Financial accounting 11e by needles

Giáo trình Financial accounting 11e by needles Giáo trình Financial accounting 11e by needles Giáo trình Financial accounting 11e by needles Giáo trình Financial accounting 11e by needles Giáo trình Financial accounting 11e by needles Giáo trình Financial accounting 11e by needles v

Trang 2

Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Trang 3

some third party content may be suppressed Editorial review has deemed that any suppressed content does not materially affect the overall learning experience The publisher reserves the right

to remove content from this title at any time if subsequent rights restrictions require it For valuable information on pricing, previous editions, changes to current editions, and alternate formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for materials in your areas of interest.

Trang 4

Printed in the United States of America

1 2 3 4 5 6 7 14 13 12 11 10

Vice President of Editorial, Business: Jack W Calhoun

Editor-in-Chief: Rob Dewey

Senior Acquisitions Editor: Sharon Oblinger

Developmental Editor: Krista Kellman

Editorial Assistant: Courtney Doyle

Senior Marketing Manager: Kristen Hurd

Marketing Coordinator: Nicole Parsons

Content Project Manager: Corey Geissler

Media Editor: Bryan England

Senior Frontlist Buyer, Manufacturing: Doug Wilke

Production Service: Cadmus Communications

Senior Art Director: Stacy Jenkins Shirley

Internal Designer: Craig Ramsdell

Cover Designer: Craig Ramsdell

Cover Image: © Mike Grandmaison/All Canada Photos/

Corbis

Rights Acquisitions Specialist: John Hill

electronic, or mechanical, including but not limited to photocopying, recording, scanning, digitizing, taping, web distribution, information networks, or information storage and retrieval systems, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the publisher.

For product information and technology assistance,

contact us at Cengage Learning Customer & Sales Support, 1-800-354-9706

For permission to use material from this text or product,

submit all requests online at www.cengage.com/permissions

Further permissions questions can be emailed to

permissionrequest@cengage.com

Library of Congress Control Number: 2010940446 Package ISBN-13: 978-0-538-47601-0

Package ISBN-10: 0-538-47601-X Student Edition ISBN 13: 978-1-111-82094-7 Student Edition ISBN 10: 1-111-82094-5

South-Western

5191 Natorp Boulevard Mason, OH 45040 USA

Cengage Learning products are represented in Canada by Nelson Education, Ltd.

For your course and learning solutions, visit www.cengage.com Purchase any of our products at your local college store or at our

preferred online store www.CengageBrain.com

Trang 5

1 Uses of Accounting Information and the Financial Statements 3

SuPPlEmEnT TO ChaPTER 1 How to Read an Annual Report 46

2 Analyzing Business Transactions 89

3 Measuring Business Income 137

SuPPlEmEnT TO ChaPTER 3 Closing Entries and the Work Sheet 184

4 Financial Reporting and Analysis 197

SuPPlEmEnT TO ChaPTER 4 The Annual Report Project 242

5 The Operating Cycle and Merchandising Operations 245

6 Inventories 291

7 Cash and Receivables 327

8 Current Liabilities and Fair Value Accounting 363

9 Long-Term Assets 401

10 Long-Term Liabilities 443

11 Stockholders’ Equity 487

12 The Statement of Cash Flows 537

13 Financial Performance Measurement 585

14 Investments 635

aPPEndIx A Accounting for Unincorporated Businesses 674

aPPEndIx B Present Value Tables 684

BrIeF Contents

Trang 7

DeCisiON POiNT A User’s fOCUs CVs CAreMArK 2Accounting as an Information System 4Business Goals and Activities 4

Financial and Management Accounting 6Ethical Financial Reporting 7

Decision Makers: The Users of Accounting Information 8

Management 9Users with a Direct Financial Interest 9Users with an Indirect Financial Interest 10Governmental and Not-for-Profit Organizations 10

Accounting Measurement 11Business Transactions 11Money Measure 12Separate Entity 12

The Corporate Form of Business 13Forms of Business 13

Formation and Organization of a Corporation 14

The Financial Statements and Their Elements 15

Income Statement 15Statement of Retained Earnings 16Balance Sheet 16

Statement of Cash Flows 18Relationships Among the Financial Statements 19Focus on Financial Statement Elements: Financial Ratios 19

Generally Accepted Accounting Principles 22GAAP and the Independent CPA’s Report 23Organizations That Issue Accounting Standards 24Other Organizations That Influence GAAP 24Professional Conduct 25

A LOOK BACK AT CVs CAreMArK 27

STOP & REVIEW 29 ChaPTER aSSIgnmEnTS 30

Preface xii

about the authors xxv

Contents

Double-Entry System 93Accounts 93

The T Account 94The T Account Illustrated 94Rules of Double-Entry Accounting 94Normal Balance 95

Stockholders’ Equity Accounts 96

DeCisiON POiNT A User’s fOCUs THe BOeiNG COMPANY 88

Measurement Issues 90Recognition 90

Valuation 91Classification 92Ethics and Measurement Issues 92

Financial Statements 47Notes to the Financial Statements 50Reports of Management’s Responsibilities 53Reports of Certified Public Accountants 53

The Components of an Annual Report 46Letter to the Stockholders 46

Financial Highlights 47Description of the Company 47Management’s Discussion and Analysis 47

Trang 8

Type 3 Adjustment: Allocating Recorded, Unearned Revenues (Deferred Revenues) 150Type 4 Adjustment: Recognizing Unrecorded, Earned Revenues (Accrued Revenues) 151

A Note About Journal Entries 152

Using the Adjusted Trial Balance to Prepare Financial Statements 152

Closing Entries 154

Cash Flows from Accrual-Based Information 156

A LOOK BACK AT NeTfLix, iNC 158

DeCisiON POiNT A User’s fOCUs NeTfLix, iNC 136Profitability Measurement Issues and Ethics 138

Net Income 138Income Measurement Assumptions 138Ethics and the Matching Rule 140

Accrual Accounting 141Recognizing Revenues 142Recognizing Expenses 142Adjusting the Accounts 143Adjustments and Ethics 143

The Adjustment Process 144Type 1 Adjustment: Allocating Recorded Costs (Deferred Expenses) 145

Type 2 Adjustment: Recognizing Unrecorded Expenses (Accrued Expenses) 148

Summary of Transactions 104

The Trial Balance 106Preparation and Use of a Trial Balance 106Finding Trial Balance Errors 107

Recording and Posting Transactions 108Chart of Accounts 108

General Journal 108General Ledger 110Some Notes on Presentation 111

Cash Flows and the Timing of Transactions 112

A LOOK BACK AT THe BOeiNG COMPANY 114

Business Transaction Analysis 98Owner’s Investment in the Business 98Economic Event That Is Not a Business Transaction 99

Prepayment of Expenses in Cash 99Purchase of an Asset on Credit 100Purchase of an Asset Partly in Cash and Partly

on Credit 100Payment of a Liability 101Revenue in Cash 101Revenue on Credit 102Revenue Received in Advance 102Collection on Account 102Expense Paid in Cash 103Expense to Be Paid Later 103

Preparing Closing Entries 184Step 1: Closing the Credit Balances 184Step 2: Closing the Debit Balances 184Step 3: Closing the Income Summary Account Balance 187

Step 4: Closing the Dividends Account Balance 187

The Accounts After Closing 187

The Work Sheet: An Accountant’s Tool 188Preparing the Work Sheet 188

Using the Work Sheet 191 SuPPlEmEnT aSSIgnmEnTS 192

Trang 9

Stockholders’ Equity 207

Owner’s Equity and Partners’ Equity 207

Dell’s Balance Sheets 208

Forms of the Income Statement 210Multistep Income Statement 210Dell’s Income Statements 213Single-Step Income Statement 214

Using Financial Ratios for Performance Evaluation 215

Critical Financial Ratios and Financial Statement Elements 215

Beyond the Basics: Additional Financial Ratios 219

A LOOK BACK AT DeLL COMPUTer COrPOrATiON 223

DeCisiON POiNT A User’s FoCUs Dell CoMpUter CorporAtIon 196

Foundations of Financial Reporting 198Objective of Financial Reporting 198Qualitative Characteristics of Accounting Information 199

Accounting Conventions 200Ethical Financial Reporting 200

Accounting Conventions for Preparing Financial Statements 201

Consistency 202Full Disclosure (Transparency) 202Materiality 202

Conservatism 203Cost-Benefit 203

Classified Balance Sheet 204Assets 206

Liabilities 207

Instructions 242

DeCisiON POiNT A User’s fOCUs BesT BUY CO., iNC 244

Managing Merchandising Businesses 246Evaluation of Liquidity 246

Operating Cycle 247Choice of Inventory System 248Foreign Business Transactions 249The Need for Internal Controls 250Management’s Responsibility for Internal Control 251

Terms of Sale 252Sales and Purchases Discounts 252Transportation Costs 253

Terms of Debit and Credit Card Sales 253

Perpetual Inventory System 254Purchases of Merchandise 254Sales of Merchandise 256

Periodic Inventory System 258Purchases of Merchandise 259Sales of Merchandise 261

Internal Control: Components, Activities, and Limitations 263

Components of Internal Control 263Control Activities 263

Limitations on Internal Control 264

Internal Control over Merchandising Transactions 265

Internal Control and Management Goals 265Control of Cash Receipts 266

Control of Purchases and Cash Disbursements 267

A LOOK BACK AT BesT BUY CO., iNC 270

Trang 10

DeCisiON POiNT A User’s fOCUs CisCO sYsTeMs, iNC 290

Managing Inventories 292Inventory Decisions 292Financial Ratios: Inventory Turnover and Days’

Inventory on Hand 293Inventory Management 294Effects of Inventory Misstatements on Income Measurement 295

Inventory Misstatements and Fraud 295

Inventory Cost and Valuation 297Goods Flows and Cost Flows 297Lower-of-Cost-or-Market (LCM) Rule 298Disclosure of Inventory Methods 299

Inventory Cost Under the Periodic Inventory System 299

Specific Identification Method 300

Average-Cost Method 300First-In, First-Out (FIFO) Method 301Last-In, First-Out (LIFO) Method 301Summary of Inventory Costing Methods 302

Impact of Inventory Decisions 302Effects on the Financial Statements 303Effects on Income Taxes 304

Effects on Cash Flows 305

Inventory Cost Under the Perpetual Inventory System 305

Valuing Inventory by Estimation 308Retail Method 308

Gross Profit Method 308

A LOOK BACK AT CisCO sYsTeMs, iNC 310

DeCisiON POiNT A User’s fOCUs HewLeTT-PACKArD COMPANY 326

Management Issues Related to Cash and Receivables 328

Cash Management 328Accounts Receivable and Credit Policies 329Evaluating the Level of Accounts Receivable 330Financing Receivables 331

Ethics and Estimates in Accounting for Receivables 333

Cash Equivalents and Cash Control 334Cash Equivalents 334

Cash Control Methods 334

Uncollectible Accounts 337The Allowance Method 338

Disclosure of Uncollectible Accounts 338Estimating Uncollectible Accounts Expense 339Writing Off Uncollectible Accounts 342

Notes Receivable 343Maturity Date 344Duration of a Note 344Interest and Interest Rate 345Maturity Value 345

Accrued Interest 346Dishonored Note 346

A LOOK BACK AT HewLeTT-PACKArD COMPANY (HP) 347

DeCisiON POiNT A User’s fOCUs MiCrOsOfT 362Management Issues Related to Current Liabilities 364

Managing Liquidity and Cash Flows 364Evaluating Accounts Payable 365Reporting Liabilities 366

Common Types of Current Liabilities 368

Definitely Determinable Liabilities 368Estimated Liabilities 373

Contingent Liabilities and Commitments 376

Valuation Approaches to Fair Value Accounting 377

Interest, the Time Value of Money, and Future Value 378

Trang 11

Other Applications 383

A LOOK BACK AT MiCrOsOfT 384

Calculating Present Value 379

Applications Using Present Value 382Valuing an Asset 382

Deferred Payment 383

DeCisiON POiNT A User’s fOCUs APPLe COMPUTer, iNC 400

Management Issues Related to Long-Term Assets 402

Acquiring Long-Term Assets 404Financing Long-Term Assets 405Applying the Matching Rule 406

Acquisition Cost of Property, Plant, and Equipment 407

General Approach to Acquisition Costs 408Specific Applications 408

Depreciation 411Factors in Computing Depreciation 411Methods of Computing Depreciation 412Special Issues in Depreciation 415

Disposal of Depreciable Assets 417

Discarded Plant Assets 417Plant Assets Sold for Cash 418Exchanges of Plant Assets 419

Natural Resources 419Depletion 419

Depreciation of Related Plant Assets 420Development and Exploration Costs in the Oil and Gas Industry 421

Intangible Assets 422Research and Development Costs 424Computer Software Costs 425Goodwill 425

A LOOK BACK AT APPLe COMPUTer, iNC 426

DeCisiON POiNT A User’s fOCUs MCDONALD’s COrPOrATiON 442

Management Issues Related to Long-Term Debt Financing 444

Deciding to Issue Long-Term Debt 444Evaluating Long-Term Debt 445Types of Long-Term Debt 446Cash Flow Information 451

The Nature of Bonds 452Bond Issue: Prices and Interest Rates 452Characteristics of Bonds 453

Accounting for the Issuance of Bonds 455Bonds Issued at Face Value 455

Bonds Issued at a Discount 455Bonds Issued at a Premium 456

Bond Issue Costs 457

Using Present Value to Value a Bond 457Market Rate Above Face Rate 458

Market Rate Below Face Rate 458

Amortization of Bond Discounts and Premiums 459

Amortizing a Bond Discount 459Amortizing a Bond Premium 464

Retirement and Conversion of Bonds 468Retirement of Bonds 468

Conversion of Bonds 469

A LOOK BACK AT MCDONALD’s COrPOrATiON 470

Trang 12

DeCisiON POiNT A User’s fOCUs GOOGLe, iNC 486Management Issues Related to Contributed Capital 488

The Corporate Form of Business 488Equity Financing 490

Dividend Policies 491Measuring Performance Using Financial Ratios 493Stock Options as Compensation 495

Cash Flow Information 496

Components of Stockholders’ Equity 497Characteristics of Preferred Stock 498

Issuance of Stock for Cash and Other Assets 501

Par Value Stock 501No-Par Stock 502Issuance of Stock for Noncash Assets 503

Accounting for Treasury Stock 505Purchase of Treasury Stock 505

Sale of Treasury Stock 506Retirement of Treasury Stock 507

Stock Dividends and Stock Splits 508Stock Dividends 508

A LOOK BACK AT GOOGLe, iNC 515

DeCisiON POiNT A User’s fOCUs AMAzON.COM, iNC 536Overview of the Statement of Cash Flows 538

Purposes and Uses of the Statement of Cash Flows 538

Classification of Cash Flows 538Required Disclosure of Noncash Investing and Financing Transactions 541

Ethical Considerations and the Statement of Cash Flows 541

Analyzing Cash Flows 542Cash Flow Ratios 542Free Cash Flow 544Asking the Right Questions About the Statement

Step Two: Determining Cash Flows from Investing Activities 553

Investments 554Plant Assets 554

Step Three: Determining Cash Flows from Financing Activities 556

Bonds Payable 557Common Stock 557Retained Earnings 558Treasury Stock 558

Step Four: Preparing the Statement of Cash Flows 559

A LOOK BACK AT AMAzON.COM, iNC 560

DeCisiON POiNT A User’s fOCUs sTArBUCKs COrPOrATiON 584

Foundations of Financial Performance Measurement 586

Financial Performance Measurement:

Management’s Objectives 586

Management Compensation 586Financial Performance Measurement: Creditors’

and Investors’ Objectives 587Standards of Comparison 587Sources of Information 589

Trang 13

Evaluating Profitability and Total Asset Management 601

Evaluating Liquidity 604Evaluating Financial Risk 605Evaluating Operating Asset Management 607Supplemental Financial Ratios for Assessing Operating Asset Management and Liquidity 609Evaluating Market Strength with Financial Ratios 610

A LOOK BACK AT sTArBUCKs COrPOrATiON 612

Evaluating Quality of Earnings 590Accounting Methods 590

Accounting Estimates 591One-Time Items 592

Tools and Techniques of Financial Analysis 594

Horizontal Analysis 594Trend Analysis 597Vertical Analysis 598Financial Ratio Analysis 600

Comprehensive Illustration of Financial Ratio Analysis 600

Short-Term Investments in Equity Securities 639

Trading Securities 639Available-for-Sale Securities 642

Long-Term Investments in Equity Securities 643

Noninfluential and Noncontrolling Investment 643

An Influential but Noncontrolling Investment 646

Investments in Debt Securities 656Held-to-Maturity Securities 656Long-Term Investments in Bonds 657

A LOOK BACK AT iNTeL COrPOrATiON 658

Accounting for Sole Proprietorships 674

Accounting for Partnerships 675Accounting for Partners’ Equity 676

Distribution of Partnership Income and Losses 676Dissolution of a Partnership 679

Liquidation of a Partnership 681

Endnotes 689 Company name Index 693 Subject Index 695

Trang 14

Making the Complex simple!

Financial Accounting, 11th edition, continues a distinguished tradition of

combin-ing academic needs with professional thought to prepare students for a dynamic ness world Through market-leading integration of International Financial Reporting Standards coverage and real-world data, trusted pedagogy, and a clear writing style that

busi-simplifies complex concepts, Financial Accounting, develops the judgment and

critical-thinking skills students will need to succeed

superior readability and Clarity for Complex Topics through enhanced Presentation The revised and refocused content makes this edition acces-sible to a broad range of interests and levels of reading ability Building on its proven strength of making the complex simple, extra care has been taken to clarify the topics with which students traditionally struggle most—including the accounting cycle, long-term liabilities, contributed capital, and the statement of cash flows—to make them easy

to comprehend Whenever possible, detailed information has been made more concise

by shortening paragraphs and breaking sentences into bulleted lists and additional ers have been added to help students navigate the content

one-term courses, this edition now includes 14 chapters instead of 15 All topics related to stockholders’ equity (previously split between Chapters 11 and 12) have been com-bined into a single chapter Other topics previously covered in these chapters (corporate income statement, deferred income taxes, comprehensive income, etc.) have been made more concise and are included in chapters covering related topics

account-ing works and how business transactions impact the financial statements, accountaccount-ing equations are shown next to important journal entries

Maintain-ing a solid foundation in double-entry accountMaintain-ing is critical in the first financial ing course This edition logically guides students step-by-step through accounting for business transactions as follows:

account-• Statement of the transaction

• Analysis of the effect on the accounts

• Application of double-entry accounting in T accounts

• Illustration of the journal entry (linked to the T account in a way that allows students

to see the relationships between the methods)

• Comments that offer supporting explanations regarding the significance of the transaction

If an asset remains in use beyond the end of its estimated life, its cost and accumulated depreciation remain in the ledger accounts Proper records will thus be available for maintaining control over plant assets If the residual value is zero, the carrying value of a fully depreciated asset is zero until the asset is disposed of If such an asset is discarded,

no gain or loss results In our example, however, the discarded equipment has a ing value of $3,700 at the time of its disposal The carrying value is computed from the

carry-T accounts as machinery of $13,000 less accumulated depreciation of $9,300 A loss equal to the carrying value should be recorded when the machine is discarded, as follows:

2016 Jan 2 Accumulated Depreciation—Machinery 9,300 Loss on Disposal of Machinery 3,700 Machinery 13,000 Disposal of machine no longer in use

Gains and losses on disposals of plant assets are classified as other revenues and expenses

on the income statement.

Plant Assets Sold for Cash

The entry to record a plant asset sold for cash is similar to the one just illustrated, except that the receipt of cash should also be recorded The following journal entries show how

to record the sale of a machine under three assumptions about the selling price

exactly equal to the $3,700 carrying value of the machine; therefore, no gain or loss occurs:

2016 Jan 2 Cash 3,700 Accumulated Depreciation—Machinery 9,300 Machinery 13,000 Sale of machine for carrying value; no gain or loss

which is less than the carrying value of $3,700, resulting in a loss of $1,700.

2016 Jan 2 Cash 2,000 Accumulated Depreciation—Machinery 9,300 Loss on Sale of Machinery 1,700 Machinery 13,000 Sale of machine at less than carrying value;

loss of $1,700 ($3,700 $2,000) recorded

which exceeds the carrying value of $3,700, resulting in a gain of $300.

2016 Jan 2 Cash 4,000 Accumulated Depreciation—Machinery 9,300 Machinery 13,000 Gain on Sale of Machinery 300 Sale of machine at more than the carrying value;

gain of $300 ($4,000 – $3,700) recorded

A L SE

9,300 3,700 13,000

A L SE

3,700 9,300 13,000

STUDY NOTE: When an asset is sold for cash, the gain or loss equals cash received minus the carrying value.

A L SE

2,000 1,700 9,300

13,000

A L SE

4,000 300 9,300

Trang 15

This walk-through method is continued in future chapters where transaction sis is critical, such as merchandising accounting, long-term liabilities, contributed capital, and investments In every case where it will help student comprehension, more in-text journal entries have been included.

Purchase of an Asset on Credit

July 5: Receives office supplies ordered on July 2 and an invoice for $5,200.

Analysis: The purchase of office supplies on credit

▲ increases the asset account Ofﬁ ce Supplies with a debit and

▲ increases the liability account Accounts Payable with a credit.

Application of Double Entry:

Stockholders’

Assets = Liabilities + Equity

OFFICE SUPPLIES ACCOUNTS PAYABLE July 5 5,200 July 5 5,200

Journal Entry:

Dr Cr.

July 5 Office Supplies 5,200

Comment: Office supplies in this transaction are considered an asset (prepaid expense)

because they will not be used up in the current month and thus will benefit future ods Accounts Payable is used when there is a delay between the time of the purchase and the time of payment.

peri-Purchase of an Asset Partly in Cash and Partly on Credit

July 6: Purchases office equipment, $16,320; pays $13,320 in cash and agrees to pay the

rest next month.

Analysis: The purchase of office equipment in cash and on credit

▲ increases the asset account Ofﬁ ce Equipment with a debit,

▼ decreases the asset account Cash with a credit, and

▲ increases the liability account Accounts Payable with a credit.

Application of Double Entry:

Stockholders’

CASH ACCOUNTS PAYABLE

July 1 40,000 July 3 3,200 July 5 5,200

OFFICE EQUIPMENT July 6 16,320

OFFICE SUPPLIES ACCOUNTS PAYABLE

J u ul y 1 40,000 July 3 3,200 July 5 5,200

6 13,320 6 3,000 OFFICE EQUIPMENT

on Financial Statements graphic found at the beginning of each chapter reinforces the

connection between the financial statements and each chapter’s topics

introducing and integrating financial statements In Financial Accounting,

students are introduced to financial statements in Chapter 1 This early introduction emphasizes the importance of studying accounting while it also provides students with the big picture in which to frame the remaining chapters Beginning with the How to Read an Annual Report Supplement to Chapter 1, students compare and examine

the CVs financial statements with the southwest Airlines annual report The Annual Report Project after Chapter 4 solidifies this critical skill In addition, students can

practice using these annual reports with the Annual Report and Comparison Analysis

cases, which require students to reference major portions of the reports

of Financial Accounting, the authors present an exciting new framework for teaching

how to analyze company information and make informed decisions using ratio analysis

In a simplified approach based on extensive research regarding high-performing nies, students learn that finding just six elements on the financial statements and com-puting four strategic financial ratios will allow them to determine how well or poorly

compa-a compcompa-any is performing Comprehensive covercompa-age of compa-all rcompa-atios relcompa-ated to evcompa-alucompa-ating liquidity, financial risk, operating asset management, and market strength is included

as a way of further analyzing why one of the four strategic ratios may be good or bad

In addition, all end-of-chapter assignments involving ratio analysis are identified with a ratio icon

NEW

Trang 16

xiv preface

Demonstrating relevance in Today’s Business world

Students need context to understand the importance and relevance of accounting in

the real world That’s why Financial Accounting offers a variety of ways to relate core

accounting concepts to real life

a Decision Point that shows how a real, easily recognizable company uses accounting

information to make decisions Excerpts from the company’s financial statements are included in the Financial Highlights section At the end of each chapter, A Look Back

At revisits the Decision Point company and prompts students to refine their

critical-thinking skills by examining the impact of the chapter concepts on the company These Decision Point and Look Back features create real-world bookends for the chapter con-cepts In addition, examples from the Decision Point company are integrated through-out the chapter

of goods sold.) The profit margin uses two elements of the income statement—net income and

revenue (often called net sales or net revenue) For Martin Auto Parts, it is computed as

shown below

Martin Auto Parts’ profit margin of 4.6 percent means that the company earns 4.6 cents on each dollar of sales Is this a satisfactory profit? The answer requires a comparison with the profit margin ratios of other companies in the same industry As shown in the graph above, the average profit margin for the auto and home supply industry is 2.3 percent So, although a profit margin of 4.6 percent may not seem like much, it is double the industry average of 2.3 percent A difference of 1 or 2 percent in

a company’s profit margin can be the difference between a fair year and a very able one.

profit-Financial Ratio: Asset Turnover The asset turnover ratio measures how efficiently assets are used to produce sales In other words, how much revenue is generated by each dollar of assets? A company with a high asset turnover uses its assets more productively than one with a low asset turnover.

The asset turnover ratio uses revenue from the income statement and total assets from the balance sheet It is computed by dividing revenue by average total assets

Cash Flows from Operating Activities COFA

Asset Turnover R avg TA

Cash Flow Yield COFA NI

F O C U S O N F I N A N C I A L S T A T E M E N T S

Revenue R

Net Income NI

Profit Margin NI R

Total Assets TA

Total Liablities TL

Debt to Equity TL TE

Total Equity TE

Profit Margin Net Income

Service Industries Merchandising Industries Manufacturing Industries

2.5 1.9 2.3 2.2 3.6 2.8

Source: Data from Dun & Bradstreet, Industry Norms and Key Business Ratios, 2008–2009

CHE-NEEDLES-10-0401-004.indd 216 21/10/10 4:45 PM

Netflix is the world’s largest online tainment subscription service For a monthly fee, its subscribers have access to more than

enter-of charge; with certain plans, they also have the end of any accounting period, Netflix has many transactions that will affect future periods Two examples appear in the Financial though paid in the period just ended, will benefit future periods and are therefore recorded future period 1 If prepaid and accrued expenses are not accounted for properly at the end of

NETFLIX’S FINANCIAL HIGHLIGHTS:

SELECTED BALANCE SHEET ITEMS

2 How does Netflix assign its proper accounting period so that

3 Why are the adjustments that these transactions require important to Netflix’s financial performance?

158 Chapter 3: Measuring Business Income

A look back at Netflix, Inc.

In the Decision Point at the beginning of the chapter, we noted that Netflix has many transactions that span accounting periods We asked these questions:

1 What assumptions must Netflix make to account for transactions that span accounting periods?

2 How does Netflix assign its revenues and expenses to the proper accounting period

so that net income is properly measured?

3 Why are the adjustments that these transactions require important to Netflix’s financial performance?

Two of the assumptions Netflix must make are that it will continue as a going concern for an indefinite time (the continuity assumption) and that it can make useful estimates of accounting period in which goods are sold or services are performed, and expenses are impact on a company’s earnings.

Financial Ratio: Cash Flow Yield

Netflix’s earnings are an important measure of performance, but more can be learned about a company’s profitability

by calculating cash flow yield This ratio helps to evaluate whether or not the company’s income-producing tions are also generating sufficient cash to maintain the company’s liquidity For example, if a company is not successful in collecting its receivables, its liquidity will be adversely affected A rule of thumb is that a company should annual report:

opera-2009 2008

Net Income $ 115,860 $ 83,026 Cash Flows from Operations $ 325,063 $ 284,037 The company’s cash flow yield is computed as follows:

2009 2008

$ 115,860 $ 83,026

$325,063 $284,037 Cash Flows from

$ 325,063 $ 284,037

Operating Activities

$115,860 $ 83,026 Net Income

Cash Flow Yield: 2.8 times 3.4 times

These are very strong results for Netflix Even though there was a decrease from 3.4 times in 2008 to 2.8 times in level of liquidity.

Trang 17

seeing Accounting in Motion with focus on Business Practice Boxes Each chapter includes several Focus on Business Practice boxes, which illustrate accounting

concepts and practices in the context of the general business world

takes a company to sell an amount equal to its average inventory It is computed using the inventory turnover For Cisco Systems, it is computed as follows:

Dell Computer Corporation turns its inventory over every five days How can it do this when other computer companies have inventory on hand for 60 days or even longer? Technology and good inventory management are a big part of the answer.

Dell’s speed from order to delivery sets the standard for the computer industry Consider that a computer ordered by 9 A M can be delivered the next day by 9 P M How can Dell do this when it does not start ordering components and assembling computers until a customer places an order?

First, Dell’s suppliers keep components warehoused just minutes from

Dell’s factories, making efficient, just-in-time (JIT) operations possible

Further, computer monitors are no longer shipped first to Dell and then

on to buyers Dell sends an email message to a shipper, such as United Parcel Service, and the shipper picks up a monitor from a supplier and schedules it to arrive with the PC In addition to contributing to a high inventory turnover, this practice saves Dell about $30 per monitor

in freight costs Dell is showing the world how to run a business in the cyber age by selling more than $1 million worth of computers a day on its website 3

A Whirlwind Inventory Turnover—How Does Dell Do It?

Cisco turned its inventory over 11.1 times in 2009 or, on average, every 32.9 days

Thus, on average, products are held in inventory for a little over one month before being sold Until the products are sold, Cisco either has to tie up its own money or obtain outside financing Cisco’s efficiency is demonstrated by the fact that its inventory ratios are much better than the ratios for the computer industry Although inventory turnover and days’ inventory on hand vary by industry, companies like Cisco that maintain their inventories at low levels and still satisfy customers’ needs are the most successful.

Cisco uses supply-chain management to increase inventory turnover It manages its inventory purchases through business-to-business transactions that it conducts over

STUDY NOTE: Inventory turnover will

be systematically higher if year-end inventory levels are low For example, many merchandisers’ year-end is January 31 when inventories are lower than at any other time of the year.

Days’ Inventory on Hand � 365

Inventory Turnover

� 365 days 11.1 times

� 32.9 days

Auto and Home Supply Grocery Stores Computers

0 10 20 30 40 50 60 70 80 90 100

74.5 23.1 61.8 91.2 Merchandising Industries Manufacturing Industries Machinery

Source: Data from Dun & Bradstreet, Industry Norms and Key Business Ratios, 2008–2009.

CHE-NEEDLES-10-0401-006.indd 294 17/09/10 4:25 PM

pub-licly held companies as well as international, governmental, and not-for-profit tions are used as illustrative examples All companies were carefully selected from one

organiza-of the following rankings: Top 100 Brands, the 25 Most Innovative Companies, The Infotech 100, World’s Most Ethical Companies, Top 50 Companies to Work for, Most Admired Companies, or Customer Service Champs This selection process ensures that students will be able to immediately recognize the companies used as examples

Keeping Up-to-Date with integrated international Coverage

The growing acceptance of International Financial Reporting Standards (IFRS) pre sents challenges for current and future U.S accountants Every business student needs some basic knowledge and awareness of IFRS This edition provides three ways to cover this current issue, so instructors can select the coverage that is right for the course

extensive international financial reporting standards Coverage In this

edition of Financial Accounting, every chapter includes at least one feature that

high-lights the differences between U.S GAAP and IFRS

NEW

Added Coverage with International Financial Reporting Standards: An

Overview Automatically bundled with every new book and available on the product website, supplementary material provides an overview of IFRS and the proposed presen-tation of financial statements

in-Depth Treatment in International Financial Reporting Standards: An

Introduction, 2e (isBN: 978-0-538-47680-5) For instructors who want more thorough coverage, this separate 64-page booklet delivers the basics of IFRS coverage in

a few hours of study It offers review questions for students and an Instructor’s Resource

CD-ROM with solutions, a Test Bank, and PowerPoint slides International

Finan-cial Reporting Standards introduces accounting students to the status of IFRS and the

impact on the financial reporting environment In addition, a new section on IFRS for

in an active market If the market for a financial instrument is not active, a valuation technique must be used The objective of a valuation technique

is to establish what the transaction price is on the measurement date in

an arm’s length exchange motivated by normal business considerations

Valuation techniques include using arm’s length market transactions between knowledgeable, willing parties, if available; reference to the current fair value of another instrument that is substantially the same; dis- counted cash flow analysis; and options pricing models 14

How Does the IASB Define Fair Value?

The following sections, which focus on the income or cash flow approach, require knowledge of interest and the time value of money and present value techniques.

Interest, the Time Value of Money, and Future Value

“Time is money” is a common expression It derives from the concept of the time value

of money, which refers to the costs or benefits of holding or not holding money over time Interest is the cost of using money for a specific period.

The interest associated with the time value of money is an important consideration

in any kind of business decision For example, if you have $100 and hold that amount for one year without putting it in a savings account, you have forgone the interest that the money would have earned However, if you put the $100 in an interest-bearing checking account, you will have the $100 plus the interest at the end of the year

The amount of principle plus interest after one or more periods is known as

future value Future value may be computed using either simple interest or

com-pound interest.

• Simple interest is the interest cost for one or more periods when the principal sum—

the amount on which interest is computed—stays the same from period to period

• Compound interest is the interest cost for two or more periods when, after each period, the interest earned in that period is added to the amount on which interest is computed in future periods In other words, the principal sum is increased at the end

of each period by the interest earned in that period

The following examples illustrate these concepts.

per-cent, $15,000 note due in 90 days How much will she receive at that time? The interest

is calculated as follows:

Interest Principal Rate Time

$15,000 8/100 90/365

$295.89 Therefore, the future value that Burns will receive is $15,295.89, calculated as follows:

Total Principal Interest

$15,000.00 $295.89

$15,295.89

$10,000 in an account that pays 6 percent interest He expects to leave the principal and accumulated interest in the account for three years If the interest is paid at the end of

STUDY NOTE: Compound interest

is useful in business because it helps decision makers choose among alternative courses of action.

Trang 18

of accounting standards, are now acceptable for use in the United States by private ties as an alternative to U.S GAAP or full IFRS The AICPA endorses the use of IFRS for SMEs This booklet delivers the relevant content, trusted authorship, and appropri-ate scope for learners new to the subject

enti-solid student Pedagogy

The pedagogical features in Financial Accounting reflect the authors’ active teaching

and researching experience

Clear Learning Objectives Refined over many editions, clearly presented learning objectives guide students through mastering the chapter’s material Based on Bloom’s taxonomy, the learning objectives that structure each chapter teach concepts before pro-ceeding to applications, ensuring that readers have a solid understanding of the account-ing concept and its importance before they attempt calculations

stop & Apply Revised and enhanced Stop & Apply features follow each learning

objective section and review key concepts and information by providing discussion tions or solved exercises These features provide students with an effective framework they can use to apply to similar examples and homework assignments

ISSUANCE OF STOCK FOR CASH AND OTHER ASSETS

A share of capital stock may be either par or no par The value of par stock is stated in the corporate charter It can be $0.01, $1, $5, $100, or any other amount established

by the organizers of the corporation For instance, the par value of Google’s common stock is $0.001 The par values of common stock tend to be lower than those of preferred stock.

As noted earlier, par value is the amount per share that when multiplied times the number of shares issued is recorded in a corporation’s Capital Stock accounts, and it constitutes a corporation’s legal capital A corporation cannot declare a dividend that would cause stockholders’ equity to fall below the firm’s legal capital Par value is thus

a minimum cushion of capital that protects a corporation’s creditors Any amount in excess of par value that a corporation receives from a stock issue is recorded in its Addi- tional Paid-In Capital account and represents a portion of its contributed capital.

No-par stock does not have a par value A corporation may issue stock without a par value for several reasons For one thing, rather than recognizing par value as an arbitrary figure, investors may confuse it with the stock’s market value For another, most states

do not allow a stock issue below par value, and this limits a corporation’s flexibility in obtaining capital.

State laws often require corporations to place a stated value on each share of stock that they issue, but even when this is not required, a corporation’s board of directors may do so as a matter of convenience The stated value can be any value set by the board unless the state specifies a minimum amount, which is sometimes the case The stated value can be set before or after the shares are issued if the state law is not specific.

Par Value Stock

When a corporation issues par value stock, the appropriate Capital Stock account (usually Common Stock or Preferred Stock) is credited for the par value regardless of whether the proceeds are more or less than the par value When a corporation issues stock at a

STUDY NOTE: Legal capital is the minimum amount a corporation can report as contributed capital To protect creditors, a corporation cannot declare

a dividend that would reduce capital below the amount of legal capital.

Account for the issuance of stock for cash and other assets.

Nicea Corporation has 2,000 shares of $100 par value, 7 percent cumulative preferred stock outstanding and 200,000 shares of $1 par value common stock

outstanding In the corporation’s first three years of operation, its board of directors declared cash dividends as follows (Note: No dividends were declared

in Nicea’s first year of operation.) 2011: $20,000 2012: $30,000 Determine the total cash dividends paid to the preferred and common stockholders during each of the three years.

SOLUTION

2011: Preferred dividends in arrears (2,000 shares $100 0.07) $14,000 Current year remainder to preferred ($20,000 $14,000) 6,000 Total to preferred stockholders $20,000 2012: Preferred dividends in arrears ($14,000 $6,000) $ 8,000 Current year to preferred (2,000 shares $100 0.07) 14,000 Total to preferred stockholders $22,000 Total to common stockholders ($30,000 $22,000) 8,000 Total dividends in 2012 $30,000

study Notes Marginal Study Note features highlight important information and

pro-vide useful tips on ways to avoid common mistakes

Developing ethical Business Leaders The need for students to analyze business

situations and make informed, ethical decisions is essential in today’s world

Finan-cial Accounting weaves ethical considerations throughout the chapter so that students

learn to consistently think of the ethical implications of their actions In addition, cal Dilemma cases at the end of the chapters ask students to consider issues they may

Ethi-encounter in their future careers

end-of-chapter Review Problems, Stop & Review, and Key Terms and Ratios allow students

to check their understanding of core chapter concepts before attempting the homework assignments The Review Problems and solutions provide students with a model for

how to work through problems before they are required to complete similar assignments

on their own Stop & Review provides an overview of the learning objectives covered in

the chapter to help students identify critical concepts In addition, the Key Terms and Ratios section lists important terms and financial ratios, including page references, to

make sure students are comfortable with essential terminology

STUDY NOTE: On the income

statement, freight-in is included as

part of cost of goods sold, and delivery

expense (freight-out) is included as an

operating (selling) expense.

Trang 19

134 Chapter 2: Analyzing Business Transactions

Comparison Analysis: Financial Ratio: Asset Turnover

C 6 Refer to the financial statements of CVS and Southwest Airlines Co in the

Supplement to Chapter 1 Compute asset turnover for the past two years for both

companies and comment on the results (Note: Round to one decimal place.) Total

assets in fiscal 2007 were $54,722 million for CVS and $16,772 million for Southwest.

Ethical Dilemma: Recognition Point and Ethical Considerations

C 7 Robert Shah, a sales representative for Quality Office Supplies Corporation, will receive a substantial bonus if he meets his annual sales goal The company’s recognition point for sales is the day of shipment On December 31, Shah realizes he needs sales

of $2,000 to reach his sales goal and receive the bonus He calls a purchaser for a local insurance company, whom he knows well, and asks him to buy $2,000 worth of copier paper today The purchaser says, “But Bob, that’s more than a year’s supply for us.”

Shah says, “Buy it today If you decide it’s too much, you can return however much you want for full credit next month.” The purchaser says, “Okay, ship it.” The paper is shipped on December 31 and recorded as a sale On January 15, the purchaser returns

$1,750 worth of paper for full credit (approved by Shah) against the bill Should the shipment on December 31 be recorded as a sale? Discuss the ethics of Shah’s action.

Decision Analysis Using Excel: Transaction Analysis and Evaluation of a Trial Balance

C 8 Irena Takla hired an attorney to help her start Takla Delivery Service Corporation On March 1, Takla deposited $14,375 cash in a bank account in the name of the corporation

in exchange for 575 shares of $25 par value common stock When she paid the attorney’s bill of $875, the attorney advised her to hire an accountant to keep her records Takla was

so busy that it was March 31 before she hired you to straighten out her records

After investing in her business and paying her attorney, Takla borrowed $6,250 from the bank She later paid $325, including interest of $75, on this loan She also purchased a used pickup truck in the company’s name, paying $3,125 down and financing

$9,250 The first payment on the truck is due April 15 Takla then rented an office and paid three months’ rent, $1,125, in advance Credit purchases of office equipment of

$1,000 and material handling equipment of $625 must be paid by April 10.

In March, Takla Delivery Service completed deliveries of $1,625, of which $500 were cash transactions Of the credit transactions, $375 was collected during March, and $750 remained to be collected at the end of March The company paid wages of $562 to its employees On March 31, the company received a $93 bill for the March utilities expense and a $62 check from a customer for deliveries to be made in April A customer requested

a delivery on March 31 for the following week and agreed to pay $250 Takla is ing recording this agreement as revenue in March to make the business look better.

1 Prepare journal entries for all of the transactions for March that are described in the three paragraphs above Label each of the entries alphabetically.

2 Set up T accounts Then post the entries to the T accounts Identify each posting with the letter corresponding to the transaction.

3 Determine the balance of each account.

4 Prepare a trial balance for Takla Delivery Service Corporation as of March 31, 2011

(Hint: Trial Balance total is $33,030.)

5 Irena Takla is unsure how to evaluate the trial balance The Cash account balance

is $15,550, which exceeds the original investment of $14,375 by $1,175 Did the company make a profit of $1,175? Explain why the Cash account is not an indicator

enhanced end-of-Chapter Assignments

• More Short Exercises: Based on market and syllabi research for financial accounting

courses, more short exercises have been added to the 11th edition for every chapter

• Exercises, Problems, and Alternate Problems: End-of-chapter assignments have

been updated throughout with new numbers and current data where applicable

• Market-Leading Case Material: The rich assortment of case material offers plenty of

opportunities to engage and challenge students The following types of cases appear

in this edition:

• Conceptual Understanding

• Interpreting Financial Reports

• Annual Report Case

• Comparison Analysis

• Ethical Dilemma

• Business Communication

• Decision Analysis Using Excel

easily identify Assignments You want to Cover

Assignments that involve using financial ratios to measure a company’s performance are highlighted with a ratio icon

Assignments that assess a company’s profitability and liquidity are noted with a cash flow icon

Assignments that can be completed using General Ledger software are marked with a

GL icon This software is available in an online format in CengageNOW (see p xx for more information) and as a CD-ROM to bundle with the textbook

The User Insight requirements of select items develop students’ abilities to make sound business decisions based on financial information

Cases that require students to work in Excel with preformatted templates are noted with

an Excel icon In addition, all electronic working papers for students are provided in an Excel format (without formula functionality)

New to this edition, Check Figures for problems have been added to the margins where applicable

Uncollectible accounts expense: percentage of net sales method, $4,488;

accounts receivable aging

method, $3,925

NEW

Trang 20

South-Western, a division of Cengage Learning, offers a vast array of online solutions to suit your course and your students’ learning styles Choose the product that best meets your classroom needs and course goals Please check with your sales representative for more details and ordering information.

CenGAGenoW™

CengageNOW for Needles/Powers’ Financial Accounting, 11th edition, is a powerful

and fully integrated online teaching and learning system that provides you with ity and control This complete digital solution offers a comprehensive set of digital tools

flexibil-to power your course CengageNOW offers:

• Homework, including algorithmic variations.

• Integrated E-book.

• Personalized Study Plans, which include a pre- and post-test for each chapter and a

variety of multimedia assets (from author demonstration videos to QuizBowl) These help students master the chapter materials

• Assessment options which include the full test bank.

• Reporting capability based on AACSB, AICPA, and ACBSP-APC competencies and

standards

• Course Management tools, including grade book.

• WebCT and Blackboard Integration.

CengageNOw Upgrades

New Design CengageNOW has been redesigned to enhance your experience

eVerY leArnInG stYle

new Cengage online General ledger (ClGl) CLGL offers the best general ledger educational product in a new online format Your students can solve selected end-of-chapter and practice set assignments in a format that emulates commercial general ledger software Students make entries into the general journal or special journals, track the

NEW NEW

xviii

Trang 21

posting of the entries to the general ledger, and create financial statements or reports

This gives students important exposure to similar commercial accounting software, yet

in a manner that is more forgiving of student errors Assignments are automatically graded online and included in the CNOW grade book

improved smart entry Smart Entry challenges students to enter an account title

without the guidance of drop-down menus Instructors can change the setting to turn Smart Entry on or off depending on the preference

enhanced feedback More robust feedback is included with selected questions to

help students complete homework assignments Instructors can customize how much feedback students receive

• A boarding pass on the homepage allows the instructor to provide CengageNOW

login instructions to the entire class by printing off a flyer or emailing students

• Study tools are more prominent for students to use when taking homework

assign-ments The instructor can turn these on or off!

• Longer problems have been sequenced in parts to help students move at an easier

pace, offering better feedback and navigation

NEW

Trang 22

the enhanced eBook.

For a CengageNOW demo, visit www.cengage.com/community/needles

AplIA

Aplia is a premier online homework product that successfully engages students and

maximizes the amount of effort they put forth, creating more efficient learners Aplia’s advantages are as follows:

• In addition to static and algorithmic end-of-chapter homework, Aplia offers an extra problem set to give you more options!

• Students can receive unique, detailed feedback and the complete solution after each

attempt on homework

• Grade It Now maximizes student effort on each attempt and ensures students do

their own work Students have three attempts Each attempt produces an algorithmic variety The final score is an average of the three attempts

• Smart Entry helps eliminate common data entry errors and prevents students from

guessing their way through the homework It challenges students to enter an account title without the guidance of drop-down menus

Aplia Upgrades

• Increased Instructor Control: Instructors now have more options in how they

assign materials from the question banks

• ApliaText: Interactive ApliaText shows students how to use eBooks in a new way

This unique flip-book also includes a Chapter Recap that helps students craft their own personal study guide

For an Aplia demo, please visit www.cengage.com/community/needles

WeBtUtor™ on BlACKBoArD®

AnD WeBCt™

WebTutor™ is available packaged with Needles/Powers’ Financial Accounting,

11th edition, or for individual student purchase Improve students’ grades with online review and test preparation tools in an easy-to-use course cartridge.

Visit www.cengage.com/webtutor for more information.

NEW

Trang 23

instructor’s resource CD (isBN: 1-111-52702-4) Place all of the key teaching resources you need at your fingertips with this all-in-one source Find everything you need to plan, teach, grade, and assess student understanding and progress This CD includes the Solutions Manual, a Test Bank in Word and ExamView®, PowerPoint®

slides, and Spreadsheet Solutions

• Solutions Manual: Author-written and carefully verified multiple times to ensure

accuracy and consistency with the text, the Solutions Manual contains answers to all short exercises, exercises, problems, and cases that appear in the text These solutions help you plan, assign, and grade assignments

• Test Bank: New to this edition, a matching problem type has been added for each

chapter and the short answer and problem question types have been reclassified and expanded when appropriate Also, new difficulty level ratings, AICPA tagging, and ABCSP-APO tagging have been added (in addition to AACSB tagging) This is par-ticularly valuable during the accreditation process or when your school wants to stan-dardize assessment

• ExamView: This easy-to-use test-creation program for Microsoft® Windows or Macintosh contains all questions from the printed Test Bank, including true/false, multiple choice, short answer, and problem questions Each question provides an answer, a learning objective, a key concept, a level of difficulty, a learning type, and AACSB, AICPA, and ACBSP-APC standards It’s simple to customize tests to your specific class needs as you edit or create questions and store customized exams This

is an ideal tool for online testing

• PowerPoint Slides: Bring your lectures to life and clarify difficult concepts with

con-cise slides designed to capture and keep your students’ attention Ideal as guides for student note taking and study, print the slides or simply use with a projector

Companion website This robust companion website provides immediate access to a rich array of teaching and interactive learning resources—including chapter-by-chapter online tutorial quizzes, a final exam, online learning games, and flashcards Easily down-load the instructor resources you need from the password-protected, instructor-only section of the site Visit www.cengage.com/accounting/needles.

lead-ing commercial software with Peachtree Students will gain experience worklead-ing with real computerized accounting software, an employable skill

xxi

teACHInG tools For InstrUCtors

NEW

Trang 24

Companion website This robust companion website provides immediate access to a rich array of teaching and interactive learning resources—including chapter-by-chapter online tutorial quizzes, a final exam, online learning games, and flashcards Visit www.

cengage.com/accounting/needles.

electronic working Papers Verified to ensure accuracy and quality consistent with the text, the working papers for the problems are provided in Excel® format to pro-vide students with a starting point for completing end-of-chapter problems and journal entries from the textbook

xxii

Trang 25

A successful textbook is a collaborative effort We are grateful to the many professors, other professional colleagues, and students who have taught and studied from our book, and we thank all of them for their constructive comments In the space available, we cannot possibly mention everyone who has been helpful, but we do want to recognize those who made special contributions to our efforts in preparing the eleventh edition of

Financial Accounting.

We wish to express deep appreciation to our colleagues at DePaul University, who have been extremely supportive and encouraging We also wish to thank our Edito-rial Assistant, Joanna Dabrowska, for her thorough, diligent, and timely work with the manuscript and Mary Roth for her unwavering professionalism in managing our office

Very important to the quality of this book are our Developmental Editor, Krista Kellman; Senior Acquisitions Editor, Sharon Oblinger; and Senior Marketing Manager, Kristen Hurd

Others who have had a major impact on this book through their reviews, tions, and participation in surveys and reviews are listed below We cannot begin to say how grateful we are for the feedback from the many instructors who have generously shared their responses and teaching experiences with us

University of Illinois at Chicago

Cynthia Beier Greeson

Ivy Tech Community College

Trang 26

West Kentucky Community &

Technical College

Yongtao Hong

North Dakota State University

Kathy Hsiao Yu Hsu

University of Louisiana at Lafayette

West Virginia University

Amarjeet Kaur Malhotra

North Dakota State University

Paul McKillop

Salve Regina University

Birendra Mishra

University of California, Riverside

Adam Myers, III

Texas A&M University

Michelle Nickla

Ivy Tech Community College

Georgia Highlands College

California Polytechnic State University—

San Luis Obispo

Trang 27

Belverd E Needles, Jr., received B.B.A and M.B.A degrees from Texas Tech

Uni-versity and a Ph.D degree from the UniUni-versity of Illinois at Urbana-Champaign He teaches financial accounting, managerial accounting, and auditing at DePaul University, where he is an internationally recognized expert in international accounting and educa-tion He has published in leading journals and is the author or editor of more than 20 books and monographs His current research relates to international financial reporting, performance measurement, and corporate governance of high-performance companies

in the United States, Europe, India, and Australia His textbooks are used throughout the world and have received many awards, including (in 2008) the McGuffey Award from the Text and Academic Authors Association Active in many academic and profes-sional organizations, he is currently Vice President-Education of the American Account-ing Association He has received the Distinguished Alumni Award from Texas Tech University, the Illinois CPA Society Outstanding Educator Award and its Life-Time Achievement Award, the Joseph A Silvoso Faculty Award of Merit from the Federation

of Schools of Accountancy, the Ledger & Quill Award of Merit, and the Ledger & Quill Teaching Excellence Award He was named Educator of the Year by the American Insti-tute of CPAs, Accountant of the Year for Education by the national honorary society Beta Alpha Psi, and Outstanding International Accounting Educator by the American Accounting Association He has received the Excellence in Teaching Award from DePaul University

Marian Powers received a B.S degree from Chicago State University and a Ph.D

degree from the University of Illinois at Urbana-Champaign In addition to the Kellogg Graduate School of Management at Northwestern University, she has taught financial accounting at the University of Illinois, Chicago, and at the Lake Forest Graduate School

of Management Internationally recognized as a dynamic teacher in executive education, she specializes in teaching nonfinancial managers how to read and understand internal and external financial reports, including the impact of international financial reporting standards (IFRS) Dr Powers’ current research relates to international financial report-ing, performance measurement, and corporate governance of high-performance compa-nies in the United States, Europe, India, and Australia Her research has been published

in leading journals Her textbooks, co-authored with Belverd E Needles, Jr., are used throughout the world and have received many awards, including the Textbook Excel-lence Award and the McGuffey Award from the Text and Academic Authors Association

She has also co-authored three interactive multimedia software products Dr Powers currently serves on the board of the CPA Endowment Fund of Illinois and on the board

of governors of the Winnetka Community House She is a member of the International Association of Accounting Education and Research and the Illinois CPA Society She has served on the board of directors of the Illinois CPA Society, the Educational Foun-dation of Women in Accounting, and both the national and Chicago chapters of ASWA

ABoUt tHe AUtHors

xxv

Trang 29

Financial accounting

Trang 30

CVS Caremark operates a chain of more than 7,000 stores Its pharmacies fill more than

1 billion prescriptions each year Over the last five years, CVS has opened or purchased 2,600 new stores and more than doubled its sales and profits This performance places it among the fastest-growing retail companies

Why is CVS considered successful? tomers give the company high marks because

Cus-of the quality Cus-of the products that it sells and the large selection and good service that its stores offer Investment firms and others with a stake in CVS evaluate the company’s success in financial terms

Whether a company is large or small, the same financial measures are used to evaluate its management and to compare it with other

CVS’S Financial Highlights (In millions)

2009 2008 2007

Net sales $98,729 $87,472 $76,330 Net earnings 3,696 3,212 2,637 Total assets 61,641 60,960 54,722 Stockholders’

equity 35,768 31,574 31,322

STUDY NOTE: Most companies list the most recent year of information in the first column, as shown here.

Questions

1 As a manager at CVS, what financial knowledge would you need to measure progress toward the company’s goals?

2 As a potential investor or creditor, what financial knowledge would you need to evaluate CVS’s financial performance?

3 Is CVS meeting its goal of profitability?

Trang 31

Uses of Accounting Information and the Financial Statements

LEARNING OBJECTIVES

Define accounting and describe its role in making

informed decisions, identify business goals and activities, and explain the importance of ethics in accounting (pp 4–8)Identify the users of accounting information (pp 8–11)Explain the importance of business transactions, money measure, and separate entity (pp 11–12)Describe the characteristics of a corporation (pp 13–15)Identify the four basic financial statements

and define their elements (pp 15–22)Explain how generally accepted accounting principles (GAAP) relate to financial statements and the independent CPA’s report and identify the organizations that influence GAAP (pp 22–25)

Today, more people than ever before recognize the importance

of accounting information to a business, its owners, its ees, its lenders, and the financial markets In this chapter, we discuss the importance of ethical financial reporting, the uses and users of accounting information, and the financial statements that accoun-tants prepare We end the chapter with a discussion of generally accepted accounting principles

employ-INCOME STATEMENT Revenues

Expenses

Net Income

STATEMENT OF RETAINED EARNINGS Opening Balance

Net Income

Dividends

Retained Earnings

BALANCE SHEET Assets Liabilities

Although each financial statement gives a unique view

of a company’s results, all four are interrelated.

Trang 32

ACCOUNTING AS AN INFORMATION SYSTEMAccounting is an information system that measures, processes, and communicates finan-cial information about an economic entity.1 An economic entity is a unit that exists inde-pendently, such as a business, a hospital, or a governmental body Although the central focus of this book is on business entities, we include other economic units at appropriate points in the text and in the end-of-chapter assignments.

Accountants focus on the needs of decision makers who use financial information, whether those decision makers are inside or outside a business or another economic entity Accountants provide a vital service by supplying the information decision makers need to make “reasoned choices among alternative uses of scarce resources in the con-duct of business and economic activities.”2 As shown in Exhibit 1.1, accounting is a link between business activities and decision makers

• Accounting measures business activities by recording data about them for future use

• The data are stored until needed and then processed to become useful information

• The information is communicated through reports to decision makers

• Based on information from accounting, decision makers take actions that affect sequent business activities

sub-In other words, data about business activities are the input to the accounting tem, and useful information for decision makers is the output

sys-Business Goals and Activities

A business is an economic unit that aims to sell goods and services to customers at prices that will provide an adequate return to its owners The list that follows con-tains the names of some well-known businesses and the principal goods or services that they sell

Burger King Holdings, Inc. Food service

UAL (United Airlines) Corp. Passenger airline service

Define accounting and

describe its role in making

informed decisions, identify business

goals and activities, and explain the

importance of ethics in accounting.

EXHIBIT 1.1

Accounting as an Information System

Trang 33

Despite their differences, these businesses have similar goals and engage in similar ties, as shown in Exhibit 1.2.

activi-The two major goals of all businesses are profitability and liquidity

• Profitability is the ability to earn enough income to attract and hold investment capital

• Liquidity is the ability to have enough cash to pay debts when they are due

To succeed and even to survive, a company must meet both goals For example,

Honda may meet the goal of profitability by selling many cars at a price that earns a profit, but if its customers do not pay for their cars quickly enough to enable Honda

to pay its suppliers and employees, the company may fail to meet the goal of liquidity, which could force it into bankruptcy

All companies, whether they are retailers, manufacturers, or service providers, sue their goals by engaging in operating, investing, and financing activities

pur-• Operating activities include buying, producing, and selling goods and services; ing managers and other employees; and paying taxes

hir-• Investing activities involve spending a company’s capital in ways that will help it achieve its goals They include buying the resources needed to operate the business, such as land, buildings, and equipment, and selling those resources when they are no longer needed

• Financing activities involve obtaining adequate funds to begin operating the ness and to continue operating it They include obtaining capital from creditors, such

busi-as banks and suppliers, and from the company’s owners They also include repaying creditors and paying a return to the owners

Financial Analysis Financial analysis is the use of financial statements to mine that a business is well managed and is achieving its goals The effectiveness of financial analysis depends on the use of relevant performance measures and financial ratios

deter-To be relevant,performance measures must be well aligned with the two major goals of business—profitability and liquidity Profitability is commonly measured in terms of net income, and cash flows are a common measure of liquidity For example, in

2009, CVS had net income of $3,696 million and cash flows from operating activities

of $4,035 million These figures indicate that CVS was achieving both profitability

BUSINESS ACTIVITIES BUSINESS GOALS

F INANCING

EXHIBIT 1.2

Business Goals and

Activities

Trang 34

and liquidity Not all companies were so fortunate in 2009 For instance, a year lier, General Motors reported that it would have to curtail spending on new auto

ear-and truck models because its earnings were negative ear-and, even worse, its cash flows were negative Its cash flow problem led to its bankruptcy and a government bailout

in 2009 Clearly, General Motors was not meeting either its profitability or liquidity goals

Financial ratios show how the elements of financial statements relate to each other

They allow for comparisons from one period to another and from one company to another For example, to assess CVS’s profitability, it would be helpful to consider the ratio of its earnings to total assets as well as its profit margin, and for liquidity, the ratio

of its cash flows to total assets

The most important elements of financial statements are introduced later in this chapter, and financial ratios are introduced beginning in this chapter and continued in subsequent chapters

Financial and Management Accounting

Accounting’s role of assisting decision makers by measuring, processing, and municating financial information is usually divided into the categories of management accounting and financial accounting Although the functions of management accounting and financial accounting overlap, their functions can be distinguished by the principal users of the information that they provide

management accounting about financing, investing, and operating activities to achieve the goals of profitability and liquidity Managers and employees who conduct the

In its annual report, CVS’s management describes the company’s goals in

meet-ing the major business objectives:

Liquidity: “We maintain a level of liquidity sufficient to allow us to

cover our cash needs in the short-term We believe our operating cash flows, commercial paper program, sale-leaseback program, as well as any potential future borrowings, will be sufficient to fund these future payments and long-term initiatives.”

Profitability: “The profitability of retail and mail order pharmacy

busi-nesses is dependent upon the utilization of prescription drug ducts The Company evaluates segment performance based

pro-on net revenues, gross profit and operating profit before the effect of non-recurring charges and gains and certain intersegment activities and charges.” 3

CVS’s main business activities are shown at the right.

What Does CVS Have to Say About Itself?

STUDY NOTE: Users of accounting

information focus on different measures

of performance For example, lenders

are concerned primarily with cash

flow, and owners are concerned with

earnings and dividends.

Most businesses use the amounts reported in their financial

state-ments as a basis for rewarding management Because managers act

to achieve these accounting measures, selecting measures that are

not easily manipulated is important Equally important is ing a balance of measures that reflect the goals of profitability and liquidity.

maintain-Cash Bonuses Depend on Accounting Numbers!

Invests Funds in

— Furniture, Fixtures, and Equipment

— Improvements

to Buildings

— Computer Equipment

INVESTING:

Obtains Funds from

— Investors

— Banks and Other Creditors

Trang 35

activities of the business need information about how they have done in the past and what they can expect in the future For example, Gap Inc., a retail clothing business, needs an operating report on each outlet that tells how much was sold at that outlet and what costs were incurred, and it needs a budget for each outlet that projects the sales and costs for the next year.

Financial Accounting External decision makers use financial accounting reports to evaluate how well the business has achieved its goals These reports are called financial statements CVS, whose stock is traded on the New York Stock Exchange, sends its financial statements to its owners (called stockholders), its banks and other creditors, and government

regulators Financial statements report directly on the goals of profitability and liquidity and are used extensively both inside and outside a business to evaluate the business’s success

Every person involved with a business should have an understanding of financial statements

They are a central feature of accounting and a primary focus of this book

It is important to distinguish accounting from the ways in which accounting mation is processed by bookkeeping and management information systems

infor-• Bookkeeping is mechanical and repetitive; it is the process, usually through the use

of computers, of recording financial transactions and keeping financial records It is a small—but important—part of accounting

• Management information systems (MIS) consist of the interconnected subsystems, including accounting, that provide the information needed to run a business

Ethical Financial Reporting

Ethics is a code of conduct that applies to everyday life It addresses the question of whether actions are right or wrong Actions—whether ethical or unethical, right or wrong—are the product of individual decisions Thus, when an organization acts unethically by using false advertising, cheating customers, polluting the environment, or treating employees unfairly, it is not the organization that is responsible—it is the members of management and other employees who have made a conscious decision to act in this manner

Ethics is especially important in preparing financial reports because users of these reports must depend on the good faith of the people involved in their preparation Users have no other assurance that the reports are accurate and fully disclose all relevant facts

The intentional preparation of misleading financial statements is called fraudulent financial reporting.4 It can result from the distortion of records (e.g., the manipulation of inventory records), falsified transactions (e.g., fictitious sales), or the misapplication of vari-ous accounting principles There are a number of motives for fraudulent reporting—for instance, to cover up financial weakness in order to obtain a higher price when a company

is sold, to meet the expectations of stockholders and financial analysts, or to obtain a loan

The incentive can also be personal gain, such as additional compensation, promotion, or avoidance of penalties for poor performance

Whatever the motive for fraudulent financial reporting, it can have dire consequences,

as the accounting scandals that erupted at Enron Corporation and WorldCom in 2001 and 2002, respectively, attest Unethical financial reporting and accounting practices at

Accounting is a very old discipline Forms of it have been essential to

commerce for more than 5,000 years Accounting, in a version close to

what we know today, gained widespread use in the 1400s, especially in

Italy, where it was instrumental in the development of shipping, trade,

construction, and other forms of commerce This system of double-entry

bookkeeping was documented by the famous Italian mathematician,

scholar, and philosopher Fra Luca Pacioli In 1494, Pacioli published his most important work, Summa de Arithmetica, Geometrica, Proportioni

et Proportionalita, which contained a detailed description of accounting

as practiced in that age This book became the most widely read book

on mathematics in Italy and firmly established Pacioli as the “Father of Accounting.”

How Did Accounting Develop?

Trang 36

those two major corporations caused thousands of people to lose their jobs, their investment incomes, and their pensions They also resulted in prison sentences and fines for the corporate executives who were involved.

Passed in response to these scandals, the Sarbanes-Oxley Act

of 2002 regulates financial reporting and the accounting sion, among other things This legislation ordered the Securities and Exchange Commission (SEC) to draw up rules requiring the chief executives and chief financial officers of all publicly traded U.S com-panies to swear that, based on their knowledge, the quarterly state-ments and annual reports that their companies file with the SEC are accurate and complete Violation can result in criminal penalties

profes-A company’s management expresses its duty to ensure that cial reports are not false or misleading in the management report that appears in the company’s annual report For example, in its manage-ment report, Target Corporation makes the following statement:

finan-Management is responsible for the consistency, integrity and presentation of the information in the Annual Report.5

However, it is accountants, not management, who physically prepare and audit financial reports To meet the high ethical standards of the accounting profession, they must apply accounting concepts in such a way as to present a fair view of a company’s opera-tions and financial position and to avoid misleading readers of their reports Like the conduct of a company, the ethical conduct of a profession is a collection of individual actions As a member of a profession, each accountant has a responsibility—not only

to the profession but also to employers, clients, and society as a whole—to ensure that any report he or she prepares or audits provides accurate, reliable information The high regard that the public has historically had for the accounting profession is evidence that

an overwhelming number of accountants have upheld the ethics of the profession

Match each term with one of the four definitions that follow:

c Engaged in by all businesses

d A major branch of accounting

• Those who manage a business

• Those outside a business enterprise who have a direct financial interest in the business

• Those who have an indirect financial interest in a business

Identify the users of accounting information.

Bernard Ebbers, the founder

and former CEO of WorldCom,

was sentenced to 25 years

in prison for his role in an accounting fraud that cost

investors $11 billion dollars.

The charges included

conspir-acy, securities fraud, and filing

false financial statements.

Trang 37

Decision Makers: The Users of Accounting Information 9

These categories apply to governmental and not-for-profit organizations as well as

to profit-oriented ventures

Management

Management refers to the people who are responsible for ensuring that a company meet its goals of profitability and liquidity As we noted earlier, all companies pursue these goals by engaging in operating, investing, and financing activities Making decisions about these activities is the basic function of managers, and to make good decisions, they must have timely and valid accounting information

For example, managers at CVS and other companies need answers to such tions as:

ques-• What were the company’s earnings during the past quarter?

• Is the rate of return to the owners adequate?

• Does the company have enough cash?

• Which products or services are most profitable?

Because so many key decisions are based on accounting data, management is one of the most important users of accounting information

Users with a Direct Financial Interest

Most companies periodically publish financial statements that report their success in meeting the goals of profitability and liquidity These statements, which we discuss later

in this chapter, show what has happened in the past and are important indicators of what will happen in the future Many people outside a company, particularly investors and creditors and potential investors and creditors, study these statements carefully

Investors Investors, such as CVS’s stockholders, who have invested capital in a pany and thus acquired part ownership in it have a direct financial interest in its success, and they depend on the financial statements to evaluate how the business has performed

com-Potential investors are interested in a company’s past success and its future earnings

STUDY NOTE: Managers are internal

users of accounting information.

STUDY NOTE: The primary external

users of accounting information are

investors and creditors.

Investors Creditors

T HOSE WITH D IRECT

F INANCIAL I NTEREST DECISION M AKERS

Tax Authorities Regulatory Agencies Labor Unions Customers Economic Planners

T HOSE WITH I NDIRECT

F INANCIAL I NTEREST

Finance Investment Operations and Production Marketing

Human Resources Information Systems Accounting

MANAGEMENT

EXHIBIT 1.3

The Users of Accounting Information

According to a business survey, the chief financial officer (CFO) is the

“new business partner of the chief executive officer” (CEO) CFOs (most

of whom have an accounting or finance background) are increasingly

required to take on responsibilities for strategic planning, mergers and

acquisitions, and tasks involving international operations, and many

of them are becoming CEOs of their companies Those who do become CEOs are finding that “a financial background is invaluable when they’re saddled with the responsibility of making big calls.” 6

What Do CFOs Do?

Trang 38

A thorough study of a company’s financial statements helps potential investors judge the prospects for a profitable investment

Creditors Creditors, those who lend money or deliver goods and services before being paid, are interested mainly in whether a company will have the cash to pay interest charges and to repay the debt on time They study a company’s cash flow to determine its liquidity; they also look at its profitability Banks, finance companies, mortgage com-panies, securities firms, insurance firms, suppliers, and other lenders must analyze a com-pany’s financial position before they make a loan

Users with an Indirect Financial Interest

In recent years, society as a whole, through governmental and public groups, has become one of the largest and most important users of accounting information Users who need accounting information to make decisions on public issues include tax authorities, regu-latory agencies, and various other groups

Tax Authorities Government at every level is financed through the collection of taxes Companies and individuals pay many kinds of taxes, including federal, state, and city income taxes; Social Security and other payroll taxes; excise taxes; and sales taxes

Each tax requires special tax returns and often a complex set of records as well Proper reporting is generally a matter of law and can be very complicated The Internal Rev-enue Code, for instance, contains thousands of rules governing the preparation of the accounting information used in computing federal income taxes

Regulatory Agencies Most companies must report periodically to one or more latory agencies at the federal, state, and local levels For example, all publicly traded cor-porations must report periodically to the Securities and Exchange Commission (SEC) This body, set up by Congress to protect the public, regulates the issuing, buying, and selling of stocks in the United States Companies listed on a stock exchange also must meet the special reporting requirements of their exchange

regu-Other Groups Other groups with an indirect financial interest in accounting tion include the following:

informa-• Labor Unions: As they prepare for contract negotiations with a company, labor

unions study the company’s financial statements A company’s income and expenses often play an important role in these negotiations

• Advisors of Investors and Creditors: Financial analysts, brokers, underwriters,

law-yers, economists, and the financial press all have an indirect interest in the financial performance and prospects of a business

• Consumer Groups, Customers, and the General Public: The public has become

more concerned about the financing and earnings of corporations as well as about the effects that corporations have on inflation, the environment, social issues, and the quality

of life

• Economic Planners: The President’s Council of Economic Advisers and the Federal

Reserve Board use aggregated accounting information to set and evaluate economic policies and programs

Governmental and Not-for-Profit Organizations

More than 30 percent of the U.S economy is generated by governmental and for-profit organizations (hospitals, universities, professional organizations, and charities)

not-The managers of these diverse entities perform the same functions as managers of businesses, and they therefore have the same need for accounting information and a knowledge of how to use it Their functions include raising funds from investors, credi-tors, taxpayers, and donors and deploying scarce resources They must also plan how

to pay for operations and to repay creditors on a timely basis In addition, they have an

Trang 39

• What is measured?

• When should the measurement be made?

• What value should be placed on what is measured?

• How should what is measured be classified?

Accountants debate the answers to these questions constantly, and the answers change as new knowledge and practice require But the basis of today’s accounting prac-tice rests on a number of widely accepted concepts and conventions, which we describe

in this book We begin by focusing on the first question: What is measured? We discuss the other three questions (recognition, valuation, and classification) in the next chapter

Every system must define what it measures, and accounting is no exception cally, financial accounting uses money to gauge the impact of business transactions on business entities

Basi-Business Transactions

Business transactions are economic events that affect a business’s financial position

Businesses can have hundreds or even thousands of transactions every day These actions are the raw material of accounting reports

trans-A transaction can be an exchange of value (a purchase, sale, payment, collection, or loan) between two or more parties A transaction also can be an economic event that has the same effect as an exchange transaction but that does not involve an exchange

Some examples of these nonexchange transactions are losses from fire, flood, explosion, and theft; physical wear and tear on machinery and equipment; and the day-by-day accumulation of interest

To be recorded, a transaction must relate directly to a business entity Suppose a customer buys toothpaste from CVS but has to buy shampoo from a competing store because CVS is out of shampoo The transaction in which the toothpaste was sold is entered in CVS’s records However, the purchase of the shampoo from the competitor is not entered in CVS’s records because even though it indirectly affects CVS economically

Explain the importance

of business transactions, money measure, and separate

entity.

Trang 40

(in that the company lost a sale), it does not involve a direct exchange of value between CVS and the customer.

Money Measure

All business transactions are recorded in terms of money This concept is called money measure Of course, nonfinancial information may also be recorded, but it is through the recording of monetary amounts that a business’s transactions and activities are mea-sured Money is the only factor common to all business transactions, and thus it is the only unit of measure capable of producing financial data that can be compared

The monetary unit a business uses depends on the country in which the business resides For example, in the United States, the basic unit of money is the dollar In China, it is the yuan; in Japan, the yen; in Europe, the euro; and in the United King-dom, the pound In international transactions, exchange rates must be used to translate from one currency to another An exchange rate is the value of one currency in terms

of another For example, a British person purchasing goods from a U.S company like

CVS and paying in U.S dollars must exchange British pounds for U.S dollars before making payment In effect, currencies are goods that can be bought and sold

Exhibit 1.4 illustrates the exchange rates for several currencies in dollars It shows the exchange rate for British pounds as $1.63 per pound on a particular date Like the prices of many goods, currency prices change daily according to supply and demand

For example, a year and a half earlier, the exchange rate for British pounds was $1.98

Although our discussion in this book focuses on dollars, some examples and assignments involve foreign currencies

Separate Entity

For accounting purposes, a business is a separate entity, distinct not only from its tors and customers but also from its owners It should have its own set of financial records, and its records and reports should refer only to its own affairs

credi-For example, Just Because Flowers Company should have a bank account separate from the account of Holly Sapp, the owner Holly Sapp may own a home, a car, and other property, and she may have personal debts, but these are not the resources or debts of Just Because Flowers Holly Sapp may own another business, say a stationery shop If she does, she should have a completely separate set of records for each business

STUDY NOTE: The common unit of

measurement used in the United States

for financial reporting purposes is the

dollar.

STUDY NOTE: For accounting

purposes, a business is always separate

and distinct from its owners, creditors,

and customers.

Australia (dollar) 0.93 Europe (euro) 1.43 Brazil (real) 0.57 Hong Kong (dollar) 0.13

Canada (dollar) 0.97 Mexico (peso) 0.08 China (yuan) 0.147 Russia (ruble) 0.03

Source: The Wall Street Journal, January 18, 2010.

EXHIBIT 1.4

Examples of Foreign Exchange Rates

Australia (dollar) 0.93 Europe (euro) 1.43 Brazil (real) 0.57 Hong Kong (dollar) 0.13 Britain (pound) 1.63 Japan (yen) 0.011 Canada (dollar) 0.97 Mexico (peso) 0.08 China (yuan) 0.147 Russia (ruble) 0.03

Source: The Wall Street Journal, January 18, 2010 l

Match each description with one of the terms that follow:

1 An exchange of value between two or more parties

2 Requires a separate set of records for a business

3 An amount associated with a business transaction

Định dạng
Số trang	745
Dung lượng	23,85 MB