Financial Accounting, 5e

by Dyckman, Hanlon, Magee, Pfeiffer

ISBN: 978-1-61853-165-0 | Copyright 2017

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Welcome to the fifth edition of Financial Accounting and, to adopters of the first four edi-tions, thank you for the great success those editions have enjoyed. We wrote this book to equip students with the accounting techniques and insights necessary to succeed in today’s business environment. It reflects our combined experience in teaching financial accounting to college students at all levels. For anyone who pursues a career in business, the ability to read, analyze, and interpret published financial reports is an essential skill. Financial Accounting is written for future business leaders who want to understand how financial statements are prepared and how the informa-tion in published financial reports is used by investors, creditors, financial analysts, and managers. Our goal is to provide the most engaging, relevant, and accessible textbook available.

Financial Accounting is intended for use in the first financial accounting course at either the under-graduate or graduate level; one that balances the preparation of financial statements with their analysis and interpretation. This book accommodates mini-courses lasting only a few days as well as extended courses lasting a full semester.Financial Accounting is real-world oriented and focuses on the most salient aspects of accounting. It teaches students how to read, analyze, and interpret Financial 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 exposure students get to real financial statements, the more comfortable they become with the variety in financial statements that exists 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. Furthermore, today’s students must have the skills to go beyond basic financial statements to interpret and apply nonfinancial disclosures, such as footnotes 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 footnotes, financial analysis discussions in nearly every chapter, and an abundance of assignments that draw on real company data and disclosures.

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.

Chapter 1 Nike Chapter 7 Home Depot
Chapter 2 Walgreens Chapter 8 Procter & Gamble
Chapter 3 Walgreens Chapter 9 Verizon
Chapter 4 Golden Enterprises Chapter 10 Delta Airlines
Chapter 5 PepsiCo Chapter 11 Pfiser
Chapter 6 Cisco Chapter 12 Google

Footnotes and Management Disclosures

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

Financial Analysis Discussions

Each 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 usually 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 Accounting 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. Step 2 records the transaction using journal entries, and Step 3 requires students to post the journal entries to T-accounts.

The template 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). This template provides a convenient means to represent financial accounting transactions and events in a simple, concise manner for assessing their effects on financial statements.

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

The convergence of U.S. GAAP and International Financial Reporting Standards (IFRS) is in process. Our introductory students should be prepared for this eventuality with a basic understanding of the similarities and differences in the current reporting requirements and methods under U.S. GAAP and IFRS. Consequently, we incorporate discussions that examine these similarities and differences where appropriate throughout the book in Global Perspective boxes, as illustrated here:

We also include exercises and problems throughout the text, where appropriate, to stimulate a discussion of international reporting differences. Our approach is conceptual-we purposefully avoid the detailed mechanics that are more appropriate for an intermediate level accounting course at either the undergraduate or graduate level. We feel strongly that our IFRS coverage exposes students to the similarities and differences without overwhelming them.

Business Insights

Students appreciate and become more engaged when they can see the real world relevance of what they are learning in the classoom. We have included a generous number of current, real world examples throughout each chapter in Business Insight boxes. The following is a representative example:

Decision Making Orientation

One primary goal of a financial accounting course is to teach students the skills needed to apply their accounting knowledge to solving real business problems. With that goal in mind, You Make the Call boxes in each chapter encourage students to apply the material presented to solving actual business scenarios.

Mid-Chapter and Chapter-End Reviews

Financial 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 mid-chapter and chapter-end reviews that require students to recall and apply the financial accounting techniques and concepts described in each chapter.

Research Insights for Business Students

Academic research plays an important role in the way business is conducted, accounting is performed, and students are taught. It is important for students to recognize how modern research and modern business practice interact. Therefore, we periodically incorporate relevant research to help students understand the important relation between research and modern business.

FLEXIBILITY FOR COURSES OF VARYING LENGTHS

Many instructors have approached us to ask about suggested chapter coverage based on courses of varying length. To that end, we provide the following table of possible course designs:

Chapter 15 Week
Semester Course
10 Week
Quarter Course
6 Week
Mini-Course
1 Week
Intensive Course
1 Week 1 Week 1 Week 1 Day 1
2 Week 2 & 3 Week 2 Week 1 & 2
3 Week 3 & 4 Week 3 & 4 Week 2 & 3 Day 2
4 Week 5 & 6 Week 4 & 5 Optional Optional
5 Week 6 & 7 Optional Optional Optional
6 Week 7 & 8 Week 6 Week 3 Day 3
7 Week 9 Week 7 Week 4 Day 4
8 Week 10 Week 8 Week 5 Day 4
9 Week 11 & 12 Week 9 Week 6 Day 5
10 Week 12 & 13 Week 10 Week 6 (optional) Skim
11 Week 14 Optional Optional Optional
12 Week 15 Optional Optional Optional

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Expand/Collapse All
Chapter 1: Introducing Financial Accounting (pg. 2)
Chapter 2: Constructing Financial Statements (pg. 42)
Chapter 3: Adjusting Accounts for Financial Statements (pg. 100)
Chapter 4: Reporting and Analyzing Cash Flows (pg. 156)
Chapter 5: Analyzing and Interpreting Financial Statements (pg. 218)
Chapter 6: Reporting and Analyzing Revenues, Receivables, and Operating Income (pg. 270)
Chapter 7: Reporting and Analyzing Inventory (pg. 326)
Chapter 8: Reporting and Analyzing Long-Term Operating Assets (pg. 372)
Chapter 9: Reporting and Analyzing Liabilities (pg. 412)
Chapter 10: Reporting and Analyzing Leases, Pensions, and Income Taxes (pg. 460)
Chapter 11: Reporting and Analyzing Stockholders’ Equity (pg. 516)
Chapter 12: Reporting and Analyzing Financial Investments (pg. 562)
Appendix A: Compound Interest and the Time-Value of Money (pg. 618)
Thomas R. Dyckman

Thomas R. Dyckman

Thomas R. Dyckman is Ann Whitney Olin Professor Emeritus of Accounting and Quantitative Analysis at Cornell University’s Johnson Graduate School of Management.

In addition to teaching accounting and quantitative analysis, he has taught in Cornell’s Executive Development Program. He earned his doctorate degree from the University of Michigan. He is a former member of the Financial Accounting Standards Board Advisory Committee and the Financial Accounting Foundation, which oversees the FASB. He was president of the American Accounting Association in 1982 and received the association’s Outstanding Educator Award for the year 1987. He also received the AICPA’s Notable Contributions to Accounting Literature Award in 1966 and 1977.

Professor Dyckman has extensive industrial experience that includes work with the U.S. Navy and IBM. He has conducted seminars for Cornell Executive Development Program and Managing the Next Generation of Technology, as well as for Ocean Spray, Goodyear, Morgan Guaranty, GTE, Southern New England Telephone, and Goulds Pumps.

Professor Dyckman has coauthored eleven books and written over 50 journal articles on topics from financial markets to the application of quantitative and behavioral theory to administrative decision making. He has been a member of the editorial boards of The Accounting Review, The Journal of Finance and Quantitative Analysis, The Journal of Accounting and Economics, The Journal of Management Accounting Research, and The Journal of Accounting Education.


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 is a co-author on another textbook, Taxes and Business Strategy. She 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 bachelors 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.


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