Corporate financial reporting and analysis

Cover
Title Page
Copyright
About the Authors
Contents
1 An Introduction to Financial Statements
	The Three Principal Financial Statements
	Other Items in the Annual Report
	Generally Accepted Accounting Principles: The Rules of the Game
	The Barriers to Understanding Financial Statements
	Key Lessons from the Chapter
	Key Terms and Concepts from the Chapter
	Questions
	Problems:
		1.1  Balance Sheet Terminology
		1.2  Understanding Balance Sheet Relationships
		1.3  Interpreting an Auditor’s Opinion
	Case Study:
		1-1 Apple: An Introduction to Financial Statement Analysis
		1-2 PepsiCo: Communicating Financial Performance
	Notes
2 The Balance Sheet and Income Statement
	A Further Look at the Balance Sheet
	Assets
	Liabilities
	Shareholders’ Equity
	A Further Look at the Income Statement
	Other Things You Should Know About the Balance Sheet and the Income Statement
	Key Lessons from the Chapter
	Key Terms and Concepts from the Chapter
	Questions
	Appendix 2.1 The Mechanics of Financial Accounting: The Double-Entry System
	Key Terms and Concepts from the Appendix
	Key Lessons from the Appendix
	Problem
		2.1 Preparing a Balance Sheet and an Income Statement
	Case Study
		2-1 JanMar Fabrics: Preparing the Balance Sheet and Income Statement
3 A Brief Overview of GAAP and IFRS: The Framework for Financial Accounting
	The Core Principles of GAAP and IFRS
	The Key Qualitative Characteristics of Financial Information
	The Key Assumptions of Financial Information
	Modifying Conventions
	The Future of Financial Reporting
	Key Lessons from the Chapter
	Key Terms and Concepts from the Chapter
	Questions
4 Revenue Recognition
	Introduction
	The Five-Step Revenue Recognition Model
	Revenue-Recognition Controversies
	Key Lessons from the Chapter
	Key Terms and Concepts from the Chapter
	Questions
	Problems:
		4.1 Revenue Recognition at and After Time of Sale
		4.2 Recognizing Revenue Over Time
		4.3 Journal Entries for Gift Cards
		4.4 Recognizing Revenue Over Time
		4.5 Revenue Recognition in Different Types of Businesses
	Case Study:
		4-1  Kiwi Builders, Ltd.
		4-2 Revenue Recognition at Starbucks Corporation
		4-3 Network Associates (McAfee): A Case of “Channel Stuffing”
	Notes
5 The Statement of Cash Flows
	Introduction
	The Reporting of Cash Flows from Operations
	Preparing the Statement of Cash Flows
	IFRS and the Statement of Cash Flows
	Analyzing the Statement of Cash Flows
	Key Lessons from the Chapter
	Key Terms and Concepts from the Chapter
	Questions
	Problems:
		5.1 Interpreting the Statement of Cash Flows
		5.2 Adjustments on the Statement of Cash Flows
		5.3 Preparing and Analyzing a Statement of Cash Flows
		5.4 Interpreting the Role of Accounts Payable in Cash Flow from Operations
		5.5 Manipulating the Statement of Cash Flows
		5.6 Analysis of the Statement of Cash Flows
		5.7 Cash Flow and Credit Risk
		5.8 Preparing and Interpreting the Statement of Cash Flows
	Case Studies:
		5-1 Blockbuster, Inc.: Movie Rentals, Profits, and Operating Cash
		5-2 Monahan Manufacturing: Preparing and Interpreting a Statement of Cash Flows
		5-3 A Tale of Three Companies: Cash Flows at Sun Microsystems, Wal-Mart, and Merck
		5-4 Inditex: Analyzing the Statement of Cash Flows
	Notes
6 Financial Statement Analysis
	Introduction
	Business and Industry Analysis
	Accounting Analysis
	Financial Analysis
	Dupont Analysis
	ROE and the Analysis of Financial Risk
	Key Lessons from the Chapter
	Key Terms and Concepts from the Chapter
	Questions
	Appendix 6.1 An Industry and Competitive Analysis of Taiwan Semiconductor Manufacturing Company (TSMC)
	Appendix 6.2 Summary of Financial Statement Ratios
	Problems:
		6.1 Financial Statement Detective Exercise
		6.2 Effects of Transactions on Selected Balance Sheet Figures
		6.3 Calculating and Interpreting PP&E Turnover Ratios
		6.4 Financial Statement Detective Exercise in the Pharmaceutical Industry
		6.5 Comprehensive Financial Ratio Analysis
		6.6 Profitability Analysis for The Home Depot
		6.7 Comparative Analysis of Receivables and Inventories
	Case Studies:
		6-1 Profitability Analysis and WalMart’s Suppliers
		6-2 LVMH and Warnaco: Strategy and Financial Statement Analysis
	Notes
7 Business Valuation and Financial Statement Analysis
	Valuation Principles
	Valuation: From Theory to Practice
	The Economic Profit Approach to Valuation
	A Case Study in Valuation: TSMC
	A Brief Word on Growth Rates
	Key Lessons from the Chapter
	Key Terms and Concepts from the Chapter
	Questions
	Problems:
		7.1 Estimating the Value of The Home Depot
		7.2 Explaining Differences in P/E Ratios
		7.3 Explaining Differences in P/E Ratios
	Case Study:
		7-1 Valuation Based on Discounted Cavsh Flows: The Case of Vardon Golf Ltd
	Notes
8 Accounting for Receivables and Bad Debts
	Introduction
	Estimating Bad Debts
	Writing-off Accounts
	The Direct Method: An Alternative Approach
	What Happens When Written-off Accounts Are Later Collected?
	The “Aging” of Accounts Receivable
	Sales Returns and Allowances
	Analyzing Receivables
	Key Lessons from the Chapter
	Key Terms and Concepts from the Chapter
	Questions
	Appendix 8.1 Accounting for Loan Loss Reserves
	Problems:
		8.1 Bad Debts on Loans Receivable
		8.2 Determining Bad Debt Expense from an Aging Schedule
		8.3 Analyzing Receivables and the Allowance for Doubtful Accounts
		8.4 Provisions for Credit Losses
	Case Studies:
		8-1 Receivables and Bad Debts at Toyota
		8-2 Johnson Perry
		8-3 Citigroup Inc.: Accounting for Loan Loss Reserves
	Notes
9 Accounting for Inventory
	Introduction
	Inventory Valuation: LIFO, FIFO, and the Rest
	The Lower of Cost or Net Realizable Value Rule
	The Cost-flow Assumptions: An Example
	Inventory Cost-flow Assumptions: A Summary
	Key Lessons from the Chapter
	Key Terms and Concepts from the Chapter
	Questions
	Problems:
		9.1 Calculating Inventory Under the FIFO and Average-cost Methods
		9.2 Inventories and Ratio Analysis
		9.3 Correcting Inventory Errors
		9.4 The Lower of Cost or Net Realizable Value Rule
		9.5 Calculating Cost of Goods Sold Under FIFO and Specific Identification
	Case Studies:
		9-1 LIFO Accounting at Tamar Chemicals
		9-2 Deere and CNH Global: Performance Effects of Inventory Accounting Choice
	Notes
10 Accounting for Property, Plant, and Equipment
	Introduction
	Initial Recognition of PP&E
	Subsequent Expenditures: Repair or Improvement?
	Accounting for Depreciation
	Changes in Depreciation Estimates or Methods
	Asset Impairment
	Fair Value vs. Historical Cost
	Divestitures and Asset Sales
	Intangible Assets
	Key Lessons from the Chapter
	Key Terms and Concepts from the Chapter
	Questions
	Problems
		10.1 Comparing the Effects of Depreciation Choice on Financial Ratios
		10.2 Analyzing Depreciation on PP&E
		10.3 Calculating and Analyzing Amortization Expense
		10.4 Calculating Depreciation Expense
		10.5 Effects of Changes in Estimates on Depreciation Expense
		10.6 Interpreting Disclosures for Property, Plant, and Equipment
		10.7 Capitalizing or Expensing Costs
		10.8 Journal Entries for Depreciation and Amortization Expense
11 Leases and Off-Balance-Sheet Debt
	Introduction
	Leasing Accounting Before 2018: Capital vs. Operating Leases
	Accounting for Capital Leases
	Accounting for Operating Leases
	Lease Accounting: An Example
	Interpreting Lease Disclosures
	Off-Balance-Sheet Debt
	Recent Developments in Lease Accounting
	Key Lessons from the Chapter
	Key Terms and Concepts from the Chapter
	Questions
	Problem:
		11.1 The Financial Reporting Effects of Selling Receivables
	Case Studies:
		11-1 Lease Accounting at Metro AG
		11-2 Pennzoil-Quaker State and the Sale of Receivables
		11-3 Executory Contracts
	Note
12 Accounting for Bonds
	Introduction
	Accounting for Bond Issuance
	Accounting for Bonds Sold at Par
	Accounting for Bonds Sold at a Premium
	Bond Redemption Before Maturity
	Accounting for Bonds Issued at a Discount
	Zero-Coupon Bonds
	Key Lessons from the Chapter
	Key Terms and Concepts from the Chapter
	Questions
	Problems:
		12.1 Journal Entries and Balance Sheet Presentation for Bonds
		12.2 Amortization of Bond Discount and Premium
		12.3 Journal Entries for Bond Issuance and Subsequent Interest Payments
13 Provisions and Contingencies
	Introduction
	Defining Provisions
	Measuring the Provision
	Disclosure of Provisions: Interpreting the Notes
	Contingent Liabilities
	Contingent Assets
	Key Lessons from the Chapter
	Key Terms and Concepts from the Chapter
	Questions
	Problems:
		13.1 Accounting for Warranties
		13.2 Analyzing and Interpreting Disclosures on the Provision for Warranties
	Case Studies:
		13-1 Accounting for Contingent Assets: The Case of Cardinal Health
		13-2 Firestone Tire and Rubber Company (A)
		13-3 Firestone Tire and Rubber Company (B)
	Notes
14 Accounting for Pensions
	Introduction
	A Brief Word on Defined Contribution Plans
	Unfunded Defined Benefit Plans
	Funded Defined Benefit Plans
	American Airlines: An Example of Defined Benefit Plan Disclosure
	Key Lessons from the Chapter
	Key Terms and Concepts from the Chapter
	Questions
	Case Study:
		14-1 Comprehensive Pension Review Problem: Cathay Pacific
	Note
15 Accounting for Income Tax
	Introduction
	Temporary and Permanent Differences
	Deferred Taxes and the Balance Sheet Approach
	The Balance Sheet Approach: An Example
	Interpreting Income Tax Disclosures: The Case of Intel Corporation
	Why Deferred Income Tax is Important
	Key Lessons from the Chapter
	Key Terms and Concepts from the Chapter
	Questions
	Problems:
		15.1 Calculating Temporary and Permanent Differences
		15.2 Interpreting Income Tax Disclosures
		15.3 Deferred Income Taxes and the Statement of Cash Flows
	Case Study:
		15-1 Deferred Tax Assets and the Valuation Allowance: The Case of Ford Motor Company
	Notes
16 Accounting for Shareholders’ Equity
	Introduction
	Shareholders’ Equity: An Introduction
	More on Contributed Capital
	Accounting for Stock Transactions
	Dividends on Common Stock
	Stock Dividends and Stock Splits
	Accumulated Other Comprehensive Income
	Convertible Bonds
	The Statement of Shareholders’ Equity
	Key Lessons from the Chapter
	Key Terms and Concepts from the Chapter
	Questions
	Problems:
		16.1 Effect of Selected Transactions on Net Income and Shareholders’ Equity
		16.2 Share Buybacks
		16.3 The Financial Statement Effects of Dividend Payments and Buybacks
		16.4 The Accounting and Economic Consequences of Stock Splits and Stock Dividends
	Case Studies:
		16-1 Stock Options, Stock Dividends, and Stock Splits
		16-2 Share Buybacks: Economic Rationale and Financial Reporting Effects
		16-3 The Accounting for Convertible Bonds
		16-4 Why Do Companies Buy Back Their Own Shares? The Case of the Scomi Group
	Notes
17 Investments
	Introduction
	Investments at Microsoft
	Debt and Passive Equity Investments
	The Fair Value Hierarchy
	Equity Method
	A Further Look at Microsoft’s Investments
	Consolidation
	Key Lessons from the Chapter
	Key Terms and Concepts from the Chapter
	Questions
	Problems:
		17.1 Classification of Long-Term Investments
		17.2 The Effect of Transaction Cost on Marketable Securities and Investments
		17.3 Journal Entries and Analysis Under the Equity Method
		17.4 Review Problem
		17.5 Mark-to-Market Accounting for Trading Securities
		17.6 The Equity Method and the Statement of Cash Flows
	Case Studies:
		17-1 Stora Enso: Accounting for Investments
		17-2 Coca-Cola and Coca-Cola Enterprises: The Equity Method in Practice
	Notes
18 Accounting for Mergers and Acquisitions
	Introduction
	Purchase Price/Cost of Acquisition
	Contingent Consideration
	Recognition and Measurement of Identifiable Assets
	Subsequent Adjustments to Acquired Assets and Liabilities
	Goodwill Impairment
	Noncontrolling Interest
	Key Lessons from the Chapter
	Key Terms and Concepts from the Chapter
	Questions
	Problems:
		18.1 Journal Entry for an Acquisition
		18.2 Analysis of an Acquisition
		18.3 Accounting for an Acquisition: Carrefour and BLC (China)
		18.4 Business Combinations at Tesco
		18.5 AB InBev acquires SABMiller
Appendix: Tables for Present Value and Future Value Factors
Index
EULA