Long-Term Operational Assets 384 Chapter Opening 385 Tangible Versus Intangible Assets 386 Tangible Long-Term Assets 386 Intangible Assets 386 Determining the Cost of Long-Term Assets 387 Basket Purchase Allocation 387 Methods of Recognizing Depreciation Expense 388 Dryden Enterprises Illustration 389 Straight-Line Depreciation 389 Financial Statements 391 Double-Declining-Balance Depreciation 393 Units-of-Production Depreciation 395 Comparing the Depreciation Methods 396 Income Tax Considerations 397 Revision of Estimates 399 Revision of Life 399 Revision of Salvage 399 Continuing Expenditures for Plant Assets 399 Costs that Are Expensed 399

7 Costs that Are Capitalized 400 Natural Resources 402 Intangible Assets 403 Trademarks 403 Patents 403 Copyrights 403 Franchises 403 Goodwill 403 Expense Recognition for Intangible Assets 405 Expensing Intangible Assets with Identifiable Useful Lives 406 Impairment Losses for Intangible Assets with Indefinite Useful Lives 406 Balance Sheet Presentation 407 The Financial Analyst 407 Effect of Judgment and Estimation 407 Effect of Industry Characteristics 408 A Look Back 409 A Look Forward 410 Self-Study Review Problem 410 Key Terms 411 Questions 411 Exercises Series A 412 Problems-Series A 418 Exercises-Series B 423 Problems-Series B 429 Analyze, Think, Communicate 434 Comprehensive Problem 437 Chapter 9 Accounting for Current Liabilities and Payroll 440 Chapter Opening 441 Accounting for Current Liabilities 442 Accounting for Notes Payable 442 Accounting for Sales Tax 444 Contingent Liabilities 445 Warranty Obligations 446 General Ledger T-Accounts and Financial Statements 447 Accounting for Payroll 449 Identifying Employees 449 Employees' Gross Earnings 450 Deductions from Employees' Gross Earnings 450 Federal Income Taxes 450 Federal Income Tax Documents 451 Social Security and Medicare Taxes (FICA) 452 Voluntary Withholdings (Deductions) 453 Computing Employee Net Pay 454 Employer Payroll Taxes 455 Recording and Reporting Payroll Taxes 455 Employee Fringe Benefits 456 The Financial Analyst 456 Current Versus Noncurrent 456 Liquidity Versus Solvency 458 Current Ratio 459 Real-World Data 460 A Look Back 460 A Look Forward 461 Appendix 461 Self-Study Review Problem 467 Key Terms 469 Questions 469 Exercises-Series A 470 Problems-Series A 476 Exercises-Series B 480 Problems-Series B 486 Analyze, Think, Communicate 489 Comprehensive Problem 493

8 Chapter 10 Accounting For Long-Term Notes Payable and Bond Liabilities 496 Chapter Opening 497 Installment Notes Payable 498 Line of Credit 501 Bond Liabilities 501 Advantages of Issuing Bonds 502 Security of Bonds 503 Timing of Maturity 503 Special Features 503 Bond Ratings 504 Bonds Issued at Face Value 504 Fixed-Rate, Fixed-Term, Annual Interest Bonds 504 Recording Procedures 505 Effect of Events on Financial Statements 505 Financial Statements 507 Bonds Issued at a Discount 508 Effective Interest Rate 508 Bond Prices 508 Mason Company Revisited 508 Effect on Financial Statements 510 Effect of Semiannual Interest Payments 512 Bonds Issued at a Premium 512 The Market Rate of Interest 513 Bond Redemptions 513 Security for Loan Agreements 514 The Financial Analyst 515 Financial Leverage and Tax Advantage of Debt Financing 515 EBIT and Ratio Analysis 516 Times Interest Earned Ratio 516 A Look Back 517 A Look Forward 518 Appendix 518 Self-Study Review Problem 525 Key Terms 525 Questions 526 Exercises-Series A 527 Problems-Series A 533 Exercises-Series B 537 Problems-Series B 543 Analyze, Think, Communicate 547 Comprehensive Problem 551 Chapter 11 Proprietorships, Partnerships, and Corporations 554 Chapter Opening 555 Forms of Business Organizations 556 Advantages and Disadvantages of Different Forms of Business Organization 556 Regulation 556 Double Taxation 557 Limited Liability 558 Continuity 558 Transferability of Ownership 558 Management Structure 559 Ability to Raise Capital 559 Appearance of Capital Structure in Financial Statements 559 Presentation of Equity in Proprietorships 559 Presentation of Equity in Partnerships 560 Presentation of Equity in Corporations 561 Characteristics of Capital Stock 561 Par Value 561 Stated Value 561 Other Valuation Terminology 562

9 Stock: Authorized, Issued, and Outstanding 562 Classes of Stock 562 Common Stock 563 Preferred Stock 563 Accounting for Stock Transactions on the Day of Issue 564 Issuing Par Value Stock 564 Stock Classification 565 Stock Issued at Stated Value 565 Stock Issued with No Par Value 565 Financial Statement Presentation 566 Stockholders' Equity Transactions after the Day of Issue 566 Treasury Stock 566 Cash Dividend 568 Stock Dividend 569 Stock Split 570 Appropriation of Retained Earnings 570 Financial Statement Presentation 570 The Financial Analyst 572 Receiving Dividends 572 Increasing the Price of Stock 572 Price-earnings Ratio 573 Exercising Control through Stock Ownership 573 A Look Back 574 A Look Forward 574 Appendix 575 Self-Study Review Problem 578 Key Terms 579 Questions 579 Exercises-Series A 580 Problems-Series A 585 Exercises-Series B 588 Problems-Series B 593 Analyze, Think, Communicate 596 Comprehensive Problem 600 Chapter 12 Statement of Cash Flows 602 Chapter Opening 603 Operating Activities 604 Investing Activities 604 Financing Activities 604 Noncash Investing and Financing Activities 604 Reporting Format for the Statement of Cash Flows 604 Converting from Accrual to Cash-Basis Accounting 605 Operating Activities 605 Investing Activities 609 Financing Activities 609 Comprehensive Example Using the T- Account Approach 610 Preparing a Statement of Cash Flows 611 s Cash Flows from Operating Activities 611 Cash Flows from Investing Activities 614 Cash Flows from Financing Activities 615 Presenting Information in the Statement of Cash Flows 616 Statement of Cash Flows Presented under the Indirect Method 617 The Financial Analyst 619 Real-World Data 620 A Look Back 621 A Look Forward 622 Self-Study Review Problem 622 Key Terms 624 Questions 624

10 IsS^x?" Exercises-Series A 625 Problems-Series A 628 Exercises-Series B 633 Problems-Series B 637 Analyze, Think, Communicate 642 Chapter 13 Financial Statement Analysis 648 ' ' 1 ' Chapter Opening 649 I Factors in Communicating Useful Information 650 The Users 650 The Types of Decisions 650 Information Analysis 650 Methods of Analysis 650 Horizontal Analysis 651 Vertical Analysis 653 Ratio Analysis 655 Measures of Debt-Paying Ability 655 Liquidity Ratios 655 Solvency Ratios 658 Measures of Profitability 661 Measures of Managerial Effectiveness 661 Stock Market Ratios 663 Presentation of Analytical Relationships 665 Limitations of Financial Statement Analysis 666 Different Industries 667 Changing Economic Environment 668 Accounting Principles 668 A Look Back 669 A Look Forward 669 Self-Study Review Problem 669 Key Terms 671 Questions 671 Exercises-Series A 672 Problems-Series A 677 Exercises-Series B 682 Problems-Series B 688 Analyze, Think, Communicate 694 Chapter 14 Management Accounting: A Value-Added Discipline 698 Chapter Opening 699 Differences Between Managerial and Financial Accounting 700 Users and Types of Information 700 Level of Aggregation 700 Regulation 700 Information Characteristics 701 Time Horizon and Reporting Frequency 701 Product Costing 702 Product Costs in Manufacturing Companies 702 Tabor Manufacturing Company 702 Average Cost per Unit 703 Costs Can Be Assets or Expenses 703 Effect of Product Costs on Financial Statements 704

11 >j : ;. Jtfi Manufacturing Product Cost Summary 708 Importance of Cost Classification 708 Marion Manufacturing Company 709 Practical Implications 710 Ethical Considerations 711 Upstream and Downstream Costs 712 Product Costs in Service Companies 712 Emerging Trends in Managerial Accounting 714 Total Quality Management 714 Activity-Based Management 714 Just-in-Time Inventory 715 Value Chain Analysis Across Companies 717 A Look Back 717 A Look Forward 718 Self-Study Review Problem 718 Key Terms 720 Questions 721 Exercises-Series A 721 Problems-Series A 727 Exercises-Series B 730 Problems-Series B 735 Analyze, Think, Communicate 739 Comprehensive Problem 742 Chapter 15 Cost Behavior, Operating Leverage, and Profitability Analysis 744 Chapter Opening 745 Fixed Cost Behavior 746 Operating Leverage 746 Calculating Percentage Change 747 Risk and Reward Assessment 748 Variable Cost Behavior 748 Relationship Between Cost Behavior and Revenue 749 Effect of Cost Structure on Profit Stability 749 An Income Statement under the Contribution Margin Approach 751 Measuring Operating Leverage Using Contribution Margin 751 Using Fixed Cost to Provide a Competitive Operating Advantage 753 Cost Behavior Summarized 754 The Relevant Range 754 Context-Sensitive Definitions of Fixed and Variable 755 Cost Averaging 756 Use of Estimates in Real-World Problems 758 High-Low Method of Estimating Fixed and Variable Costs 758 Scattergraph Method of Estimating Fixed and Variable Costs 760 A Look Back 761 A Look Forward 762 Self-Study Review Problem 763 Key Terms 765 Questions 765 Exercises-Series A 765 Problems-Series A 771 Exercises-Series B 776 Problems-Series B 782 Analyze, Think, Communicate 787 Comprehensive Problem 790

12 'fffe JJSft--.!*«' Chapter 16 Cost Accumulation, Tracing, and Allocation 792 Chapter Opening 793 Use of Cost Drivers to Accumulate Costs 794 Estimated Versus Actual Cost 794 Assignment of Cost to Objects in a Retail Business 794 Identifying Direct Versus Indirect Costs 795 Cost Classifications Independent and Context Sensitive 795 Allocating Indirect Costs to Objects 796 Selecting a Cost Driver 798 Behavioral Implications 800 Effects of Cost Behavior on Selecting the Most Appropriate Cost Driver 802 Using Volume Measures to Allocate Variable Overhead Costs 802 Allocating Fixed Overhead Costs 804 Allocating Costs to Solve Timing Problems 805 Establishing Cost Pools 806 Allocating Joint Costs 806 Relative Sales Value as the Allocation Base 807 By-Product Costs 808 Cost Allocation: The Human Factor 808 Using Cost Allocations in a Budgeting Decision 809 Using Cost Drivers to Make Allocations 809 Choosing the Best Cost Driver 810 Controlling Emotions 810 A Look Back 810 A Look Forward 811 Self-Study Review Problem 811 Key Terms 813 Questions 813 Exercises-Series A 814 Problems-Series A 818 Exercises-Series B 821 Problems-Series B 825 Analyze, Think, Communicate 828 Comprehensive Problem 831 Chapter 17 Product Costing in Service and Manufacturing Companies 832 Chapter Opening 833 Cost Flow in Manufacturing Companies 834 Cost Flow in Service Companies 834 Manufacturing Cost Flow Illustrated 836 Events Affecting Manufacturing Cost Flow in January 836 Flow of Overhead Costs 838 Manufacturing Overhead Account 838 Summary of January Events 842 Manufacturing Cost Flow Events for February Through December 843 Analyzing Underapplied Overhead 844 Preparing the Schedule of Cost of Goods Manufactured and Sold 846 Financial Statements 847 Motive to Overproduce 848 Absorption Costing Versus Variable Costing 848 Variable Costing 849 A Look Back 850 A Look Forward 851 Self-Study Review Problem 851 Key Terms 853

13 Questions 853 Exercises-Series A 854 Problems-Series A 858 Exercises-Series B 865 Problems-Series B 869 Analyze, Think, Communicate 875 Comprehensive Problem 878 Chapter 18 Job-Order, Process, and Hybrid Cost Systems 880 Chapter Opening 881 Cost Systems 882 Cost Systems and Type of Product 882 Job-Order Cost Flow 882 Process Cost Flow 883 Hybrid Accounting Systems 884 Documentation in a Job-Order Cost System 884 Job-Order Cost System Illustrated 886 Process Cost System Illustrated 893 A Look Back 904 A Look Forward 904 Self-Study Review Problem Self-Study Review Problem Key Terms 906 Questions 906 Exercises-Series A 907 Problems-Series A 911 Exercises-Series B 916 Problems-Series B 920 Analyze, Think, Communicate 924 Comprehensive Problem 928 Chapter 19 Analysis of Cost, Volume, and Pricing to Increase Profitability 930 Chapter Opening 931 Determining the Contribution Margin per Unit 932 Determining the Break-Even Point 932 Using the Contribution Approach to Estimate the Sales Volume Necessary to Reach a Target Profit 933 Using the Contribution Approach to Estimate the Effects of Changes in Sales Price 934 Target Pricing 935 Using the Contribution Approach to Estimate the Effects of Changes in Variable Costs 935 Using the Contribution Approach to Estimate the Effects of Changes in Fixed Costs 936 Using the Cost-Volume Profit Graph 937 Calculating the Margin of Safety 938 Performing Sensitivity Analysis Using Spreadsheet Software 941 Assessing the Pricing Strategy 941 Using the Contribution Approach to Assess the Effect of Simultaneous Changes in CVP Variables 942 A Decrease in Sales Price Accompanied by an Increase in Sales Volume 942

14 ,..:;*-»e* An Increase in Fixed Cost Accompanied by an Increase in Sales Volume 942 A Simultaneous Reduction in Sales Price, Fixed Costs, Variable Costs, and Sales Volume 943 Performing Cost-Volume-Profit (CVP) Analysis Using the Contribution Margin Ratio 943 Performing Cost-Volume-Profit Analysis Using the Equation Method 944 Cost-Volume-Profit Limitations 945 A Look Back 946 A Look Forward 946 APPENDIX 947 Self-Study Review Problem 949 Key Terms 950 Questions 950 Exercises Series A 951 Problems Series A 954 Exercises-Series B 958 Problems-Series B 961 Analyze, Think, Communicate 964 Comprehensive Problem 967 Chapter 20 Relevant Information for Special Decisions 968 Chapter Opening 969 The Decision Environment 970 Relevant Information 970 Sunk Cost 970 Relevant (Differential) Revenues 971 Relevant (Avoidable) Costs 971 Relevance Is an Independent Concept 972 Relevance of Opportunity Costs 973 Relevance Is Context-Sensitive 974 Relationship Between Relevance and Accuracy 974 Quantitative Versus Qualitative Characteristics of Decision Making 975 Relevant Information and Special Decisions 975 Special Order Decisions 975 Outsourcing Decisions 977 Segment Elimination Decisions 980 Summary of Relationships Between Avoidable Costs and the Hierarchy of Business Activity 983 Equipment Replacement Decisions 983 A Look Back 985 A Look Forward 985 Appendix 986 Self-Study Review Problem 988 Key Terms 990 Questions 990 Exercises Series A 991 Problems-Series A 997 Exercises Series B 1002 Problems-Series B 1009 Analyze, Think, Communicate 1014 Comprehensive Problem 1017

15 Chapter 21 Planning for Profit and Cost Control 1018 Chapter Opening 1019 The Planning Process 1020 Three Levels of Planning for Business Activity 1020 Advantages of Budgeting 1021 Planning 1021 Coordination 1021 Performance Measurement 1021 Corrective Action 1021 Budgeting and Human Behavior 1022 The Master Budget 1022 Hampton Hams Budgeting Illustration 1023 Sales Budget 1023 Inventory Purchases Budget Selling and Administrative Expense ' Budget 1027 Cash Budget 1029 Pro Forma Income Statement 1031 Pro Forma Balance Sheet 1032 Pro Forma Statement of Cash Flows 1032 A Look Back 1033 A Look Forward 1034 Self-Study Review Problem 1034 Key Terms 1036 Questions 1036 Exercises-Series A 1036 Problems-Series A 1042 Exercises-Series B 1045 Problems-Series B 1051 Analyze, Think, Communicate 1055 Comprehensive Problem 1058 Chapter 22 Performance Evaluation 1060 Chapter Opening 1061 Preparing Flexible Budgets 1062 Determining Variances for Performance Evaluation 1063 Sales Volume Variances 1063 Flexible Budget Variances 1065 The Human Element Associated with Flexible Budget Variances 1067 Establishing Standards 1068 Need for Standard Costs 1069 Selecting Variances to Investigate 1069 Flexible Budget Manufacturing Cost Variances 1070 Price and Usage Variances 1072 Variable Overhead Variances 1075 Fixed Overhead Variances 1076 Summary of Manufacturing Cost Variances 1077 General, Selling, and Administrative Cost Variances 1077 A Look Back 1079 A Look Forward 1081 Self-Study Review Problem 1081 Key Terms 1082 Questions 1083 Exercises-Series A 1084 Problems-Series A 1088 Exercises-Series B 1093 Problems-Series B 1097 Analyze, Think, Communicate 1103 Comprehensive Problem 1106

16 ! «! % ;,;«=< :*»' *8' Chapter 23 Responsibility Accounting 1108 Chapter Opening 1110 Decentralization Concept 1110 Organization Chart 1111 Responsibility Centers 1111 Responsibility Reports 1111 Management by Exception and Degree of Summarization 1111 Controllability Concept 1113 Qualitative Reporting Features 1114 Managerial Performance Measurement 1114 Return on Investment 1115 Residual Income 1119 Responsibility Accounting and the Balanced Scorecard 1121 A Look Back 1122 A Look Forward 1122 Appendix 1123 Self-Study Review Problem 1126 Key Terms 1127 Questions 1127 Exercises-Series A 1128 Problems-Series A 1132 Exercises-Series B 1136 Problems-Series B 1140 Analyze, Think, Communicate 1144 Comprehensive Problem 1147 Chapter 24 Planning for Capital Investments 1148 Chapter Opening 1150 Capital Investment Decisions 1150 Time Value of Money 1150 Techniques for Analyzing Capital Investment Proposals 1155 Wet Present Value 1155 Internal Rate of Return 1156 Techniques for Measuring Investment Cash Flows 1157 Cash Inflows 1157 Cash Outflows 1157 Techniques for Comparing Alternative Capital Investment Opportunities 1158 Net Present Value 1158 Internal Rate of Return 1160 Relevance and the Time Value of Money 1162 Tax Considerations 1163 Techniques that Ignore the Time Value of Money 1164 Payback Method 1164 Real-World Reporting Practices 1166 Postaudits 1167 A Look Back 1167 A Look Forward 1168 Appendix 1168 Self-Study Review Problem 1169 Key Terms 1170 Questions 1170 Exercises-Series A 1171 Problems-Series A 1175 Exercises-Series B 1178 Problems-Series B 1181 Analyze, Think, Communicate 1184 Comprehensive Problem 1187 v Appendix A Accessing the EDGAR Database through the Internet 1189 Appendix B Topps Annual Report for Glossary 1224 Photo Credits 1241 Index 1242