There is a new edition of this book available Financial Accounting for Undergraduates, 5e.

Financial Accounting for Undergraduates, 4e

by Wallace, Nelson, Christensen

ISBN: 978-1-61853-308-1 | Copyright 2020

Click here to preview


Welcome to the Fourth Edition of Financial Accounting for Undergraduates

We wrote this book to satisfy the needs of students taking their first financial accounting course by providing a high quality, contemporary, and engaging textbook at an affordable price. Financial Accounting for Undergraduates is written for students who want to understand how financial statements are prepared and how the information in published financial reports is used. The Fourth Edition has benefited from extensive feedback from adopters of the first three editions and suggestions from focus groups, market surveys, manuscript reviews, and interviews with faculty from across the country.

Target Audience

Financial Accounting for Undergraduates is intended for use in the first financial accounting course at the undergraduate level; one that balances the preparation of financial statements with their interpretation and use. This book teaches students how to read, analyze, and interpret financial accounting data to make informed business decisions.

We believe students become more engaged in the course when they see how the content pertains to their everyday lives. Once engaged in the course, students perform much better and enjoy the class more. Furthermore, we believe accounting is a discipline best learned by doing. Unlike some other disciplines, accounting needs to be practiced. Consequently, we took great care to incorporate a number of pedagogical devices and real examples that show students the relevance of financial accounting to their lives and that help students succeed in the course.


"Why do I need to study financial accounting?"

Students frequently ask this or similar questions. The extent to which they feel accounting is relevant to their daily lives will often determine how much effort they put into the course. The following feature are used throughout the book to convey the relevance of accounting to their lives and society.

Real Data and Examples

Today's students must be skilled in using real financial statements to make business decisions. 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. In each chapter, we incorporate a wide range of examples using real companies that students know. In addition, the Extending Your Knowledge section in the assignments of each chapter requires students to use the financial statements of Columbia Sportswear Company and Under Armour Corporation.

Accounting in Practice

These boxed inserts help bridge the gap between the classroom and what students encounter in the world. Accounting In Practice illustrations document situations a reader is likely to encounter and present the choices that companies make in reporting financial results.

Accounting in Everyday Life

Accounting in Everyday Life boxes illustrate how accounting is used and is useful day-to-day situations. By demonstrating the relevance of accounting to students, we hope to further engage students and spur their interest in succeeding in the course.

Corporate Social Responsibility

Increasingly, companies have found that doing good leads to a more successful, profitable enterprise. These boxed inserts help students understand how corporate social responsibility is being embraced by forward-thinking enterprises as part of their long-term business models.


Financial accounting can be challenging—especially for students lacking business experience or previous exposure to business courses. To help students succeed in the course, we provide a wealth of resources through our online learning and homework systems, myBusinessCourse (MBC), and through pedagogical devices used throughout the textbook.

Putting each chapter in context

Often, students lose sight of the big picture. 

  • Road Map: Each chapter opens with a grid that identifies each learning objective for the chapter, the related pages, eLecture and Guided Example videos, and end of chapter assignments. This allows students and faculty to quickly grasp the chapter contents and to efficiently navigate to the desired topic.
  • The Past/Present/Future feature provides students with an overview of where the chapter fits within the whole course.
  • Chapter Organization Chart: Each chapter's opener also includes an overview that visually depicts the layout of the chapter.

Your Turn!

Your Turn boxes are integrated throughout each chapter as a mends of reinforcing the material just presented. Solutions are provided at the end of the chapter so students can check their work.

A.K.A Callouts

A.K.A margin callouts inform students of commonly used alternative terms that they may encounter.


Helpful suggestions are inserted in the margin as Hints to help students understand difficult concepts. To record the bad debts expense for the period. This entry brings the credit balance in the Allowance for Doubtful Accounts account to the required amount—$1,560, as shown below.


These in-chapter summaries ensure that students grasp key concepts before proceeding to the next topic.

Data Analytics

A discussion of data analytics is included to expose students to its relevance in accounting.


In today’s post-Sarbanes-Oxley world, ethical decision making has never been more pertinent to business and students studying accounting. We discuss ethics where appropriate in the text, and we have included at least one assignment in each chapter that raises an ethical issue. Assignments involving ethics are identified by the icon in the margin.

International Financial Reporting Standards (IFRS)

Our introductory students should develop 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 addition, the financial statements for LVMH Moet Hennessey-Louis Vuitton S.A. (a Paris-Based holding company) are included in Appendix C at the end of the book. Each chapter includes an IFRS assignment related to LVMH. The IFRS icon identifies those assignments.

Thinking Globally

These boxes emphasize the similarities and differences in business practices between companies in the U.S. and companies in other countries.

  • Road Map: Each chapter opens with a grid that identifies each learning objective for the chapter, the related pages, eLecture and Guided Example videos, and end of chapter assignments. This allows students and faculty to quickly grasp the chapter contents and to efficiently navigate to the desired topic.
  • Updated revenue recognition coverage for standard change
  • Updated inventory chapter (Chapter 6) for new standard on lower of cost or net realizable value
  • Added coverage on natural resources and depletion in Chapter 9
  • Updated lease appendix for standard change in Chapter 10
  • Updated Appendix D on Investments to reflect the new standard
  • Data Analytics: Added a discussion of data analytics to expose students to its relevance in accounting.
  • Updated real financial data throughout the text and assignments
  • Expanded the number of guided example videos and assignments included in MBC

      myBusinessCourse: A web-based learning and assessment program intended to complement your textbook and classroom instruction. This easy-to-use course management system grades homework automatically and provides students with eLecture and Guided Example videos to assist them in mastering the material.  In addition, detailed diagnostic tools assess class and individual performance. myBusinessCourse is ideal for online courses or traditional face-to-face courses for which you want to offer students more resources to succeed. MBC integrates with Canvas, BlackBoard, D2L, Sakai, and other LMS platforms.

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

       Test Bank/Computerized Test Bank: The test bank includes multiple-choice items, matching questions, short-essay questions, and problems. The computerized version of the test bank enables an instructor to add and edit questions; create up to 99 versions of each test; attach graphic files to questions; import and export AsCii files; and select questions based on type or learning objective.  It provides password protection for saved tests and question databases and is able to run on a network.

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

      Excel Templates:  We provide Excel spreadsheets for assignments.  These spreadsheets will save time in data entry and allow students to dedicate additional time to learning the material.  The Excel spreadsheets are identified by the EXCEL icon.

       Self-Study Quizzes: Available for students within MBC.

       Jeopardy-style review game created by the authors. Available for each chapter along with an instructional video on how to play and how to add material.

Introducing myBusinessCourse

myBusinessCourse is a complete, secure, web-based training and e-Learning solution. There is nothing to download or install; it is accessible through any modern web browser and most mobile devices.

Request a One-on-One Demo

eLecture Videos

eLecture Videos

  • Created by the authors of the textbook
  • Consistent with the textbook's explanations and approach
  • Cover learning objectives and concepts from each chapter
  • Ideal for remediation
  • Ideal for online and hybrid classrooms

Narrated demonstration videos

Guided Example Videos

  • Created by the authors of the textbook
  • Provide problem solving strategies as well as solutions
  • Offer clear, step-by-step demonstrations of how to solve select problems from the textbook

Auto-graded assignments

Auto-graded Assignments

  • Provides immediate feedback
  • Create assignments using problems from the textbook
  • Additional randomized versions of assignments provide extra practice
  • Ideal for remediation
  • Include select questions from test banks

Respondus LockDown Browser

Respondus LockDown Browser®

  • Assessments are displayed full-screen and cannot be minimized
  • Browser menu and toolbar options are removed, except for Back, Forward, Refresh and Stop
  • Prevents access to other applications including messaging, screen-sharing, virtual machines, and remote desktops
  • Printing and screen capture functions are disabled
  • Copying and pasting anything to or from an assessment are prevented
  • Right-click menu options, function keys, keyboard shortcuts and task switching are disabled
  • An assessment cannot be exited until the student submits it for grading
  • Assessments set up with LockDown Browser cannot be accessed with other browsers
  • Students use their preferred device to take exams (iPad, Mac, Windows)
  • Students will be prompted to install LockDown Browser prior to accessing the exam

Detailed Reporting Tools

Detailed Reporting Tools

  • Quickly review the performance of individual students
  • Quickly review the performance of entire class
  • Use reports on student performance to customize your lectures to fit student needs

Enhanced eBook

  • Save money
  • Includes myBusinessCourse
  • Integrates eLecture and demonstration videos
  • Bookmarking
  • Note taking
  • Highlighting

Third Party Integrations

Third Party Integrations

  • Single sign-on
  • Link to assignments in myBusinessCourse from your third party course
  • Automatically sync gradebooks each night


  • Study, learn and master key terms.
  • With linear-mode, get full control over the deck. Go back and forth between cards, shuffle and auto-play the deck.
  • With certainty-mode, test how well you know each term. If you are not certain you have learned the term, it will display again later in the deck.

Support and Training

Support and Training

  • Technical support for students and faculty available daily
  • Faculty training conducted daily

Example of the Road Map & video features available for each chapter.

Click on a Chapter 3 eLecture or Guided Example to preview the related video.

Road Map
LO Learning Objective Page eLecture Guided Example Assignments

Explain the accrual basis of accounting and contrast it with the cash basis with reference to revenue and expense recognition.


SS4, SS7, SE2, E6A, E7A, E6B, E7B


Describe the adjusting process.


SS6, SE3


Illustrate deferral adjustments.


SS1, SE4, SE5, SE6, SE7, E2A, E3A, E9A, E10A, E2B, E3B, E9B, E10B, P1A, P2A, P3A, P4A, P5A, P6A, P7A, P12A, P13A, P1B, P2B, P3B, P4B, P5B, P6B, P7B, P12B, P13B


Illustrate accrual adjustments.


SS2, SE6, SE7, E1A, E2A, E3A, E9A, E10A, E1B, E2B, E3B, E9B, E10B, P1A, P2A, P3A, P4A, P5A, P6A, P7A, P12A, P13A, P1B, P2B, P3B, P4B, P5B, P6B, P7B, P12B, P13B


Explain the adjusted trial balance and use it to prepare financial statements.


SE8, SE10, E4A, E4B, P8A, P10A, P11A, P12A, P13A, P14A, P15A, P16A, P17A, P18A, P8B, P10B, P11B, P12B, P13B, P14B, P15B, P16B, P17B, P18B


Describe the closing process and summarize the accounting cycle.


SS3, SS1, SE9, E5A, E8A, E11A, E5B, E8B, E11B, P8A, P9A, P13A, P8B, P9B, P12A, P12B


Appendix 3A: Describe the process of closing to the Income Summary account and summarize the accounting cycle.


SE11, E12A, E13A, E15A, E12B, E13B, E15B, P18A, P19A, P18B, P19B


Appendix 3B: Explain how to use a worksheet in the adjusting and closing process.


SE12, E14A, E16A, E14B, E16B, P20A, P20B

Expand/Collapse All
About the Authors (pg. iii)
Preface (pg. iv)
Brief Contents (pg. x)
Contents (pg. xi)
Chapter 1 Financial Accounting and Business Decisions (pg. 2)
Business Organization (pg. 4)
Your Turn! 1.1 (pg. 5)
Activities of a Business (pg. 5)
Financing Activities (pg. 5)
Investing Activities (pg. 6)
Operating Activities (pg. 6)
Your Turn! 1.2 (pg. 6)
Accounting Information and Its Use (pg. 6)
External Users of Accounting (pg. 7)
Internal Users of Accounting (pg. 8)
Your Turn! 1.3 (pg. 8)
Ethics and Accounting (pg. 8)
Your Turn! 1.4 (pg. 9)
The Accounting Process (pg. 10)
Generally Accepted Accounting Principles (pg. 10)
International Financial Reporting Standards (pg. 11)
Your Turn! 1.5 (pg. 12)
Financial Statements (pg. 12)
Balance Sheet (pg. 12)
Income Statement (pg. 14)
Statement of Stockholders’ Equity (pg. 15)
Statement of Cash Flows (pg. 16)
Relations Among the Financial Statements (pg. 17)
Your Turn! 1.6 (pg. 18)
Other Annual Report Components (pg. 18)
Notes to Financial Statements (pg. 19)
Independent Auditor’s Report (pg. 19)
Management’s Discussion and Analysis (pg. 19)
Your Turn! 1.7 (pg. 20)
Careers in Accounting (pg. 20)
Data Analytics and Blockchain Technology (pg. 21)
Comprehensive Problem (pg. 22)
Appendix 1A: FASB’s Conceptual Framework (pg. 23)
Summary of Learning Objectives (pg. 26)
Key Terms (pg. 28)
Self-Study Questions (pg. 29)
Questions (pg. 31)
Short Exercises (pg. 32)
Exercises-Set A (pg. 35)
Exercises-Set B (pg. 38)
Problems-Set A (pg. 42)
Problems-Set B (pg. 46)
Serial Problem: Kate’s Cards (pg. 49)
Extending Your Knowledge (pg. 49)
Answers to Self-Study Questions: (pg. 53)
Your Turn! Solutions (pg. 53)
Chapter 2 Processing Accounting Information (pg. 56)
Accounting Cycle (pg. 58)
Your Turn! 2.1 (pg. 59)
Analyzing Transactions (pg. 59)
Accounting Equation Expanded (pg. 60)
Transactions and the Accounting Equation: An Illustration (pg. 60)
Transaction Summary (pg. 64)
Your Turn! 2.2 (pg. 65)
The “Account” System (pg. 66)
Chart of Accounts (pg. 66)
System of Debits and Credits (pg. 66)
Your Turn! 2.3 (pg. 68)
Your Turn! 2.4 (pg. 68)
Recording Transactions (pg. 69)
General Journal (pg. 69)
Posting Journal Entries to the General Ledger (pg. 70)
Illustration of the Recording Process (pg. 71)
Summary Illustration of Journalizing and Posting Transactions (pg. 74)
Your Turn! 2.5 (pg. 76)
Trial Balance (pg. 77)
Your Turn! 2.6 (pg. 78)
Comprehensive Problem (pg. 79)
Summary of Learning Objectives (pg. 80)
Key Terms (pg. 81)
Self-Study Questions (pg. 82)
Questions (pg. 83)
Short Exercises (pg. 84)
Exercises-Set A (pg. 86)
Exercises-Set B (pg. 90)
Problems-Set A (pg. 94)
Problems-Set B (pg. 102)
Serial Problem: Kate’s Cards (pg. 110)
Extending Your Knowledge (pg. 110)
Answers to Self-Study Questions: (pg. 115)
Your Turn! Solutions (pg. 116)
Chapter 3 Accrual Basis of Accounting (pg. 118)
Accrual Basis of Accounting (pg. 120)
Revenue Recognition Principle (pg. 120)
Expense Recognition (Matching) Principle (pg. 123)
Your Turn! 3.1 (pg. 124)
Adjusting Accounts (pg. 124)
Unadjusted Trial Balance (pg. 124)
Types of Adjustments (pg. 125)
Your Turn! 3.2 (pg. 125)
Deferral Adjusting Entries (pg. 125)
Allocating Previously Recorded Assets to Expenses (pg. 125)
Allocating Previously Recorded Unearned Revenue to Revenue (pg. 127)
Your Turn! 3.3 (pg. 128)
Accrual Adjusting Entries (pg. 128)
Recording Previously Unrecorded Expenses (pg. 128)
Recording Previously Unrecorded Revenues (pg. 130)
Summary of Accounting Adjustments (pg. 130)
Your Turn! 3.4 (pg. 132)
Adjusted Trial Balance and Financial Statements (pg. 132)
Preparing the Adjusted Trial Balance (pg. 132)
Preparing Financial Statements (pg. 133)
STEP 1: Income Statement (pg. 133)
STEP 2: Statement of Stockholders’ Equity (pg. 133)
STEP 3: Balance Sheet (pg. 134)
STEP 4: Statement of Cash Flows (pg. 134)
Your Turn! 3.5 (pg. 135)
Closing Process (pg. 136)
Your Turn! 3.6 (pg. 136)
Journalizing and Posting the Closing Entries (pg. 136)
Summary of the Accounting Cycle (pg. 138)
Quality of Accounting Numbers (pg. 139)
Comprehensive Problem (pg. 140)
Appendix 3A: Closing Process-Using Income Summary Account (pg. 143)
Your Turn! 3A.1 (pg. 144)
Your Turn! 3A.2 (pg. 147)
Appendix 3B: Using a Worksheet (pg. 147)
Summary of Learning Objectives (pg. 150)
Key Terms (pg. 151)
Self-Study Questions (pg. 151)
Questions (pg. 152)
Short Exercises (pg. 153)
Exercises-Set A (pg. 154)
Exercises-Set B (pg. 158)
Problems-Set A (pg. 161)
Problems-Set B (pg. 169)
Serial Problem: Kate’s Cards (pg. 178)
Extending Your Knowledge (pg. 179)
Answers to Self-Study Questions: (pg. 182)
Your Turn! Solutions (pg. 182)
Chapter 4 Understanding Financial Statements (pg. 186)
Balance Sheet Classification and Analysis (pg. 188)
Current Assets (pg. 188)
Long-Term Assets (pg. 189)
Current Liabilities (pg. 190)
LongTerm Liabilities (pg. 191)
Stockholders’ Equity (pg. 191)
Presentation Format (pg. 191)
Your Turn! 4.1 (pg. 193)
Income Statement Classification and Analysis (pg. 193)
Your Turn! 4.2 (pg. 196)
Working with Financial Statements (pg. 196)
Analysis Based on Ratios (pg. 196)
Working with the Balance Sheet (pg. 197)
Your Turn! 4.3 (pg. 199)
Working with the Income Statement (pg. 199)
Your Turn! 4.4 (pg. 201)
Working with the Statement of Stockholders’ Equity (pg. 201)
Your Turn! 4.5 (pg. 202)
Working with the Statement of Cash Flows (pg. 202)
Your Turn! 4.6 (pg. 204)
Comprehensive Problem (pg. 205)
Summary of Learning Objectives (pg. 207)
Key Terms (pg. 208)
Self-Study Questions (pg. 209)
Questions (pg. 210)
Short Exercises (pg. 211)
Exercises-Set A (pg. 213)
Exercises-Set B (pg. 214)
Problems-Set A (pg. 216)
Problems-Set B (pg. 220)
Serial Problem: Kate’s Cards (pg. 223)
Extending Your Knowledge (pg. 223)
Answers to Self-Study Questions: (pg. 226)
Your Turn! Solutions (pg. 227)
Chapter 5 Accounting for Merchandising Operations (pg. 230)
The Nature of Merchandising (pg. 232)
Operating Cycle of a Merchandising Firm (pg. 233)
Cost Flows (pg. 234)
Inventory Systems (pg. 234)
Your Turn! 5.1 (pg. 235)
Accounting for Purchases of Merchandise (pg. 235)
Transportation Costs (pg. 235)
Purchase Returns and Allowances (pg. 236)
Purchase Discounts (pg. 237)
Your Turn! 5.2 (pg. 239)
Accounting for Sales of Merchandise (pg. 239)
Revenue Side (pg. 240)
Cost Side (pg. 240)
Sales Returns and Allowances (pg. 240)
Sales Discounts (pg. 241)
Net Sales (pg. 242)
Your Turn! 5.3 (pg. 242)
Profitability Analysis (pg. 242)
Gross Profit Percentage (pg. 242)
Return on Sales Ratio (Profit Margin) (pg. 243)
Your Turn! 5.4 (pg. 244)
Comprehensive Problem (pg. 245)
Appendix 5A: Periodic Inventory System (pg. 246)
Your Turn! 5A.1 (pg. 247)
Your Turn! 5A.2 (pg. 248)
Your Turn! 5A.3 (pg. 249)
Appendix 5B: The Revenue Recognition Standard (pg. 249)
Your Turn! 5B.1 (pg. 251)
Summary of Learning Objectives (pg. 251)
Key Terms (pg. 252)
Self-Study Questions (pg. 253)
Questions (pg. 254)
Short Exercises (pg. 254)
Exercises-Set A (pg. 256)
Exercises-Set B (pg. 258)
Problems-Set A (pg. 259)
Problems-Set B (pg. 262)
Serial Problem: Kate’s Cards (pg. 264)
Extending Your Knowledge (pg. 265)
Answers to Self-Study Questions: (pg. 267)
Your Turn! Solutions (pg. 267)
Chapter 6 Accounting for Inventory (pg. 270)
Inventory Categories and Concepts (pg. 272)
Categories of Inventory (pg. 272)
Concepts of Inventory Management (pg. 273)
Inventory Ownership and Physical Count (pg. 274)
Ownership of Inventory (pg. 274)
Physical Count of Inventory (pg. 275)
Your Turn! 6.1 (pg. 276)
Inventory Costing Methods (pg. 276)
Goods Flow vs. Cost Flow (pg. 277)
Data for Illustration of Cost Flow Assumptions (pg. 277)
Specific Identification Method (pg. 278)
FirstIn, FirstOut (FIFO) Method (pg. 278)
LastIn, FirstOut (LIFO) Method (pg. 279)
Weighted-Average Cost Method (pg. 280)
Your Turn! 6.2 (pg. 281)
Comparative Analysis of Inventory Costing Methods and Gross Profit (pg. 281)
Selecting Inventory Methods (pg. 282)
Your Turn! 6.3 (pg. 286)
Lower-of-Cost-or-Net Realizable Value Method (pg. 286)
Net Realizable Value (pg. 287)
Lower-of-Cost-or-Net Realizable Value (pg. 287)
Your Turn! 6.4 (pg. 288)
Inventory Analysis (pg. 288)
Inventory Turnover and Days’ Sales in Inventory (pg. 288)
Your Turn! 6.5 (pg. 289)
Comprehensive Problem (pg. 290)
Appendix 6A: Inventory Costing Methods and the Perpetual Inventory System (pg. 291)
Your Turn! 6A.1 (pg. 296)
Appendix 6B: LIFO Reserve (pg. 296)
Your Turn! 6B.1 (pg. 297)
Summary of Learning Objectives (pg. 297)
Key Terms (pg. 299)
Self-Study Questions (pg. 299)
Questions (pg. 300)
Short Exercises (pg. 301)
Exercises-Set A (pg. 303)
Exercises-Set B (pg. 306)
Problems-Set A (pg. 309)
Problems-Set B (pg. 313)
Serial Problem: Kate’s Cards (pg. 317)
Extending Your Knowledge (pg. 317)
Answers to Self-Study Questions: (pg. 320)
Your Turn! Solutions (pg. 320)
Chapter 7 Internal Control and Cash (pg. 324)
Fraud (pg. 326)
Fraud Triangle (pg. 326)
Your Turn! 7.1 (pg. 327)
Internal Control (pg. 327)
COSO Framework (pg. 327)
Control Failures (pg. 332)
The Sarbanes-Oxley Act (pg. 333)
Your Turn! 7.2 (pg. 333)
Accounting for Cash (pg. 333)
Reporting Cash (pg. 334)
Cash and Cash Equivalents (pg. 334)
Your Turn! 7.3 (pg. 335)
Internal Control of Cash Receipts Transactions (pg. 335)
Cash Received on Account (pg. 335)
Cash Received from Retail Cash Sales (pg. 337)
Checks (pg. 339)
Using Electronic Funds Transfer (pg. 340)
The Petty Cash Fund (pg. 340)
Your Turn! 7.4 (pg. 341)
The Bank Statement (pg. 341)
The Bank Reconciliation (pg. 341)
Your Turn! 7.5 (pg. 346)
Effective Cash Management (pg. 346)
Monitoring Cash (pg. 346)
Primary Activities of Effective Cash Management (pg. 347)
Your Turn! 7.6 (pg. 347)
Comprehensive Problem (pg. 348)
Appendix 7A: Auditing and Internal Control (pg. 349)
Your Turn! 7A.1 (pg. 351)
Summary of Learning Objectives (pg. 351)
Key Terms (pg. 353)
Self-Study Questions (pg. 353)
Questions (pg. 354)
Short Exercises (pg. 355)
Exercises-Set A (pg. 356)
Exercises-Set B (pg. 357)
Problems-Set A (pg. 359)
Problems-Set B (pg. 363)
Serial Problem: Kate’s Cards (pg. 366)
Extending Your Knowledge (pg. 367)
Answers to Self-Study Questions: (pg. 370)
Your Turn! Solutions (pg. 371)
Chapter 8 Accounting for Receivables (pg. 372)
Receivables (pg. 374)
Accounts Receivable (pg. 374)
Accounting for Bad Debts (pg. 375)
Allowance Method (pg. 376)
Your Turn! 8.1 (pg. 379)
Estimating Credit Losses (pg. 379)
Percentage of Net Sales Method (pg. 380)
Your Turn! 8.2 (pg. 380)
Accounts Receivable Aging Method (pg. 380)
Your Turn! 8.3 (pg. 383)
Credit Card Sales (pg. 384)
Your Turn! 8.4 (pg. 384)
Notes Receivable (pg. 384)
Interest on Notes Receivable (pg. 385)
Adjusting Entry for Interest (pg. 386)
Reporting Notes Receivable on the Balance Sheet (pg. 387)
Your Turn! 8.5 (pg. 388)
Analyzing and Managing Receivables (pg. 388)
Your Turn! 8.6 (pg. 389)
Factoring and Discounting (pg. 389)
Comprehensive Problem (pg. 390)
Appendix 8A: Direct Write-Off Method (pg. 391)
Your Turn! 8A.1 (pg. 392)
Key Terms (pg. 394)
Questions (pg. 395)
Short Exercises (pg. 396)
Exercises-Set A (pg. 397)
Exercises-Set B (pg. 401)
Problems-Set A (pg. 404)
Problems-Set B (pg. 407)
Serial Problem: Kate’s Cards (pg. 411)
Extending Your Knowledge (pg. 411)
Answers to Self-Study Questions: (pg. 414)
Your Turn! Solutions (pg. 414)
Chapter 9 Accounting for Long-Lived and Intangible Assets (pg. 416)
Overview of Long-Lived Assets (pg. 418)
Measuring Acquisition Cost of Plant Assets (pg. 419)
Acquisition Cost (pg. 419)
Acquisition Costs Related to Land (pg. 421)
Your Turn! 9.1 (pg. 422)
Nature of Depreciation (pg. 422)
Allocation versus Valuation: Depreciation Accounting (pg. 423)
Calculating Depreciation Expense (pg. 423)
A Comparison of Alternative Depreciation Methods (pg. 427)
Your Turn! 9.2 (pg. 428)
Depreciation Method Estimate Changes (pg. 428)
Revenue versus Capital Expenditures (pg. 431)
Revenue Expenditures (pg. 431)
Capital Expenditures (pg. 431)
Your Turn! 9.3 (pg. 432)
Disposals of Plant Assets (pg. 433)
Sale of Plant Assets (pg. 433)
Your Turn! 9.4 (pg. 434)
Intangible Assets and Natural Resources (pg. 434)
Measurement of Intangible Assets (Cost Determination) (pg. 435)
Amortization of Intangibles (pg. 435)
Examples of Intangible Assets (pg. 435)
Patents (pg. 435)
Copyright (pg. 436)
Franchises (pg. 436)
Trademarks (pg. 436)
Goodwill (pg. 437)
Your Turn! 9.5 (pg. 437)
Natural Resources (pg. 437)
Your Turn! 9.6 (pg. 438)
Balance Sheet Presentation (pg. 438)
Return on Assets and Asset Turnover (pg. 439)
Your Turn! 9.7 (pg. 440)
Comprehensive Problem (pg. 440)
Summary Of Learning Objectives (pg. 441)
Key Terms (pg. 442)
SelfStudy Questions (pg. 443)
Questions (pg. 444)
Exercises-Set A (pg. 446)
Exercises-Set B (pg. 448)
Problems-Set A (pg. 450)
Problems-Set B (pg. 453)
Serial Problem: Kate’s Cards (pg. 456)
Extending Your Knowledge (pg. 457)
Answers to Self-Study Questions: (pg. 460)
Your Turn! Solutions (pg. 460)
Chapter 10 Accounting for Liabilities (pg. 462)
Current Liabilities (pg. 464)
Accounts Payable (pg. 464)
Notes Payable and Interest (pg. 464)
Interest Payable (pg. 466)
Current Portion of LongTerm Debt (pg. 466)
Advance Payments-Unearned Revenue (pg. 466)
Sales and Excise Taxes Payable (pg. 467)
PayrollRelated Liabilities (pg. 467)
Your Turn! 10.1 (pg. 469)
Income Taxes Payable (pg. 469)
Long-Term Liabilities (pg. 470)
Long-Term Notes (Term Loans) (pg. 470)
Types of Bonds (pg. 471)
Bond Prices (pg. 472)
Recording Bonds (pg. 475)
Your Turn! 10.2 (pg. 479)
Advantages and Disadvantages of Long-Term Bonds and Notes (pg. 479)
Contingent Liabilities (pg. 480)
Examples of Contingent Liabilities (pg. 481)
Summary of Accounting Treatment for Liabilities (pg. 483)
Your Turn! 10.3 (pg. 484)
Analyzing Liabilities (pg. 484)
Current Ratio and Quick Ratio (pg. 484)
Times-Interest-Earned Ratio (pg. 485)
Your Turn! 10.4 (pg. 486)
Comprehensive Problem (pg. 487)
Appendix 10A: Bond Pricing (pg. 487)
Your Turn! 10A.1 (pg. 496)
Appendix 10B: Leases (pg. 496)
Your Turn! 10B.1 (pg. 496)
Summary of Learning Objectives (pg. 497)
Key Terms (pg. 499)
Self-Study Questions (pg. 499)
Questions (pg. 500)
Short Exercises (pg. 501)
Exercises-Set A (pg. 503)
Exercises-Set B (pg. 506)
Problems-Set A (pg. 509)
Problems-Set B (pg. 513)
Serial Problem: Kate’s Cards (pg. 516)
Extending Your Knowledge (pg. 517)
Answers to Self-Study Questions: (pg. 519)
Your Turn! Solutions (pg. 520)
Chapter 11 Stockholders’ Equity (pg. 522)
Nature and Formation of a Corporation (pg. 524)
Advantages of the Corporate Form of Organization (pg. 524)
Disadvantages of the Corporate Form of Organization (pg. 526)
Accounting for Stockholders’ Equity in Alternative Organizational Forms (pg. 527)
Your Turn! 11.1 (pg. 527)
Par Value Stock and NoPar Value Stock (pg. 527)
Your Turn! 11.2 (pg. 528)
Types of Capital Stock (pg. 528)
Common Stock (pg. 529)
Preferred Stock (pg. 529)
Your Turn! 11.3 (pg. 531)
Stock Issuances for Cash (pg. 532)
Issuing Stock at a Premium (pg. 532)
Issuing No-Par Stock (pg. 532)
Noncash Stock Issuances (pg. 533)
Your Turn! 11.4 (pg. 533)
Stock Splits (pg. 534)
Your Turn! 11.5 (pg. 534)
Treasury Stock (pg. 534)
Accounting for Treasury Stock (pg. 535)
Your Turn! 11.6 (pg. 536)
Cash Dividends and Stock Dividends (pg. 536)
Cash Dividends (pg. 537)
Stock Dividends (pg. 538)
Your Turn! 11.7 (pg. 540)
Retained Earnings and the Statement of Stockholder’s Equity (pg. 540)
Statement of Stockholders’ Equity (pg. 541)
Your Turn! 11.8 (pg. 541)
Analyzing Stockholders’ Equity (pg. 542)
Return on Common Stockholders’ Equity (pg. 542)
Dividend Yield and Dividend Payout Ratio (pg. 542)
Your Turn! 11.9 (pg. 544)
Comprehensive Problem (pg. 544)
Summary of Learning Objectives (pg. 545)
Key Terms (pg. 546)
Self-Study Questions (pg. 547)
Questions (pg. 548)
Short Exercises (pg. 548)
Exercises-Set A (pg. 549)
Exercises-Set B (pg. 552)
Problems-Set A (pg. 555)
Problems-Set B (pg. 559)
Serial Problem: Kate’s Cards (pg. 563)
Extending Your Knowledge (pg. 564)
Answers to Self-Study Questions: (pg. 567)
Your Turn! Solutions (pg. 567)
Chapter 12 Statement of Cash Flows (pg. 570)
Cash and Cash Equivalents (pg. 572)
Activity Classifications in the Statement of Cash Flows (pg. 573)
Operating Activities (pg. 574)
Investing Activities (pg. 574)
Financing Activities (pg. 574)
Usefulness of Activity Classification (pg. 575)
Noncash Investing and Financing Activities (pg. 576)
Using the Statement of Cash Flows (pg. 576)
Cash Flow from Operating Activities (pg. 577)
Your Turn! 12.1 (pg. 578)
Preparing the Statement of Cash Flows Using the Indirect Method (pg. 578)
Five Steps to Preparing a Statement of Cash Flows (pg. 579)
Your Turn! 12.2 (pg. 585)
Analyzing Cash Flows (pg. 586)
Free Cash Flow (pg. 586)
Operating-Cash-Flow-to-Current-Liabilities Ratio (pg. 586)
Operating-Cash-Flow-to-Capital-Expenditures Ratio (pg. 587)
Your Turn! 12.3 (pg. 588)
Comprehensive Problem (pg. 588)
Appendix 12A: Preparing the Statement of Cash Flows Under the Direct Method (pg. 590)
Your Turn! 12A.1 (pg. 592)
Summary of Learning Objectives (pg. 593)
Key Terms (pg. 594)
Self-Study Questions (pg. 594)
Questions (pg. 596)
Short Exercises (pg. 597)
Exercises-Set A (pg. 598)
Exercises-Set B (pg. 601)
Problems-Set A (pg. 604)
Problems-Set B (pg. 609)
Serial Problem: Kate’s Cards (pg. 614)
Extending Your Knowledge (pg. 616)
Answers to Self-Study Questions: (pg. 618)
Your Turn! Solutions (pg. 618)
Chapter 13 Analysis and Interpretation of Financial Statements (pg. 622)
Persistent Earnings and the Income Statement (pg. 624)
Discontinued Operations (pg. 626)
Changes in Accounting Principles (pg. 626)
Comprehensive Income (pg. 627)
Your Turn! 13.1 (pg. 627)
Sources of Information (pg. 628)
Analytical Techniques (pg. 628)
Horizontal Analysis (pg. 629)
Trend Analysis (pg. 632)
Your Turn! 13.2 (pg. 633)
Vertical Analysis (pg. 633)
Your Turn! 13.3 (pg. 634)
Ratio Analysis (pg. 634)
Analyzing Firm Profitability (pg. 636)
Your Turn! 13.4 (pg. 639)
Analyzing ShortTerm Firm Liquidity (pg. 639)
Your Turn! 13.5 (pg. 644)
Analyzing LongTerm Firm Solvency (pg. 644)
Your Turn! 13.6 (pg. 646)
Financial Ratios for Common Stockholders (pg. 646)
Your Turn! 13.7 (pg. 649)
Limitations of Financial Statement Analysis (pg. 649)
Comprehensive Problem (pg. 650)
Appendix 13A: Financial Statement Disclosures (pg. 651)
Summary of Learning Objectives (pg. 654)
Summary of Financial Statement Ratios (pg. 655)
Key Terms (pg. 657)
Self-Study Questions (pg. 658)
Questions (pg. 659)
Short Exercises (pg. 660)
Exercises-Set A (pg. 661)
Exercises-Set B (pg. 664)
Problems-Set A (pg. 666)
Problems-Set B (pg. 672)
Serial Problem: Kate’s Cards (pg. 678)
Extending Your Knowledge (pg. 680)
Answers to Self-Study Questions: (pg. 685)
Your Turn! Solutions (pg. 685)
Appendix A Columbia Sportswear Company (pg. A-1)
Report of Independent Auditors (pg. A-2)
Financial Statements (pg. A-3)
Notes To Financial Statements (pg. A-7)
Earnings Per Share Data (pg. A-23)
Supplemental Information (pg. A-24)
Report on Internal Control (pg. A-26)
Appendix B Financial Statements for Under Armour (pg. B-1)
Appendix C Financial Statements for LVMH Moet Hennessy - Louis Vuitton (pg. C-1)
Appendix D Accounting for Investments and Consolidated Financial Statements (pg. D-1)
Investments (pg. D-2)
Investment Categories (pg. D-2)
Your Turn! D-1 (pg. D-3)
Investments in Debt Securities (pg. D-3)
Purchase (pg. D-4)
Recognition of Interest Income (pg. D-5)
Balance Sheet Valuation (pg. D-5)
Sale or Redemption at Maturity (pg. D-7)
Your Turn! D-2 (pg. D-8)
Investments in Equity Securities (pg. D-8)
Purchase (pg. D-8)
Recognition of Investment Income (pg. D-9)
Balance Sheet Valuation (pg. D-10)
Sale (pg. D-11)
Current and Noncurrent Classifications (pg. D-11)
Your Turn! D-3 (pg. D-12)
ParentSubsidiary Relationship (pg. D-12)
Consolidated Financial Statements (pg. D-12)
Limitations of Consolidated Statements (pg. D-13)
Summary of Learning Objectives (pg. D-13)
Key Terms (pg. D-14)
Self-Study Questions (pg. D-15)
Questions (pg. D-16)
Exercises-Set A (pg. D-17)
Exercises-Set B (pg. D-19)
Problems-Set A (pg. D-21)
Problems-Set B (pg. D-23)
Answers to Self-Study Questions: (pg. D-25)
Your Turn! Solutions (pg. D-25)
Appendix E Accounting and the Time Value of Money (pg. E-1)
Time Value of Money Concept (pg. E-2)
Time Value of Money: Simple Interest Model (pg. E-2)
Time Value of Money: Compound Interest Model (pg. E-2)
Your Turn! E-1 (pg. E-3)
Future Value of an Amount (pg. E-3)
Your Turn! E-2 (pg. E-5)
Future Value of an Annuity (pg. E-5)
Your Turn! E-3 (pg. E-6)
Present Value of an Amount (pg. E-7)
Your Turn! E-4 (pg. E-9)
Present Value of an Annuity (pg. E-9)
Your Turn! E-5 (pg. E-10)
Calculations Using a Calculator and a Spreadsheet (pg. E-10)
Summary of Learning Objectives (pg. E-11)
Key Terms (pg. E-11)
Self-Study Questions (pg. E-11)
Exercises-Set A (pg. E-12)
Exercises-Set B (pg. E-13)
Answers to Self-Study Questions: (pg. E-14)
Your Turn! Solutions (pg. E-15)
Appendix F Data Analytics and Blockchain Technology (pg. F-1)
Data Analytics (pg. F-2)
Data Analytics in the Accounting Profession (pg. F-3)
Blockchain Technology (pg. F-4)
Summary of Learning Objectives (pg. F-5)
Key Terms (pg. F-6)
Self-Study Questions (pg. F-6)
Exercises (pg. F-6)
Answers to Self-Study Questions: (pg. F-8)
Glossary (pg. G-1)
Index (pg. I-1)
James S. Wallace

James S. Wallace

Associate Professor at The Peter F. Drucker and Masatoshi Ito Graduate School of Management at The Claremont Graduate University.

He received his Bachelors of Arts from the University of California, Santa Barbara, his MBA from the University of California, Davis, and his PhD from the University of Washington. Professor Wallace also holds a CPA certification from the state of California. He previously served on the faculty of the University of California, Irvine and has served as a visiting professor at the University of California, San Diego. Professor Wallace's work has appeared in leading academic journals including the Journal of Accounting and Economics, the Journal of Corporate Finance, and Information Systems Research, along with leading applied journals such as the Journal of Applied Corporate Finance, the Journal of Accountancy, Issues in Accounting Education and Accounting Horizons. Prior to his career in academics, Professor Wallace worked in public accounting and in industry with a Fortune 500 company. He has done consulting work with numerous companies in multiple industries.

Karen K. Nelson

Karen K. Nelson

M.J. Neeley Professor of Accounting at TCU. Former Harmon Whittington Professor of Accounting and past Accounting Area Coordinator at the Jones Graduate School of Business at Rice University.

Karen previously served on the faculty at Rice University, the Stanford University Graduate School of Business, and as a visiting professor at the University of Michigan. She earned her Ph.D. at the University of Michigan and a bachelor’s degree (summa cum laude) from the University of Colorado. She also holds a CPA license from the state of Colorado. Professor Nelson’s research focuses on financial reporting and disclosure issues, including the role of regulators, auditors, and private securities litigation in monitoring financial reporting quality. She has held research seminars at over 50 leading business schools in the U.S. and abroad, and published in a variety of leading academic journals including The Accounting Review, Journal of Accounting and Economics, Journal of Accounting, and Review of Accounting Studies. Her research has been featured in the financial press in publications such as The Wall Street Journal, Business Week, and Forbes. She is an active member of the American Accounting Association and serves on the Editorial Board of The Accounting Review. She has taught financial accounting at all levels, and her students have honored her with numerous awards for teaching excellence. She currently teaches intermediate accounting to undergraduates and financial accounting to MBAs. She is a member of the Standing Advisory Group of the Public Company Accounting Oversight Board.

Theodore E. Christensen

Theodore E. Christensen

Director and Terry Distinguished Chair of Business in the J.M. Tull School of Accounting at the University of Georgia (UGA).

Prior to coming to UGA, he was on the faculty at Brigham Young University from 2000-2015 and at Case Western Reserve University from 1995-2000. He was a visiting professor at the University of Michigan (2013-2014) and the University of Utah (2012) and has taught at Santa Clara University in a summer program since 2005. He received a B.S. degree in accounting from San Jose State University, an M.Acc. degree in tax from Brigham Young University, and a Ph.D. in accounting from the University of Georgia. Professor Christensen has authored and coauthored articles published in many journals, including The Accounting Review; the Journal of Accounting and Economics; the Journal of Accounting Research; Review of Accounting Studies; Contemporary Accounting Research; Accounting Organizations and Society; the Journal of Business Finance & Accounting; the Journal of Accounting, Auditing, and Finance; Accounting Horizons; and Issues in Accounting Education.

Last Updated: Oct 27 2020

Corrections to identified errors in the text.

Excel Templates - Students
Last Updated: Oct 27 2020

Excel templates for use with identified end-of-chapter assignments. 

Practice Quizzes w/Solutions
Last Updated: Oct 27 2020

Brief, multiple choice practice quizzes for each chapter, including solutions.

Columbia Sportswear Company
Last Updated: Oct 27 2020

Columbia Sportswear Company's 2017 10K Report

General Mills
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General Mills'  2017 10K Report

Under Armour
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Under Armour's 2017 10K Report

Data Analytics Files
Last Updated: Oct 27 2020
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