Financial & Managerial Accounting for Decision Makers, 5e

by Hanlon, Magee, Pfeiffer, Kulp, Dragoo

| ISBN: 978-1-61853-564-1 | Copyright 2024

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Road Map
LO Learning Objective Page eLecture Guided Example Assignments
LO2.1

Describe and construct the balance sheet and understand how it can be used for analysis.

2-3

M2-14, M2-15, M2-16, M2-17, M2-19, M2-21, M2-22, M2-23, M2-24, M2-25, M2-26, M2-27, M2-29, M2-30, M2-31, E2-34, E2-35, E2-36, E2-37, E2-38, E2-39, E2-40, E2-41, E2-42, E2-43, E2-44, E2-46, E2-47, P2-49, P2-50, P2-51, P2-52, P2-53, P2-54, P2-55, P2-56, P2-57, P2-59, P2-60, P2-62, P2-66, P2-67, P2-69, C2-71, DA2-1

LO2.2

Use the financial statement effects template (FSET) to analyze transactions.

2-8

M2-18, M2-29, M2-30, M2-31, E2-44, E2-45, E2-47, P2-57, P2-62, P2-67, P2-69, DA2-4

LO2.3

Describe and construct the income statement and discuss how it can be used to evaluate management performance.

2-12

M2-19, M2-20, M2-21, M2-22, M2-23, M2-28, M2-31, E2-35, E2-37, E2-39, E2-40, E2-41, E2-42, E2-43, E2-44, E2-47, P2-49, P2-50, P2-51, P2-54, P2-57, P2-61, P2-62, P2-64, P2-65, P2-66, P2-67, P2-69, C2-71, C2-72, DA2-2

LO2.4

Explain revenue recognition, accrual accounting, and their effects on retained earnings.

2-14


M2-18, M2-19, M2-20, M2-22, M2-23, M2-25, M2-26, M2-28, M2-29, M2-31, E2-39, E2-44, E2-47, P2-57, P2-62, P2-67, P2-69, C2-71

LO2.5

Illustrate equity transactions and the statement of stockholders' equity.

2-19

M2-18, M2-21, M2-22, M2-23, M2-24, M2-27, M2-31, E2-35, E2-36, E2-37, P2-53, P2-66, P2-67, P2-69, C2-71

LO2.6

Use journal entries and T-accounts to analyze and record transactions.

2-21

M2-32, M2-33, E2-45, E2-48, P2-58, P2-63, P2-68, P2-70, DA2-3

LO2.7

Compute net working capital, the current ratio, and the quick ratio, and explain how they reflect liquidity.

2-30

E2-34, E2-36, E2-38, E2-41, E2-42, E2-46, P2-52, P2-55, P2-56, P2-59, P2-60

Data Analytics & Excel Skill Development for Career Readiness

The basics of accounting havent changed much in hundreds of years, but businesses have experienced significant change in the past decade due to the increased use of new technologies ranging from data analytics and Blockchain to machine learning and artificial intelligence. Technology is rapidly altering how accounting is performed and what can be done with the data once they are collected. In response to the changing demands of the business world, the AACSB has incorporated data analytics requirements within its educational framework. More recently, the AICPA and NASBA have underscored the importance of data analytics by making it a significant element in the CPA Evolution Model Curriculum. The consensus suggests that todays business students need an understanding and working knowledge of data analytics and data visualization to compete for the best jobs. In addition, employers expect prospective employees to be proficient with Excel.

In recognition of the increasing importance of data analytics and the need for Excel proficiency, the Fifth Edition includes several new features to enhance students’ career readiness.

  • In many chapters, we use data visualizations to depict financial information. It is important for students to become comfortable interpreting visual depictions of data.


  • Each chapter includes assignments that require students to use Excel and Tableau to hone data analysis and data visualization skills.

  • Appendix B, at at the end of the book, provides an overview of data analytics, data visualization, and best practices for the effective display of data.


  • myBusinessCourse (MBC) now contains a series of short videos that demonstrate the basic functions of Excel. These videos can be accessed within MBC as part of your MBC course. In addition, a number of the data analytic problems are accompanied by videos, demonstrating how to complete the assignment or a similar assignment.




Introducing myBusinessCourse

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Welcome to the Fifth Edition of Financial & Managerial Accounting for Decision Makers!

To the adopters of the previous editions, thank you for contributing to the succes of those editions. We wrote this book to equip students with the accounting techniques and insignts necessary to succeed in today's business environment. It reflects our combined experience in teaching accounting to college students at all levels. For anyone who pursues a career in business, the ability to read, analyze, and interpret accounting information is an essential skill. Financial & Managerial Accounting for Decision Makers is written for future business leaders who want to understand how accounting information is prepared and how the information is used by investors, creditors, financial analysts, and managers. Our goal is to provide the most engaging, relevant, and accessible textbook available.


Target Audience

Financial & Managerial Accounting for Decision Makers is intended for use in an introductory accounting course that combines financial and managerial accounting concepts, at either the undergraduate or the graduate level; one that balances the preparation of accounting information with its analysis and interpretation.

Financial & Managerial Accounting for Decision Makers is real-world oriented and focuses on the most salient aspects of accounting. It teaches students how to read, analyze, and interpret accounting data to make informed business decisions. To that end, it consistently incorporates real company data, both in the body of each chapter and throughout the assignment material.


Real Data Incorporated Throughout

Today's business students must be skilled in using real financial statements to make business decisions. We feel strongly that the more students are exposed to real financial statements, the more comfortable they become with the differences in financial statements that exist across companies and industries. Through their exposure to various financial statements, students will learn that, while financial statements do not all look the same, they can readily understand and interpret them to make business decisions. Because we update all of the examples throughout the chapters with the most recently available information, students will see the impact of recent events on financial statements, such as the impact of the COVID-19 pandemic. Furthermore, today’s students must have the skills to go beyond basic financial statements to interpret and apply nonfinancial disclosures, such as note disclosures and supplementary reports. We expose students to the analysis and interpretation of real company data and nonfinancial disclosures through the use of focus companies in each chapter, the generous incorporation of note disclosures, financial analysis discussions in many chapters, and an abundance of assignments that draw on real company data and disclosures. This analysis extends into managerial accounting topics where real world companies are the basis for hypothetical, yet typical and relevant decision-making scenarios. An ample number of open-ended critical thinking questions are intermingled within the content of each chapter and include suggested solutions.


Focus Companies for Each Chapter

Each chapter’s content is explained through the accounting and reporting activities of real companies. Each chapter incorporates a “focus company” for special emphasis and demonstration. The enhanced instructional value of focus companies comes from the way they engage students in real analysis and interpretation. Focus companies were selected based on student appeal and the diversity of industries.


Road Maps

Each chapter opens with a Road Map that identifies each learning objective for the chapter, the related page numbers, the eLecture videos, the reviews, and the assignments. This table allows students and faculty to quickly grasp the chapter content and to efficiently navigate the desired topic.



Note Disclosures and Management Disclosures

We incorporate note disclosures and other management disclosures, where appropriate, throughout the book. We explain the significance of the note disclosure and then demonstrate how to use the disclosed information to make managerial inferences and decisions. A representative sample follows:



Financial Analysis Discussions

Each financial accounting chapter includes a financial analysis discussion that introduces key ratios and applies them to the financial statements of the chapter’s focus company. By weaving some analysis into each chapter, we try to instill in students a deeper appreciation for the significance of the accounting methods being discussed. One such analysis discussion follows:

Assignments that Draw on Real Data

It is essential for students to be able to apply what they have learned to real financial statements. Therefore, we have included an abundance of assignments in each chapter that draw on recent, real data and disclosures. These assignments are readily identified by an icon in the margin that includes the company’s ticker symbol and the exchange on which the company’s stock trades. A representative example follows:


Balanced Approach

As instructors of introductory financial accounting, we recognize that the first financial accounting course serves the general business students as well as potential accounting majors. Financial & Managerial Accounting for Decision Makers embraces this reality. This book balances financial reporting, analysis, interpretation, and decision making with the more standard aspects of accounting such as journal entries, T-accounts, and the preparation of financial statements.

3-Step Process: Analyze, Journalize, Post

One technique we use throughout the book to maintain a balanced approach is the incorporation of a 3-step process to analyze and record transactions. Step 1 analyzes the impact of various transactions on the financial statements using the financial statement effects template (FSET). Step 2 records the transaction using journal entries, and Step 3 requires students to post the journal entries to T-accounts.



The FSET captures each transaction’s effects on the four financial statements: the balance sheet, income statement, statement of stockholders’ equity, and statement of cash flows. For the balance sheet, we differentiate between cash and noncash assets to identify the cash effects of transactions. Likewise, equity is separated into the contributed and earned capital components. (The latter includes retained earnings as its major element.) Finally, income statement effects are separated into revenues, expenses, and net income. (The updating of retained earnings is denoted with an arrow line running from net income to earned capital.) The FSET provides a convenient means to represent financial accounting transactions and events in a simple, concise manner for assessing their effects on financial statements. To provide faculty flexibility to tailor instruction, all relevant end of chapter materials can be assigned using the journal entry approach or the FSET approach.



Innovative Pedagogy

Business Insights, Critical Thinking, and Decision Making

Students appreciate and become more engaged when they can see the real-world relevance of what they are learning in the classroom. We have included a generous number of current, real-world examples in Business Insight boxes and through critical thinking and decision-making questions. The following is a representative example:



Learning Objective Reviews

Accounting can be challenging—especially for students lacking business experience or previous exposure to business courses. To reinforce concepts presented in each chapter and to ensure student comprehension, we include a review problem at the conclusion of each learning objective. Answers to the review problems are included at the end of the chapter. Each review has a corresponding Guided Example video, available to students in myBusinessCourse (MBC), our online learning and homework system. In addition, each Review is assignable in MBC.


New to the Fifth Edition

Global Changes

New to this edition, we have

  • Expanded the coverage, resources, and assignments related to data analytics and Excel skill development in an effort to enhance student career readiness.
  • Added a Road Map to each chapter that summarizes the reviews and assignments for each learning objective in the chapter.
  • Added review problems to the end of each learning objective, replacing the mid-chapter and end of chapter reviews.
  • Updated numbers for examples, illustrations, and assignments that use real data.
  • Revised nearly all of the assignments in each chapter with updated data, and in some cases, replaced the chapter’s focus company.

Financial Accounting Chapters (1-12)

  • Chapter Updates:  As appropriate, the text and assignments have been updated to reflect the latest FASB standards and other current information:

    • Chapter 4 incorporates restricted cash as part of total cash presented on the statement of cash flows.
    • Chapter 5 includes updated information on industry ratios that is referenced in real life examples not only in this chapter, but throughout the text.
    • Chapter 8 includes a discussion on digital assets with a supporting end of chapter assignment.
    • Chapter 10 discusses the election in lease accounting to not separate lease and non-lease components.
    • Chapter 11 reflects the new guidance on accounting for convertible instruments (including the impact on diluted EPS).
    • Chapter 12 briefly discusses the recording of credit losses on available-for-sale debt securities and new guidance on the amortization of goodwill for private companies.
    • Expanded the FSET presentation in Chapter 4 (transactions that impact the statement of cash flows) and in Chapter 10 (accounting for operating leases by the lessee).
  • Deere & Co. replaced Delta Air Lines as the focus company of Chapter 10.
  • In addition to the chapter-specific changes, there have been several changes that span all financial accounting chapters. Some of these changes include:
    • Expanded all end of chapter materials to allow for the assigning of either the journal entry approach or the FSET approach.
    • Updated note disclosures and other nonfinancial disclosures.
    • Updated excerpts from the business and popular press.
    • Nearly all of the assignments in each chapter have been revised with updated data or replaced with a new company.

Managerial Accounting Chapters (13-24)

In general, we made significant improvements to the flow of each chapter and enhanced topical coverage.

  • Emphasized critical thinking required in managerial decision-making through new questions inserted within, and directly related to, the chapter content.
  • Highlighted ESG implications of each chapter’s topics in a variety of ways, including new text discussions, critical thinking questions, and end-of-chapter assignments—all marked with an ESG icon. 


  • Streamlined, revamped, and rearranged chapter content to improve the chapter flow.
  • Revised, enhanced, and added new chapter exhibits and graphics.
  • Added many new end-of-chapter assignments (over 80 new assignments in total).
    • Added new assignments to ensure adequate coverage per learning objective.
    • Expanded ethics-related assignments, identified with an ethics icon.


    • Added CMA adapted questions, identified with a CMA icon. Permission has been received from the Institute of Certified Management Accountants to use questions and/or unofficial answers from past CMA examinations.


  • Changed many focus companies to increase student interest. We reference the focus company for the vast majority of examples within a chapter for a more consistent presentation. In a similar way, we utilize a competitor to the focus company throughout many of the chapter reviews.
  • New Chapter Focus Companies:


Teaching Supplements

Solutions Manual: Created by the authors, the Solutions Manual contains complete solutions to all the assignment material in the text.

PowerPoint: The PowerPoint slides outline key elements of each chapter.

Test Bank: The test bank includes multiple choice items, short essay questions, and problems.

myBusinessCourse: An online learning and assessment program intended to complement your textbook and classroom instruction. Access to myBusinessCourse is FREE with the purchase of a new textbook but can also be purchased separately.



Expand/Collapse All
Preface (pg. v)
Brief Contents (pg. xvi)
Contents (pg. xvii)
Chapter 1: Introducing Financial Accounting (pg. 1-1)
Nike (pg. 1-2)
Demand for Accounting Information (pg. 1-3)
Who Uses Financial Accounting Information? (pg. 1-4)
Costs and Benefits of Disclosure (pg. 1-6)
Review 1-1 (pg. 1-6)
Business Activities (pg. 1-7)
Planning Activities (pg. 1-7)
Investing Activities (pg. 1-8)
Financing Activities (pg. 1-9)
Operating Activities (pg. 1-10)
Review 1-2 (pg. 1-10)
Financial Statements (pg. 1-11)
Balance Sheet (pg. 1-11)
Income Statement (pg. 1-12)
Statement of Stockholders’ Equity (pg. 1-13)
Statement of Cash Flows (pg. 1-13)
Financial Statement Linkages (pg. 1-14)
Information Beyond Financial Statements (pg. 1-15)
Review 1-3 (pg. 1-16)
Financial Reporting Environment (pg. 1-16)
Generally Accepted Accounting Principles (pg. 1-17)
Regulation and Oversight (pg. 1-17)
Role of the Auditor (pg. 1-19)
A Global Perspective (pg. 1-19)
Review 1-4 (pg. 1-20)
Analyzing Financial Statements (pg. 1-21)
Profitability Analysis (pg. 1-21)
Analysis Objective (pg. 1-21)
Credit Risk Analysis (pg. 1-23)
Analysis Objective (pg. 1-23)
Technology and Accounting (pg. 1-24)
Organization of the Book (pg. 1-24)
Review 1-5 (pg. 1-25)
Appendix 1A: Conceptual Framework for Financial Reporting (pg. 1-25)
Objective of Financial Reporting (pg. 1-25)
Qualitative Characteristics of Useful Financial Information (pg. 1-26)
Enhancing Qualitative Characteristics (pg. 1-27)
The Cost Constraint (pg. 1-27)
Additional Underlying Basic Assumptions (pg. 1-27)
Review 1-6 (pg. 1-28)
Summary (pg. 1-28)
Guidance Answers . . . You Make the Call (pg. 1-29)
Key Ratios (pg. 1-30)
Multiple Choice (pg. 1-30)
Questions (pg. 1-31)
Data Analytics (pg. 1-32)
Data Visualization (pg. 1-33)
Mini Exercises (pg. 1-33)
Exercises (pg. 1-34)
Problems (pg. 1-35)
Cases and Projects (pg. 1-37)
Solutions to Review Problems (pg. 1-39)
Chapter 2: Constructing Financial Statements (pg. 2-1)
Walgreens (pg. 2-2)
Reporting Financial Condition (pg. 2-3)
Assets (pg. 2-3)
Liabilities and Equity (pg. 2-6)
Review 2-1 (pg. 2-8)
Analyzing and Recording Transactions for the Balance Sheet (pg. 2-8)
Review 2-2 (pg. 2-12)
Reporting Financial Performance (pg. 2-12)
Review 2-3 (pg. 2-13)
Accrual Accounting for Revenues and Expenses (pg. 2-14)
Retained Earnings (pg. 2-15)
Analyzing and Recording Transactions for the Income Statement (pg. 2-16)
Review 2-4 (pg. 2-19)
Reporting on Equity (pg. 2-19)
Analyzing and Recording Equity Transactions (pg. 2-19)
Statement of Stockholders’ Equity (pg. 2-20)
Review 2-5 (pg. 2-21)
Journalizing and Posting Transactions (pg. 2-21)
T-Account (pg. 2-21)
Debit and Credit System (pg. 2-22)
T-Account with Debits and Credits (pg. 2-23)
The Journal Entry (pg. 2-23)
Analyze, Journalize, and Post (pg. 2-24)
Review 2-6 (pg. 2-29)
Analyzing Financial Statements (pg. 2-30)
Analysis Objective (pg. 2-30)
Review 2-7 (pg. 2-32)
Summary (pg. 2-33)
Guidance Answers . . . You Make the Call (pg. 2-33)
Key Ratios (pg. 2-34)
Multiple Choice (pg. 2-34)
Questions (pg. 2-34)
Data Analytics (pg. 2-35)
Data Visualization (pg. 2-36)
Mini Exercises (pg. 2-36)
Exercises (pg. 2-40)
Problems (pg. 2-45)
Cases and Projects (pg. 2-52)
Solutions to Review Problems (pg. 2-53)
Chapter 3: Adjusting Accounts for Financial Statements (pg. 3-1)
Walgreens (pg. 3-2)
Accounting Cycle (pg. 3-3)
Analyzing, Recording, and Posting (pg. 3-4)
Review of Accounting Procedures (pg. 3-4)
Review of Recording Transactions (pg. 3-4)
Review 3-1 (pg. 3-11)
Adjusting the Accounts (pg. 3-11)
Preparing an Unadjusted Trial Balance (pg. 3-11)
Types of Adjustments (pg. 3-12)
Ethics and Adjusting Entries (pg. 3-18)
Review 3-2 (pg. 3-19)
Constructing Financial Statements from Adjusted Accounts (pg. 3-19)
Preparing an Adjusted Trial Balance (pg. 3-19)
Preparing Financial Statements (pg. 3-21)
Review 3-3 (pg. 3-23)
Closing Temporary Accounts (pg. 3-24)
Closing Process (pg. 3-24)
Closing Steps Illustrated (pg. 3-25)
Preparing a Post-Closing Trial Balance (pg. 3-26)
Subsequent Events (pg. 3-26)
Summarizing the Accounting Cycle (pg. 3-26)
Review 3-4 (pg. 3-27)
Financial Statement Analysis (pg. 3-27)
Using Information on Levels and Flows (pg. 3-27)
Review 3-5 (pg. 3-28)
Summary (pg. 3-29)
Guidance Answers . . . You Make the Call (pg. 3-29)
Multiple Choice (pg. 3-29)
Questions (pg. 3-30)
Data Analytics (pg. 3-31)
Data Visualization (pg. 3-32)
Mini Exercises (pg. 3-32)
Exercises (pg. 3-35)
Problems (pg. 3-38)
Cases and Projects (pg. 3-48)
Solutions to Review Problems (pg. 3-50)
Chapter 4: Reporting and Analyzing Cash Flows (pg. 4-1)
CVS Health Corporation (pg. 4-2)
Purpose of the Statement of Cash Flows (pg. 4-3)
What Do We Mean by “CASH”? (pg. 4-3)
What Does a Statement of Cash Flows Look Like? (pg. 4-4)
Framework for the Statement of Cash Flows (pg. 4-4)
Operating Activities (pg. 4-5)
Investing Activities (pg. 4-5)
Financing Activities (pg. 4-5)
Usefulness of Classifications (pg. 4-6)
Review 4-1 (pg. 4-7)
Preparing the Statement of Cash Flows-Operating Activities (pg. 4-7)
Converting Revenues and Expenses to Cash Flows from Operating Activities (pg. 4-10)
Review 4-2 (pg. 4-16)
Reconciling Net Income and Cash Flow from Operating Activities (pg. 4-17)
Cash Flow from Operating Activities Using the Indirect Method (pg. 4-18)
Review 4-3 (pg. 4-19)
Preparing the Statement of Cash Flows-Investing and Financing Activities (pg. 4-19)
Cash Flows from Investing Activities (pg. 4-20)
Cash Flows from Financing Activities (pg. 4-20)
Review 4-4 (pg. 4-22)
Additional Detail in the Statement of Cash Flows (pg. 4-23)
Case Illustration (pg. 4-23)
Gains and Losses on Investing and Financing Activities (pg. 4-24)
Noncash Investing and Financing Activities (pg. 4-25)
The Effects of Foreign Currencies on the Statement of Cash Flows (pg. 4-27)
Supplemental Disclosures (pg. 4-28)
Review 4-5 (pg. 4-28)
Analyzing Financial Statements (pg. 4-29)
Interpreting Indirect Method Cash from Operations (pg. 4-29)
Analysis Objective (pg. 4-31)
Analysis Objective (pg. 4-31)
Review 4-6 (pg. 4-32)
Appendix 4A: A Spreadsheet Approach to Preparing the Statement of Cash Flows (pg. 4-33)
Step 1: Classify the balance sheet accounts. (pg. 4-33)
Step 2: Compute the changes in the balance sheet accounts. (pg. 4-33)
Step 3: Handle the accounts that have single classifications. (pg. 4-34)
Step 4: Enter the effect of investing/financing transactions that do not involve cash. (pg. 4-34)
Step 5: Analyze the change in retained earnings. (pg. 4-34)
Step 6: Analyze the change in plant assets. (pg. 4-34)
Step 7: Total the columns. (pg. 4-35)
Step 8: Prepare the statement of cash flows. (pg. 4-35)
Review 4-7 (pg. 4-35)
Summary (pg. 4-35)
Guidance Answers . . . You Make the Call (pg. 4-36)
Key Ratios (pg. 4-37)
Multiple Choice (pg. 4-37)
Questions (pg. 4-38)
Data Analytics (pg. 4-39)
Data Visualization (pg. 4-40)
Mini Exercises (pg. 4-40)
Exercises (pg. 4-44)
Problems (pg. 4-49)
Cases and Projects (pg. 4-56)
Solutions to Review Problems (pg. 4-60)
Chapter 5: Analyzing and Interpreting Financial Statements (pg. 5-1)
Pepsico (pg. 5-2)
Introduction (pg. 5-3)
Assessing the Business Environment (pg. 5-3)
Vertical and Horizontal Analysis (pg. 5-4)
Review 5-1 (pg. 5-6)
Return on Investment (pg. 5-8)
Return on Equity (ROE) (pg. 5-8)
Return on Assets (ROA) (pg. 5-8)
Return on Financial Leverage (ROFL) (pg. 5-9)
Review 5-2 (pg. 5-10)
Disaggregating ROA (pg. 5-11)
Review 5-3 (pg. 5-15)
Appendix 5A: Analyzing and Interpreting Core Operating Activities (pg. 5-23)
Reporting Operating Activities in the Income Statement (pg. 5-23)
Reporting Operating Activities in the Balance Sheet (pg. 5-24)
Disaggregating RNOA (pg. 5-24)
Review 5-5 (pg. 5-25)
Appendix 5B: Financial Statement Forecasts (pg. 5-25)
Step 1. Forecast Sales Revenue (pg. 5-25)
Step 2. Forecast Operating Expenses (pg. 5-26)
Step 3. Forecast Operating Assets and Liabilities (pg. 5-26)
Step 4. Forecast Nonoperating Assets, Liabilities, Revenues, and Expenses (pg. 5-27)
Step 5. Forecast Net Income, Dividends, and Retained Earnings (pg. 5-27)
Step 6. Forecast Cash (pg. 5-28)
Step 7. Prepare the Statement of Cash Flows Forecast (pg. 5-29)
Additional Considerations (pg. 5-29)
Review 5-6 (pg. 5-30)
Summary (pg. 5-30)
Key Ratios (pg. 5-31)
Multiple Choice (pg. 5-31)
Guidance Answers . . . You Make the Call (pg. 5-32)
Questions (pg. 5-32)
Data Analytics (pg. 5-33)
Data Visualization (pg. 5-35)
Mini Exercises (pg. 5-35)
Exercises (pg. 5-38)
Problems (pg. 5-42)
Cases and Projects (pg. 5-48)
Solutions to Review Problems (pg. 5-49)
Chapter 6: Reporting and Analyzing Revenues, Receivables, and Operating Income (pg. 6-1)
MICROSOFT CORPORATION (pg. 6-2)
Reporting Operating Income (pg. 6-3)
Revenue Recognition (pg. 6-5)
Review 6-1 (pg. 6-8)
Revenue Recognition Subsequent to Customer Purchase (pg. 6-8)
Review 6-2 (pg. 6-11)
Review 6-3 (pg. 6-14)
Reporting Accounts Receivable (pg. 6-14)
Determining the Allowance for Uncollectible Accounts (pg. 6-15)
Reporting the Allowance for Uncollectible Accounts (pg. 6-16)
Recording Write-Offs of Uncollectible Accounts (pg. 6-17)
Disclosure Notes and Interpretations (pg. 6-19)
Review 6-4 (pg. 6-21)
Analyzing Financial Statements (pg. 6-22)
Net Operating Profit After Taxes (NOPAT) (pg. 6-22)
Analysis Objective (pg. 6-22)
Analysis Objective (pg. 6-25)
Review 6-5 (pg. 6-26)
Earnings Management (pg. 6-27)
Review 6-6 (pg. 6-28)
Appendix 6A: Reporting Nonrecurring Items (pg. 6-29)
Discontinued Operations (pg. 6-29)
Exit or Disposal Costs (pg. 6-30)
Review 6-7 (pg. 6-31)
Summary (pg. 6-31)
Guidance Answers . . . You Make the Call (pg. 6-32)
Key Ratios (pg. 6-33)
Multiple Choice (pg. 6-33)
Questions (pg. 6-34)
Data Analytics (pg. 6-34)
Data Visualization (pg. 6-36)
Mini Exercises (pg. 6-36)
ExerciseS (pg. 6-39)
Problems (pg. 6-46)
Cases and Projects (pg. 6-49)
Solutions to Review Problems (pg. 6-53)
Chapter 7: Reporting and Analyzing Inventory (pg. 7-1)
Home Depot (pg. 7-2)
Reporting Operating Expenses (pg. 7-3)
Expense Recognition Principles (pg. 7-3)
Reporting Inventory Costs in the Financial Statements (pg. 7-4)
Recording Inventory Costs in the Financial Statements (pg. 7-5)
Inventory and the Cost of Acquisition (pg. 7-6)
Inventory Reporting by Manufacturing Firms (pg. 7-6)
Review 7-1 (pg. 7-7)
Inventory Costing Methods (pg. 7-7)
First-In, First-Out (FIFO) (pg. 7-8)
Last-In, First-Out (LIFO) (pg. 7-9)
Inventory Costing and Price Changes (pg. 7-11)
Average Cost (AC) (pg. 7-11)
Review 7-2 (pg. 7-12)
Lower of Cost or Net Realizable Value (pg. 7-13)
Review 7-3 (pg. 7-14)
Financial Statement Effects and Disclosure (pg. 7-14)
Financial Statement Effects of Inventory Costing (pg. 7-16)
Review 7-4 (pg. 7-19)
Analyzing Financial Statements (pg. 7-20)
Analysis Objective (pg. 7-20)
Analysis Objective (pg. 7-21)
Review 7-5 (pg. 7-25)
Appendix 7A: LIFO Liquidation (pg. 7-25)
Analysis Implications (pg. 7-26)
Review 7-6 (pg. 7-27)
Summary (pg. 7-27)
Guidance Answers . . . You Make the Call (pg. 7-28)
Key Ratios (pg. 7-28)
Multiple Choice (pg. 7-29)
Questions (pg. 7-29)
Data Analytics (pg. 7-30)
Data Visualization (pg. 7-31)
Mini Exercises (pg. 7-31)
Exercises (pg. 7-34)
Problems (pg. 7-37)
Cases and Project (pg. 7-40)
Solutions to Review Problems (pg. 7-42)
Chapter 8: Reporting and Analyzing Long-Term Operating Assets (pg. 8-1)
Procter & Gamble (pg. 8-2)
Introduction (pg. 8-3)
Property, Plant, and Equipment (PPE) (pg. 8-3)
Determining Costs to Capitalize (pg. 8-4)
Review 8-1 (pg. 8-5)
Depreciation (pg. 8-5)
Depreciation Methods (pg. 8-6)
Changes in Accounting Estimates (pg. 8-9)
Review 8-2 (pg. 8-10)
Asset Sales and Impairments (pg. 8-10)
Note Disclosure (pg. 8-12)
Review 8-3 (pg. 8-13)
Analyzing Financial Statements (pg. 8-13)
Analysis Objective (pg. 8-13)
Analysis Objective (pg. 8-14)
Cash Flow Effects (pg. 8-16)
Review 8-4 (pg. 8-17)
Intangible Assets (pg. 8-17)
Research and Development Costs (pg. 8-17)
Patents (pg. 8-18)
Copyrights (pg. 8-19)
Trademarks (pg. 8-19)
Franchise Rights (pg. 8-19)
Amortization and Impairment of Identifiable Intangible Assets (pg. 8-19)
Digital Assets (pg. 8-21)
Goodwill (pg. 8-21)
Note Disclosures (pg. 8-22)
Review 8-5 (pg. 8-23)
Analysis Implications (pg. 8-23)
Review 8-6 (pg. 8-24)
Summary (pg. 8-25)
Guidance Answers . . . You Make the Call (pg. 8-25)
Key Ratios (pg. 8-25)
Multiple Choice (pg. 8-26)
Questions (pg. 8-26)
Data Analytics (pg. 8-27)
Data Visualization (pg. 8-28)
Mini Exercises (pg. 8-28)
Exercises (pg. 8-30)
Problems (pg. 8-34)
Cases and Projects (pg. 8-37)
Solutions to Review Problems (pg. 8-40)
Chapter 9: Reporting and Analyzing Liabilities (pg. 9-1)
Verizon (pg. 9-2)
Introduction (pg. 9-3)
Current Liabilities (pg. 9-4)
Accounts Payable (pg. 9-4)
Accrued Liabilities (pg. 9-6)
Other Current Liabilities (pg. 9-10)
Review 9-1 (pg. 9-10)
Current Nonoperating (Financial) Liabilities (pg. 9-10)
Review 9-2 (pg. 9-13)
Long-Term Liabilities (pg. 9-13)
Installment Loans (pg. 9-13)
Bonds (pg. 9-15)
Pricing of Bonds (pg. 9-15)
Effective Cost of Debt (pg. 9-17)
Review 9-3 (pg. 9-18)
Reporting of Bond Financing (pg. 9-18)
Effects of Discount and Premium Amortization (pg. 9-20)
The Fair Value Option (pg. 9-22)
Effects of Bond Repurchase (pg. 9-24)
Financial Statement Disclosure Notes (pg. 9-24)
Interest and the Statement of Cash Flows (pg. 9-26)
Disclosure of Commitments and Contingencies (pg. 9-26)
Review 9-4 (pg. 9-27)
Analyzing Financial Statements (pg. 9-27)
Analysis Objective (pg. 9-27)
Debt Ratings and the Cost of Debt (pg. 9-29)
Review 9-5 (pg. 9-31)
Summary (pg. 9-32)
Guidance Answers . . . You Make the Call (pg. 9-33)
Key Ratios (pg. 9-33)
Multiple Choice (pg. 9-33)
Questions (pg. 9-34)
Data Analytics (pg. 9-34)
Data Visualization (pg. 9-36)
Mini Exercises (pg. 9-36)
Exercises (pg. 9-40)
Problems (pg. 9-43)
Cases and Projects (pg. 9-46)
Solutions to Review Problems (pg. 9-48)
Chapter 10: Reporting and Analyzing Leases, Pensions, Income Taxes, and Commitments and Contingencie (pg. 10-1)
Deere & Company (pg. 10-2)
Introduction (pg. 10-3)
Leases (pg. 10-3)
Lessee Reporting of Leases (pg. 10-5)
Lease Disclosures (pg. 10-12)
Review 10-1 (pg. 10-14)
Pensions (pg. 10-15)
Balance Sheet Effects of Defined Benefit Pension Plans (pg. 10-15)
Income Statement Effects of Defined Benefit Pension Plans (pg. 10-18)
Note Disclosures-Components of Plan Assets and PBO (pg. 10-18)
Note Disclosures-Components of Pension Expense (pg. 10-20)
Note Disclosures and Future Cash Flows (pg. 10-21)
Other Post-Employment Benefits (pg. 10-23)
Review 10-2 (pg. 10-24)
Accounting For Income Taxes (pg. 10-25)
Book-Tax Differences (pg. 10-25)
Revaluation of Deferred Tax Assets and Liabilities Due to a Tax Rate Change (pg. 10-31)
Income Tax Disclosures (pg. 10-32)
Deferred Taxes in the Statement of Cash Flows (pg. 10-35)
Computation and Analysis of Taxes (pg. 10-35)
Review 10-3 (pg. 10-36)
Commitments and Contengencies and Other Disclosures (pg. 10-36)
Analyzing Financial Statements (pg. 10-38)
Analysis Objective (pg. 10-38)
Review 10-4 (pg. 10-39)
Summary (pg. 10-39)
Guidance Answers . . . You Make The Call (pg. 10-40)
Key Ratios (pg. 10-41)
Multiple Choice (pg. 10-41)
Questions (pg. 10-41)
Data Analytics (pg. 10-42)
Data Visualization (pg. 10-44)
Mini Exercises (pg. 10-44)
Exercises (pg. 10-47)
Problems (pg. 10-53)
Cases and Projects (pg. 10-58)
Solutions to Review Problems (pg. 10-64)
Chapter 11: Reporting and Analyzing Stockholders’ Equity (pg. 11-1)
Pfizer (pg. 11-2)
Introduction (pg. 11-3)
Contributed Capital (pg. 11-4)
Classes of Stock (pg. 11-4)
Accounting for Stock Transactions (pg. 11-7)
Review 11-1 (pg. 11-11)
Earned Capital (pg. 11-11)
Cash Dividends (pg. 11-11)
Stock Dividends and Splits (pg. 11-13)
Stock Transactions and the Statement of Cash Flows (pg. 11-15)
Review 11-2 (pg. 11-15)
Comprehensive Income (pg. 11-16)
Summary of Stockholders’ Equity (pg. 11-17)
Analyzing Financial Statements (pg. 11-17)
Analysis Objective (pg. 11-17)
Review 11-3 (pg. 11-19)
Earnings Per Share (pg. 11-19)
Computation and Analysis of EPS (pg. 11-20)
Review 11-4 (pg. 11-22)
Appendix 11A: Dilutive Securities: Accounting for Convertible Securities, Stock Options, and Restr (pg. 11-22)
Convertible Securities (pg. 11-22)
Stock Rights (pg. 11-23)
Employee Stock Options (pg. 11-24)
Restricted Stock (pg. 11-25)
Review 11-5 (pg. 11-27)
Summary (pg. 11-28)
Guidance Answers . . . You Make the Call (pg. 11-29)
Key Ratios (pg. 11-29)
Multiple Choice (pg. 11-29)
Questions (pg. 11-30)
Data Analytics (pg. 11-31)
Data Visualization (pg. 11-32)
Mini Exercises (pg. 11-32)
Exercises (pg. 11-37)
Problems (pg. 11-43)
Cases and Projects (pg. 11-48)
Solutions to Review Problems (pg. 11-51)
Chapter 12: Reporting and Analyzing Financial Investments (pg. 12-1)
Alphabet (pg. 12-2)
Introduction (pg. 12-3)
Review 12-1 (pg. 12-5)
Fair Value: An Introduction (pg. 12-5)
Review 12-2 (pg. 12-6)
Passive Investments in Debt Securities (pg. 12-6)
Acquisition of the Investment (pg. 12-6)
Investments Reported at Cost (pg. 12-7)
Investments Marked to Fair Value (pg. 12-8)
Sale of the Investment (pg. 12-8)
Debt Investments Marked to Fair Value (pg. 12-9)
Passive Investments in Equity Securities (pg. 12-12)
Financial Statement Disclosures (pg. 12-14)
Potential for Earnings Management (pg. 12-16)
Review 12-3 (pg. 12-17)
Investments with Significant Influence (pg. 12-17)
Accounting for Investments with Significant Influence (pg. 12-18)
Equity Method Accounting and Effects on Ratios (pg. 12-20)
Financial Statement Disclosures (pg. 12-20)
Review 12-4 (pg. 12-21)
Investments with Control (pg. 12-22)
Accounting for Investments with Control (pg. 12-22)
Reporting of Acquired Assets and Liabilities (pg. 12-24)
Noncontrolling Interest (pg. 12-28)
Financial Statement Analysis (pg. 12-30)
Review 12-5 (pg. 12-31)
Appendix 12A: Equity Method Mechanics (pg. 12-31)
Review 12-6 (pg. 12-33)
Appendix 12B: Consolidation Accounting Mechanics (pg. 12-33)
Review 12-7 (pg. 12-34)
Appendix 12C: Accounting for Investments in Derivatives (pg. 12-35)
Review 12-8 (pg. 12-36)
Summary (pg. 12-37)
Guidance Answers . . . You Make the Call (pg. 12-39)
Multiple Choice (pg. 12-39)
Data Analytics (pg. 12-40)
Data Visualization (pg. 12-40)
Mini Exercises (pg. 12-41)
Exercises (pg. 12-44)
Problems (pg. 12-51)
Cases and Projects (pg. 12-54)
Solutions to Review Problems (pg. 12-57)
Chapter 13: Managerial Accounting: Tools for Decision-Making (pg. 13-1)
Warby Parker (pg. 13-2)
Uses of Accounting Information (pg. 13-3)
Financial Accounting (pg. 13-3)
Managerial Accounting (pg. 13-4)
Review 13-1 Comparison of Financial to Managerial Accounting (pg. 13-6)
Missions, Goals, and Strategies (pg. 13-6)
An Organization’s Mission, Goals, and Strategies (pg. 13-6)
Strategic Position Analysis (pg. 13-8)
Managerial Accounting and Goal Attainment (pg. 13-9)
Planning, Organizing, and Controlling (pg. 13-10)
Review 13-2 Managerial Accounting Supporting Strategic Position (pg. 13-11)
Understanding The Value Chain (pg. 13-11)
Illustration of the Value Chain (pg. 13-12)
Usefulness of a Value Chain Perspective (pg. 13-14)
Review 13-3 Classifying Activities Using a Generic Internal Value Chain (pg. 13-15)
Changing Environment of Business (pg. 13-16)
Global Competition and Its Key Dimensions (pg. 13-16)
Big Data and Analysis (pg. 13-16)
Robotics and Cognitive Technologies (pg. 13-17)
Enterprise Risk Management (ERM) (pg. 13-17)
Review 13-4 Big Data Analysis and Enterprise Risk Management (pg. 13-17)
Ethics in Managerial Accounting (pg. 13-18)
Ethical Dilemmas (pg. 13-18)
Codes of Ethics/Conduct (pg. 13-19)
Environmental, Social, and Governance Considerations (pg. 13-20)
Environmental and Social Considerations (pg. 13-20)
Governance Considerations (pg. 13-21)
Review 13-5 Corporate Social Responsibility (pg. 13-21)
Multiple Choice (pg. 13-22)
Data Analytics (pg. 13-22)
Data Visualization (pg. 13-23)
Questions (pg. 13-23)
Mini Exercises (pg. 13-23)
Exercises (pg. 13-25)
Cases and Projects (pg. 13-27)
Solutions to Review Problems (pg. 13-29)
Chapter 14: Cost Behavior, Activity Analysis, and Cost Estimation (pg. 14-1)
Block, Inc. (pg. 14-2)
Cost Behavior Analysis (pg. 14-3)
Four Basic Cost Behavior Patterns (pg. 14-3)
Identifying Cost Behavior Patterns (pg. 14-5)
Factors Affecting Cost Behavior Patterns (pg. 14-6)
Review 14-1 Identifying Cost Behavior (pg. 14-6)
Estimating the Total Cost Function for an Organization or Segment (pg. 14-6)
Relevant Range and the Total Cost Function (pg. 14-7)
Distinguishing between Total Cost, Variable Cost, and Average Cost (pg. 14-9)
Cost Behavior of Committed and Discretionary Fixed Costs (pg. 14-11)
Review 14-2 Estimating Costs Using a Linear Total Cost-Estimating Equation (pg. 14-12)
Analyzing Data for Cost Estimation (pg. 14-12)
High-Low Cost Estimation (pg. 14-12)
Scatter Diagrams (pg. 14-14)
Least-Squares Regression (pg. 14-15)
Review 14-3 Cost Estimation (pg. 14-18)
Additional Issues in Cost Estimation (pg. 14-19)
Adapting to Changes in Technology and Prices (pg. 14-20)
Responding to Environmental Considerations (pg. 14-20)
Matching Activities and Costs (pg. 14-20)
Identifying Cost Drivers (pg. 14-21)
Review 14-4 Identifying Appropriate Cost Drivers (pg. 14-21)
Cost Classification and Decision-Making (pg. 14-21)
Classifying Costs as Direct or Indirect (pg. 14-21)
Combining Cost Behaviors for Decision-Making (pg. 14-22)
Review 14-5 Classifying Costs Using Two Classification Systems Simultaneously (pg. 14-23)
Key Ratios and Equations (pg. 14-24)
Multiple Choice (pg. 14-24)
Data Analytics (pg. 14-25)
Data Visualization (pg. 14-28)
Questions (pg. 14-28)
Mini Exercises (pg. 14-29)
Exercises (pg. 14-32)
Problems (pg. 14-35)
Cases and Projects (pg. 14-36)
Solutions to Review Problems (pg. 14-37)
Chapter 15: Cost-Volume-Profit Analysis and Planning (pg. 15-1)
Razor USA, LLC (pg. 15-2)
Cost-Volume-Profit Analysis (pg. 15-3)
Profit Equation (pg. 15-3)
Using the Profit Equation in Multiple Scenarios (pg. 15-5)
Review 15-1: Determining the Profit Equation (pg. 15-6)
Contribution Income Statement (pg. 15-6)
Analysis Using Contribution Margin (Total, Unit, Ratio) (pg. 15-7)
Sensitivity Analysis (pg. 15-8)
Review 15-2 Preparing a Contribution Income Statement (pg. 15-9)
Break-Even Point and Profit Planning (pg. 15-9)
Determining Break-Even Point and Margin of Safety in Unit Sales (pg. 15-9)
Determining Unit Sales at a Target Profit (pg. 15-10)
Determining Break-Even in Sales Dollars (pg. 15-11)
Determining Sales Dollars at a Target Profit (pg. 15-11)
Creating and Analyzing the Cost-Volume-Profit Graph (pg. 15-12)
Creating and Analyzing the Profit-Volume Graph (pg. 15-13)
Review 15-3 Applying Cost-Volume-Profit Analysis (pg. 15-14)
Multiple-Product Cost-Volume-Profit Analysis (pg. 15-15)
Determining Break-Even in Unit Sales with Multiple Products (pg. 15-15)
Determining Break-Even in Sales Dollars with Multiple Products (pg. 15-16)
Review 15-4 Analyzing Profitability of a Multi-Product Firm (pg. 15-19)
Analysis of Operating Leverage (pg. 15-19)
Sensitivity Analysis (pg. 15-20)
Review 15-5 Applying Operating Leverage Ratio (pg. 15-21)
Appendix 15A: Cost-Volume-Profit Analysis and Income Taxes (pg. 15-21)
Determining Sales at a Target After-Tax Profit (pg. 15-22)
Review 15-6 Determining sales for a desired after-tax profit amount (pg. 15-23)
Key Ratios and Equations (pg. 15-23)
Multiple Choice (pg. 15-23)
Data Analytics (pg. 15-25)
Data Visualization (pg. 15-26)
Questions (pg. 15-26)
Mini Exercises (pg. 15-26)
Exercises (pg. 15-29)
Problems (pg. 15-33)
Cases and Projects (pg. 15-37)
Solutions to Review Problems (pg. 15-38)
Chapter 16: Using Relevant Costs and Differential Analysis for Decision-Making (pg. 16-1)
Boston Beer (pg. 16-2)
Identifying Relevant Revenues and Costs (pg. 16-3)
Equipment Replacement Decision (pg. 16-3)
Review 16-1 Identifying Relevant and Irrelevant Costs (pg. 16-7)
Preparing and Applying Differential Analysis (pg. 16-7)
Equipment Replacement Decision (pg. 16-7)
Review 16-2 Preparing a Differential Analysis for a Machine Purchase Decision (pg. 16-9)
Evaluating Changes in Profit Plans (pg. 16-9)
Evaluating the Effect on the Profit Plan of Discontinuing a Segment (pg. 16-11)
Review 16-3 Applying Differential Analysis to Alternative Profit Scenarios (pg. 16-11)
Special Orders (pg. 16-12)
Review 16-4 Estimating the Profitability of Special Orders (pg. 16-14)
Outsourcing Decisions (Make or Buy) (pg. 16-14)
Review 16-5 Evaluating an Outsourcing Decision (pg. 16-17)
Sell or Process Further (pg. 16-17)
Review 16-6 Evaluating Whether to Sell or Process Further (pg. 16-19)
Appendix 16A: Use of Limited Resources (pg. 16-19)
Single Constraint (pg. 16-19)
Multiple Constraints (pg. 16-20)
Theory of Constraints (pg. 16-20)
Review 16-7 Analyzing Profitability Considering a Scarce Resource (pg. 16-21)
Multiple Choice (pg. 16-22)
Data Analytics (pg. 16-23)
Data Visualization (pg. 16-24)
Questions (pg. 16-24)
Mini Exercises (pg. 16-25)
Exercises (pg. 16-29)
Problems (pg. 16-33)
Cases and Projects (pg. 16-38)
Solutions to Review Problems (pg. 16-41)
Chapter 17: Product Costing: Job and Process Operations (pg. 17-1)
Samsung (pg. 17-2)
Reporting Inventory Costs in Various Organizations (pg. 17-3)
Inventory Categories Reported for Various Types of Organizations (pg. 17-3)
Product and Period Cost Reporting Distinction for Manufacturers (pg. 17-5)
Three Components of Product Costs (pg. 17-6)
Determining Costs of Products Outside of Financial Reporting (pg. 17-7)
Review 17-1 Classifying Inventory Costs (pg. 17-8)
A Closer Look at Manufacturing Overhead (pg. 17-8)
Applying Manufacturing Overhead (pg. 17-8)
Review 17-2 Applying a Predetermined Overhead Rate (pg. 17-11)
Job Order Costing for Products and Services (pg. 17-11)
Production Planning and Control Process (pg. 17-12)
Basic Flow of Costs in Job Order Costing (pg. 17-12)
Illustration of Job Order Cost Flows for Samsung (pg. 17-14)
Statement of Cost of Goods Manufactured and Cost of Goods Sold (pg. 17-18)
Overapplied and Underapplied Overhead (pg. 17-19)
Job Costing in Service Organizations (pg. 17-21)
Review 17-3 Accounting for Costs of Jobs in a Job Order Costing System (pg. 17-22)
Process Costing (pg. 17-22)
Cost of Production Report Using the Weighted-Average Method (pg. 17-23)
First-In, First-Out Process Costing (pg. 17-27)
Process Costing in Service Organizations (pg. 17-27)
Review 17-4 Accounting for Costs in a Process Costing System (pg. 17-28)
Appendix 17A: Absorption and Variable Costing (pg. 17-28)
Basic Concepts (pg. 17-28)
Income Under Absorption and Variable Costing (pg. 17-29)
Production Equals Sales: June (pg. 17-30)
Production Exceeds Sales: July (pg. 17-31)
Sales Exceed Production: August (pg. 17-31)
Evaluating Alternatives to Inventory Valuation (pg. 17-32)
Review 17-5 Computing Inventory Costs Under Absorption and Variable Costing (pg. 17-33)
Key Ratios and Equations (pg. 17-34)
Multiple Choice (pg. 17-34)
Data Analytics (pg. 17-35)
Data Visualization (pg. 17-36)
Questions (pg. 17-36)
Mini Exercises (pg. 17-37)
Exercises (pg. 17-39)
Problems (pg. 17-44)
Cases and Projects (pg. 17-51)
Solutions to Review Problems (pg. 17-53)
Chapter 18: Activity-Based Costing, Customer Profitability, and Activity-Based Management (pg. 18-1)
Unilever (pg. 18-2)
Allocation of Overhead Using Traditional Costing Methods (pg. 18-3)
Applying Overhead with a Plantwide Rate (pg. 18-3)
Applying Overhead with Departmental Rates (pg. 18-5)
Review 18-1 Determining Product Costs Using Traditional Costing (pg. 18-7)
Concepts Underlying Activity-Based Costing (pg. 18-8)
Hierarchy of Activity Costs (pg. 18-8)
Summarizing Activity-Based Costing Concepts (pg. 18-10)
Review 18-2 Identifying Relevant Cost Drivers (pg. 18-10)
Applying Activity-Based Costing (pg. 18-11)
Illustrating the ABC Product Cost Model (pg. 18-11)
Review 18-3 Determining Product Costs Using Activity-Based Costing (pg. 18-14)
Considerations before Implementing Activity-Based Costing (pg. 18-15)
Choosing between Traditional and Activity-Based Costing (pg. 18-15)
Limitations of Activity-Based Costing System (pg. 18-16)
Challenges of Implementing Activity-Based Costing System (pg. 18-16)
Applications of Activity-Based Costing Systems (pg. 18-17)
Activity-Based Management (pg. 18-18)
Review 18-4 Comparing Product Costs Using Traditional and Activity-Based Costing (pg. 18-19)
ABC and Customer Profitability Analysis (pg. 18-19)
Customer Profitability Profile (pg. 18-19)
ABC Customer Profitability Analysis Illustrated (pg. 18-20)
Review 18-5 Analyzing Customer Profitability (pg. 18-22)
Appendix 18A: Profitability Analysis with Activity-Based Cost Drivers (pg. 18-22)
Multi-Level Contribution Income Statement (pg. 18-22)
Variations in Multi-Level Contribution Income Statement (pg. 18-24)
Review 18-6 Performing a Profitability Analysis Using Activity-Based Cost Drivers (pg. 18-25)
Multiple Choice (pg. 18-25)
Data Analytics (pg. 18-26)
Data Visualization (pg. 18-27)
Questions (pg. 18-27)
Mini Exercises (pg. 18-28)
Exercises (pg. 18-31)
Problems (pg. 18-36)
Cases and Projects (pg. 18-43)
Solutions to Review Problems (pg. 18-46)
Chapter 19: Additional Topics in Product Costing (pg. 19-1)
Whole Foods (pg. 19-2)
Allocation of Service Department Costs (pg. 19-3)
Reasons for Allocating Service Department Costs (pg. 19-4)
The Process of Allocating Service Department Costs (pg. 19-4)
Using the Direct Method to Allocate Service Department Costs (pg. 19-6)
Comparing the Direct Method to the Step Method (pg. 19-7)
Using the Step Method to Allocate Service Department Costs (pg. 19-8)
Review 19-1 Allocating Service Department Costs Using the Direct and Step Methods (pg. 19-10)
The Cost of Excess Capacity (pg. 19-11)
Calculating the Overhead Application Rate Under Different Capacity Levels (pg. 19-11)
Calculating the Cost of Excess Capacity (pg. 19-13)
Managing Excess Capacity (pg. 19-13)
Capacity Considerations When Using Dual Overhead Allocation Rates (pg. 19-14)
Review 19-2 Managing Excess Capacity (pg. 19-14)
Just-In-Time (JIT) Inventory Management/Lean Production (pg. 19-14)
Characteristics of JIT/Lean Production Approach (pg. 19-14)
Performance Evaluation Under JIT/Lean Production Approach (pg. 19-17)
Review 19-3 Analyzing Performance in Lean Manufacturing (pg. 19-18)
Increased Focus on Data-Driven Decision-Making (pg. 19-19)
Using Data Effectively (pg. 19-19)
Developing Skills for Decision-Making (pg. 19-20)
Review 19-4 Discussing Risks and Concerns of Access to Big Data (pg. 19-20)
Key Ratios and Equations (pg. 19-21)
Multiple Choice (pg. 19-21)
Data Analytics (pg. 19-22)
Data Visualization (pg. 19-23)
Questions (pg. 19-24)
Mini Exercises (pg. 19-24)
Exercises (pg. 19-26)
Problems (pg. 19-29)
Cases and Projects (pg. 19-34)
Solutions to Review Problems (pg. 19-35)
Chapter 20: Decision-Making: Pricing and Product Cost Management (pg. 20-1)
Potbelly (pg. 20-2)
Cost-Based Pricing (pg. 20-3)
Contrasting a Cost-Based Approach to an Economic Approach (pg. 20-3)
Cost-Based Approaches to Pricing (pg. 20-3)
Review 20-1 Applying Cost-Based Approaches to Pricing (pg. 20-7)
Price-Based Costing (pg. 20-8)
Target Costing: Price-Based Costing (pg. 20-8)
Characteristics of Target Costing (pg. 20-9)
Review 20-2 Applying Target Costing (pg. 20-12)
Continuous Improvement (pg. 20-12)
Kaizen Costing Approach (pg. 20-12)
Review 20-3 Analyzing the Impact of Continuous Improvement Initiatives (pg. 20-13)
Benchmarking to Improve Performance (pg. 20-13)
Applications of Benchmarking (pg. 20-14)
Process of Benchmarking (pg. 20-14)
Review 20-4 Distinguishing Between Benchmarking and Competitor Research (pg. 20-15)
Key Ratios and Equations (pg. 20-15)
Multiple Choice (pg. 20-15)
Data Analytics (pg. 20-16)
Data Visualization (pg. 20-16)
Questions (pg. 20-17)
Mini Exercises (pg. 20-17)
Exercises (pg. 20-18)
Problems (pg. 20-20)
Cases and Projects (pg. 20-23)
Solutions to Review Problems (pg. 20-24)
Chapter 21: Operational Budgeting and Profit Planning (pg. 21-1)
Wayfair (pg. 21-2)
The Budgeting Process (pg. 21-3)
Reasons for Budgeting (pg. 21-3)
Approaches to Budgeting (pg. 21-5)
Review 21-1 Applying the Output/Input Approach and Activity-Based Approach to Budgeting (pg. 21-7)
Master Budget for a Merchandiser (pg. 21-8)
Overview of the Master Budget Assembly for a Merchandiser (pg. 21-8)
Starting Point: Beginning of Period Balance Sheet (pg. 21-10)
Sales Budget (pg. 21-11)
Purchases Budget (pg. 21-11)
Selling Expense Budget (pg. 21-12)
General and Administrative Expense Budget (pg. 21-13)
Cash Budget (pg. 21-13)
Budgeted Financial Statements (pg. 21-15)
Finalizing the Budget (pg. 21-16)
Review 21-2 Preparing a Budget for a Merchandising Organization (pg. 21-17)
Master Budget for a Manufacturer (pg. 21-17)
Overview of Master Budget Assembly for a Manufacturer (pg. 21-17)
Sales Budget (pg. 21-19)
Production Budget (pg. 21-19)
Materials Purchases Budget (pg. 21-19)
Manufacturing Cost Budget (pg. 21-20)
Cash Budget and Financial Statement Budgets (pg. 21-20)
Review 21-3 Preparing a Master Budget for a Manufacturer (pg. 21-21)
Aspects of Budgeting That Impact Behavior and Outcomes (pg. 21-22)
Employee Participation in the Budgeting Process (pg. 21-22)
Selecting Budgeting Periods (pg. 21-23)
Utilizing Forecasts in Budgets (pg. 21-23)
Motivating Ethical Behavior in Budget Development (pg. 21-24)
Review 21-4 Identifying Aspects of Budget Development Affecting Behavior (pg. 21-24)
Multiple Choice (pg. 21-25)
Data Analytics (pg. 21-26)
Data Visualization (pg. 21-27)
Questions (pg. 21-28)
Mini Exercises (pg. 21-28)
Exercises (pg. 21-30)
Problems (pg. 21-35)
Cases and Projects (pg. 21-41)
Solutions to Review Problems (pg. 21-43)
Chapter 22: Standard Costs and Performance Reports (pg. 22-1)
Samsonite international S.A. (pg. 22-2)
Responsibility Accounting (pg. 22-3)
Responsibility Accounting and Performance Reporting (pg. 22-3)
Performance Reporting and Organization Structures (pg. 22-4)
Types of Responsibility Centers (pg. 22-5)
Financial and Nonfinancial Performance Measures (pg. 22-6)
Review 22-1 Identifying Responsibility Centers (pg. 22-7)
Performance Reporting for Cost Centers (pg. 22-7)
Differentiating a Static Budget from a Flexible Budget (pg. 22-7)
Performance Report with a Flexible Budget (pg. 22-8)
Standard Costs and Performance Reports (pg. 22-10)
Review 22-2 Preparing a Flexible Budget for Performance Reporting (pg. 22-11)
Variance Analysis for Costs (pg. 22-11)
Components of Standard Cost Analysis: Price and Quantity Variances (pg. 22-11)
Standard Cost Variance Analysis of Direct Materials (pg. 22-11)
Review 22-3 Calculating Standard Cost Variances for Direct Materials (pg. 22-14)
Standard Cost Variance Analysis of Direct Labor (pg. 22-15)
Review 22-4 Calculating Standard Cost Variances for Direct Labor (pg. 22-17)
Standard Cost Variance Analysis of Variable Manufacturing Overhead (pg. 22-17)
Overview of Fixed Overhead Variances (pg. 22-19)
Review 22-5 Calculating Standard Cost Variances for Variable Manufacturing Overhead (pg. 22-20)
Revenue Variances and Performance Reporting (pg. 22-20)
Performance Report of Sales Department as a Revenue Center (pg. 22-20)
Performance Report for Controllable Selling Costs (pg. 22-22)
Performance Report of Sales Department as a Profit Center (pg. 22-22)
Review 22-6 Calculating Revenue Variances (pg. 22-24)
Appendix 22A: Fixed Overhead Variances (pg. 22-24)
Review 22-7 Calculating Fixed Overhead Budget Variance (pg. 22-25)
Appendix 22B: Reconciling Budgeted and Actual Income (pg. 22-25)
Review 22-8 Reconciling Budgeted and Actual Contribution Margin (pg. 22-27)
Key Ratios and Equations (pg. 22-27)
Multiple Choice (pg. 22-27)
Data Analytics (pg. 22-28)
Data Visualization (pg. 22-29)
Questions (pg. 22-29)
Mini Exercises (pg. 22-30)
Exercises (pg. 22-32)
Problems (pg. 22-35)
Cases and Projects (pg. 22-41)
Solutions to Review Problems (pg. 22-43)
Chapter 23: Performance Measurement Using Segment Reporting, Transfer Pricing, and Balanced Scorecar (pg. 23-1)
Volkswagen (pg. 23-2)
Segment Analysis and Reporting (pg. 23-3)
Preparing Segment Reports (pg. 23-3)
Interpreting Segment Reports (pg. 23-6)
Review 23-1 Reporting by Segment (pg. 23-8)
Transfer Pricing (pg. 23-8)
Resolving Transfer-Pricing Conflicts (pg. 23-8)
Determining Transfer Prices (pg. 23-11)
Review 23-2 Analyzing Purchase Decisions with Transfer Pricing (pg. 23-14)
Investment Center Evaluation Measures (pg. 23-14)
Return on Investment (pg. 23-14)
Residual Income (pg. 23-18)
Economic Value Added (pg. 23-19)
Which Measure Is Best? (pg. 23-19)
Review 23-3 Computing Return on Investment and Residual Income (pg. 23-20)
Balanced Scorecard (pg. 23-21)
Balanced Scorecard Framework (pg. 23-21)
Balanced Scorecard and Strategy (pg. 23-25)
Review 23-4 Assigning Metrics to the Balanced Scorecard Categories (pg. 23-27)
Key Ratios and Equations (pg. 23-27)
Multiple Choice (pg. 23-27)
Data Analytics (pg. 23-29)
Data Visualization (pg. 23-30)
Questions (pg. 23-30)
Mini Exercises (pg. 23-31)
Exercises (pg. 23-34)
Problems (pg. 23-37)
Cases and Projects (pg. 23-43)
Solutions to Review Problems (pg. 23-45)
Chapter 24: Capital Budgeting Decisions (pg. 24-1)
Amazon (pg. 24-2)
Long-Range Planning and Capital Budgeting (pg. 24-3)
The Capital Budgeting Process (pg. 24-4)
Capital Budgeting Models That Do Not Consider Time Value of Money (pg. 24-6)
Predicted Cash Flows (pg. 24-6)
Payback Period (pg. 24-7)
Accounting Rate of Return (pg. 24-8)
Review 24-1 Computing the Payback Period and the Accounting Rate of Return (pg. 24-9)
Capital Budgeting Models That Consider Time Value of Money (pg. 24-9)
Table Approach (pg. 24-10)
Spreadsheet Approach (pg. 24-11)
Internal Rate of Return (pg. 24-11)
Review 24-2 Calculating Net Present Value and Internal Rate of Return (pg. 24-12)
Evaluation of Capital Budgeting Models (pg. 24-12)
Advantages and Disadvantages of Capital Budgeting Models (pg. 24-13)
Review 24-3 Evaluating Investment Proposals (pg. 24-15)
Considering Risks and Relevant Cost Analysis in Capital Budgeting Decisions (pg. 24-15)
Evaluating Risk and Uncertainty in Capital Budgeting Decisions (pg. 24-15)
Using Differential Analysis in Capital Budgeting Decisions (pg. 24-16)
Avoiding Errors in Predicting Differential Costs and Revenues (pg. 24-18)
Review 24-4 Considering Nonquantitative Factors in Capital Budgeting Decisions (pg. 24-19)
Appendix 24A: Time Value of Money (pg. 24-20)
Future Value (pg. 24-20)
Present Value (pg. 24-20)
Annuities (pg. 24-22)
Unequal Cash Flows (pg. 24-23)
Deferred Returns (pg. 24-23)
Review 24-5 Performing Present Value Calculations Using the Table Approach (pg. 24-24)
Appendix 24B: Table Approach to Determining Internal Rate of Return (pg. 24-24)
Equal Cash Flows (pg. 24-24)
Unequal Cash Flows (pg. 24-25)
Review 24-6 Determining the Internal Rate of Return Using the Table Approach (pg. 24-26)
Appendix 24C: Taxes in Capital Budgeting Decisions (pg. 24-26)
Depreciation Tax Shield (pg. 24-26)
Investment Tax Credit (pg. 24-28)
Review 24-7 Calculating Net Present Value with the Consideration of Income Taxes (pg. 24-28)
Key Ratios and Equations (pg. 24-29)
Multiple Choice (pg. 24-29)
Data Analytics (pg. 24-30)
Data Visualization (pg. 24-31)
Questions (pg. 24-31)
Mini Exercises (pg. 24-32)
Exercises (pg. 24-34)
Problems (pg. 24-37)
Cases and Projects (pg. 24-40)
Solutions to Review Problems (pg. 24-45)
Appendix A: Compound Interest and the TimeValue of Money (pg. A-1)
Future Value Concepts (pg. A-2)
Present Value Concepts (pg. A-3)
Present Value of a Single Amount (pg. A-3)
Present Value of an Annuity (pg. A-4)
Installment Loans (pg. A-5)
Bond Valuation (pg. A-5)
Calculating Bond Yields (pg. A-6)
Future Value of Annuities (pg. A-6)
Using Excel to Compute Time-Value (pg. A-7)
Future Value Calculations (pg. A-7)
Present Value Calculations (pg. A-10)
Exercises (pg. A-17)
Appendix B: Data Analytics and Blockchain Technology (pg. B-1)
Data Analytics (pg. B-2)
Big Data (pg. B-2)
Types of Data Analytics (pg. B-2)
Data Analytics in the Accounting Profession (pg. B-3)
The Analytics Mindset (pg. B-4)
Data Analytic Tools (pg. B-5)
Data Visualization (pg. B-6)
Blockchain Technology (pg. B-10)
Summary (pg. B-12)
Video Resources For Tableau (pg. B-13)
Multiple Choice (pg. B-13)
Data Analytics and Data Visualizations (pg. B-14)
Index (pg. I-1)
Michelle L. Hanlon

Michelle L. Hanlon

Michelle L. Hanlon is the Howard W. Johnson Professor at the MIT Sloan School of Management. She earned her doctorate at the University of Washington.

Prior to joining MIT, she was a faculty member at the University of Michigan. Professor Hanlon has taught financial accounting to undergraduates, MBA students, executive MBA students, and Masters of Finance students. Professor Hanlon also teaches Taxes and Business Strategy to MBA students. She is the winner of the 2013 Jamieson Prize for Excellence in Teaching at MIT Sloan.

Professor Hanlon’s research focuses primarily on the intersection of taxation and financial accounting. Her recent work examines the capital market effects of the accounting for income tax, the reputational effects of corporate tax avoidance, and the economic consequences of U.S. international tax policies for multinational corporations. She has published research studies in the Journal of Accounting and Economics, the Journal of Accounting Research, The Accounting Review, the Review of Accounting Studies, the Journal of Finance, the Journal of Financial Economics, the Journal of Public Economics, and others. She has won several awards for her research and has presented her work at numerous universities and conferences. Professor Hanlon has served on several editorial boards and currently serves as an editor at the Journal of Accounting and Economics. 

Professor Hanlon has testified in front of the U.S. Senate Committee on Finance and the U.S. House of Representatives Committee on Ways and Means about the interaction of financial accounting and tax policy. She served as a U.S. delegate to the American-Swiss Young Leaders Conference in 2010 and worked as an Academic Fellow at the U.S. House Ways and Means Committee in 2015.


Robert P. Magee

Robert P. Magee

Robert P. Magee is Keith I. DeLashmutt Professor of Accounting Information and Management at the Kellogg School of Management at Northwestern University.

He received his A.B., M.S. and Ph.D. from Cornell University. Prior to joining the Kellogg faculty in 1976, he was a faculty member at the University of Chicago's Graduate School of Business. For academic year 1980-81, he was a visiting faculty member at IMEDE (now IMD) in Lausanne, Switzerland.

Professor Magee's research focuses on the use of accounting information to facilitate decision-making and control within organizations. He has published articles in The Accounting Review, the Journal of Accounting Research, the Journal of Accounting and Economics, and a variety of other journals. He is the author of Advanced Managerial Accounting and co-author (with Thomas R. Dyckman and David H. Downes) of Efficient Capital Markets and Accounting: A Critical Analysis. The latter book received the Notable Contribution to the Accounting Literature Award from the AICPA in 1978. Professor Magee has served on the editorial boards of The Accounting Review, the Journal of Accounting Research, the Journal of Accounting and Economics and the Journal of Accounting, Auditing and Finance. From 1994-96, he served as Editor of The Accounting Review, the quarterly research journal of the American Accounting Association. He received the American Accounting Association's Outstanding Accounting Educator Award in 1999 and the Illinois CPA Society Outstanding Educator Award in 2000.

Professor Magee teaches financial accounting to MBA and Executive MBA students. He has received several teaching awards at the Kellogg School, including the Alumni Choice Outstanding Professor Award in 2003.


Glenn M. Pfeiffer

Glenn M. Pfeiffer

Glenn M. Pfeiffer is Professor of Accounting at the George L. Argyros School of Business and Economics at Chapman University.

He received his M.S. and Ph.D. from Cornell University after he earned a bachelor's degree from Hope College. Prior to joining the faculty at the Argyros School, he held appointments at the University of Washington, Cornell University, the University of Chicago, the University of Arizona, and San Diego State University.

Professor Pfeiffer’s research focuses on financial reporting and capital markets. He has investigated issues relating to lease accounting, LIFO inventory liquidation, earnings per share, employee stock options, corporate reorganization, and technology investments. He has published articles in The Accounting Review, the Financial Analysts Journal, the International Journal of Accounting Information Systems, the Journal of Applied Business Research, the Journal of High Technology Management Research, the Journal of Accounting Education, and several other academic journals. In addition, he has published numerous case studies in financial accounting and reporting.

Professor Pfeiffer teaches financial accounting and financial analysis to undergraduate, MBA, and Executive students. He has also taught managerial accounting for MBAs. He has won several teaching awards at both the undergraduate and graduate levels.


Susan Kulp

Susan Kulp

Susan L. Kulp is Professor of Accountancy at the George Washington University School of Business. She received her Ph.D. at Stanford University. Before joining the George Washington University faculty, Professor Kulp was a faculty member at Harvard Business School.

Professor Kulp’s research focuses on performance measurement, incentive, and internal decision-making issues in inter-organizational relationships. The settings that she examines include supply chain relationships, private partnerships, and government entities. Her research highlights the conflicts between inter-organizational contracts and the control systems in place within the partnering firms. She has published research studies in both accounting and operations management journals, including the Journal of Accounting Research, The Accounting Review, Management Science, Production and Operations Research, and Review of Accounting Studies. Professor Kulp currently services as a Department Editor at Decision Sciences. In addition to her published research studies, Professor Kulp has published several Harvard Business School cases focused on management control.

Professor Kulp has taught managerial accounting to undergraduate, MBA, online MBA, and executive MBA
students. Additionally, she teaches financial accounting to online MBA students. Professor Kulp has won several teaching awards.


Amie L. Dragoo

Amie L. Dragoo

Professor of Accounting and Educational Consultant

Former Accounting Department Chair at Edgewood College, Professor Dragoo earned her BA and MBA from Michigan State University, and her doctorate from Edgewood College. She holds a CPA license, and for nearly 15 years has been a Becker Professional Education faculty instructor. Prior to her experiences in higher education, Professor Dragoo was a senior business assurance associate with PricewaterhouseCoopers LLP (formerly Coopers & Lybrand L.L.P.). Professor Dragoo has extensive teaching experiences, including courses in Intermediate Accounting I and II, Cost Accounting, Advanced Cost Management, Strategic Financial Management, and other advanced courses in financial and managerial accounting. She has received a number of teaching awards including the School of Business Outstanding Faculty Award and the Estervig-Beaubien Excellence in Teaching and Mentoring Award. She has also worked as an independent consultant, including projects in higher education, and has worked with several corporate clients. Professor Dragoo’s research has been published in the Journal of Education for Business and the Journal of Continuing Higher Education and she has contributed to numerous articles published by organizations affiliated with the AICPA. She has been involved in many community-oriented programs including the Volunteer Income Tax Assistance (VITA) program.


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Last Updated: Feb 12 2024

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