FINANCIAL STATEMENTS

Transcription

1 INTERPRETING AND ANALYZING FINANCIAL STATEMENTS A PROJECT-BASED APPROACH SIXTH EDITION KAREN P. SCHOENEBECK MARK P. HOLTZMAN

2 TABLE OF CONTENTS Preface ix ^ ^ ^ ^ ^ ^ ^ ^ Nike, Under Armour, Adidas WHAT IS ACCOUNTING? 1 THE FOUR FINANCIAL STATEMENTS 2 THE BALANCE SHEET 3 THE INCOME STATEMENT 5 STATEMENT OF STOCKHOLDERS'EQUITY 6 STATEMENT OF CASH FLOWS 6 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) 7 Historical Cost Principle 7 INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) 8 RATIO ANALYSIS 8 Debt Ratio 8 Asset Turnover Ratio 10 Return on Sales (ROS) Ratio 10 Return on Assets (ROA) Ratio 11 TREND ANALYSIS 12 COMMON-SIZE STATEMENTS 13 ACTIVITIES The Walt Disney Company, News Corp, Time Warner INTRODUCTION 32 UNDERSTANDING THE WALT DISNEY COMPANY'S BALANCE SHEET 34 Current Assets 35 Noncurrent Assets 36 Current Liabilities 37 in

3 Noncurrent Liabilities 37 INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) 38 DEBT VERSUS EQUITY 39 ANALYZING THE BALANCE SHEET 39 Liquidity: Current Ratio 39 Solvency: Debt Ratio 40 Trend Analysis 41 Common-size Balance Sheet 42 ACTIVITIES CHAPTER 3 INCOME STATEMENT Amazon.com, Sears Holdings, ebay, Starbucks INTRODUCTION 60 UNDERSTANDING AMAZON.COM'S INCOME STATEMENT 60 STEP ONE: REVENUES - COST OF SALES = GROSS PROFIT 62 Revenues and Revenue Recognition 62 Expenses and the Matching Principle 63 STEP TWO: GROSS PROFIT - OPERATING EXPENSES = OPERATING INCOME 65 STEP THREE: OPERATING INCOME +/- NONOPERATING REVENUES AND EXPENSES = INCOME BEFORE INCOME TAX 66 STEP FOUR: INCOME BEFORE INCOME TAX - PROVISION FOR INCOME TAX = INCOME FROM CONTINUING OPERATIONS 67 STEP FIVE: INCOME FROM CONTINUING OPERATIONS +/- NONRECURRING ITEMS = NET INCOME 68 ANALYZING THE INCOME STATEMENT 69 Return on Sales 70 Asset Turnover Ratio 71 Return on Assets 72 Gross Profit Margin 73 Trend Analysis 74 Common-Size Analysis 75 ACTIVITIES IV

4 CHAPTER 4 STATEMENT OF STOCKHOLDERS' EQUITY Freeport-McMoRan Copper & Gold INTRODUCTION 94 STOCKHOLDERS' EQUITY ON THE BALANCE SHEET 96 STATEMENT OF STOCKHOLDERS'EQUITY 97 TREASURY STOCK 99 RETAINED EARNINGS 100 OTHER COMPREHENSIVE INCOME 100 STOCK SPLITS & STOCK DIVIDENDS 101 RETURN ON EQUITY 101 FINANCIAL LEVERAGE RATIO 102 TIMES INTEREST EARNED RATIO 103 EARNINGS PER SHARE 104 DIVIDEND RATE 105 PRICE EARNINGS RATIO 105 ACTIVITIES CHAPTER 5 STATEMENT OF CASH FLOWS Cedar Fair, LP. INTRODUCTION 121 THREE CATEGORIES OF CASH FLOWS 124 Financing Activities 125 Investing Activities 126 Operating Activities 127 Operating Activities The Direct Method 127 Operating Activities The Indirect Method 129 INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) 131 ANALYZING THE STATEMENT OF CASH FLOWS 132 Free Cash Flow 132 Cash Flow Adequacy 133 Cash Flow Liquidity 133 Quality of Income 134 ACTIVITIES

5 CHAPTER 6 SPECIFIC ACCOUNTS Research in Motion Limited, Motorola Mobility, Inc. INTRODUCTION 156 CASH AND CASH EQUIVALENTS 158 INVESTMENTS 158 ACCOUNTS RECEIVABLE 159 Accounts Receivable Turnover 161 Accounts Receivable Days 161 INVENTORY 162 Specific Identification 162 First-ln, First-Out 162 Last-In, First-Out 165 International Financial Reporting Standards 166 Gross Profit Margin 166 Inventory Turnover 167 Inventory Days 168 PROPERTY, PLANT, AND EQUIPMENT 169 Straight-Line Depreciation 169 Double-Declining Balance Depreciation 170 Comparing Straight-Line with Double-Declining Balance 172 Gains and Losses on Sale of PPE 172 International Financial Reporting Standards 174 CURRENT AND LONG-TERM LIABILITIES :. 174 ACTIVITIES 55T INTRODUCTION ^ THE 10-STEP ACCOUNTING CYCLE 212 ANALYZE TRANSACTIONS USING THE ACCOUNTING EQUATION 216 PREPARE JOURNAL ENTRIES USING DEBITS AND CREDITS 220 Step 1: Analyze and Prepare Transaction Journal Entries (TJEs) 221 Step 2: Post TJEs to the Ledger 223 Step 3: Prepare the Unadjusted Trial Balance 224 Step 4: Prepare Adjusting Journal Entries (AJEs) 224 VI

6 Step 5: Post AJEs to the Ledger 225 Step 6: Prepare the Adjusted Trial Balance 226 Step 7: Prepare the Financial Statements 226 Step 8: Prepare Closing Journal Entries (CJEs) 228 Step 9: Post CJEs to the Ledger 230 Step 10: Prepare the Post-Closing Trial Balance 231 TRANSACTION JOURNAL ENTRIES OF A MERCHANDISE RETAILER 231 MORE ADJUSTING JOURNAL ENTRIES 232 ACTIVITIES ACTIVITIES ACTIVITIES APPENDIX A FEATURED CORPORATIONS 315 APPENDIX B RATIOS 323 GLOSSARY 330 INDEX 337 VII