Financial & Managerial Accounting for MBAs, 7e

by Easton, Halsey, McAnally, Kulp, Dragoo

| ISBN: 978-1-61853-621-1 | Copyright 2025

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Data Analytics and Data Visualization

New technologies are changing the landscape of accounting and financial reporting. Companies are increasingly using data analytics and visualization (charts, pictures, and graphs) to more effectively convey financial information. To familiarize students with data visualization, each module opens with a data dashboard and uses real-world data analytics and applications for student learning. Each module contains Data Analytics Insight boxes that describe how data analytics applies to the topics. Analytics and visualizations are reinforced with assignments in each module that present data graphically and require students to analyze and interpret the data visualizations. Data analytics questions are exclusively available on myBusinessCourse. We provide students with online access to author-created PowerBI dashboards where they can interact with the data and learn how to create their own data visualizations. We have partnered with Calcbench, a leading provider of data extracted from SEC filings. Calcbench data underlies each of the Data Analytics Insights and all of the end-of-module data analytics assignments. This allows instructors and students to work with actual and interesting financial statement data. These discussions and assignments are identified by the data analytics icon in the margin.

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Welcome to Financial & Managerial Accounting for MBAs

Welcome to the Seventh Edition of Financial & Managerial Accounting for MBAs. Our main goal in writing this book was to satisfy the needs of todays business manager by creating a contemporary, engaging, and user‑oriented textbook. This book is the product of extensive market research including focus groups, market surveys, class tests, manuscript reviews, and interviews with faculty from around the world. We are grateful to students and faculty who provided us with useful feedback during the preparation of this book.

Target Audience

Financial & Managerial Accounting for MBAs is intended for use in full‑time, part‑time, executive, and evening MBA programs that include a combined financial and managerial accounting course as part of the curriculum, and one in which managerial decision making and analysis are emphasized. This book easily accommodates mini‑courses lasting several days as well as extended courses lasting a full semester.

Innovative Approach

Financial & Managerial Accounting for MBAs is managerially oriented and focuses on the most salient aspects of accounting. It teaches MBA students how to read, analyze, and interpret financial accounting data to make informed business decisions. This text makes accounting engaging, relevant, and contemporary. To that end, it consistently incorporates real company data, both in the body of each module and throughout assignment material.

Flexible Structure

The MBA curricula, instructor preferences, and course lengths vary across colleges. Accordingly and to the extent possible, the 25 modules that make up Financial & Managerial Accounting for MBAs were designed independently of one another. This modular presentation enables each college and instructor to “customize” the book to best fit the needs of their students. Our introduction and discussion of financial statements constitute Modules 1, 2, and 3. Module 4 presents the analysis of financial statements with an emphasis on profitability analysis. Modules 5 through 10 highlight major financial accounting topics including assets, liabilities, equity, and off-balance-sheet financing. Module 11 details the process for preparing and analyzing the statement of cash flow. Module 12 explains forecasting financial statements and Module 13 introduces simple valuation models. At the end of each financial accounting module (Modules 1 through 13), we present an ongoing analysis project that can be used as a guide for an independent project. Like the rest of the book, the project is independent across the various modules. Module 14 introduces managerial accounting and is followed by a discussion of cost behavior and cost estimation in Module 15. Module 16 explains cost-volume-profit analysis while Module 17 focuses on using relevant costs to make business decisions. Job and process costing are covered in a single module, Module 18, followed by activity-based costing in Module 19 and the assignment of indirect costs in Module 20. The remaining modules, 21 through 25, highlight managerial accounting topics ranging from operational budget and variance analysis to segment reporting, product pricing, and capital budgeting. At the end of the book, we include several useful resources. Appendix A contains compound interest tables and formulas. Appendix B is a chart of accounts used in the book. Appendix C is an Ongoing Analysis Project based on two companies, Parker Hannifin (PH) and Illinois Tool Works (ITW). Each financial accounting module includes quantitative and qualitative questions that guide students through a company analysis.

Managerial Emphasis

As MBA instructors, we recognize that the core MBA accounting course is not directed toward accounting majors. Financial & Managerial Accounting for MBAs embraces this reality. This book highlights reporting, analysis, interpretation, and decision making. In the financial accounting modules, we incorporate the following financial statement effects template when relevant to train MBA students in understanding the economic ramifications of transactions and their impact on all key financial statements. This analytical tool is a great resource for MBA students in learning accounting and applying it to their future courses and careers. Each transaction is identified in the "Transaction" column. Then, the dollar amounts (positive or negative) of the financial statement effects are recorded in the appropriate balance sheet or income statement columns. The template also reflects the statement of cash flow effect (via the cash column) and the statement of stockholders' equity effects (via the contributed capital and earned capital columns). The earned capital account is immediately updated to reflect any income or loss arising from each transaction (denoted by the arrow line from net income to earned capital). This template is instructive as it reveals the financial impacts fo transactions, and it provides insights into the effects of accounting choices.

Innovative Pedagogy

Focus Companies for Each Module

In the financial accounting portion of the book, each module’s content is explained through the accounting and reporting activities of real companies. To that end, each module incorporates a “focus company” for special emphasis and demonstration. The enhanced instructional value of focus companies comes from the way they engage MBA students in real analysis and interpretation. Focus companies were selected based on the industries that MBA students typically enter upon graduation. We apply a similar approach to the managerial accounting modules, but limited access to internal accounting information prevents us from illustrating all managerial accounting topics using real company data. We do, however, incorporate real-world examples throughout each module. Each managerial accounting module is presented in context using real-world scenarios from a variety of service, retail, and manufacturing companies. The following table lists focus companies by module.

Real Company Data Throughout

Market research and reviewer feedback tell us that one of instructors’ greatest frustrations with other MBA textbooks is their lack of real company data. We have gone to great lengths to incorporate real company data throughout each module to reinforce important concepts and engage MBA students. We engage nonaccounting MBA students specializing in finance, marketing, management, real estate, operations, and so forth, with companies and scenarios that are relevant to them. For representative examples, SEE PAGES 2-6; 4-18, 19 & 23; 5-3 & 14; 6-10, 22, 23 & 29; 7-6 & 13; 8-6, 7 & 8; 9-6 & 14; 10-4, 11, 15 & 24; 11-5; and 13-13 & 27.

Reviews & Videos for Each Learning Objective

Accounting can be challenging—especially for MBA students lacking business experience or previous exposure to business courses. To reinforce concepts presented in each module and to ensure student comprehension, we include reviews that require students to recall and apply the accounting techniques and concepts described in each module. Each Review is accompanied by an author-created video that walks students through the problem and emphasizes problem-solving techniques that students should consider. These Guided Example videos are accessed through myBusinessCourse.

Excellent, Class-Tested Assignment Materials

Excellent assignment material is a musthave component of any successful book (and class). In keeping with the rest of the book, we used real company data extensively. We also ensured that assignments reflect our belief that MBA students should be trained in analyzing accounting information to make business decisions, as opposed to working on mechanical bookkeeping tasks. Assignments encourage students to analyze accounting information, interpret it, and apply the knowledge gained to a business decision.

Fundamentals of Financial Accounting Tutorial

This interactive tutorial is intended for use in programs that either require or would like to offer a pre-term tutorial that creates a baseline of accounting knowledge for students with little to no prior exposure to financial accounting. Initially developed as a pre-term tutorial for first-year MBA students, this product can be used as a warm-up for any introductory-level financial accounting course. It is designed as an asynchronous, interactive, self-paced experience for students

Available Learning Modules (You Select)

  1.   Introducing Financial Accounting (approximate completion time 2 hours)
  2.   Constructing Financial Statements (approximate completion time 4 hours)
  3.   Adjusting Entries and Completing the Accounting Cycle (approximate completion time 4 hours)
  4.   Reporting and Analyzing Cash Flows (approximate completion time 3.5 hours)
  5.   Analyzing and Interpreting Financial Statements (approximate completion time 3.5 hours)
  6.   Excel and Time-Value of Money Basics (approximate completion time 2 hours)

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New Edition Changes

Based on classroom use and reviewer feedback, a number of substantive changes have been made in this edition to further enhance the MBA students’ experiences.

Data Analytics & Excel Skill Development for Career Readiness

The basics of accounting haven't 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 today's 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 Seventh Edition includes several new features to enhance students' career readiness.

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

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

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

Financial Accounting Modules (1-13)

  • Digital delivery enhanced:  To serve the expanding delivery modes of MBA education, we updated and expanded our in‑module Reviews and Guided Example videos for all modules (each Learning Objective has a Review/Guided Example, as well as a corresponding eLecture). In addition, all objective assignments are available in MBC.
  • Updated and expanded data visualization and analytics:  Data analytics questions have been updated and expanded in each module to show their usage in financial statement analysis. Author-prepared videos demonstrate how to complete the data visualizations and analytics assignments.
  • New Data Analytics Insights:  Each module includes new Data Analytics Insights that provide examples of how financial statement data can be analyzed and visualized to uncover trends and address important questions. Also, a new Appendix D entitled, "Data Analytics & Visualizations" provides an overview to create a baseline of knowledge.
  • New analysis project:  Each module concludes with a hands-on analysis project set in MBC. Students are led through an analysis of two competitors: Parker Hannifin (ticker: PH) and Illinois Tool Works (ticker: ITW). Students apply the tools they learn in each module to complete a comprehensive financial statement analysis and valuation project.
  • Integration of Calcbench data:  We have partnered with Calcbench, a leading provider of data extracted from SEC filings. Calcbench data underlies most of the data visualization graphics presented in each module and many of the end-of-chapter data analytics assignments. This allows readers to work with actual and interesting financial statement data.
  • ESG reporting:  We include relevant discussions of ESG reporting and analysis whenever appropriate.
  • Enhancements to MBC:  Assignments in MBC are updated to reflect new technology and reduce rounding issues. Downloadable Excel spreadsheets have been developed for many assignments. Solutions to algorithmic assignments have been added to this edition.
  • Credit analysis:  There is expanded content related to credit analysis included in Module 7 where we discuss common goals of credit analysis and the critical facets of this process. We adopt the term "capital structure analysis" instead of "solvency analysis" in light of its growing popularity to emphasize the importance of looking at all facets of a company's capital structure when conducting credit analysis.
  • EBITDA:  EBITDA is a term commonly used in practice. This important measure is introduced in several places and explains how it relates to net income and other income statement measures. This includes discussion of the pros and cons of using EBITDA and its variations.
  • Analyzing intangible assets:  New content in Module 6 discusses a wide variety of intangible assets including goodwill. The section discusses valuation methods, capitalization, and the subsequent accounting for intangibles. This includes explanation of the impairment of intangible assets and how to forecast intangibles.
  • Treasury Stock:  In light of the marked increase in the frequency and size of stock repurchases and retirements, this edition includes an expanded discussion of this activity and demonstrates the financial statement impact of retiring stock and its interpretation.
  • Acquired Research and Development expense:  We include a discussion of the origin and interpretation of acquired R&D expenses for financial statement analysis.
  • Earnings Quality:  We expand discussion of earnings quality to include a detailed look at the relations among net income, accruals, and cash flows, along with academic research on these subjects.
  • Financial Statement implications of current events:  We discuss important market implications to financial statement analysis such as the collapse of Silicon Valley Bank and its connection to debt investments, the effect of unused office space in the wake of the shift to work-from-home on lease arrangements, and other current events.
  • Multiple Choice questions:  Each module contains a new set of multiple-choice questions for readers to quickly check on their understanding of key concepts and tools for each module.

Managerial Accounting Modules (14-25)

  • Expanded coverage, resources, and assignments related to data analytics and Excel skill development in an effort to enhance career readiness.
  • Emphasized critical thinking required in managerial decision-making through new questions inserted within, and directly related to, the module content. The authors emphasized questions where there is more than one viable answer to a problem, signaling that there are often no single, correct answers.
  • Highlighted ESG implications of each module's topics in a variety of ways including new text discussions, critical thinking questions, and end-of-module assignments—all marked with an ESG icon.
  • Made any necessary adjustments to learning objectives to ensure each learning objective represents a standalone learning unit.
  • Streamlined, revamped, and rearranged module content to improve the chapter flow.
  • Revised, enhanced, and added new module exhibits and graphics.
  • Updated modules with new relevant examples.
  • Added many new end-of-module assignments (over 80 new assignments in total).
    • Added new assignments to ensure adequate coverage per learning objective
    • Expanded ethics-related assignments and identified all ethical questions with a unique icon
    • Added CMA-adapted questions, all identified with a unique icon
    • Added new Excel data analysis assignments in each module
    • Referenced a new set of assignments that require students to analyze existing data visualizations.


For Instructors

  • myBusinessCourseA 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 additional help when you are not available. 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. Assignments with the MBC Homework icon in the margin are available in myBusinessCourse. eLecture videos are available for the module Learning Objectives, and Guided Examples for the in-module Reviews are available for you to assign students.
  • Solutions Manual:  Created by the authors, the Solutions Manual contains complete solutions to all the assignments.
  • PowerPoint:  Created by the authors, the PowerPoint slides outline key elements of each module.
  • Test Bank:  Written by the authors, the test bank includes a variety of question types.

Expand/Collapse All
Preface (pg. iii)
Brief Contents (pg. x)
Contents (pg. xi)
Module 1: Financial Accounting for MBAs (pg. 1-1)
Reporting on Business Activities (pg. 1-3)
Review 1-1 (pg. 1-4)
Financial Statements: Demand and Supply (pg. 1-4)
Demand for Information (pg. 1-4)
Supply of Information (pg. 1-7)
International Accounting Standards (pg. 1-8)
Review 1-2 (pg. 1-9)
Structure of Financial Statements (pg. 1-10)
Balance Sheet (pg. 1-10)
Income Statement (pg. 1-13)
Statement of Stockholders’ Equity (pg. 1-14)
Statement of Cash Flows (pg. 1-15)
Information Beyond Financial Statements (pg. 1-16)
Managerial Choices in Financial Accounting (pg. 1-17)
Review 1-3 (pg. 1-18)
Analysis of Financial Statements (pg. 1-18)
Return on Assets (pg. 1-18)
Components of Return on Assets (pg. 1-19)
Return on Equity (pg. 1-20)
Are Financial Statements Relevant? (pg. 1-20)
Review 1-4 (pg. 1-22)
Financial Statements and Business Analysis (pg. 1-22)
Analyzing the Competitive Environment (pg. 1-22)
SWOT Analysis of the Business Environment (pg. 1-23)
Analyzing Competitive Advantage (pg. 1-24)
Review 1-5 (pg. 1-26)
Book Road Map (pg. 1-27)
Global Accounting (pg. 1-27)
Appendix 1A: Financial Statement Data and Analytics (pg. 1-27)
SEC Filings (pg. 1-27)
Data Analytics (pg. 1-30)
Review 1-6 (pg. 1-31)
Appendix 1B: Accounting Principles and Governance (pg. 1-32)
Financial Accounting Environment (pg. 1-32)
Audit Report (pg. 1-33)
Guidance Answers (pg. 1-36)
Multiple Choice (pg. 1-37)
Questions (pg. 1-38)
Mini Exercises (pg. 1-39)
Exercises (pg. 1-41)
Problems (pg. 1-43)
Management Applications (pg. 1-47)
Data Analytics (pg. 1-47)
Ongoing Analysis Project (pg. 1-47)
Solutions to Review Problems (pg. 1-48)
Module 2: Introducing Financial Statements (pg. 2-1)
Balance Sheet (pg. 2-3)
Balance Sheet and the Flow of Costs (pg. 2-3)
Assets (pg. 2-4)
Liabilities and Equity (pg. 2-6)
Review 2-1 (pg. 2-13)
Income Statement (pg. 2-13)
Recognizing Revenues and Expenses (pg. 2-14)
Reporting Discontinued Operations (pg. 2-15)
Analyzing the Income Statement (pg. 2-16)
Review 2-2 (pg. 2-17)
Statement of Stockholders’ Equity (pg. 2-17)
Review 2-3 (pg. 2-18)
Statement of Cash Flows (pg. 2-18)
Statement Format and Data Sources (pg. 2-19)
Review 2-4 (pg. 2-20)
Articulation of Financial Statements (pg. 2-20)
Retained Earnings Reconciliation (pg. 2-20)
Financial Statement Linkages (pg. 2-20)
Review 2-5 (pg. 2-22)
Additional Information Sources (pg. 2-22)
Form 10-K (pg. 2-23)
Form 20-F and Form 40-F (pg. 2-24)
Form 8-K (pg. 2-25)
Analyst Reports (pg. 2-25)
Credit Services (pg. 2-25)
Data Services (pg. 2-26)
Review 2-6 (pg. 2-26)
Global Accounting (pg. 2-26)
Guidance Answers (pg. 2-27)
Multiple Choice (pg. 2-27)
Questions (pg. 2-28)
Exercises (pg. 2-29)
Problems (pg. 2-34)
Management Applications (pg. 2-37)
Data Analytics (pg. 2-37)
Ongoing Analysis Project (pg. 2-37)
Solutions to Review Problems (pg. 2-38)
Module 3: Transactions, Adjustments, and Financial Statements (pg. 3-1)
Basics of Accounting (pg. 3-3)
Four-Step Accounting Cycle (pg. 3-3)
Financial Statement Effects Template (pg. 3-3)
Review 3-1 (pg. 3-5)
Accounting Cycle Step 1-Analyze Transactions and Prepare Entries (pg. 3-6)
Apple’s Transactions (pg. 3-6)
Applying the Financial Statement Effects Template (pg. 3-6)
Applying the Journal Entry and T-Account (pg. 3-6)
Review 3-2 (pg. 3-9)
Accounting Cycle Step 2-Prepare Accounting Adjustments (pg. 3-9)
Prepaid (Deferred) Expenses (pg. 3-10)
Unearned (Deferred) Revenues (pg. 3-11)
Accrued Expenses (pg. 3-11)
Accrued Revenues (pg. 3-12)
Accounting Adjustments for Apple (pg. 3-12)
Review 3-3 (pg. 3-13)
Accounting Cycle Step 3-Prepare Financial Statements (pg. 3-13)
Income Statement (pg. 3-13)
Balance Sheet (pg. 3-14)
Statement of Stockholders’ Equity (pg. 3-15)
Review 3-4 (pg. 3-16)
Accounting Cycle Step 4-Close the Books (pg. 3-16)
Accounting Cycle Summarized (pg. 3-17)
Review 3-5 (pg. 3-18)
Global Accounting (pg. 3-18)
Guidance Answers (pg. 3-19)
Multiple Choice (pg. 3-19)
Questions (pg. 3-20)
Mini Exercises (pg. 3-21)
Exercises (pg. 3-22)
Problems (pg. 3-24)
Management Applications (pg. 3-27)
Data Analytics (pg. 3-28)
Ongoing Analysis Project (pg. 3-28)
Solutions to Review Problems (pg. 3-29)
Module 4: Analyzing and Interpreting Financial Statements (pg. 4-1)
Return on Equity (ROE) (pg. 4-3)
Review 4-1 (pg. 4-4)
ROE Disaggregation: DuPont Analysis (pg. 4-4)
Return on Assets (ROA) (pg. 4-5)
Financial Leverage (FL) (pg. 4-6)
Noncontrolling Interest Ratio (NCIR) (pg. 4-6)
Review 4-2 (pg. 4-7)
Return on Assets and Its Disaggregation (pg. 4-7)
Analysis of Profitability and Productivity (pg. 4-8)
Analysis of Profitability (pg. 4-9)
Analysis of Productivity (pg. 4-10)
Analysis of Financial Leverage (pg. 4-14)
Review 4-3 (pg. 4-16)
Balance Sheet Analysis with an Operating Focus (pg. 4-16)
Net Operating Assets (NOA) (pg. 4-17)
Net Nonoperating Obligations (NNO) (pg. 4-19)
Review 4-4 (pg. 4-21)
Income Statement Analysis with an Operating Focus (pg. 4-21)
Operating Line Items on the Income Statement (pg. 4-22)
Nonoperating Line Items on the Income Statement (pg. 4-22)
Review 4-5 (pg. 4-25)
Return on Net Operating Assets (RNOA) (pg. 4-25)
Review 4-6 (pg. 4-27)
RNOA Disaggregation into Margin and Turnover (pg. 4-28)
Net Operating Profit Margin (pg. 4-28)
Net Operating Asset Turnover (pg. 4-28)
Trade-Off between Margin and Turnover (pg. 4-29)
Review 4-7 (pg. 4-30)
Analyzing Global Reports (pg. 4-31)
Appendix 4A: Operating versus Nonoperating Classification (pg. 4-31)
Appendix 4B: Nonoperating Return Component of ROE (pg. 4-32)
Nonoperating Return (pg. 4-32)
Nonoperating Return-With Net Nonoperating Assets (pg. 4-34)
Review 4-8 (pg. 4-36)
Appendix 4C: Vertical and Horizontal Analysis (pg. 4-36)
Review 4-9 (pg. 4-39)
Guidance Answer (pg. 4-39)
Multiple Choice (pg. 4-40)
Questions (pg. 4-41)
Mini Exercises (pg. 4-42)
Exercises (pg. 4-45)
Problems (pg. 4-48)
Management Applications (pg. 4-55)
Data Analytics (pg. 4-56)
Ongoing Analysis Project (pg. 4-56)
Solutions to Review Problems (pg. 4-56)
Module 5: Revenues, Receivables, and Operating Expenses (pg. 5-1)
Revenue (pg. 5-3)
Revenue Recognition Rules (pg. 5-3)
Complications of Revenue Recognition (pg. 5-5)
Performance Obligations Satisfied Over Time (pg. 5-6)
Review 5-1 (pg. 5-8)
Sales Allowances (pg. 5-8)
Accounting for Sales Allowances (pg. 5-9)
Reporting Sales Allowances (pg. 5-9)
Analysis of Sales Allowances (pg. 5-10)
Review 5-2 (pg. 5-11)
Unearned (Deferred) Revenue (pg. 5-11)
Review 5-3 (pg. 5-13)
Foreign Currency Effects (pg. 5-13)
Foreign Currency and Cash Flows (pg. 5-14)
Foreign Currency and Income (pg. 5-15)
Foreign Currency and Future Results (pg. 5-15)
Review 5-4 (pg. 5-16)
Accounts Receivable (pg. 5-16)
Aging Analysis of Receivables (pg. 5-17)
Accounting for Accounts Receivable (pg. 5-17)
Analysis of Accounts Receivable-Magnitude (pg. 5-18)
Analysis of Accounts Receivable-Quality (pg. 5-20)
Review 5-5 (pg. 5-21)
Expenses and Losses (pg. 5-22)
Deductions from Income (pg. 5-22)
Research and Development Expense (pg. 5-23)
Provision (Benefit) for Taxes on Income (pg. 5-27)
Discontinued Operations (pg. 5-28)
Review 5-6 (pg. 5-30)
Pro Forma and Non-Gaap Disclosures (pg. 5-30)
Regulation G Reconciliation (pg. 5-31)
SEC Warnings about Pro Forma Numbers (pg. 5-31)
Disclosures and Market Assessments (pg. 5-32)
Review 5-7 (pg. 5-34)
Global Reporting (pg. 5-34)
Guidance Answer (pg. 5-35)
Multiple Choice (pg. 5-35)
Questions (pg. 5-36)
Mini Exercises (pg. 5-37)
Exercises (pg. 5-41)
Problems (pg. 5-48)
Management Applications (pg. 5-54)
Data Analytics (pg. 5-54)
Ongoing Analysis Project (pg. 5-54)
Solutions to Review Problems (pg. 5-54)
Module 6: Inventories, Accounts Payable, and Long-Term Assets (pg. 6-1)
Inventory-Costing Methods (pg. 6-3)
First-In, First-Out (FIFO) (pg. 6-4)
Last-In, First-Out (LIFO) (pg. 6-5)
Average Cost (AC) (pg. 6-5)
Financial Statement Effects of Inventory Costing (pg. 6-6)
Review 6-1 (pg. 6-8)
Inventory-Reporting (pg. 6-8)
Lower of Cost or Market (LCM) (pg. 6-8)
LIFO Reserve Adjustments to Financial Statements (pg. 6-9)
LIFO Liquidations (pg. 6-10)
Review 6-2 (pg. 6-11)
Inventory—Analysis Tools (pg. 6-11)
Gross Profit Analysis (pg. 6-11)
Days Inventory Outstanding (pg. 6-13)
Days Payable Outstanding (pg. 6-15)
Cash Conversion Cycle (pg. 6-16)
Review 6-3 (pg. 6-17)
PP&E Assets-Capitalization and Depreciation (pg. 6-17)
Plant and Equipment (pg. 6-18)
Research and Development Facilities and Equipment (pg. 6-19)
Review 6-4 (pg. 6-20)
PP&E Assets-Sales, Impairments, and Restructuring (pg. 6-20)
Asset Sales (pg. 6-20)
Asset Impairments (pg. 6-21)
Restructuring Costs (pg. 6-21)
PP&E Assets-Analysis Tools (pg. 6-25)
PP&E Turnover (pg. 6-25)
PP&E Useful Life (pg. 6-26)
PP&E Percent Used Up (pg. 6-26)
Intangible Assets (pg. 6-27)
Types and Valuation of Intangible Assets (pg. 6-29)
Valuation Models for Intangible Assets (pg. 6-30)
Accounting for Goodwill (pg. 6-31)
Analysis of Intangible Asset Impairment Charges (pg. 6-32)
Review 6-7 (pg. 6-33)
Global Reporting (pg. 6-34)
Guidance Answer (pg. 6-35)
Multiple Choice (pg. 6-36)
Questions (pg. 6-38)
Mini Exercises (pg. 6-39)
Exercises (pg. 6-41)
Problems (pg. 6-48)
Management Applications (pg. 6-50)
Data Analytics (pg. 6-51)
Ongoing Analysis Project (pg. 6-51)
Solutions to Review Problems (pg. 6-51)
Module 7: Current and Long-Term Liabilities (pg. 7-1)
Accrued Liabilities (pg. 7-3)
Accrued Liabilities Defined (pg. 7-3)
Accruals for Contingent Liabilities-Warranties Example (pg. 7-5)
Accruals for Contingent Liabilities Defined (pg. 7-5)
Review 7-1 (pg. 7-7)
Short-Term Debt (pg. 7-7)
Reporting for Short-Term Debt (pg. 7-7)
Current Maturities of Long-Term Debt (pg. 7-8)
Review 7-2 (pg. 7-8)
Long-Term Debt-Pricing (pg. 7-8)
Pricing of Bonds Issued at Par (pg. 7-9)
Pricing of Bonds Issued at a Discount (pg. 7-10)
Pricing of Bonds Issued at a Premium (pg. 7-10)
Effective Cost of Debt (pg. 7-11)
Review 7-3 (pg. 7-13)
Long-Term Debt-Reporting (pg. 7-13)
Balance Sheet Reporting (pg. 7-13)
Income Statement Reporting (pg. 7-14)
Financial Statement Effects of Bond Repurchase (pg. 7-14)
Fair Value Disclosures (pg. 7-15)
Review 7-4 (pg. 7-16)
Quality of Debt (pg. 7-16)
Credit Analysis (pg. 7-16)
What Are Credit Ratings? (pg. 7-17)
What Determines Credit Ratings? (pg. 7-18)
Verizon Credit Rating Example (pg. 7-23)
Why Credit Ratings Matter (pg. 7-24)
Review 7-5 (pg. 7-26)
Global Reporting (pg. 7-26)
Appendix 7A: Apply Time Value of Money Concepts (pg. 7-26)
Present Value Concepts (pg. 7-26)
Future Value Concepts (pg. 7-31)
Review 7-6 (pg. 7-31)
Appendix 7B: Amortization of Debt (pg. 7-31)
Amortization of Discount (pg. 7-32)
Amortization of Premium (pg. 7-32)
Appendix 7C: Verizon Financial Statements and Debt and Lease Notes (pg. 7-33)
Multiple Choice (pg. 7-35)
Questions (pg. 7-36)
Mini Exercises (pg. 7-36)
Exercises (pg. 7-40)
Problems (pg. 7-45)
Management Applications (pg. 7-50)
Data Analytics (pg. 7-50)
Ongoing Analysis Project (pg. 7-50)
Solutions to Review Problems (pg. 7-51)
Module 8: Stock Transactions, Dividends, and EPS (pg. 8-1)
Stockholders’ Equity and Classes of Stock (pg. 8-3)
Stockholders’ Equity Accounts (pg. 8-3)
Statement of Stockholders’ Equity (pg. 8-5)
Preferred Stock (pg. 8-6)
Common Stock (pg. 8-7)
Review 8-1 (pg. 8-8)
Stock Transactions (pg. 8-8)
Stock Issuance (pg. 8-8)
Stock Repurchase (pg. 8-10)
Review 8-2 (pg. 8-13)
Stock-Based Compensation (pg. 8-13)
Analysis of Stock-Based Compensation Plans (pg. 8-14)
Accounting for Stock-Based Compensation (pg. 8-15)
Note Disclosures for Stock-Based Compensation (pg. 8-15)
Review 8-3 (pg. 8-16)
Dividends and Stock Splits (pg. 8-17)
Cash Dividend Disclosures (pg. 8-17)
Dividend Payout and Yield (pg. 8-17)
Cash Dividends Financial Effects (pg. 8-18)
Stock Split (pg. 8-18)
Review 8-4 (pg. 8-19)
Accumulated Other Comprehensive Income (AOCI) (pg. 8-19)
AOCI Components (pg. 8-19)
AOCI Disclosures and Interpretation (pg. 8-20)
Review 8-5 (pg. 8-22)
Earnings per Share (EPS) (pg. 8-22)
Review 8-6 (pg. 8-24)
Global Reporting (pg. 8-24)
Appendix 8A: Stock-Based Compensation: Reporting and Analyzing (pg. 8-24)
Employee Stock Purchase Plans (ESPP) (pg. 8-25)
Stock Awards (pg. 8-25)
Stock Options (pg. 8-25)
Stock Appreciation Rights (SAR) (pg. 8-26)
Summary of Share-Based Compensation (pg. 8-26)
Guidance Answer (pg. 8-27)
Multiple Choice (pg. 8-28)
Questions (pg. 8-29)
Mini Exercises (pg. 8-29)
Exercises (pg. 8-33)
Problems (pg. 8-36)
Data Analytics (pg. 8-41)
Ongoing Analysis Project (pg. 8-41)
Solutions to Review Problems (pg. 8-41)
Module 9: Intercorporate Investments (pg. 9-1)
Intercorporate Investments (pg. 9-3)
Passive Investments in Equity Securities (pg. 9-4)
Investments in Debt Securities (pg. 9-7)
Review 9-1 (pg. 9-10)
Equity Investments with Significant Influence (pg. 9-11)
Investments with Significant Influence (pg. 9-11)
Equity Method Accounting and ROE Effects (pg. 9-13)
Review 9-2 (pg. 9-16)
Equity Investments with Control (pg. 9-16)
Investments with Control (pg. 9-16)
Review 9-3 (pg. 9-23)
Global Reporting (pg. 9-24)
Appendix 9A: Accounting for Derivatives (pg. 9-25)
Analysis of Derivatives (pg. 9-26)
Review 9-4 (pg. 9-27)
Appendix 9B: Equity Carve-Outs (pg. 9-28)
Analysis of Equity Carve-Outs (pg. 9-31)
Review 9-5 (pg. 9-31)
Guidance Answer (pg. 9-32)
Multiple (pg. 9-32)
Questions (pg. 9-33)
Mini Exercises (pg. 9-33)
Exercises (pg. 9-37)
Problems (pg. 9-42)
Management Applications (pg. 9-44)
Data Analytics (pg. 9-45)
Ongoing Analysis Project (pg. 9-45)
Module 10: Leases, Pensions, and Income Taxes (pg. 10-1)
Leases (pg. 10-3)
Lessee Reporting Example-Microsoft (pg. 10-3)
Lease Accounting (pg. 10-4)
Summary of Lease Accounting and Reporting (pg. 10-8)
Review 10-1 (pg. 10-8)
Pensions (pg. 10-9)
Defined Benefit Plans on the Balance Sheet (pg. 10-10)
Defined Benefit Plans on the Income Statement (pg. 10-12)
Fair Value Accounting for Pensions (pg. 10-17)
Note Disclosure-Key Assumptions (pg. 10-18)
Analysis Implications (pg. 10-19)
Other Post-Employment Benefits (OPEB) (pg. 10-20)
Review 10-2 (pg. 10-20)
Income Taxes (pg. 10-21)
Timing Differences Create Deferred Tax Assets and Deferred Tax Liabilities (pg. 10-21)
Disclosures for Income Taxes (pg. 10-27)
Analysis of Income Tax Disclosures (pg. 10-28)
Expanded Explanation of Deferred Taxes (pg. 10-28)
Review 10-3 (pg. 10-30)
Global Reporting (pg. 10-32)
Appendix 10A: Lease Accounting Example-Finance and Operating Leases (pg. 10-32)
Multiple Choice (pg. 10-33)
Questions (pg. 10-35)
Mini Exercises (pg. 10-35)
Exercises (pg. 10-40)
Problems (pg. 10-43)
Data Analytics (pg. 10-48)
Ongoing Analysis Project (pg. 10-48)
Solutions to Review Problems (pg. 10-48)
Module 11: Cash Flows (pg. 11-1)
Framework for Statement of Cash Flows (pg. 11-3)
Relation Among Financial Statements (pg. 11-3)
Statement of Cash Flows Format (pg. 11-4)
Cash Flows from Operating Activities (pg. 11-8)
Computing Net Cash Flows from Operating Activities (pg. 11-9)
Java House Case Illustration (pg. 11-10)
Review 11-2 (pg. 11-12)
Cash Flows from Investing Activities (pg. 11-13)
Analyze Remaining Noncash Assets (pg. 11-13)
Java House Case Illustration (pg. 11-13)
Review 11-3 (pg. 11-14)
Cash Flows from Financing Activities (pg. 11-14)
Analyze Remaining Liabilities and Equity (pg. 11-14)
Java House Case Illustration (pg. 11-15)
Review 11-4 (pg. 11-16)
When the indirect method is used in the statement of cash flows, separate disclosures (pg. 11-16)
Review 11-5 (pg. 11-17)
Interpreting and Analyzing CASH FLOWS (pg. 11-17)
Overarching Principles (pg. 11-17)
Cash Flows as a Percent of Revenues (pg. 11-20)
Quality of Earnings (pg. 11-20)
Cash Flow Patterns (pg. 11-23)
Review 11-6 (pg. 11-26)
Ratio Analyses of Cash Flows (pg. 11-26)
Free Cash Flow (pg. 11-27)
Review 11-7 (pg. 11-28)
Appendix 11A: Direct Method Reporting for Statement of Cash Flows (pg. 11-29)
Cash Flows from Operating Activities (pg. 11-29)
Cash Flows from Investing and Financing Activities (pg. 11-31)
Supplemental Disclosures (pg. 11-31)
Review 11-8 (pg. 11-31)
Guidance Answer (pg. 11-31)
Multiple Choice (pg. 11-32)
Questions (pg. 11-33)
Mini Exercises (pg. 11-34)
Exercises (pg. 11-36)
Problems (pg. 11-40)
Data Analytics (pg. 11-48)
Ongoing Analysis Project (pg. 11-48)
Solutions to Review Problems (pg. 11-48)
Module 12: Financial Statement Forecasting (pg. 12-1)
Forecasting Process (pg. 12-3)
Company Guidance (pg. 12-5)
Review 12-1 (pg. 12-6)
Forecasting the Income Statement (pg. 12-7)
Review 12-2 (pg. 12-12)
Forecasting the Balance Sheet (pg. 12-13)
Review 12-3 (pg. 12-17)
Building Forecasts from Segment Disclosures (pg. 12-18)
Segment Data (pg. 12-18)
Quarterly Data (pg. 12-22)
Review 12-4 (pg. 12-22)
Appendix 12A: Forecasting the Statement of Cash Flows (pg. 12-23)
Review 12-5 (pg. 12-26)
Appendix 12B: Multiyear Forecasting with Target Cash and Debt Financing (pg. 12-26)
Review 12-6 (pg. 12-30)
Appendix 12C: Parsimonious Method for Forecasting NOPAT and NOA (pg. 12-30)
Multiyear Forecasting with Parsimonious Method (pg. 12-30)
Review 12-7 (pg. 12-31)
Appendix 12D: Morgan Stanley’s Forecast Report on Procter & Gamble (pg. 12-31)
Multiple Choice (pg. 12-39)
Questions (pg. 12-40)
Mini Exercises (pg. 12-40)
Exercises (pg. 12-46)
Problems (pg. 12-53)
Data Analytics (pg. 12-61)
Ongoing Analysis Project (pg. 12-61)
Solutions to Review Problems (pg. 12-61)
Module 13: Using Financial Statements for Valuation (pg. 13-1)
Equity Valuation Models (pg. 13-3)
Dividend Discount Model (pg. 13-3)
Discounted Cash Flow Model (pg. 13-3)
Residual Operating Income Model (pg. 13-3)
Valuation Model Inputs (pg. 13-4)
Review 13-1 (pg. 13-5)
Discounted Cash Flow (DCF) Model (pg. 13-5)
DCF Model Structure (pg. 13-5)
Steps in Applying the DCF Model (pg. 13-6)
Illustrating the DCF Model (pg. 13-7)
Review 13-2 (pg. 13-9)
Residual Operating Income (ROPI) Model (pg. 13-9)
ROPI Model Structure (pg. 13-10)
Steps in Applying the ROPI Model (pg. 13-11)
Illustrating the ROPI Model (pg. 13-11)
Review 13-3 (pg. 13-12)
Additional Modeling Considerations (pg. 13-13)
Sensitivity Analysis (pg. 13-13)
Reverse Engineering of the Models (pg. 13-15)
Multi-Year Forecast Precision (pg. 13-16)
Achieving Steady State (pg. 13-16)
Review 13-4 (pg. 13-17)
Managerial Insights from the ROPI Model (pg. 13-17)
Management Focus on Improved Efficiency (pg. 13-18)
Management Focus on Improved Profitability (pg. 13-18)
Assessment of Valuation Models (pg. 13-19)
Global Reporting (pg. 13-20)
Appendix 13A: P&G Financial Statements (pg. 13-21)
Appendix 13B: Derivation of Free Cash Flow Formula (pg. 13-23)
Appendix 13C: Deutsche Bank Valuation of P&G (pg. 13-23)
Guidance Answer (pg. 13-35)
Multiple Choice (pg. 13-35)
Questions (pg. 13-37)
Mini Exercises (pg. 13-38)
Exercises (pg. 13-41)
Problems (pg. 13-45)
Management Applications (pg. 13-50)
Data Analytics (pg. 13-51)
Ongoing Analysis Project (pg. 13-51)
Solutions to Review Problems (pg. 13-52)
Module 14: Managerial Accounting: Tools for Decision-Making (pg. 14-1)
Uses of Accounting Information (pg. 14-3)
Financial Accounting (pg. 14-3)
Managerial Accounting (pg. 14-4)
Review 14-1 (pg. 14-6)
Missions, Goals, and Strategies (pg. 14-6)
An Organization’s Mission, Goals, and Strategies (pg. 14-6)
Strategic Position Analysis (pg. 14-7)
Managerial Accounting and Goal Attainment (pg. 14-9)
Planning, Organizing, and Controlling (pg. 14-10)
Review 14-2 (pg. 14-11)
Understanding the Value Chain (pg. 14-11)
Illustration of the Value Chain (pg. 14-12)
Usefulness of a Value Chain Perspective (pg. 14-14)
Review 14-3 (pg. 14-15)
Changing Environment of Business (pg. 14-15)
Global Competition and Its Key Dimensions (pg. 14-15)
Big Data and Analysis (pg. 14-16)
Robotics and Cognitive Technologies (pg. 14-16)
Enterprise Risk Management (ERM) (pg. 14-17)
Review 14-4 (pg. 14-17)
Ethics in Managerial Accounting (pg. 14-17)
Ethical Dilemmas (pg. 14-18)
Codes of Ethics/Conduct (pg. 14-19)
Environmental, Social, and Governance Considerations (pg. 14-20)
Environmental and Social Considerations (pg. 14-20)
Governance Considerations (pg. 14-21)
Review 14-5 (pg. 14-21)
Multiple Choice (pg. 14-22)
Questions (pg. 14-22)
Mini Exercises (pg. 14-23)
Exercises (pg. 14-25)
Management Applications (pg. 14-27)
Data Analytics (pg. 14-29)
Solutions to Review Problems (pg. 14-29)
Module 15: Cost Definitions, Behavior, and Estimation (pg. 15-1)
Cost Behavior Analysis (pg. 15-3)
Four Basic Cost Behavior Patterns (pg. 15-3)
Identifying Cost Behavior Patterns (pg. 15-4)
Factors Affecting Cost Behavior Patterns (pg. 15-5)
Review 15-1 (pg. 15-6)
Estimating the Total Cost Function for an Organization or Segment (pg. 15-6)
Relevant Range and the Total Cost Function (pg. 15-7)
Distinguishing between Total Cost, Variable Cost, and Average Cost (pg. 15-9)
Cost Behavior of Committed and Discretionary Fixed Costs (pg. 15-10)
Review 15-2 (pg. 15-11)
Analyzing Data for Cost Estimation (pg. 15-12)
High-Low Cost Estimation (pg. 15-12)
Scatter Diagrams (pg. 15-14)
Least-Squares Regression (pg. 15-15)
Review 15-3 (pg. 15-18)
Additional Issues in Cost Estimation (pg. 15-19)
Adapting to Changes in Technology and Prices (pg. 15-20)
Responding to Environmental Considerations (pg. 15-20)
Matching Activities and Costs (pg. 15-20)
Identifying Cost Drivers (pg. 15-21)
Review 15-4 (pg. 15-21)
Cost Classification and Decision-Making (pg. 15-22)
Classifying Costs as Direct or Indirect (pg. 15-22)
Combining Cost Behaviors for Decision-Making (pg. 15-22)
Review 15-5 (pg. 15-24)
Multiple Choice (pg. 15-24)
Questions (pg. 15-25)
Mini Exercises (pg. 15-25)
Exercises (pg. 15-28)
Problems (pg. 15-32)
Management Applications (pg. 15-33)
Data Analytics (pg. 15-34)
Solutions to Review Problems (pg. 15-34)
Module 16: Cost-Volume-Profit Analysis and Planning (pg. 16-1)
Cost-Volume-Profit Analysis (pg. 16-3)
Profit Equation (pg. 16-3)
Using the Profit Equation in Multiple Scenarios (pg. 16-4)
Review 16-1 (pg. 16-5)
Contribution Income Statement (pg. 16-6)
Analysis Using Contribution Margin (Total, Unit, Ratio) (pg. 16-7)
Review 16-2 (pg. 16-8)
Break-Even Point and Profit Planning (pg. 16-9)
Determining Break-Even Point and Margin of Safety in Unit Sales (pg. 16-9)
Determining Unit Sales at a Target Profit (pg. 16-10)
Determining Break-Even in Sales Dollars (pg. 16-11)
Determining Sales Dollars at a Target Profit (pg. 16-11)
Creating and Analyzing the Cost-Volume-Profit Graph (pg. 16-11)
Creating and Analyzing the Profit-Volume Graph (pg. 16-13)
CVP Key Assumptions (pg. 16-13)
Review 16-3 (pg. 16-14)
Multiple-Product Cost-Volume-Profit Analysis (pg. 16-14)
Determining Break-Even in Unit Sales with Multiple Products (pg. 16-14)
Determining Break-Even in Sales Dollars with Multiple Products (pg. 16-16)
Review 16-4 (pg. 16-19)
Analysis of Operating Leverage (pg. 16-19)
Sensitivity Analysis (pg. 16-20)
Review 16-5 (pg. 16-21)
Appendix 16A: Cost-Volume-Profit Analysis and Income Taxes (pg. 16-21)
Determining Sales at a Target After-Tax Profit (pg. 16-22)
Review 16-6 (pg. 16-23)
Multiple Choice (pg. 16-23)
Questions (pg. 16-24)
Mini Exercises (pg. 16-24)
Exercises (pg. 16-27)
Problems (pg. 16-31)
Management Applications (pg. 16-36)
Data Analytics (pg. 16-37)
Solutions to Review Problems (pg. 16-37)
Module 17: Using Relevant Costs and Differential Analysis for Decision-Making (pg. 17-1)
Identifying Relevant Revenues and Costs (pg. 17-3)
Equipment Replacement Decision (pg. 17-3)
Review 17-1 (pg. 17-7)
Preparing and Applying Differential Analysis (pg. 17-7)
Equipment Replacement Decision (pg. 17-7)
Review 17-2 (pg. 17-9)
Evaluating Changes in Profit Plans (pg. 17-9)
Evaluating the Effect on the Profit Plan of Discontinuing a Segment (pg. 17-11)
Review 17-3 (pg. 17-11)
Special Orders (pg. 17-12)
Review 17-4 (pg. 17-14)
Outsourcing Decisions (Make or Buy) (pg. 17-14)
Review 17-5 (pg. 17-17)
Sell or Process Further (pg. 17-17)
Review 17-6 (pg. 17-18)
Appendix 17A: Use of Limited Resources (pg. 17-19)
Single Constraint (pg. 17-19)
Multiple Constraints (pg. 17-20)
Theory of Constraints (pg. 17-20)
Review 17-7 (pg. 17-21)
Multiple Choice (pg. 17-21)
Questions (pg. 17-23)
Mini Exercises (pg. 17-23)
Exercises (pg. 17-27)
Problems (pg. 17-32)
Management Applications (pg. 17-36)
Data Analytics (pg. 17-39)
Solutions to Review Problems (pg. 17-40)
Module 18: Product Costing: Job and Process Operations (pg. 18-1)
Identifying Relevant Revenues and Costs (pg. 18-3)
Inventory Categories Reported for Various Types of Organizations (pg. 18-3)
Product and Period Cost Reporting Distinction for Manufacturers (pg. 18-4)
Three Components of Product Costs (pg. 18-5)
Determining Costs of Products Outside of Financial Reporting (pg. 18-7)
Review 18-1 (pg. 18-7)
A Closer Look at Manufacturing Overhead (pg. 18-8)
Applying Manufacturing Overhead (pg. 18-8)
Review 18-2 (pg. 18-11)
Job Order Costing for Products and Services (pg. 18-11)
Production Planning and Control Process (pg. 18-11)
Basic Flow of Costs in Job Order Costing (pg. 18-12)
Illustration of Job Order Cost Flows for Samsung (pg. 18-14)
Statement of Cost of Goods Manufactured and Cost of Goods Sold (pg. 18-18)
Overapplied and Underapplied Overhead (pg. 18-19)
Job Costing in Service Organizations (pg. 18-21)
Review 18-3 (pg. 18-22)
Process Costing (pg. 18-23)
Cost of Production Report Using the Weighted-Average Method (pg. 18-23)
First-In, First-Out Process Costing (pg. 18-27)
Process Costing in Service Organizations (pg. 18-27)
Review 18-4 (pg. 18-28)
Appendix 18A: Absorption and Variable Costing (pg. 18-28)
Multiple Choice (pg. 18-34)
Questions (pg. 18-35)
Exercises (pg. 18-38)
Problems (pg. 18-43)
Management Applications (pg. 18-50)
Solutions to Review Problems (pg. 18-52)
Module 19: Activity-Based Costing, Customer Profitability, and Activity-Based Management (pg. 19-1)
Allocation of Overhead Using Traditional Costing Methods (pg. 19-3)
Applying Overhead with a Plantwide Rate (pg. 19-3)
Applying Overhead with Departmental Rates (pg. 19-4)
Review 19-1 (pg. 19-7)
Concepts Underlying Activity-Based Costing (pg. 19-7)
Hierarchy of Activity Costs (pg. 19-8)
Summarizing Activity-Based Costing Concepts (pg. 19-9)
Review 19-2 (pg. 19-10)
Applying Activity-Based Costing (pg. 19-10)
Illustrating the ABC Product Cost Model (pg. 19-10)
Review 19-3 (pg. 19-14)
Considerations Before Implementing Activity-Based Costing (pg. 19-14)
Choosing between Traditional and Activity-Based Costing (pg. 19-14)
Limitations of Activity-Based Costing System (pg. 19-15)
Challenges of Implementing Activity-Based Costing System (pg. 19-16)
Applications of Activity-Based Costing Systems (pg. 19-16)
Activity-Based Management (pg. 19-17)
Review 19-4 (pg. 19-18)
ABC and Customer Profitability Analysis (pg. 19-18)
Customer Profitability Profile (pg. 19-18)
ABC Customer Profitability Analysis Illustrated (pg. 19-19)
Review 19-5 (pg. 19-21)
Appendix 19A: Profitability Analysis with Activity-Based Cost Drivers (pg. 19-22)
Variations in Multi-Level Contribution Income Statement (pg. 19-24)
Review 19-6 (pg. 19-25)
Multiple Choice (pg. 19-25)
Questions (pg. 19-26)
Mini Exercises (pg. 19-26)
Exercise (pg. 19-29)
Problems (pg. 19-34)
Management Applications (pg. 19-41)
Data Analytics (pg. 19-44)
Solutions to Review Problems (pg. 19-44)
Module 20: Additional Topics in Product Costing (pg. 20-1)
Allocation of Service Department Costs (pg. 20-3)
Reasons for Allocating Service Department Costs (pg. 20-3)
The Process of Allocating Service Department Costs (pg. 20-4)
Using the Direct Method to Allocate Service Department Costs (pg. 20-5)
Comparing the Direct Method to the Step Method (pg. 20-7)
Using the Step Method to Allocate Service Department Costs (pg. 20-8)
Review 20-1 (pg. 20-10)
The Cost of Excess Capacity (pg. 20-11)
Calculating the Overhead Application Rate Under Different Capacity Levels (pg. 20-11)
Calculating the Cost of Excess Capacity (pg. 20-12)
Managing Excess Capacity (pg. 20-13)
Capacity Considerations When Using Dual Overhead Allocation Rates (pg. 20-13)
Review 20-2 (pg. 20-14)
Just-In-Time (JIT) Inventory Management/Lean Production (pg. 20-14)
Characteristics of JIT/Lean Production Approach (pg. 20-14)
Performance Evaluation Under JIT/Lean Production Approach (pg. 20-17)
Review 20-3 (pg. 20-18)
Increased Focus on Data-Driven Decision-Making (pg. 20-18)
Using Data Effectively (pg. 20-19)
Developing Skills for Decision-Making (pg. 20-19)
Review 20-4 (pg. 20-20)
Multiple Choice (pg. 20-20)
Questions (pg. 20-21)
Mini Exercises (pg. 20-22)
Exercises (pg. 20-24)
Problems (pg. 20-27)
Management Applications (pg. 20-31)
Data Analytics (pg. 20-32)
Solutions to Review Problems (pg. 20-32)
Module 21: Decision-Making: Pricing and Product Cost Management (pg. 21-1)
Cost-Based Pricing (pg. 21-3)
Contrasting a Cost-Based Approach to an Economic Approach (pg. 21-3)
Cost-Based Approaches to Pricing (pg. 21-3)
Review 21-1 (pg. 21-7)
Price-Based Costing (pg. 21-8)
Target Costing: Price-Based Costing (pg. 21-8)
Characteristics of Target Costing (pg. 21-9)
Review 21-2 (pg. 21-12)
Continuous Improvement (pg. 21-12)
Kaizen Costing Approach (pg. 21-12)
Review 21-3 (pg. 21-13)
Benchmarking to Improve Performance (pg. 21-14)
Applications of Benchmarking (pg. 21-14)
Process of Benchmarking (pg. 21-14)
Review 21-4 (pg. 21-15)
Multiple Choice (pg. 21-15)
Questions (pg. 21-16)
Mini Exercises (pg. 21-17)
Exercises (pg. 21-18)
Problems (pg. 21-20)
Management Applications (pg. 21-22)
Data Analytics (pg. 21-23)
Solutions to Review Problems (pg. 21-24)
Module 22: Operational Budgeting and Profit Planning (pg. 22-1)
The Budgeting Process (pg. 22-3)
Reasons for Budgeting (pg. 22-3)
Approaches to Budgeting (pg. 22-5)
Review 22-1 (pg. 22-7)
Master Budget for a Merchandiser (pg. 22-7)
Starting Point: Beginning of Period Balance Sheet (pg. 22-10)
Sales Budget (pg. 22-10)
Purchases Budget (pg. 22-11)
Selling Expense Budget (pg. 22-12)
General and Administrative Expense Budget (pg. 22-12)
Cash Budget (pg. 22-13)
Budgeted Financial Statements (pg. 22-14)
Finalizing the Budget (pg. 22-16)
Review 22-2 (pg. 22-17)
Master Budget for a Manufacturer (pg. 22-17)
Overview of Master Budget Assembly for a Manufacturer (pg. 22-17)
Sales Budget (pg. 22-18)
Production Budget (pg. 22-19)
Materials Purchases Budget (pg. 22-19)
Cash Budget and Financial Statement Budgets (pg. 22-20)
Review 22-3 (pg. 22-21)
Aspects of Budgeting That Impact Behavior and Outcomes (pg. 22-21)
Employee Participation in the Budgeting Process (pg. 22-22)
Selecting Budgeting Periods (pg. 22-23)
Utilizing Forecasts in Budgets (pg. 22-23)
Motivating Ethical Behavior in Budget Development (pg. 22-23)
Review 22-4 (pg. 22-24)
Multiple Choice (pg. 22-24)
Questions (pg. 22-26)
Mini Exercises (pg. 22-26)
Exercises (pg. 22-29)
Problems (pg. 22-33)
Management Applications (pg. 22-39)
Data Analytics (pg. 22-41)
Solutions to Review Problems (pg. 22-42)
Module 23: Standard Costs and Performance Reports (pg. 23-1)
Responsibility Accounting (pg. 23-3)
Responsibility Accounting and Performance Reporting (pg. 23-3)
Performance Reporting and Organization Structures (pg. 23-4)
Types of Responsibility Centers (pg. 23-4)
Financial and Nonfinancial Performance Measures (pg. 23-6)
Review 23-1 (pg. 23-6)
Performance Reporting for Cost Centers (pg. 23-7)
Differentiating a Static Budget from a Flexible Budget (pg. 23-7)
Performance Report with a Flexible Budget (pg. 23-8)
Standard Costs and Performance Reports (pg. 23-10)
Review 23-2 (pg. 23-10)
Variance Analysis for Costs (pg. 23-12)
Components of Standard Cost Analysis: Price and Quantity Variances (pg. 23-12)
Standard Cost Variance Analysis of Direct Materials (pg. 23-12)
Review 23-3 (pg. 23-14)
Standard Cost Variance Analysis of Direct Labor (pg. 23-15)
Review 23-4 (pg. 23-16)
Standard Cost Variance Analysis of Variable Manufacturing Overhead (pg. 23-17)
Overview of Fixed Overhead Variances (pg. 23-19)
Review 23-5 (pg. 23-19)
Revenue Variances and Performance Reporting (pg. 23-20)
Performance Report of Sales Department as a Revenue Center (pg. 23-20)
Performance Report for Controllable Selling Costs (pg. 23-21)
Performance Report of Sales Department as a Profit Center (pg. 23-22)
Review 23-6 (pg. 23-23)
Appendix 23A: Fixed Overhead Variances (pg. 23-24)
Review 23-7 (pg. 23-25)
Appendix 23B: Reconciling Budgeted and Actual Income (pg. 23-25)
Review 23-8 (pg. 23-27)
Multiple Choice (pg. 23-27)
Questions (pg. 23-28)
Mini Exercises (pg. 23-28)
Exercises (pg. 23-31)
Problems (pg. 23-34)
Management Applications (pg. 23-39)
Data Analytics (pg. 23-42)
Solutions to Review Problems (pg. 23-42)
Module 24: Performance Measurement Using Segment Reporting, Transfer Pricing, and Balanced Scorecard (pg. 24-1)
Segment Analysis and Reporting (pg. 24-3)
Preparing Segment Reports (pg. 24-3)
Interpreting Segment Reports (pg. 24-6)
Review 24-1 (pg. 24-8)
Transfer Pricing (pg. 24-8)
Resolving Transfer-Pricing Conflicts (pg. 24-8)
Determining Transfer Prices (pg. 24-11)
Review 24-2 (pg. 24-14)
Investment Center Evaluation Measures (pg. 24-14)
Return on Investment (pg. 24-14)
Residual Income (pg. 24-18)
Economic Value Added (pg. 24-19)
Which Measure Is Best? (pg. 24-19)
Review 24-3 (pg. 24-20)
Balanced Scorecard (pg. 24-21)
Balanced Scorecard Framework (pg. 24-21)
Balanced Scorecard and Strategy (pg. 24-25)
Review 24-4 (pg. 24-27)
Multiple Choice (pg. 24-27)
Questions (pg. 24-28)
Mini Exercises (pg. 24-29)
Exercises (pg. 24-31)
Problems (pg. 24-35)
Management Applications (pg. 24-41)
Data Analytics (pg. 24-43)
Solutions to Review Problems (pg. 24-43)
Module 25: Capital Budgeting Decisions (pg. 25-1)
Long-Range Planning and Capital Budgeting (pg. 25-3)
The Capital Budgeting Process (pg. 25-3)
Capital Budgeting Models That Do Not Consider Time Value of Money (pg. 25-5)
Predicted Cash Flows (pg. 25-6)
Accounting Rate of Return (pg. 25-8)
Review 25-1 (pg. 25-9)
Capital Budgeting Models That Consider Time Value of Money (pg. 25-9)
Net Present Value (pg. 25-9)
Internal Rate of Return (pg. 25-10)
Review 25-2 (pg. 25-12)
Evaluation of Capital Budgeting Models (pg. 25-12)
Advantages and Disadvantages of Capital Budgeting Models (pg. 25-12)
Review 25-3 (pg. 25-15)
Considering Risks and Relevant Cost Analysis in Capital Budgeting Decisions (pg. 25-15)
Evaluating Risk and Uncertainty in Capital Budgeting Decisions (pg. 25-15)
Using Differential Analysis in Capital Budgeting Decisions (pg. 25-16)
Avoiding Errors in Predicting Differential Costs and Revenues (pg. 25-17)
Review 25-4 (pg. 25-19)
Appendix 25A: Time Value of Money (pg. 25-19)
Future Value (pg. 25-19)
Present Value (pg. 25-20)
Annuities (pg. 25-22)
Unequal Cash Flows (pg. 25-23)
Deferred Returns (pg. 25-23)
Review 25-5 (pg. 25-24)
Appendix 25B: Table Approach to Determining Internal Rate of Return (pg. 25-24)
Equal Cash Flows (pg. 25-24)
Unequal Cash Flows (pg. 25-25)
Review 25-6 (pg. 25-25)
Appendix 25C: Taxes in Capital Budgeting Decisions (pg. 25-26)
Depreciation Tax Shield (pg. 25-26)
Investment Tax Credit (pg. 25-28)
Review 25-7 (pg. 25-28)
Multiple Choice (pg. 25-29)
Questions (pg. 25-30)
Mini Exercises (pg. 25-30)
Exercises (pg. 25-33)
Problems (pg. 25-35)
Management Applications (pg. 25-38)
Data Analytics (pg. 25-43)
Solutions to Review Problems (pg. 25-43)
Appendix A: Compound Interest Tables (pg. A-1)
Appendix B: Chart of Accounts with Acronyms (pg. B-1)
Appendix C: Ongoing Analysis Project (pg. C-1)
Appendix D: Data Analytics and Visualizations (pg. D-1)
Data Analytics (pg. D-2)
Big Data (pg. D-2)
Data Analytics and Financial Statement Analysis (pg. D-3)
Analytics Mindset (pg. D-4)
Data Analytic Tools (pg. D-5)
Data Visualization (pg. D-6)
Blockchain Technology (pg. D-10)
Video Resources For Tableau (pg. D-12)
Mini Exercises (pg. D-12)
Exercises (pg. D-13)
Data Analytics (pg. D-13)
Peter D. Easton

Peter D. Easton

Peter D. Easton is an expert in accounting and valuation and holds the Notre Dame Alumni Chair in Accountancy in the Mendoza College of Business.

Professor Easton’s expertise is widely recognized by the academic research community and by the legal community. Professor Easton frequently serves as a consultant on accounting and valuation issues in federal and state courts.

Professor Easton holds undergraduate degrees from the University of Adelaide and the University of South Australia. He holds a graduate degree from the University of New England and a PhD in Business Administration (majoring in accounting and finance) from the University of California, Berkeley.

Professor Easton’s research on corporate valuation has been published in the Journal of Accounting and Economics, Journal of Accounting Research, The Accounting Review, Contemporary Accounting Research, Review of Accounting Studies, and Journal of Business Finance and Accounting.

Professor Easton has served as an associate editor for 11 leading accounting journals and he is currently an associate editor for the Journal of Accounting Research, Journal of Business Finance and Accounting, and Journal of Accounting, Auditing, and Finance. He is an editor of the Review of Accounting Studies.

Professor Easton has held appointments at the University of Chicago, the University of California at Berkeley, Ohio State University, Macquarie University, the Australian Graduate School of Management, the University of Melbourne, Tilburg University, National University of Singapore, Seoul National University, and Nyenrode University. He is the recipient of numerous awards for excellence in teaching and in research. Professor Easton regularly teaches accounting analysis and security valuation to MBAs. In addition, Professor Easton has taught managerial accounting at the graduate level.

Robert F. Halsey

Robert F. Halsey

Robert F. Halsey is Professor of Accounting and Associate Dean of the Undergraduate School at Babson College. He received his MBA and PhD from the University of Wisconsin.

Prior to obtaining his PhD he worked as the chief financial officer (CFO) of a privately held retailing and manufacturing company and as the vice president and manager of the commercial lending division of a large bank.

Professor Halsey teaches courses in financial and managerial accounting at both the graduate and undergraduate levels, including a popular course in financial statement analysis for second year MBA students. He has also taught numerous executive education courses for large multinational companies through Babson’s school of Executive Education as well as for a number of stock brokerage firms in the Boston area. He is regarded as an innovative teacher and has been recognized for outstanding teaching at both the University of Wisconsin and Babson College.

Professor Halsey co-authors Advanced Accounting published by Cambridge Business Publishers. Professor Halsey’s research interests are in the area of financial reporting, including firm valuation, financial statement analysis, and disclosure issues. He has publications in Advances in Quantitative Analysis of Finance and Accounting, The Journal of the American Taxation Association, Issues in Accounting Education, The Portable MBA in Finance and Accounting, the CPA Journal, AICPA Professor/Practitioner Case Development Program, and in other accounting and analysis journals.

Professor Halsey is an active member of the American Accounting Association and other accounting, analysis, and business organizations. He is widely recognized as an expert in the areas of financial reporting, financial analysis, and business valuation.

Mary Lea McAnally

Mary Lea McAnally

Mary Lea McAnally is the Philip Ljundahl Professor of Accounting at the Mays Business School at Texas A&M. She obtained her Ph.D. from Stanford University and B. Comm. from the University of Alberta.

She worked as a Chartered Accountant (in Canada) and is a Certified Internal Auditor. Prior to arriving at Texas A&M in 2002, Professor McAnally held positions at University of Texas at Austin, Canadian National Railways, and Dunwoody and Company.

Her research interests include accounting and disclosure in regulated environments, executive compensation, and accounting for risk. She has published articles in the leading academic journals including Journal of Accounting and Economics, Journal of Accounting Research, The Accounting Review, Review of Accounting Studies, and Contemporary Accounting Research. Professor McAnally received the Mays Business School Research Achievement Award in 2005. She was Associate Editor at Accounting Horizons, served on the editorial board of Contemporary Accounting Research, and was Guest Editor for the MBA-teaching volume of Issues in Accounting Education. She is active in the American Accounting Association and its FARS section.

At Texas A&M, Professor McAnally teaches financial reporting, analysis, and valuation in the full-time, Professional, and Executive MBA programs. Through the Mays Center for Executive Development, she works with corporate clients. She has also taught at University of Alberta, University of Calgary, IMADEC (in Austria) and at the Indian School of Business at the Hyderabad and Mohali campuses. She has received numerous faculty-determined and student-initiated teaching awards at the MBA and executive levels. Those awards include the Beazley Award, the Trammell Foundation Award, the MBA Teaching Award (multiple times), the MBA Association Distinguished Faculty Award (three times), the Award for Outstanding and Memorable Faculty Member, and the Distinguished Achievement Award.

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.