Financial Accounting, 11th Edition PDF by Robert Libby, Patricia A. Libby and Frank Hodge

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Financial Accounting, Eleventh Edition

By Robert Libby, Patricia A. Libby and Frank Hodge

Financial Accounting, Eleventh Edition

Contents:

Preface v

CHAPTER ONE

Financial Statements and Business Decisions 2

Le-Nature’s Inc.

Understanding the Business 3

The Four Basic Financial Statements: An Overview 6

The Balance Sheet 6

FINANCIAL ANALYSIS:

Interpreting Assets, Liabilities, and Stockholders’ Equity on the Balance Sheet 9

  • Pause for Feedback 9

The Income Statement 10

FINANCIAL ANALYSIS:

Analyzing the Income Statement: Beyond the Bottom Line 11

  • Pause for Feedback 11

Statement of Stockholders’ Equity 12

FINANCIAL ANALYSIS:

Interpreting Retained Earnings 13

  • Pause for Feedback 13

Relationships Among the Income Statement, Statement of Stockholders’ Equity, and Balance Sheet 14

  • Pause for Feedback 14

Statement of Cash Flows 15

FINANCIAL ANALYSIS:

Interpreting the Cash Flow Statement 16

  • Pause for Feedback 16

Notes and Financial Statement Formats 17

Summary of the Four Basic Financial Statements 17

Responsibilities For The Accounting Communication Process 17

Generally Accepted Accounting Principles 18

INTERNATIONAL PERSPECTIVE:

The International Accounting Standards Board and Global Accounting Standards 19

Ensuring the Accuracy of Financial Statements 20

Demonstration Case 22

Chapter Supplement A: Types Of Business Entities 23

Chapter Supplement B: Employment In The Accounting Profession Today 24

Chapter Take-Aways 25

Finding Financial Information 26

Key Terms 26

Questions 27

Multiple-Choice Questions 27

Mini-Exercises 28

Exercises 29

Problems 36

Alternate Problems 37

Continuing Problem 39

Cases and Projects 39

Business Analytics and Data Visualization with Excel and Tableau 43

CHAPTER TWO

Investing and Financing Decisions and the Accounting System 44

Chipotle Mexican Grill

Understanding the Business 45

What Information is Included in the Balance Sheet? 47

Recognition and Measurement Concepts 47

Elements of the Balance Sheet 47

  • Pause for Feedback 49

FINANCIAL ANALYSIS:

Unrecorded but Valuable Assets and Liabilities 50

What Business Activities Cause Changes In Financial Statement Amounts? 50

Nature of Business Transactions 50

Accounts 51

How Do Transactions Affect Accounts? 52

Principles of Transaction Analysis 52

Analyzing Common Transactions 53

  • Pause for Feedback 57

How Do Companies Keep Track of Account Balances? 58

The Direction of Transaction Effects 58

  • Pause for Feedback 59

Analytical Tools 60

FINANCIAL ANALYSIS:

Inferring Business Activities from T-Accounts 63

Transaction Analysis Illustrated 63

  • Pause for Feedback 67

DATA ANALYTICS:

Using Data Analytics for Business Expansion 68

How is the Balance Sheet Prepared and Analyzed? 68

Classified Balance Sheet 69

INTERNATIONAL PERSPECTIVE:

Understanding Foreign Financial Statements 71

Ratio Analysis in Decision Making 72

KEY RATIO ANALYSIS:

Current Ratio 72

  • Pause for Feedback 73

FOCUS ON CASH FLOWS:

Investing and Financing Activities 74

  • Pause for Feedback 74

Demonstration Case 75

Chapter Take-Aways 78

Key Ratio 79

Finding Financial Information 80

Key Terms 80

Questions 81

Multiple-Choice Questions 81

Mini-Exercises 83

Exercises 86

Problems 94

Alternate Problems 97

Continuing Problem 101

Cases And Projects 102

Business Analytics and Data Visualization with Excel and Tableau 107

CHAPTER THREE

Operating Decisions and the Accounting System 108

Chipotle Mexican Grill

Understanding the Business 109

How do Business Activities Affect the Income Statement? 110

The Operating Cycle 110

Elements of the Income Statement 112

DATA ANALYTICS:

Using Data Analytics in the Restaurant Industry to Increase

Revenues and Decrease Costs 115

How are Operating Activities Recognized and Measured? 115

Accrual Accounting 116

  • Pause for Feedback 118
  • Pause for Feedback 120

A QUESTION OF ETHICS:

Management’s Incentives to Violate Accounting Rules 121

The Expanded Transaction Analysis Model 121

Transaction Analysis Rules 121

Analyzing Common Transactions 123

  • Pause for Feedback 128

How is the Income Statement Prepared and Analyzed? 129

Classified Income Statement 131

KEY RATIO ANALYSIS:

Net Profit Margin Ratio 131

FOCUS ON CASH FLOWS:

Operating Activities 133

  • Pause for Feedback 133

Demonstration Case 134

Chapter Take-Aways 138

Key Ratio 139

Finding Financial Information 140

Key Terms 140

Questions 140

Multiple-Choice Questions 141

Mini-Exercises 143

Exercises 146

Problems 155

Alternate Problems 159

Continuing Problem 163

Comprehensive Problem (Chapters 1–3) 164

Cases And Projects 165

Business Analytics and Data Visualization

with Excel and Tableau 169

CHAPTER FOUR

Adjustments, Financial Statements, and the Closing Process 170

Chipotle Mexican Grill

Understanding the Business 171

Adjusting Revenues And Expenses 172

Accounting Cycle 172

Purpose of Adjustments 172

Adjustment Process 174

  • Pause for Feedback 181

A QUESTION OF ETHICS:

Adjustments and Incentives 182

Preparing Financial Statements 183

Income Statement 184

Statement of Stockholders’ Equity 186

Balance Sheet 186

FOCUS ON CASH FLOWS:

Cash Flows from Operations, Net Income, and the Quality of Earnings 188

KEY RATIO ANALYSIS:

Total Asset Turnover Ratio 188

DATA ANALYTICS:

The SEC Uses Data Analytics 189

Closing The Books 190

End of the Accounting Cycle 190

  • Pause for Feedback 192

Post-Closing Trial Balance 193

Demonstration Case 194

Chapter Take-Aways 198

Key Ratio 199

Finding Financial Information 200

Key Terms 200

Questions 200

Multiple-Choice Questions 201

Mini-Exercises 202

Exercises 205

Problems 216

Alternate Problems 220

Continuing Problem 223

Comprehensive Problems (Chapters 1–4) 225

Cases And Projects 227

Business Analytics and Data Visualization with Excel and Tableau 235

CHAPTER FIVE

Communicating and Analyzing Accounting Information 236

Apple Inc.

Understanding the Business 237

A QUESTION OF ETHICS:

The Fraud Triangle 238

Players In The Accounting Communication Process 239

Regulators (SEC, FASB, PCAOB, Stock Exchanges) 239

Managers (CEO, CFO, and Accounting Staff) 239

Board of Directors (Audit Committee) 240

Auditors 240

DATA ANALYTICS:

How Data Analytics Are Affecting What Auditors Do 241

Information Intermediaries: Information Services and Financial Analysts 241

FINANCIAL ANALYSIS:

Information Services and Your Job Search 243

Users: Institutional and Private Investors, Creditors, and Others 243

  • Pause for Feedback 244

The Disclosure Process 244

Press Releases 244

Annual Reports and Form 10-K 245

Quarterly Reports and Form 10-Q 246

Other SEC Reports 246

Environmental, Social, & Governance (Esg) Reporting:

Performance Beyond the Bottom Line 246

A Closer Look At Financial Statement Formats And Notes 247

Classified Balance Sheet 247

Classified Income Statement 247

FINANCIAL ANALYSIS:

Statement of Comprehensive Income 250

  • Pause for Feedback 250

KEY RATIO ANALYSIS:

Gross Profit Percentage 251

Statement of Stockholders’ Equity 252

Statement of Cash Flows 253

Notes to Financial Statements 253

Voluntary Disclosures 256

INTERNATIONAL PERSPECTIVE:

Differences in Accounting Methods Acceptable under IFRS and U.S. GAAP 256

Return On Assets Analysis: A Framework For Evaluating Company Performance 257

KEY RATIO ANALYSIS:

Return on Assets (ROA) 257

ROA Profit Driver Analysis and Business Strategy 258

How Transactions Affect Ratios 259

  • Pause for Feedback 261

Demonstration Case 262

Chapter Take-Aways 264

Key Ratios 265

Finding Financial Information 265

Key Terms 266

Questions 266

Multiple-Choice Questions 266

Mini-Exercises 267

Exercises 269

Problems 275

Alternate Problems 278

Continuing Problems 282

Cases and Projects 284

Business Analytics and Data Visualization

with Excel and Tableau 289

CHAPTER SIX

Reporting and Interpreting Sales Revenue,

Receivables, and Cash 290

Skechers U.S.A.

Understanding the Business 291

Accounting For Net Sales Revenue 292

Motivating Sales and Collections 293

Credit Card Sales to Consumers 293

Sales Discounts to Businesses 293

FINANCIAL ANALYSIS:

To Take or Not to Take the Discount, That Is the Question 294

Sales Returns and Allowances 295

Reporting Net Sales 295

A QUESTION OF ETHICS:

Volume Discounts/Rebates and Earnings Misstatements at Monsanto 296

  • Pause for Feedback 296

Revenue Recognition for Bundled Goods and Services: A Five-Step Process 297

Measuring and Reporting Receivables 297

Classifying Receivables 297

INTERNATIONAL PERSPECTIVE:

Foreign Currency Receivables 298

Accounting for Bad Debts 298

FINANCIAL ANALYSIS:

Bad Debt Recoveries 299

Reporting Accounts Receivable and Bad Debts 300

  • Pause for Feedback 301

Estimating Bad Debts 302

Control over Accounts Receivable 304

KEY RATIO ANALYSIS:

Receivables Turnover Ratio 304

FOCUS ON CASH FLOWS:

Accounts Receivable 305

  • Pause for Feedback 306

Reporting And Safeguarding Cash 307

Cash and Cash Equivalents Defined 307

Cash Management 308

Internal Control of Cash 308

A QUESTION OF ETHICS:

Ethics and the Need for Internal Control 308

Reconciliation of the Cash Accounts and the Bank Statements 309

  • Pause for Feedback 313

Demonstration Case A 313

Demonstration Case B 314

Chapter Supplement: Recording Discounts And Returns 315

Chapter Take-Aways 316

Key Ratio 317

Finding Financial Information 317

Key Terms 317

Questions 318

Multiple-Choice Questions 318

Mini-Exercises 319

Exercises 320

Problems 329

Alternate Problems 334

Continuing Problem 338

Cases and Projects 338

Business Analytics and Data Visualization

with Excel and Tableau 341

CHAPTER SEVEN

Reporting and Interpreting Cost of Goods Sold and Inventory 342

Harley-Davidson, Inc.

Understanding the Business 343

Nature of Inventory and Cost of Goods Sold 345

Items Included in Inventory 345

Costs Included in Inventory Purchases 346

FINANCIAL ANALYSIS:

Applying the Materiality Constraint in Practice 346

Flow of Inventory Costs 346

Cost of Goods Sold Equation 347

  • Pause for Feedback 349

Perpetual and Periodic Inventory Systems 350

Inventory Costing Methods 350

Specific Identification Method 351

Cost Flow Assumptions 351

INTERNATIONAL PERSPECTIVE:

LIFO and International Comparisons 354

Financial Statement Effects of Inventory Methods 354

Managers’ Choice of Inventory Methods 355

A QUESTION OF ETHICS:

LIFO and Conflicts Between Managers’ and Owners’ Interests 356

  • Pause for Feedback 357

Valuation at Lower of Cost or Net Realizable Value 358

Control of Inventory 359

Internal Control of Inventory 359

Errors in Measuring Ending Inventory 360

  • Pause for Feedback 360

Evaluating Inventory Management 361

Measuring Efficiency in Inventory Management 361

KEY RATIO ANALYSIS:

Inventory Turnover 362

  • Pause for Feedback 362

Inventory Methods and Financial Statement Analysis 363

FINANCIAL ANALYSIS:

LIFO and Inventory Turnover Ratio 365

  • Pause for Feedback 365

Inventory and Cash Flows 366

FOCUS ON CASH FLOWS:

Inventory 366

Demonstration Case 368

Chapter Supplement A: Fifo Cost Of Goods Sold Under Periodic And Perpetual

Inventory Systems And End Of Period Adjustments To Lifo 369

Chapter Supplement B: Additional Issues In Measuring Inventory Purchases 371

Chapter Take-Aways 372

Key Ratio 373

Finding Financial Information 373

Key Terms 374

Questions 374

Multiple-Choice Questions 375

Mini-Exercises 376

Exercises 377

Problems 386

Alternate Problems 390

Continuing Problem 394

Comprehensive Problem (Chapters 6–7) 395

Cases and Projects 396

Business Analytics and Data

Visualization with Excel and Tableau 399

CHAPTER EIGHT

Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources 400

FedEx Corporation

Understanding the Business 401

Acquisition and Maintenance of Plant and Equipment 402

Classifying Long-Lived Assets 403

KEY RATIO ANALYSIS:

Fixed Asset Turnover 403

Measuring and Recording Acquisition Cost 404

  • Pause for Feedback 407

Repairs, Maintenance, and Improvements 408

A QUESTION OF ETHICS:

Worldcom: Hiding Billions in Expenses through Capitalization 409

Environmental, Social, & Governance (Esg) Reporting:

Being a Global Citizen 409

  • Pause for Feedback 410

Use, Impairment, and Disposal of Plant and Equipment 411

Depreciation Concepts 411

FINANCIAL ANALYSIS:

Book Value as an Approximation of Remaining Life 413

FINANCIAL ANALYSIS:

Differences in Estimated Lives within a Single Industry 413

Alternative Depreciation Methods 414

FINANCIAL ANALYSIS:

Impact of Alternative Depreciation Methods 419

  • Pause for Feedback 419

FINANCIAL ANALYSIS:

Increased Profitability Due to an Accounting Adjustment?

Reading the Notes 420

How Managers Choose 420

A QUESTION OF ETHICS:

Two Sets of Books 421

Measuring Asset Impairment 421

Disposal of Property, Plant, and Equipment 422

  • Pause for Feedback 423

Intangible Assets and Natural Resources 424

Acquisition and Amortization of Intangible Assets 424

Acquisition and Depletion of Natural Resources 429

FOCUS ON CASH FLOWS:

Productive Long-lived Assets, Depreciation, and

Amortization 430

FINANCIAL ANALYSIS:

A Misinterpretation 431

Demonstration Case A 432

Demonstration Case B 434

Chapter Supplement: Changes In Depreciation Estimates 435

  • Pause for Feedback 436

Chapter Take-Aways 436

Key Ratio 437

Finding Financial Information 437

Key Terms 438

Questions 438

Multiple-Choice Questions 439

Mini-Exercises 440

Exercises 442

Problems 451

Alternate Problems 456

Continuing Problem 460

Comprehensive Problem (Chapters 6–8) 461

Cases and Projects 464

Business Analytics and Data

Visualization with Excel and Tableau 471

CHAPTER NINE

Reporting and Interpreting Liabilities 472

Starbucks

Understanding the Business 472

Liabilities Defined and Classified 474

Current Liabilities 474

Accounts Payable 475

KEY RATIO ANALYSIS:

Accounts Payable Turnover 475

Accrued Liabilities 476

Deferred Revenues 479

BUSINESS ANALYTICS:

Using mobile app data to understand customer behavior 479

Notes Payable 480

Current Portion of Long-Term Debt 481

FINANCIAL ANALYSIS:

Refinancing Debt: Current or Long-Term Liability? 482

Contingent Liabilities Reported on the Balance Sheet 482

Contingent Liabilities Reported in the Footnotes 482

INTERNATIONAL PERSPECTIVE:

It’s a Matter of Degree 483

Working Capital Management 484

FOCUS ON CASH FLOWS:

Working Capital and Cash Flows 484

  • Pause for Feedback 484

Long-Term Liabilities 485

Long-Term Notes Payable and Bonds 485

INTERNATIONAL PERSPECTIVE:

Borrowing in Foreign Currencies 485

Lease Liabilities 486

Accounting for finance leases and operating leases 486

Accounting for short-term leases 487

Computing Present Values 487

Present Value of a Single Amount 488

  • Pause for Feedback 489

Present Value of an Annuity 490

A QUESTION OF ETHICS:

Truth in Advertising 491

Accounting Applications of Present Values 492

Demonstration Case 495

Chapter Supplement A: Present Value

Computations Using A Calculator Or Excel 496

Chapter Supplement B: Deferred Taxes 499

Chapter Take-Aways 500

Key Ratio 501

Finding Financial Information 501

Key Terms 502

Questions 502

Multiple-Choice Questions 503

Mini-Exercises 504

Exercises 506

Problems 511

Alternate Problems 515

Continuing Problem 518

Cases And Projects 519

Business Analytics and Data

Visualization with Excel and Tableau 521

CHAPTER TEN

Reporting and Interpreting

Bond Securities 522

Amazon

Understanding the Business 523

Characteristics of Bond Securities 525

Reasons Why Companies Issue Bonds 525

Bond Terminology 525

Bond Issuance Process 527

FINANCIAL ANALYSIS:

Bond Rating Agencies and Their Assessments of Default Risk 528

Reporting Bond Transactions 528

DATA ANALYTICS:

Using Artificial Intelligence (AI) to Invest in Bonds 530

  • Pause for Feedback 530

Bonds Issued at Par 531

  • Pause for Feedback 532

KEY RATIO ANALYSIS:

Times Interest Earned 533

Bonds Issued at a Discount 534

  • Pause for Feedback 538

Bonds Issued at a Premium 538

  • Pause for Feedback 541

FINANCIAL ANALYSIS:

Zero Coupon Bonds 542

KEY RATIO ANALYSIS:

Debt-to-Equity 544

Early Retirement of Bonds 544

FOCUS ON CASH FLOWS:

Bond Transactions and the Statement of Cash Flows 545

Demonstration Case 546

Chapter Supplement: Accounting For Bonds

Without A Discount Account Or Premium Account 546

  • Pause for Feedback 550

Bonds Issued at a Premium 550

  • Pause for Feedback 553

Chapter Take-Aways 553

Key Ratios 554

Finding Financial Information 554

Key Terms 555

Questions 555

Multiple-Choice Questions 556

Mini-Exercises 557

Exercises 559

Problems 563

Alternate Problems 567

Continuing Problem 570

Cases and Projects 571

Business Analytics and Data Visualization with Excel and Tableau 573

CHAPTER ELEVEN

Reporting and Interpreting Stockholders’ Equity 574

Microsoft Understanding the Business 574

Environmental, Social, & Governance (Esg) Reporting 575

Ownership of a Corporation 577

Benefits of Stock Ownership 577

Authorized, Issued, and Outstanding Shares 578

Key Ratio Analysis:

Earnings per Share (EPS) 579

Common Stock Transactions 579

Initial Sale of Stock 580

Sale of Stock in Secondary Markets 580

Stock Issued for Employee Compensation 581

Repurchase of Stock 582

  • Pause for Feedback 583

Dividends on Common Stock 584

KEY RATIO ANALYSIS:

Dividend Yield 584

Key Dividend Dates 585

FINANCIAL ANALYSIS:

Impact of Dividends on Stock Price 587

  • Pause for Feedback 587

Stock Dividends and Stock Splits 588

Stock Dividends 588

Stock Splits 589

  • Pause for Feedback 590

Statement Of Stockholders’ Equity 591

  • Pause for Feedback 592

Preferred Stock Transactions 593

Dividends on Preferred Stock 593

FINANCIAL ANALYSIS:

Preferred Stock and Limited Voting Rights 594

FOCUS ON CASH FLOWS:

Financing Activities 594

Demonstration Case 595

Chapter Supplement: Accounting For The Equity Of Sole Proprietorships And Partnerships 596

Chapter Take-Aways 600

Key Ratio 601

Finding Financial Information 602

Key Terms 602

Questions 603

Multiple-Choice Questions 603

Mini-Exercises 604

Exercises 605

Problems 612

Alternate Problems 616

Continuing Problem 620

Comprehensive Problem (Chapters 9–11) 620

Cases and Projects 621

Business Analytics and Data Visualization with Excel and Tableau 624

CHAPTER TWELVE

Statement of Cash Flows 626

National Beverage Corporation Understanding the Business 627

Classifications of the Statement of Cash Flows 628

Cash Flows from Operating Activities 629

Cash Flows from Investing Activities 630

Cash Flows from Financing Activities 631

Net Increase (Decrease) in Cash 631

  • Pause for Feedback 631

Relationships to the Balance Sheet and Income Statement 632

Preliminary Steps in Preparing the Cash Flow Statement 633

Reporting and Interpreting Cash Flows from Operating Activities 635

Reporting Cash Flows from Operating Activities—Indirect Method 635

INTERNATIONAL PERSPECTIVE:

Classification of Interest on the Cash Flow Statement 639

  • Pause for Feedback 640

Interpreting Cash Flows from Operating Activities 640

KEY RATIO ANALYSIS:

Quality of Income Ratio 641

A QUESTION OF ETHICS:

Fraud and Cash Flows from Operations 642

Reporting and Interpreting Cash Flows from Investing Activities 642

Reporting Cash Flows from Investing Activities 642

Interpreting Cash Flows from Investing Activities 643

KEY RATIO ANALYSIS:

Capital Acquisitions Ratio 644

FINANCIAL ANALYSIS:

Free Cash Flow 644

Reporting and Interpreting Cash Flows from Financing Activities 645

Reporting Cash Flows from Financing Activities 645

Interpreting Cash Flows from Financing Activities 646

  • Pause for Feedback 647

Completing the Statement and Additional Disclosures 647

Statement Structure 647

Supplemental Cash Flow Information 648

Demonstration Case 649

Chapter Supplement A: Reporting Cash Flows

From Operating Activities—Direct Method 650

  • Pause For Feedback 653

Chapter Supplement B: Adjustment For Gains And

Losses On Sale Of Long-Term Assets—Indirect Method 654

Chapter Supplement C: T-Account Approach (Indirect Method) 655

Chapter Take-Aways 656

Key Ratios 657

Finding Financial Information 658

Key Terms 658

Questions 658

Multiple-Choice Questions 659

Mini-Exercises 660

Exercises 661

Problems 671

Alternate Problems 675

Continuing Problem 679

Cases and Projects 680

Business Analytics and Data Visualization with Excel and Tableau 685

CHAPTER THIRTEEN

Analyzing Financial Statements 686

The Home Depot

Understanding the Business 687

The Investment Decision 691

Understanding a Company’s Strategy 692

Financial Statement Analysis 693

A QUESTION OF ETHICS:

Insider Information 694

Component Percentages and Ratio Analysis 695

Component Percentages 695

BUSINESS ANALYTICS:

Using Data Visualization Tools to Assess a Company’s Performance 696

Ratio Analysis 696

Profitability Ratios 697

  • Pause for Feedback 700

Asset Turnover Ratios 701

FINANCIAL ANALYSIS:

ROA Profit Driver Analysis and the DuPont Model 705

Liquidity Ratios 706

  • Pause for Feedback 707

Solvency Ratios 708

Market Ratios 709

  • Pause for Feedback 710

Interpreting Ratios and Other Analytical

Considerations 711

Other Relevant Information 711

Environmental, Social, & Governance (Esg) Reporting 712

Chapter Take-Aways 713

Finding Financial Information 714

Key Terms 715

Questions 715

Multiple-Choice Questions 715

Mini-Exercises 716

Exercises 717

Problems 722

Alternate Problems 727

Continuing Problem 732

Cases and Projects 733

APPENDIX A

Reporting and Interpreting Investments in Other

Corporations A-0

The Walt Disney Company A-1

APPENDIX B

Target Corporation, Form 10-K Annual

Report B-1

APPENDIX C

Walmart Inc., Form 10-K Annual Report C-0

APPENDIX D

Industry Ratio Report D-0

APPENDIX E

Present and Future Value Tables E-1

GLOSSARY G-1

COMPANY INDEX I-1

SUBJECT INDEX I-7

MBA COMPANION (Available online in Connect and in McGraw Hill’s Create)

Leases, Income Taxes, and Retirement

Obligations

Under Armour

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