Financial and Managerial Accounting, 13th Edition PDF by Carl S. Warren, James M. Reeve, Jonathan E. Duchac

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Financial and Managerial Accounting, 13th Edition

By Carl S. Warren, James M. Reeve, Jonathan E. Duchac

Financial and Managerial Accounting

Contents

Chapter 1 Introduction to Accounting and Business 1

Nature of Business and Accounting 2

Types of Businesses 2

Role of Accounting in Business 3

Role of Ethics in Accounting and Business 4

Integrity, Objectivity, and Ethics in Business: Bernie Madoff 5

Opportunities for Accountants 5

Business Connection: Pathways Commission 6

Generally Accepted Accounting Principles 7

International Connection: International Financial

Reporting Standards (IFRS) 7

Business Entity Concept 7

Cost Concept 8

The Accounting Equation 9

Business Connection: The Accounting Equation 9

Business Transactions and the Accounting Equation 10

Summary 13

Classifications of Stockholders’ Equity 14

Financial Statements 15

Income Statement 16

Retained Earnings Statement 16

Balance Sheet 17

Statement of Cash Flows 19

Interrelationships Among Financial Statements 21

Financial Analysis and Interpretation:

Ratio of Liabilities to Stockholders’ Equity 22

Chapter 2 Analyzing Transactions 51

Using Accounts to Record Transactions 52

Chart of Accounts 54

Business Connection: The Hijacking Receivable 54

Double-Entry Accounting System 55

Balance Sheet Accounts 55

Income Statement Accounts 56

Dividends 56

Normal Balances 56

Journalizing 57

Integrity, Objectivity, and Ethics in Business:

Will Journalizing Prevent Fraud? 60

Posting Journal Entries to Accounts 61

Business Connection: Microsoft’s Unearned Revenue 63

Business Connection: Computerized Accounting

Systems 65

Trial Balance 70

Errors Affecting the Trial Balance 71

Errors Not Affecting the Trial Balance 72

Financial Analysis and Interpretation: Horizontal

Analysis 73

Chapter 3 The Adjusting Process 103

Nature of the Adjusting Process 104

The Adjusting Process 105

Types of Accounts Requiring Adjustment 105

Adjusting Entries 110

Prepaid Expenses 110

Integrity, Objectivity, and Ethics in Business: Free Issue 112

Unearned Revenues 113

Business Connection: National Fitness Center: Upfront

Fees 114

Accrued Revenues 114

Accrued Expenses 115

Depreciation Expense 117

Summary of Adjustment Process 118

Business Connection: Microsoft Corporation 120

Adjusted Trial Balance 123

Financial Analysis and Interpretation:

Vertical Analysis 124

Chapter 4 Completing the

Accounting Cycle 151

Flow of Accounting Information 152

Financial Statements 154

Income Statement 154

Integrity, Objectivity, and Ethics in Business:

CEO’s Health? 156

Retained Earnings Statement 156

Balance Sheet 157

International Connection: International Differences 158

Closing Entries 158

Journalizing and Posting Closing Entries 160

Post-Closing Trial Balance 161

Accounting Cycle 164

Illustration of the Accounting Cycle 165

Step 1. Analyzing and Recording Transactions in

the Journal 166

Step 2. Posting Transactions to the Ledger 166

Step 3. Preparing an Unadjusted Trial Balance 168

Step 4. Assembling and Analyzing Adjustment

Data 168

Step 5. Preparing an Optional End-of-Period

Spreadsheet 169

Step 6. Journalizing and Posting Adjusting

Entries 170

Step 7. Preparing an Adjusted Trial Balance 170

Step 8. Preparing the Financial Statements 170

Step 9. Journalizing and Posting Closing Entries

172

Step 10. Preparing a Post-Closing Trial Balance 172

Fiscal Year 175

Business Connection: Choosing a Fiscal Year 176

Financial Analysis and Interpretation:

Working Capital and Current Ratio 176

Appendix 1: End-of-Period Spreadsheet 178

Step 1. Enter the Title 178

Step 2. Enter the Unadjusted Trial Balance 179

Step 3. Enter the Adjustments 179

Step 4. Enter the Adjusted Trial Balance 180

Step 5. Extend the Accounts to the Income

Statement and Balance Sheet Columns 181

Step 6. Total the Income Statement and Balance

Sheet Columns, Compute the Net Income

or Net Loss, and Complete the

Spreadsheet 182

Preparing the Financial Statements from the

Spreadsheet 184

Comprehensive Problem 1 210

Chapter 5 Accounting for

Merchandising Businesses 213

Nature of Merchandising Businesses 214

Operating Cycle 214

Financial Statements 215

Business Connection: H&R Block Versus The Home Depot 215

Merchandising Transactions 216

Purchases Transactions 217

Sales Transactions 221

Integrity, Objectivity, and Ethics in Business:

The Case of the Fraudulent Price Tags 224

Freight 225

Summary: Recording Merchandise Inventory

Transactions 227

Dual Nature of Merchandise Transactions 228

Chart of Accounts for a Merchandising Business 229

Sales Taxes and Trade Discounts 230

Business Connection: Sales Taxes 231

Financial Statements for a Merchandising Business 231

Multiple-Step Income Statement 231

Single-Step Income Statement 233

Retained Earnings Statement 233

Balance Sheet 233

The Adjusting and Closing Process 234

Adjusting Entry for Inventory Shrinkage 234

Integrity, Objectivity, and Ethics in Business:

The Cost of Employee Theft 235

Closing Entries 235

Financial Analysis and Interpretation:

Ratio of Sales to Assets 237

Appendix: The Periodic Inventory System 238

Chart of Accounts Under the Periodic Inventory

System 239

Recording Merchandise Transactions Under the

Periodic Inventory System 239

Adjusting Process Under the Periodic Inventory

System 240

Financial Statements Under the Periodic Inventory

System 241

Closing Entries Under the Periodic Inventory

System 241

Practice Set: Lawn Ranger Landscaping

This set is a service business operated as a proprietorship.

It includes a narrative of transactions and

instructions for an optional solution with no debits

and credits. This set can be solved manually or with

the General Ledger software.

Chapter 6 Inventories 271

Control of Inventory 272

Safeguarding Inventory 272

Reporting Inventory 273

Inventory Cost Flow Assumptions 273

Inventory Costing Methods Under

a Perpetual Inventory System 276

First-In, First-Out Method 276

Last-In, First-Out Method 277

International Connection: International Financial

Reporting Standards (IFRS) 279

Weighted Average Cost Method 279

Computerized Perpetual Inventory Systems

280

Inventory Costing Methods Under a Periodic

Inventory System 280

First-In, First-Out Method 281

Last-In, First-Out Method 282

Weighted Average Cost Method 282

Comparing Inventory Costing Methods 283

Integrity, Objectivity, and Ethics in Business: Where’s the

Bonus? 285

Reporting Merchandise Inventory in the Financial

Statements 285

Valuation at Lower of Cost or Market 285

Business Connection: Inventory Write-Downs 287

Merchandise Inventory on the Balance Sheet 287

Effect of Inventory Errors on the Financial

Statements 287

Financial Analysis and Interpretation: Inventory

Turnover and Number of Days’ Sales in Inventory 290

Business Connection: Rapid Inventory at Costco 291

Appendix: Estimating Inventory Cost 293

Retail Method of Inventory Costing 293

Gross Profit Method of Inventory Costing 294

Chapter 7 Sarbanes-Oxley, Internal

Control, and Cash 319

Sarbanes-Oxley Act 320

Internal Control 322

Objectives of Internal Control 322

Business Connection: Employee Fraud 322

Elements of Internal Control 322

Control Environment 323

Risk Assessment 324

Control Procedures 324

Integrity, Objectivity, and Ethics in Business: Tips on

Preventing Employee Fraud in Small Companies 325

Monitoring 326

Information and Communication 326

Limitations of Internal Control 327

Cash Controls over Receipts and Payments 327

Control of Cash Receipts 328

Control of Cash Payments 330

Bank Accounts 330

Bank Statement 330

Using the Bank Statement as a Control over

Cash 333

Bank Reconciliation 333

Integrity, Objectivity, and Ethics in Business:

Bank Error in Your Favor 337

Special-Purpose Cash Funds 337

Financial Statement Reporting of Cash 338

Financial Analysis and Interpretation:

Ratio of Cash to Monthly Cash Expenses 339

Business Connection: Microsoft Corporation 341

Chapter 8 Receivables 365

Classification of Receivables 366

Accounts Receivable 366

Notes Receivable 366

Other Receivables 367

Uncollectible Receivables 367

Direct Write-Off Method for Uncollectible Accounts 367

Allowance Method for Uncollectible Accounts 368

Integrity, Objectivity, and Ethics in Business: Seller Beware 369

Write-Offs to the Allowance Account 369

Estimating Uncollectibles 371

Business Connection: Allowance Percentages Across

Companies 371

Comparing Direct Write-Off and Allowance

Methods 376

Notes Receivable 377

Characteristics of Notes Receivable 377

Accounting for Notes Receivable 378

Reporting Receivables on the Balance Sheet 380

Financial Analysis and Interpretation:

Accounts Receivable Turnover and Number of Days’

Sales in Receivables 380

Business Connection: Delta Air Lines 382

Chapter 9 Fixed Assets and

Intangible Assets 409

Nature of Fixed Assets 410

Classifying Costs 411

The Cost of Fixed Assets 412

Capital and Revenue Expenditures 413

Integrity, Objectivity, and Ethics in Business: Capital Crime 413

Leasing Fixed Assets 414

Accounting for Depreciation 415

Factors in Computing Depreciation Expense 415

Straight-Line Method 417

Units-of-Output Method 418

Double-Declining-Balance Method 419

Comparing Depreciation Methods 420

Depreciation for Federal Income Tax 421

Business Connection: Depreciating Animals? 421

Revising Depreciation Estimates 422

Disposal of Fixed Assets 423

Discarding Fixed Assets 423

Selling Fixed Assets 424

Natural Resources 425

Intangible Assets 426

Patents 426

International Connection: International Financial

Reporting Standards (IFRS) 427

Copyrights and Trademarks 427

Goodwill 427

Financial Reporting for Fixed Assets and Intangible

Assets 429

Financial Analysis and Interpretation:

Fixed Asset Turnover Ratio 430

Business Connection: Hub-and-Spoke or Point-to-Point? 430

Appendix: Exchanging Similar Fixed Assets 432

Gain on Exchange 432

Loss on Exchange 433

Chapter 10 Current Liabilities and

Payroll 453

Current Liabilities 454

Accounts Payable 454

Current Portion of Long-Term Debt 455

Short-Term Notes Payable 455

Payroll and Payroll Taxes 457

Liability for Employee Earnings 457

Deductions from Employee Earnings 458

Computing Employee Net Pay 460

Liability for Employer’s Payroll Taxes 461

Business Connection: The Most You Will Ever Pay 461

Accounting Systems for Payroll and Payroll Taxes 461

Payroll Register 462

Employee’s Earnings Record 465

Payroll Checks 466

Computerized Payroll System 467

Internal Controls for Payroll Systems 467

Integrity, Objectivity, and Ethics in Business:

$8 Milion for 18 Minutes of Work 468

Employees’ Fringe Benefits 468

Vacation Pay 468

Pensions 468

Postretirement Benefits Other than Pensions 470

Current Liabilities on the Balance Sheet 470

Business Connection: City Pension Problems 471

Contingent Liabilities 471

Probable and Estimable 471

Probable and Not Estimable 472

Reasonably Possible 472

Remote 472

Financial Analysis and Interpretation: Quick Ratio 473

Comprehensive Problem 3 495

Paid-In Capital from Issuing Stock 502

Characteristics of Stock 502

Classes of Stock 503

Issuing Stock 504

Premium on Stock 505

No-Par Stock 506

Business Connection: Google Inc. 507

Accounting for Dividends 508

Cash Dividends 508

International Connection: IFRS for SMEs 508

Integrity, Objectivity, and Ethics in Business:

The Professor Who Knew Too Much 510

Stock Dividends 510

Treasury Stock Transactions 511

Reporting Stockholders’ Equity 513

Stockholders’ Equity on the Balance Sheet 513

Reporting Retained Earnings 514

Statement of Stockholders’ Equity 516

Reporting Stockholders’ Equity for Mornin’ Joe 516

Stock Splits 517

Business Connection: Buffett on Stock Splits 518

Financial Analysis and Interpretation:

Earnings per Share 518

Practice Set: Fit & Fashionable

This set is a merchandising business operated as a

proprietorship. It includes business documents, and

it can be solved manually or with the General Ledger

software.

Practice Set: Chic Events by Jada

This set includes payroll transactions for a merchandising

business operated as a proprietorship. It

includes business documents, and it can be solved

manually or with the General Ledger software.

Chapter 11 Corporations:

Organization, Stock Transactions,

and Dividends 499

Nature of a Corporation 500

Characteristics of a Corporation 500

Forming a Corporation 501

Practice Set: My Place, House of Décor

This set is a service and merchandising business operated

as a corporation. It includes narrative for six

months of transactions, which are to be recorded in

a general journal. The set can be solved manually or

with the General Ledger software.

Practice Set: JP’s Tech Solutions

This set is a departmentalized merchandising business

operated as a corporation. It includes a narrative

of transactions, which are to be recorded in special

journals. The set can be solved manually or with the

General Ledger software.

Chapter 12 Long-Term Liabilities:

Bonds and Notes 543

Financing Corporations 544

Nature of Bonds Payable 546

Bond Characteristics and Terminology 547

Proceeds from Issuing Bonds 547

Business Connection: U.S. Government Debt 548

Accounting for Bonds Payable 548

Bonds Issued at Face Amount 548

Bonds Issued at a Discount 549

Amortizing a Bond Discount 550

Bonds Issued at a Premium 551

Amortizing a Bond Premium 552

Business Connection: Bond Ratings 553

Bond Redemption 554

Installment Notes 555

Issuing an Installment Note 555

Annual Payments 555

Integrity, Objectivity, and Ethics in Business:

The Ratings Game 557

Reporting Long-Term Liabilities 557

Financial Analysis and Interpretation: Number of

Times Interest Charges Are Earned 558

Appendix 1: Present Value Concepts and Pricing

Bonds Payable 559

Present Value Concepts 560

Pricing Bonds 562

Appendix 2: Effective Interest Rate Method of

Amortization 563

Amortization of Discount by the Interest Method 564

Amortization of Premium by the Interest Method 565

Chapter 13 Investments and Fair

Value Accounting 585

Why Companies Invest 586

Investing Cash in Current Operations 586

Investing Cash in Temporary Investments 587

Investing Cash in Long-Term Investments 587

Accounting for Debt Investments 587

Purchase of Bonds 588

Interest Revenue 588

Sale of Bonds 589

Accounting for Equity Investments 590

Cost Method: Less Than 20% Ownership 590

Equity Method: Between 20%–50% Ownership 592

Consolidation: More Than 50% Ownership 594

Business Connection: More Cash Means More Investments

for Drug Companies 595

Valuing and Reporting Investments 595

Trading Securities 595

Integrity, Objectivity, and Ethics in Business: Socially

Responsible Investing 597

Available-for-Sale Securities 597

Held-to-Maturity Securities 599

Summary 599

Business Connection: Warren Buffett: The Sage of

Omaha 601

Fair Value Accounting 602

Effect of Fair Value Accounting on the Financial

Statements 602

Financial Analysis and Interpretation: Dividend

Yield 602

Appendix: Comprehensive Income 604

Comprehensive Problem 4 625

Mornin’ Joe 629

Financial Statements for Mornin’ Joe 630

Financial Statements for Mornin’ Joe International 633

Key Reporting Differences between IFRS and U.S.

GAAP 633

Chapter 14 Statement of Cash

Flows 641

Reporting Cash Flows 642

Cash Flows from Operating Activities 643

Business Connection: Cash Crunch! 644

Cash Flows from Investing Activities 645

Cash Flows from Financing Activities 645

Noncash Investing and Financing Activities 645

Format of the Statement of Cash Flows 645

No Cash Flow per Share 646

Preparing the Statement of Cash Flows—The

Indirect Method 646

Retained Earnings 648

Adjustments to Net Income 648

Integrity, Objectivity, and Ethics in Business:

Credit Policy and Cash Flow 651

Dividends 652

Common Stock 653

Bonds Payable 653

Building 654

Land 654

Preparing the Statement of Cash Flows 655

Preparing the Statement of Cash Flows—The Direct

Method 656

Cash Received from Customers 656

Cash Payments for Merchandise 657

Cash Payments for Operating Expenses 658

Gain on Sale of Land 659

Interest Expense 659

Cash Payments for Income Taxes 659

Reporting Cash Flows from Operating

Activities—Direct Method 660

International Connection: IFRS for Statement of Cash

Flows 661

Financial Analysis and Interpretation:

Free Cash Flow 661

Appendix: Spreadsheet (Work Sheet) for Statement

of Cash Flows—The Indirect Method 663

Analyzing Accounts 663

Retained Earnings 663

Other Accounts 665

Preparing the Statement of Cash Flows 665

Chapter 15 Financial Statement

Analysis 697

Basic Analytical Methods 698

Horizontal Analysis 698

Vertical Analysis 701

Common-Sized Statements 702

Other Analytical Measures 703

Liquidity and Solvency Analysis 703

Current Position Analysis 704

Accounts Receivable Analysis 706

Inventory Analysis 708

Ratio of Fixed Assets to Long-Term Liabilities 709

Ratio of Liabilities to Stockholders’ Equity 709

Number of Times Interest Charges Are Earned 710

Profitability Analysis 711

Ratio of Sales to Assets 711

Rate Earned on Total Assets 712

Rate Earned on Stockholders’ Equity 713

Rate Earned on Common Stockholders’

Equity 713

Earnings per Share on Common Stock 715

Price-Earnings Ratio 716

Dividends per Share 716

Dividend Yield 717

Summary of Analytical Measures 717

Integrity, Objectivity, and Ethics in Business:

Characteristics of Financial Statement Fraud 719

Corporate Annual Reports 719

Management Discussion and Analysis 719

Report on Internal Control 719

Report on Fairness of the Financial

Statements 720

Integrity, Objectivity, and Ethics in Business:

Buy Low, Sell High 720

Appendix: Unusual Items on the Income

Statement 720

Unusual Items Affecting the Current Period’s

Income Statement 720

Unusual Items Affecting the Prior Period’s Income

Statement 722

Chapter 16 Managerial Accounting

Concepts and Principles 753

Managerial Accounting 754

Differences Between Managerial and Financial

Accounting 754

The Management Accountant in the

Organization 755

Managerial Accounting in the Management

Process 757

Integrity, Objectivity, and Ethics in Business:

Environmental Managerial Accounting 758

Manufacturing Operations: Costs and

Terminology 758

Direct and Indirect Costs 759

Manufacturing Costs 760

Business Connection: Overhead Costs 764

Financial Statements for a

Manufacturing Business 764

Balance Sheet for a Manufacturing

Business 764

Income Statement for a Manufacturing

Business 765

Uses of Managerial Accounting 769

Service Focus: Managerial Accounting in the Service

Industry 770

Chapter 17 Job Order Costing 791

Cost Accounting Systems Overview 792

Job Order Cost Systems for Manufacturing

Businesses 793

Materials 794

Integrity, Objectivity, and Ethics in Business:

Phony Invoice Scams 795

Factory Labor 796

Business Connection: Bmw’s Factory Labor

Experiment 797

Factory Overhead 798

Work in Process 802

Finished Goods 803

Sales and Cost of Goods Sold 804

Period Costs 804

Summary of Cost Flows for Legend Guitars 804

Job Order Costing for Decision Making 806

Job Order Cost Systems for Professional Service

Businesses 807

Service Focus: Job Order Costing in a Law Firm 808

Practice Set: Hydro Paddle Boards

This set is a manufacturing business operated as a

corporation that uses a job order cost system. The set

can be solved manually or with the General Ledger

software.

Chapter 18 Process Cost Systems 833

Process Cost Systems 834

Integrity, Objectivity, and Ethics in Business:

On Being Green 834

Comparing Job Order and Process Cost

Systems 835

Cost Flows for a Process Manufacturer 837

Cost of Production Report 839

Step 1: Determine the Units to Be Assigned Costs

840

Step 2: Compute Equivalent Units of

Production 841

Step 3: Determine the Cost per Equivalent Unit 844

Step 4: Allocate Costs to Units Transferred Out

and Partially Completed Units 845

Preparing the Cost of Production Report 848

Journal Entries for a Process Cost System 849

Service Focus: Costing the Power Stack 851

Using the Cost of Production Report for Decision

Making 852

Frozen Delight 852

Holland Beverage Company 852

Yield 853

Lean Manufacturing 854

Traditional Production Process 854

Lean Manufacturing 855

Business Connection: Radical Improvement: Just in Time

for Pulaski’s Customers 856

Appendix: Average Cost Method 856

Determining Costs Using the Average Cost

Method 856

The Cost of Production Report 858

Chapter 19 Cost Behavior and

Cost-Volume-Profit Analysis 883

Cost Behavior 884

Variable Costs 885

Fixed Costs 886

Mixed Costs 886

Summary of Cost Behavior Concepts 889

Business Connection: Franchising 890

Cost-Volume-Profit Relationships 890

Contribution Margin 890

Contribution Margin Ratio 891

Unit Contribution Margin 892

Mathematical Approach to Cost-Volume-Profit

Analysis 893

Break-Even Point 893

Business Connection: Breaking Even in the Airline

Industry 897

Target Profit 898

Integrity, Objectivity, and Ethics in Business: Orphan

Drugs 899

Graphic Approach to Cost-Volume-Profit Analysis 899

Cost-Volume-Profit (Break-Even) Chart 899

Profit-Volume Chart 900

Use of Computers in Cost-Volume-Profit Analysis 902

Assumptions of Cost-Volume-Profit Analysis 903

Service Focus: Profit, Loss, and Break-even in Major League

Baseball 904

Special Cost-Volume-Profit Relationships 904

Sales Mix Considerations 904

Operating Leverage 906

Margin of Safety 908

Appendix: Variable Costing 908

Chapter 20 Variable Costing for

Management Analysis 933

Income from Operations Under Absorption Costing

and Variable Costing 934

Absorption Costing 934

Variable Costing 935

Units Manufactured Equal Units Sold 937

Units Manufactured Exceed Units Sold 937

Units Manufactured Less Than Units Sold 938

Effects on Income from Operations 940

Income Analysis Under Absorption and Variable

Costing 940

Integrity, Objectivity, and Ethics in Business: Taking An

“Absorption Hit” 942

Using Absorption and Variable Costing 943

Controlling Costs 944

Pricing Products 944

Planning Production 944

Analyzing Contribution Margins 944

Analyzing Market Segments 944

Business Connection: Direct Materials Cost 945

Analyzing Market Segments 945

Sales Territory Profitability Analysis 946

Product Profitability Analysis 947

Salesperson Profitability Analysis 947

Service Focus: Chipotle Mexican Gril Contribution Margin

by Store 949

Contribution Margin Analysis 949

Variable Costing for Service Firms 951

Reporting Income from Operations Using Variable

Costing for a Service Company 951

Market Segment Analysis for Service Company 952

Contribution Margin Analysis 953

Chapter 21 Budgeting 981

Nature and Objectives of Budgeting 982

Objectives of Budgeting 982

Human Behavior and Budgeting 983

Integrity, Objectivity, and Ethics in Business: Budget

Games 984

Budgeting Systems 984

Static Budget 985

Service Focus: Film Budgeting 986

Flexible Budget 986

Computerized Budgeting Systems 987

Business Connection: Build Versus Harvest 988

Master Budget 988

Operating Budgets 989

Sales Budget 989

Production Budget 990

Direct Materials Purchases Budget 991

Direct Labor Cost Budget 992

Factory Overhead Cost Budget 994

Cost of Goods Sold Budget 994

Selling and Administrative Expenses Budget 996

Budgeted Income Statement 997

Financial Budgets 997

Cash Budget 997

Capital Expenditures Budget 1001

Budgeted Balance Sheet 1002

Chapter 22 Performance Evaluation

Using Variances from Standard

Costs 1029

Standards 1030

Setting Standards 1031

Types of Standards 1031

Reviewing and Revising Standards 1031

Integrity, Objectivity, and Ethics in Business: Company

Reputation: The Best of the Best 1031

Criticisms of Standard Costs 1032

Business Connection: Standard Costing in Action:

Expanding Brewing Operations 1032

Budgetary Performance Evaluation 1032

Budget Performance Report 1033

Manufacturing Cost Variances 1034

Direct Materials and Direct Labor Variances 1035

Direct Materials Variances 1035

Service Focus: Standard Costing in the Restaurant

Industry 1037

Direct Labor Variances 1038

Factory Overhead Variances 1040

The Factory Overhead Flexible Budget 1040

Variable Factory Overhead Controllable

Variance 1042

Fixed Factory Overhead Volume Variance 1043

Reporting Factory Overhead Variances 1045

Factory Overhead Account 1046

Recording and Reporting Variances from Standards 1047

Nonfinancial Performance Measures 1050

Comprehensive Problem 5 1070

Chapter 23 Performance Evaluation

for Decentralized Operations 1075

Centralized and Decentralized Operations 1076

Advantages of Decentralization 1076

Disadvantages of Decentralization 1077

Business Connection: Steve Jobs: Centralized Operations at

Apple 1077

Responsibility Accounting 1077

Responsibility Accounting for Cost Centers 1078

Responsibility Accounting for Profit Centers 1080

Service Department Charges 1080

Profit Center Reporting 1082

Responsibility Accounting for Investment Centers 1083

Rate of Return on Investment 1084

Residual Income 1087

The Balanced Scorecard 1088

Service Focus: Turning Around Charles Schwab 1089

Transfer Pricing 1090

Market Price Approach 1091

Negotiated Price Approach 1091

Cost Price Approach 1093

Integrity, Objectivity, and Ethics in Business: The Ethics of

Transfer Prices 1094

Chapter 24 Differential Analysis and

Product Pricing 1117

Differential Analysis 1118

Lease or Sell 1120

Discontinue a Segment or Product 1121

Make or Buy 1123

Replace Equipment 1124

Process or Sell 1126

Accept Business at a Special Price 1127

Business Connection: 60% Off! 1128

Setting Normal Product Selling Prices 1129

Service Focus: Revenue Management 1130

Product Cost Concept 1130

Integrity, Objectivity, and Ethics in Business:

Price Fixing 1132

Target Costing 1132

Production Bottlenecks 1133

Appendix: Total and Variable Cost Concepts to

Setting Normal Price 1135

Total Cost Concept 1135

Variable Cost Concept 1137

Chapter 25 Capital Investment

Analysis 1161

Nature of Capital Investment Analysis 1162

Business Connection: Business Use of Investment Analysis

Methods 1163

Methods Not Using Present Values 1163

Average Rate of Return Method 1163

Cash Payback Method 1164

Methods Using Present Values 1166

Present Value Concepts 1166

Net Present Value Method and Index 1169

Internal Rate of Return Method 1171

Business Connection: Panera Bread Store Rate of

Return 1174

Factors That Complicate Capital Investment

Analysis 1174

Income Tax 1174

Unequal Proposal Lives 1174

Lease Versus Capital Investment 1176

Uncertainty 1176

Service Focus: If You Build It, They Will Come 1177

Changes in Price Levels 1177

Qualitative Considerations 1177

Integrity, Objectivity, and Ethics in Business: Assumption

Fudging 1177

Capital Rationing 1178

Chapter 26 Cost Allocation and

Activity-Based Costing 1199

Product Costing Allocation Methods 1200

Single Plantwide Factory Overhead Rate

Method 1201

Integrity, Objectivity, and Ethics in Business: Fraud Against

You and me 1203

Multiple Production Department Factory Overhead

Rate Method 1203

Department Overhead Rates and Allocation 1204

Distortion of Product Costs 1205

Activity-Based Costing Method 1207

Activity Rates and Allocation 1208

Distortion in Product Costs 1211

Dangers of Product Cost Distortion 1211

Activity-Based Costing for Selling and

Administrative Expenses 1212

Activity-Based Costing in Service Businesses 1214

Service Focus: University and Community Partnership—

Learning Your ABC’S 1215

Business Connection: Finding The Right Niche 1217

Chapter 27 Lean Principles,

Lean Accounting, and Activity

Analysis 1245

Lean Principles 1246

Reducing Inventory 1247

Integrity, Objectivity, and Ethics in Business: The

Inventory Shift 1247

Reducing Lead Times 1247

Reducing Setup Time 1249

Business Connection: P&G’S “PIT STOPS” 1251

Emphasizing Product-Oriented Layout 1251

Emphasizing Employee Involvement 1252

Emphasizing Pull Manufacturing 1252

Emphasizing Zero Defects 1252

Emphasizing Supply Chain Management 1252

Business Connection: Lean Manufacturing in Action” 1253

Lean Principles for Nonmanufacturing Processes 1253

Service Focus: Lean Healthcare 1253

Lean Accounting 1254

Fewer Transactions 1254

Combined Accounts 1254

Nonfinancial Performance Measures 1256

Direct Tracing of Overhead 1256

Activity Analysis 1257

Costs of Quality 1257

Quality Activity Analysis 1258

Value-Added Activity Analysis 1260

Process Activity Analysis 1261

Appendix A: Interest Tables A-2

Appendix B: Nike Inc., Form 10-K For the Fiscal Year

Ended May 31, 2013 B-1

Appendix C: International Financial Reporting

Standards (IFRS) C-1

Appendix D: Revenue Recognition D-1

Appendix E: Reversing Entries (online)

Visit the companion Web site at

www.cengagebrain.com

Appendix F: Special Journals and Subsidiary

Ledgers (online)

Visit the companion Web site at

www.cengagebrain.com

Glossary G-1

Index I-1

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