Financial accounting theory chapter7实证会计理论ppt课件
Financial Accounting TheoryCraig Deegan：财务会计theorycraig迪根
Criticisms of inductive method
• ‘… concentrates on the status quo, is reactionary in attitude and cannot provide a basis upon which current practice may be evaluated or from which future improvements may be deduced’ (Gray, Owen & Maunders 1987, p. 66)
– we should critically evaluate theories before accepting them
Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Financial Accounting Theory 2e by Deegan
1-7
Early development of accounting theory
• Relied upon the process of induction
– development of ideas or theories through observation
• 1920s to 1960s theories developed from observing what accountants did in practice
1-2
Learning objectives (cont.)
– theories, including theories of accounting, are developed as a result of applying various value judgements and that acceptance of one theory, in preference to others, will in part be tied to one’s own value judgements
Financial Accounting (7)
Internal Control
Question
Internal control is used in a business to enhance the accuracy and reliability of its accounting records and to:
a. safeguard its assets.
LO 2
Principles of Internal Control Activities
HUMAN RESOURCE CONTROLS
Bond employees who handle cash. Rotate employees’ duties and require
vacations.
b. prevent fraud.
c. produce correct financial statements.
d. deter employee dishonesty.
7-6
LO 1
Internal Control
Five Primary Components:
●
● ● ● ●
Control environment.
Companies should use
prenumbered documents, and
all documents should be
accounted for.
Employees should promptly
forward source documents for
accounting entries to the accounting department.
only one person is responsible for a given task.
financial accounting第七章PPT课件
$8
(现金盈亏账户)
Cr sales
$3150
Change fund，求解释
2020/10/13
4
Internal control of cash payments
A voucher system is a set of procedures
for authorizing and recording liabilities and cash payments.
2020/10/13
7
Cash balance according to depositor’s records …...........$xxxx ③Add :addtions by bank not recorded by depositor…$xx Depositor errors……………………………………xx xx $xxxx ④Deduct:deductions by bank not recorded by depositor.$xx Depositor errors……………………………………xx xx
from cash sales
in the mail
2020/10/13
3
eg：the entry records a clerk’s cash sales of
$3,150 when the actual cash on hand is
$3,142
Dr Cash
$3142
Cash Short and Over
many transactions either directly or indirectly affect the receipt or the payment of cash.
财务分析-财务分析与证券定价(英文)chapter7 精品
FAt FAt1 Ct It it dt
For financial obli Nhomakorabeaations (FO)
FOt FOt1 Ct It it dt
(it is interest paid)
For given interest payments and net dividends, cash flow from operations (C) reduces borrowing and cash investment (I) increases it
C (I) C-I
d
F d+F
Balance Sheet
Assets Operating assets Financial assets Total Assets
OA FA OA + FA
Equities
Operating liabilities
OL
Financial obligations
FO
Common stockholders’ equity
The Firm
Net Financial
Assets
(NFA)
Capital Markets
F
Debt
Holders or
Issuers
d
Share
Holders
Financing Activities
• F is net cash flow to debt holders (or issuers) • d is net dividend to shareholders
• The difference between operating and financing aspects of a business
威廉斯科特Scott财务会计理论(第七版)全套PPT课件
1-4 Copyright © 2015 Pearson Canada Inc.
1.2 Collapse of the Stock Market Boom of Late 1990s
• Enron • WorldCom • Collapse of public confidence in capital markets • Effects on financial reporting
– Liquidity risk
• Liquidity pricing
– Counterparty risk
>> Continued
1-6 Copyright © 2015 Pearson Canada Inc.
Market Meltdowns, 2007-2008 (continued)
• Financial accounting issues leading up to the market meltdowns
• Off-balance sheet liabilities • Use of expected loss notes to avoid consolidation of
structured investment vehicles • Was disclosure of off-balance sheet liabilities adequate?
Financial Accounting 7e Libby Test bank ch.1
True / False Questions1. Accounting is a system that collects and processes financial information about an organization and reports that information to decision makers.TRUEAACSB Tag: CommunicationsDifficulty: EasyL.O.: 12. Assets on the balance sheet are recorded at market value or replacement cost.FALSEAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 13. In accounting and reporting for a business entity, the accounting and reporting for the business must be kept separate from other economic affairs of its owners.TRUEAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 14. The accounting period in which service revenue is recognized (i.e., revenue for services rendered) is generally the period in which the cash is collected.FALSEAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 15. Total assets are $70,000, total liabilities, $40,000 and contributed capital is $20,000; therefore, retained earnings are $15,000.FALSEAACSB Tag: AnalyticDifficulty: MediumL.O.: 16. The payment of a cash dividend to stockholders increases stockholders' equity.FALSEAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 17. The accounting model for the balance sheet is: Assets + Liabilities = Stockholders' Equity. FALSEAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 18. A decision maker who wants to understand a company's financial statements must carefully read the notes to the financial statements because the notes provide useful supplemental information.TRUEAACSB Tag: CommunicationsDifficulty: EasyL.O.: 19. The financial statement that shows an entity's economic resources and its liabilities is the statement of cash flows.FALSEAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 110. Companies prepare financial statements at the end of each year and more often as needed. TRUEAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 111. A note payable is a borrowing instrument that generally does not involve the payment of interest.FALSEAACSB Tag: Reflective ThinkingDifficulty: HardL.O.: 112. The amount of cash paid by a business for office utilities would be reported on the statement of cash flows as an operating activity.TRUEAACSB Tag: Reflective ThinkingDifficulty: HardL.O.: 113. The income statement equation is Expenses Revenues = Net Income.FALSEAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 114. Generally accepted accounting principles almost never change once created.FALSEAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 215. The Financial Accounting Standards Board (FASB) is an agency of the federal government that establishes generally accepted accounting principles for businesses. FALSEAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 216. Since 2002, there has been substantial movement to develop international financial reporting standards.TRUEAACSB Tag: DiversityDifficulty: MediumL.O.: 217. An audit guarantees that the financial statements are free of all misstatements.FALSEAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 318. An auditor who fails to detect a material misstatement of a business's financial statements may be sued by anyone who suffered a loss from relying on the financial statements. TRUEAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 419. In terms of economic importance, partnerships are the dominant form of organization in the U.S. because of their ease of formation.FALSEAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: Sup A20. One of the advantages of a corporation when compared to a partnership is the limited liability of the owners.TRUEAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: Sup AMultiple Choice Questions21. The primary purpose of the balance sheet is toA. measure the net income of a business up to a particular point in time.B. report the difference between cash inflows and cash outflows for the period.C. report the financial position of the reporting entity at a particular point in time.D. report the current value of the business.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 122. The Beta Corporation had 2009 revenues of $200,000, expenses of $140,000, and an income tax rate of 30 percent. Net income after taxes would beA. $60,000.B. $18,000.C. $42,000.D. $48,000.AACSB Tag: AnalyticDifficulty: HardL.O.: 123. Atlantic Corporation reported the following amounts at the end of the first year of operations: contributed capital $100,000; sales revenue $400,000; total assets $300,000; $20,000 dividends; and total liabilities $160,000. Retained earnings and total expenses would beA. retained earnings $40,000 and expenses $340,000.B. retained earnings $60,000 and expenses $320,000.C. retained earnings $140,000 and expenses $240,000.D. retained earnings $160,000 and expenses $220,000.AACSB Tag: AnalyticDifficulty: HardL.O.: 124. The financial statement that reports the financial position of a business is theA. income statement.B. balance sheet.C. statement of cash flows.D. footnotes to the financial statements.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 125. Which of the following reports the cash inflows, cash outflows, and change in cash for period?A. Income statement.B. Balance sheet.C. Statement of cash flows.D. Auditor's report.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 126. For a business, a supplierA. is a company or individual that owns shares of the business.B. is a company or individual to whom the business sells goods or services.C. provides goods and services used by the business.D. makes loans to the company to help finance its activities.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 127. For a business, an example of an internal decision maker isA. a loan officer at a bank.B. a supplier who sells goods to the company on account.C. one of the business's long-term customers.D. one of the business's managers.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 128. Financial accountingA. provides information primarily for external decision makers.B. is required for corporations but probably would not be done by other business entities.C. provides information primarily for the use of managers of the company.D. has been practiced in this country for approximately the last 15 years.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 129. Accounting information developed primarily for internal decision makers is calledA. management accounting.B. risk accounting.C. auditing.D. financial accounting.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 130. What financial statement would you look at to determine the dividends declared by a business?A. income statement.B. statement of retained earnings.C. statement of cash flows.D. balance sheet.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 131. Which of Chao's financial statements would you look at to determine whether Chao will be able to pay for the goods when payment is due in 30 days?A. income statement.B. balance sheet.C. statement of retained earnings.D. statement of cash flows.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 132. Which of the following is not considered to be a liability?A. accounts payableB. notes payableC. wages payableD. cost of goods soldAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 133. A business's assets areA. equal to liabilities minus stockholders' equity.B. the economic resources of the business.C. Reported at current cost.D. Reported on the income statement.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 134. Assets for a particular business might includeA. cash, accounts payable, and notes payable.B. cash, retained earnings, and accounts receivable.C. cash, accounts receivable, and inventory.D. inventories, property and equipment, and contributed capital.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 135. A business's balance sheet cannot be used to accurately predict what the business might be sold for becauseA. it identifies all the revenues and expenses of the business.B. assets are generally listed on the balance sheet at their historical cost, not their current value.C. it gives the results of operations for the current period.D. some of the assets and liabilities on the balance sheet may actually be those of another entity.AACSB Tag: Reflective ThinkingDifficulty: HardL.O.: 136. Liabilities and stockholders' equity areA. sources of financing for economic resources.B. economic resources used by a business entity.C. increases in assets resulting from profitable operations.D. shown on the income statement in calculating net income.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 137. The accounting equation (balance sheet equation) isA. Assets + Liabilities = Stockholders' equity.B. Assets + Stockholder's equity = Liabilities.C. Assets = Liabilities + Stockholders' equity.D. Revenues Expenses = Net income.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 138. Downard Bank, in deciding whether to make a loan to Rodney Company, would be interested in the amount of liabilities Rodney has on its balance sheet becauseA. the liabilities represent resources that could be used to repay the loan.B. if Rodney already has many other obligations, it might not be able to repay the loan.C. existing liabilities give an indication of how profitable Rodney has been in the past.D. Downard would be interested in the amount of Rodney's assets but not the amount of liabilities.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 139. The two categories of stockholders' equity usually found on the balance sheet of a corporation areA. contributed capital and long-term liabilities.B. contributed capital and property, plant, and equipment.C. retained earnings and notes payable.D. contributed capital and retained earnings.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 140. Which financial statement for a business would you look at to determine the company's earnings performance during an accounting period?A. balance sheet.B. statement of retained earnings.C. income statement.D. statement of cash flows.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 141. The income statement equation isA. Assets Liabilities = Stockholders' Equity.B. Assets + Stockholders' equity = Liabilities.C. Net income = Revenues Expenses.D. Expenses Net income = Revenues.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 142. Most businesses earn revenuesA. when they collect accounts receivable.B. through sales of goods or services to customers.C. by borrowing money from a bank.D. by selling shares of stock to stockholders.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 143. Accounts receivable represents:A. amounts which are owed to the company by its customers resulting from credit sales.B. amounts which are owed by the company to its suppliers for past purchases.C. amounts which have been borrowed to finance operations.D. amounts which are due to stockholders.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 144. InventoriesA. are an asset.B. result from paying for a product that has now been sold to a customer.C. will result in a liability being charged sometime in the future.D. are an expense.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 145. The amount of revenue recognized in the income statement by a company that sells goods to customers would beA. the cash collected from customers during the current period.B. total sales, both cash and credit sales, for the period.C. total sales minus beginning amount of accounts receivable.D. the amount of cash collected plus the beginning amount of accounts receivable.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 146. On January 1, 2009 Mammoth Corporation had retained earnings of $4,000,000. During 2009, they reported net income of $750,000 and dividends of $100,000. What is the amount of Mammoth's retained earnings at the end of 2009?A. $4,000,000B. $4,450,000C. $4,650,000D. $4,850,000AACSB Tag: AnalyticDifficulty: MediumL.O.: 147. What are the categories of cash flows that appear on a statement of cash flows?A. cash flows from investing, financing, and service activitiesB. cash flows from operating, production, and internal activitiesC. cash flows from financing, production, and growth activitiesD. cash flows from operating, investing, and financing activitiesAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 148. On the statement of cash flows, an amount paid for utilities would be classified asA. an operating activity.B. an investing activity.C. a financing activity.D. a production activity.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 149. A company would report a net loss whenA. retained earnings decreased due to paying dividends to stockholders.B. its assets decreased during an accounting period.C. its liabilities increased during an accounting period.D. its expenses exceeded its revenues for an accounting period.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 150. The amount of insurance expense reported on the income statement isA. the amount of cash paid for insurance in the current period.B. the amount of cash paid for insurance in the current period less any unpaid insurance at the end of the period.C. the amount of insurance used up (incurred) in the current period to help generate revenue.D. an increase in net income.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 151. What events cause changes in a corporation's retained earnings?A. Net income or net loss and declaration of dividends.B. Declaration of dividends and issuance of stock to new stockholders.C. Net income, issuance of stock, and borrowing from a bank.D. Declaration of dividends and purchase of new machinery.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 152. The operating activities section is often believed to be the most important part of a statement of cash flows becauseA. it gives the most information about how operations have been financed.B. it shows the dividends that have been paid to stockholders.C. it indicates a company's ability to generate cash from sales to meet current cash payments for goods or services.D. it shows the net increase or decrease in cash during the period.AACSB Tag: Reflective ThinkingDifficulty: HardL.O.: 153. If you wanted to know what accounting rules a company follows related to its inventory, where would you look?A. the balance sheetB. the income statementC. the notes to the financial statementsD. the headings to the financial statementsAACSB Tag: CommunicationsDifficulty: EasyL.O.: 154. At the beginning of 2009, Buck Corporation had assets of $540,000 and liabilities of $320,000. During the year, assets increased by $50,000 and liabilities decreased by $10,000. What was the total amount of stockholders' equity at the end of 2009?A. $220,000B. $280,000C. $380,000D. $500,000AACSB Tag: AnalyticDifficulty: MediumL.O.: 155. The term used for economic resources owned by an entity as a result of past transactions isA. assets.B. liabilities.C. revenues.D. retained earnings.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 156. How are the differing claims of creditors and investors recognized by a corporation?A. The claims of creditors are liabilities; those of investors are assets.B. The claims of both creditors and investors are liabilities, but only the claims of investors are considered to be long term.C. The claims of creditors are liabilities; the claims of investors are recorded as stockholders' equity.D. The claims of creditors and investors are considered to be essentially equivalent.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 157. In what order would the items on the balance sheet appear?A. assets, retained earnings, liabilities, contributed capitalB. contributed capital, retained earnings, liabilities, assetsC. assets, liabilities, contributed capital, retained earningsD. contributed capital, assets, liabilities, retained earningsAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 158. Which of the following would increase retained earnings?A. an increase to an expenseB. an increase to a revenueC. a cash dividendD. issuance of additional common stockAACSB Tag: Reflective ThinkingDifficulty: HardL.O.: 159. The ending retained earnings balance of Juan's Mexican Restaurant chain increased by $3.2 million from the beginning of the year. The company had declared a dividend of $1.3 million during the year. What was the net income earned during the year?A. $1.9 millionB. $3.2 millionC. $4.5 billionD. There is not enough information given to determine net income.AACSB Tag: AnalyticDifficulty: HardL.O.: 160. Which of the following items is an expense?A. Accounts PayableB. Cost of Goods SoldC. Accounts ReceivableD. Sales RevenueAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 161. Which of the following activities would cause investors to overpay for the acquisition of a company from its current owners?A. Overstated accounts payable and understated inventoryB. Understated revenues and overstated expensesC. Understated assets and overstated expensesD. Overstated accounts payable and overstated inventoryAACSB Tag: Reflective ThinkingDifficulty: HardL.O.: 162. The government regulatory agency that has the legal authority to prescribe financial reporting requirements for corporations that sell their securities to the public is theA. FASB.B. FTC.C. SEC.D. APB.AACSB Tag: CommunicationsDifficulty: EasyL.O.: 263. The part of the federal government that has broad powers to determine measurement rules for financial statements of public companies isA. the Internal Revenue Service.B. the Securities and Exchange Commission.C. the General Accounting Office.D. the Supreme Court.AACSB Tag: CommunicationsDifficulty: EasyL.O.: 264. Identify the potential economic consequences of the public learning a company did not follow generally accepted accounting principles (GAAP).A. It could increase the stock price of the company.B. It could increase management and employee bonuses.C. It could result in legal liability for the company.D. It could increase a company's market share.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 265. The nature of generally accepted accounting principles (GAAP) is important to large corporations becauseA. a change in GAAP will not likely affect the selling price of the company's stock.B. a change in GAAP will not likely affect the amount of bonuses paid to managers and employees.C. a change in GAAP will not likely affect a corporation's competitive position.D. a change in GAAP will likely affect a company's financial statementsAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 266. The International Accounting Standards Board has worked to develop global accounting standards known asA. generally accepted accounting principles.B. globally accepted financial standards.C. international financial reporting standards.D. worldwide financial standards.AACSB Tag: DiversityDifficulty: MediumL.O.: 267. Which of the following statements is true about the price earnings (P/E) ratio?A. It is a ratio of importance to creditors.B. A high P/E ratio indicates investors have little confidence in the future earnings potential of the company.C. The P/E ratio could be used to approximate the value investors would be willing to pay for the company's acquisition from existing owners.D. The P/E ratio is of value is estimating future dividend payments.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 368. Charlie Company bought Tolar Company for $2,000,000. If Tolar's income was understated by $10,000 and the P/E ratio is 5, how much should Charlie have paid for Tolar?A. $2,000,000B. $2,050,000C. $1,950,000D. $1,990,000AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 369. What is another name for the P/E ratio?A. Price/earnings marginB. Price/earnings multipleC. Payment/equity marginD. Payment/equity multipleAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 370. An examination of the financial statements of a business to ensure that they conform with generally accepted accounting principles is calledA. a certification.B. an audit.C. a verification.D. a validation.AACSB Tag: EthicsDifficulty: EasyL.O.: 371. The purpose of an audit is toA. prove the accuracy of an entity's financial statements.B. lend credibility to an entity's financial statements.C. endorse the quality of leadership that managers provide for a corporation.D. establish that a corporation's stock is a sound investment.AACSB Tag: EthicsDifficulty: EasyL.O.: 372. Why do the managers of a corporation hire independent auditors?A. To guarantee annual and quarterly financial statements.B. To handle some personnel issues and problems.C. To audit and report on the fairness of financial statement presentation.D. To lobby the FASB for changes in generally accepted accounting principles.AACSB Tag: EthicsDifficulty: EasyL.O.: 373. The CPA's role in performing audits is important to our society becauseA. auditors provide direct financial advice to potential investors.B. auditors have the primary responsibility for the information contained in financial statements.C. auditors issue reports on the accuracy of each financial transaction.D. an audit of financial statements helps investors and others to know that they can rely on the information presented in the financial statements.AACSB Tag: EthicsDifficulty: EasyL.O.: 374. Which of the following is NOT one of the three steps taken by a corporation to ensure the accuracy of its records?A. implementing a system of controlsB. hiring an independent auditorC. hiring a financial analystD. forming a committee made up of board of directors' members to oversee the recordsAACSB Tag: EthicsDifficulty: MediumL.O.: 375. Which of the following groups has primary responsibility for the information contained in the financial statements?A. the company's managementB. the company's auditorC. the company's investorsD. the SECAACSB Tag: EthicsDifficulty: MediumL.O.: 376. The private sector body recently given the primary responsibility to work out detailed auditing standards is called the:A. FASB.B. SEC.C. PCAOB.D. AICPA.AACSB Tag: EthicsDifficulty: MediumL.O.: 477. Which group maintains the professional code of ethics to which CPAs must adhere?A. AICPAB. FASBC. AAAD. FTCAACSB Tag: EthicsDifficulty: MediumL.O.: 478. One of the disadvantages of a corporation when compared to a partnership is thatA. the stockholders have limited liability.B. the corporation is treated as a separate legal entity from the stockholders.C. the corporation and its stockholders are subject to double taxation.D. the corporation must account for the business's transactions separate and apart from those of the owners.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: Sup A79. Which of the following statements is true about a sole proprietorship?A. The owner and the business are separate legal entities but not separate accounting entities.B. The owner and the business are separate accounting entities but not separate legal entities.C. the owner and the business are separate legal entities and separate accounting entities.D. most large businesses in this country are organized as sole proprietorships.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: Sup A80. For a business organized as a general partnership, which statement is true?A. The owners and the business are separate legal entities.B. Each partner is potentially responsible for the debts of the business.C. Formation of a partnership requires getting a charter from the state of incorporation.D. A partnership is not considered to be a separate accounting entity.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: Sup AEssay Questions81. Using the income statement model and the balance sheet model, fill-in the missing amounts for each independent case below. Assume the amounts given are at the end of the company's first year of operation.AACSB Tag: AnalyticDifficulty: MediumL.O.: 182. Gertie's Greenhouse, Inc., a small retail store which sells house plants, started business on January 1, 2009. At the end of January, 2009, the following information was available:A. Using the above information, prepare the income statement for Gertie's Greenhouse for the month ended January 31, 2009.B. What is the amount of cash flows provided by operating activities to be presented on the statement of cash flows?A.B. 38,300 – 15,000 + 1,000 = $24,300OR $75,000 – 45,000 – 5,000 – 250 – 150 – 300 = $24,300AACSB Tag: AnalyticDifficulty: HardL.O.: 183. Indicate on which financial statement you would expect to find each of the following. If an item can be found on more than one statement, list each statement.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 184. For each of the following items that appear on the balance sheet, identify each as an asset(A), liability (L), or element of stockholders' equity (SE). For any item that would not appear on the balance sheet, write the letter, N.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 185. Ryan Corporation began operations at the start of 2008. During the year, it made cash and credit sales totaling $500,000 and collected $420,000 in cash from its customers. It purchased inventory costing $250,000, paid $15,000 for dividends and the cost of goods sold was $210,000. The corporation incurred the following expenses:Required:1. Prepare an income statement showing revenues, expenses, pretax income, income tax expense, and net income for the year ended December 31, 2008.2. Based on the above information, what is the amount of accounts receivable on the balance sheet prepared at the end of 2008?3. Based on the above information, what is the amount of retained earnings on the balance sheet prepared at the end of 2008?1.2. $500,000 – 420,000 = $80,000 Accounts receivable at the end of the year.3. $0 beginning balance + $161,000 net income $15,000 dividends = $146,000.AACSB Tag: AnalyticDifficulty: HardL.O.: 1。
Financial Accounting Theory Instructor's Solutions Manual (2)
CHAPTER 1I NTRODUCTION1.1 The Objective of This Book1.2 Some Historical Perspective1.3 The 2007-2008 Market Meltdowns1.4 Efficient Contracting1.5 A Note on Ethical Behaviour1.6 Rules-Based v. Principles-Based Accounting Standards1.7 The Complexity of Information in Financial Accounting and Reporting 1.8 The Role of Accounting Research1.9 The Importance of Information Asymmetry1.10 The Fundamental Problem of Financial Accounting Theory1.11 Regulation as a Reaction to the Fundamental Problem1.12 The Organization of This Book1.12.1 Ideal Conditions1.12.2 Adverse Selection1.12.3 Moral Hazard1.12.4 Standard Setting1.12.5 The Process of Standard Setting1.13 Relevance of Financial Accounting Theory to Accounting PracticeL EARNING OBJECTIVES AND SUGGESTED TEACHING APPROACHES1. The Broad Outline of the BookI use Figure 1.1 as a template to describe the broad outline of the book. Since the students typically have not had a chance to read Chapter 1 in the first course session, I stick fairly closely to the chapter material.The major points I discuss are:• Accounting in an ideal setting. Here, present-value-basedaccounting is natural. I go over the ideal conditions needed for sucha basis of accounting to be feasible, but do not go into much detailbecause this topic is covered in greater depth in Chapter 2.• An introduction to the concept of information asymmetry andresulting problems of adverse selection and moral hazard. Theseproblems are basic to the book and I feel it is desirable for thestudents to have a “first go” at them at this point. I concentrate onthe intuition underlying the two problems. For example, adverseselection can be illustrated by asking who would be first in line topurchase life insurance if there was no medical examination, orwhat quality of used cars are likely to be brought to market. Formoral hazard I try to pin them down on how hard they would work inthis course if there were no exams.• The environment in which financial accounting and reportingoperates. My main goal at this point is that the students do not takethis environment for granted. I discuss the procedures of standardsetting briefly and point out that this is really a process ofregulation. In the past, there have been well-known cases ofderegulation, such as airlines, trucking, financial institutions, powergeneration. However, we are entering what is likely to be a periodof increasing regulation, at least for financial institutions. Instructorsmay wish to discuss briefly the pros and cons of markets v.regulation (since this book tends to be market-oriented) ofeconomic activity.2. The Concept of InformationBy now, I will have referred to the term “information” several times. I suggest that it is easy to take this term for granted, and call for definitions. This usually generates considerable hesitation by the students. The purpose at this point is simply to get them to realize that information is a complex commodity. Indeed, I make an analogy between the financial accounting and reporting industry and a stereotypical manufacturing industry such as agriculture or automobiles, and ask what is the product of the accounting industry, why is it valuable, how is it quantified? I do not go deeply into the answers to questions like these, since some decision-theoretic machinery needs to be developed (Section 3.3) before a precise definition of information can be given. Nevertheless, I try to end up with the conclusions that information has something to do with improving the process of decision-making, and that it is crucial to the operation of securities markets.3. Relevance to Accounting PracticeMy undergraduate accounting theory classes usually consist of a majority of students who are heading for a professional accounting designation. There are usually also some students heading for careers in management.Since students who are facing professional accounting exams can be quite focused in their learning objectives, it is essential that the nature of the course in relation to these objectives be discussed up front.I begin by pointing out that the book is intended to give the student an appreciation and understanding of the financial reporting environment, which should help with breadth questions on professional exams. I also argue that one’s career continues well beyond attainment of a professional accounting designation, and that the nature of the textbook is longer-run and designed tofoster a critical awareness of the financial accounting environment which is needed if one is to become a thoughtful professional.Arguments such as these can only be pushed so far. Nevertheless, I think it is important to make them. I also point out that the text includes coverage of major accounting standards such as financial instruments, impairment, consolidations, de-recognition, and that they will have the opportunity to learn about these standards on the way through.I also refer the students to Section 1.13, and emphasize that the text recognizes an obligation to convince them that the material is relevant to their careers. To do this, the text explains theoretical concepts in intuitive terms, and illustrates and motivates the concepts based on a series of Theory in Practice vignettes, and problem material based frequently on articles from the financial press and relevant research findings.For the management students in the class, and for the professional accounting students who may some day be managers, I emphasize that the text does not ignore them. Chapters 8 to 11 inclusive (the bottom branch of Figure 1.1) deal with topics of interest to managers, including economic consequences, conflict resolution, executive compensation and earnings management. All of these topics demonstrate that management has a legitimate interest in financial reporting. I also argue that Chapters 2 to 7 inclusive (the top branch of Figure 1.1) are relevant to managers since they give insights into how financial accounting information is used by investors. Finally, since management is a major constituency in standard-setting, a critical awareness of the need for standard setting and the standard-setting process (Chapters 12 and 13) is useful for any manager.I have not had problems with student course evaluations as a result of using the material in this book. In fact, I have constantly been surprised at how far one can push the students in a theoretical direction providing that I rely on the textbook material to give the students an intuitive understanding, and concentrate in classon illustrating, motivating and discussing the application of the concepts. For this, I find that the financial media are helpful sources of current articles which I bring to class to serve as a basis for discussion. Numerous such articles form the basis of most “Theory in Practice” vignettes scattered throughout the text.4. The Structure of Standard-Setting BodiesThis edition continues to orient itself to International Accounting Standards Board (IASB) standards, although attention is also given to several U.S. standards. Instructors may wish to briefly discuss the structure of standard setting bodies at this point.5. Social Issues Underlying RegulationInstructors who wish to dig more deeply into social issues underlying financial reporting and standard setting can usefully spend a class session on the 1982 Merino and Neimark paper (in Section 1.2). This paper raises fundamental issues about the role of financial reporting in society which go well beyond the textbook coverage of this paper, which confines itself largely to a brief description of reporting problems leading up to the great stock market crash of 1929 and the creation of the SEC. It provides food for thought both for those who do and do not favour the present financial reporting environment. For a contrasting view from that of Merino and Neimark, Benston’s 1973 article is also worth assigning.This edition continues its discussion of the Enron and WorldCom financial reporting disasters, since these are still relevant to accounting theory and practice. I continue to include (Section 1.3) a description of the 2007-2008 market meltdowns surrounding financial assets and institutions, since these events are driving many new accounting standards and changes in executive compensation discussed later in the text. In spite of the bewildering collection of acronyms, instructors may wish to discuss these market meltdowns early in the course, since they pervade the book and continue to have major implications for financial accounting.Section 1.5 introduces the topic of ethics. With the extent of accountant and auditor involvement in numerous financial reporting disasters that have come to light since 2000, such as Enron and WorldCom, and more recent criticisms of fair value accounting and off-balance sheet entities, the importance of ethical behaviour is very much apparent. Indeed, ethical behaviour underlies the distinction between rules-based and principles-based accounting standards (Section 1.6). This distinction is important since the IASB constitution commits the IASB to principles-based standards.I emphasize, however, that ethics tends to produce similar behaviour as a longer-run maximization of one’s own interests (although the mind sets are different). Thus, a longer–run view of ethical behaviour quickly turns into questions of full disclosure, usefulness, reputation, and cooperative behaviour. The text tends to emphasize these latter components of professional responsibility. Some instructors may wish to introduce and discuss ethical issues more broadly.6.Some influential accounting academics are critical of the moves by standard setting bodies towards current value accounting. Chapter 8 is devoted to an alternative view, namely efficient contract theory (also called positive accounting theory). A brief introduction to this topic is given in Section 1.4. Instructors who wish to introduce this topic now may wish to discuss why accountants are generally regarded as conservative, whether financial accounting can help to attain strong corporate governance, and whether managers like current value accounting.7.I have not prepared any questions and problems for this chapter. One reason is that I usually like to let the first week of classes pass before giving formal assignments. More fundamentally, I use this first week to describe and motivate the text material, as outlined above, and most of the material in Chapter 1 is covered in greater detail later. However, extensive problem material is provided for the remaining chapters of the book.。
Financial Accounting Chapter 07 Exchange of Non-Monetary Assets1
5
确认和计量 (Recognition and Measurement)
Liu Changkui
换出资产公允价值与其账面价值的差额，应当分别不 同情况处理： 换出资产为存货的，应当作为销售处理，按照《企业 会计准则第14 号—收入》以其公允价值确认收入，同 时结转相应的成本。 换出资产为固定资产、无形资产的，换出资产公允价 值与其账面价值的差额，计入营业外收入或营业外支 出。 换出资产为长期股权投资的，换出资产公允价值与其 账面价值的差额，计入投资损益。
8
确认和计量 (Recognition and Measurement)
Liu Changkui
企业在按照换出资产的账面价值和应支付的相关税费 作为换入资产成本的情况下，发生补价的，应当分别 下列情况处理： （一）支付补价的，应当以换出资产的账面价值， 加上支付的补价和应支付的相关税费，作为换入资产 的成本，不确认损益。 （二）收到补价的，应当以换出资产的账面价值， 减去收到的补价并加上应支付的相关税费，作为换入 资产的成本，不确认损益。
Liu Changkui
企业在按照公允价值和应支付的相关税费作为换入资 产成本的情况下，发生补价的，应当分别下列情况处 理： （一）支付补价的，应当以换出资产的公允价值加 上支付的补价（或换入资产的公允价值）和应支付的 相关税费，作为换入资产的成本，换入资产成本与换 出资产账面价值加支付的补价、应支付的相关税费之 和的差额，应当计入当期损益。 （二）收到补价的，应当以换出资产的公允价值减 去补价（或换入资产的公允价值）加上应支付的相关 税费，作为换入资产的成本，换入资产成本加收到的 补价之和与换出资产账面价值加应支付的相关税费之 和的差额，应当计入当期损益。
9
确认和计量 (Recognition and Measurement)
FINANCIAL ACCOUNTING THEORY (RMIT UNIVERSITY,CRAIG DEEGAN)--CHAPTER2财务报告环境
Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan
2.6
Chapter 2: The financial reporting environment
Use of highlight statements
Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan
2.9
Chapter 2: The financial reporting environment
Development of accounting practice: first documented use
Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan
2.8
Chapter 2: The financial reporting environment
Examples of management accounting information
• Changes to accounting standards or new standards affect the numbers within financial reports (profits, net assets)
• users should ideally have sufficient knowledge to assess effect of changes to regulations
Financial Accounting Canadian Edition (7)
• Bank
– Do NOT journalize any entries on bank side
Discussion Question
Why is a bank reconciliation an important part of a company’s internal control over cash?
– Other payments (-)
• For example, bank service charges
– Book errors (+ / -)
Bank Reconciliation Procedures (Continued)
• Books
– Each reconciling item in determining the adjusted balance per books MUST be journalized and posted
Control Activities
• Control activities include:
– Authorization of transactions and activities – Segregation of duties – Documentation – Physical controls – Independent checks of performance – Human resource controls
Deposit
Credit (increase)
Debit (increase)
Differences Between Company Records and Bank Statement
• Time lags
– The period after a cheque is written and dated but not yet presented to or paid by the bank (outstanding cheques) – The period between receipts being recorded by the company and receipts being recorded by the bank (deposits in transit)
《财务会计理论》scott英文参考文献
【英文教学参考书】⑴AICPA,1994,"Improving Business Reporting:A Customs Focus".⑵FASB,2001,"Improving Business Reporting:Insights into Enhancing Voluntary Disclosures".⑶Storey and Teague,1995,"Foundation of Accounting Theory and Policy",The Dryden Press.⑷Previts and Merino,1979,"A History of Accounting in American",John Wilet&Son Press.⑸Scott,1997,"Financial Accounting Theory",Prentice-Hall Publishing Company..⑺Upton,2001,"Business and Financial Reporting,Challenges from The New Economy",FASB.⑻Zeff and Dharan,1994,"Readings and Notes on Financial Accounting:Issues and Controversies", McGraw-Hill Company.外文经典文献：Watts , Ross , and Jerold L. Zimmerman. Toward a Positive Theory of Determination of Accounting standards .The Accounting review (Jan 1978)Watts , Ross , and Jerold L. Zimmerman. Positive Accounting Theory: A Ten Year Perspective. The Accounting review (Jan 1990)Sorter , George H. An Event Approach to Basic Accounting Theory . The Accounting review (Jan 1969)Wallman,1995.9,1996.6,1996.12,1997.6,"The Future of Accounting and Financial Reporting " (I ,II,III,IV),Accounting Horizon.Jenson ,M.C. , and W.H. Meckling . Theory of the firm: managerial behavior, agency costs and ownership structure . Journal of financial economics (Oct .1976)Robert sprouse “developing a concept framework for financial reporting” Accounting Review, 1988(12) Schuetze ,,Walter P.”what is an Asset ?” Accountinghorizons,1993(9)Samuelson ,Richard A. ,”The concept of Assets in Accounting Theory” Accounting horizons,1996(9)AAA ,”American Accounting Association on Accounting and Auditing Measurement:1989-1990” Accounting Horizons 1991(9)L.Todd Johnson and Kimberley R.Petrone “Is Goodwill an Asset?” Accounting Horizons1998(9)Linsmeier, Thomas J. and Boatsman ,Ja mes R. ,”AAA’s financial accounting standard response to IASC ED60 intangible assets” Accounting Horizons 1998(9)Linsmeier, Thomas J. and Boatsman,JamesR.”Response to IASC ExposureDraft ,’Provisions,Contingent Liabilities and Contingent Assets’ ” Accoun ting Horizons1998(6)L.Todd Johnson and Robert. Swieringa “derivatives, hedging and comprehensive income” Accounting Horizons 1996(11)Stephen A. .Zeff ,”The Rise of Economics Concequences”, The Journal of Accountancy 1978(12)David Solomons “the FASB’s Conceptual Framework:An Evaluation ” The Journal of Accountancy 1986(6)Paul Miller , “Conceptual Framework:Myths or Realities” The Journal of Accountancy 1985(3)Part I Financial Accounting TheorySuggested Bedtime Readings:1. C.J. Lee, Lecture Note on Accounting and Capital Market2. R. Watts and J. Zimmerman: Positive Accounting Theory3. W. Beaver: Revolution of Financial ReportingAlthough these three books are relatively "low-tech" in comparison with the reading assignments, but they provide much useful institutional background to the course. Moreover, these books give a good survey of accounting literature, especially in the empirical area.1. Financial Information and Asset Market Equilibrium*Grossman, S. and J. Stiglitz, "On the Impossibility of Informationally EfficientMarkets," American Economic Review (1980), 393-408.*Diamond, D. and R. Verrecchia, "Information Aggregation in a Noisy Rational Expectations Economy," Journal of Financial Economics, (1981), 221-35.*Milgrom, P. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, (1981): 380-91.Grinblatt, M. and S. Ross, "Market Power in a Securities Market with Endogenous Information," Quarterly Journal of Economics, (1985), 1143-67.2. Financial Disclosure* Verrecchia, R. "Discretionary Disclosure," Journal of Accounting and Economics (1983),179-94.2Dye, R., "Proprietary and Nonproprietary Disclosure," Journal of Business, 59 (1986), 331-66.Dye, R., "Mandatory Versus Voluntary Disclosures: The Cases of Financial and Real Externalities," Accounting Review, (1990), 1-24.Bhushan, R., "Collection of Information About Public Traded Firms: Theory and Evidence," Journal of Economics and Accounting, (1989), 183-206.Diamond, D. "Optimal Release of Information by Firms," Journal of Economic Theory (1985), 1071-94.Verrecchia, R. "Information Quality and Discretionary Disclosure," Journal of Accounting and Economics, 1990.Trueman, B. "Theories of Earnings-announcement Timing," Journal of Accounting and Economics, 13 (1990), 1-17.Joh, G. and C. J. Lee "Timing of Financial Disclosure in Oligopolies," mimeo.* Joh, G. and C. J. Lee "Stock Market Reactions to Accounting Information in Oligopoly," Journal of Business, 1992.Darrough, M.N. and N.M. Stoughton, "Financial Disclosure Policy in an Entry Game," Journal of Accounting and Economics, (1990), 219-243.Wagenhofer, A. "Voluntary Disclosure with a Strategic Opponent," Journal of Accounting and Economics, 12 (1990), 341-363.Chang, C. and C.J. Lee, "Information Acquisition as a Business Strategy," Southern Economic Journal, 1992.Chang, C. and C.J. Lee, "Optimal Pricing Strategy in Marketing Research Consulting," International Economic Review, May 1994.Chang, C. and C.J. Lee, "Selling Proprietary Information to Rivaling Clients," mimeo.3. Earnings Manipulation and Accounting Choice* Watts, R. and J. Zimmerman,"Toward a Positive Theory of the Determination ofAccounting Standards," Accounting Review, January 1978, pp.112-34.*Healy, P.M. "The Effect of Bonus Schemes on Accounting Decisions" Journal of Accounting and Economics, April 1985, 85-108.*Chen, K. and C.J. Lee, "Executive Bonus Plans and Accounting Trade-off: The Case of the 3Oil and Gas Industry, 1985-86," Accounting Review, January, 1995.*Lee, C.J. and D. Hsieh, "Choice of Inventory Accounting Methods: A Test of Alternative Hypotheses," Journal of Accounting Research, Autumn 1985.*Lee, C.J. and C.R. Petruzzi, "Inventory Accounting Switch and Uncertainty", Journal of Accounting Research, Autumn 1989.*Chau, D. and C.J. Lee, “Big Bath and Dress Up in the Process of Chapter 11 Restructuring,” working paper.*Aharony, J., C.J. Lee, and T.J. Wong, “Financial Packaging of IPO Firms in China” Journal of Accounting Research, Spring 2000.Gu, Z. and C.J. Lee, “How Widespread is Earnings Management? A Measurement Based on Seasonal Heteroscedasticity.” working paperGu, Z. and C.J. Lee, “Cross-sectional Heteroscedasticity of Accounting Accruals,” working paper.Holthausen, R.W. and R.W. Leftwich, "The Economic Consequences of Accounting Choice: Implications of Costly Contracting and Monitoring," Journal of Accounting and Economics, August 1983, PP. 77-118.Moyer, S.E. "Capital Adequacy Ratio Regulations and Accounting Choices in Commercial banks," Journal of Accounting and Economics, (1990), 123-154.Blacconiere, W.G., R.M. Bowen, S.E. Sefcik, and C.H. Stinson, "Determinants of the Use of Regulatory Accounting Principles by Savings and Loans," Journal of Accounting and Economics, (1991) 167-202.Hand, J.R.M. and P.J. Hughes, and S.E. Sefcik, "Insubstance Defeasances," Journal of Accounting and Economics, (1990), 47-89.Duke, J.C. and H.G. Hunt III, "An Empirical Examination of Debt Covenant Restrictions and Accounting-Related Debt Proxies," Journal of Accounting and Economics, 12 (1990), 45-64.Malmquist, D.H., "Efficient Contracting and the Choice of Accounting Method in the Oil and Gas Industry," Journal of Accounting and Economics, 12 (1990), 173-207.Holthausen, R.W., "Accounting Method Choice: Opportunistic Behavior, Efficient Contracting, and Information Perspectives," Journal of Accounting and Economics, 12 (1990), 207-218.Watts, R. L. and J. L. Zimmerman, Positive Accounting Theory, Prentice Hall, 1985, Chapters 7-15.44. Measurement and Valuation Role of Accounting*Ball, R. and P. Brown, “Empirical Evaluation of Accounting Income Numbers,” Journal of Accounting Research, 1968.*Lee, C.J. and A. Li, “Risk, Contrarian Strategies, and Analysts’ Over-reaction: A Study of B/M and E/P Anomaly in Cross-sectional Returns.” Working Paper.Lee, C.J. "Inventory Accounting and Earnings/Price Ratios: A Puzzle," Contemporary Accounting Research, Fall, 1988.Chen, K. and C.J. Lee, "Accounting Measurement of Economic Performance and Tobin's q Theory," Journal of Accounting, Auditing, and Finance, Spring, 1995.Gu, Z. and C.J. Lee, "Co-integration and Test of Present Value Model: A Revisit," mimeo.Ghosh, A. and C.J. Lee, "Accounting Information and Market Valuation of Takeover Premium," Financial Management, Forthcoming* Joh, G. and C. J. Lee "Stock Market Reactions to Accounting Information in Oligopoly," Journal of Business, 1992.Part II Managerial Accounting5. Agency Theory*Holmstrom, B. "Moral Hazard and Observability," Bell Journal of Economics, (1979), 74-91Rogerson, "The First Order Approach to Principal-Agent Problems," Econometrica, March 1985.*Jesen, M. and W. Meckling, "Theory of the Firm, Managerial Behavior, Agency Costs and Ownership Structure," Journal of Financial Economcs, (1976), 305-60.*Grossman, S. and O. Hart, "An Analysis of the Principal-Agent Problem," Econometrica, (1983), 7-46.Holmstrom, B. "Moral Hazard in Teams," Bell Journal of Economics, (1982), 224-40.Milgrom, P. and J. Roberts, "Relying on the Information of Interested Parties," The Rand Journal of Economics, (1986), 18-32.Malcomson, J. "Rank-order Contract for a Principal with Many Agents," Review of Eonomic Studies, (1986), 807-817.Lambert, R. "Long-term Contracts and Moral Hazard," Bell Journal of Economics, (1983),5.441-452.Malcomson, J. and F. Spinnewyn, "The Multiperiod Principal-Agent Problem," Review of Economic Studies, (1988), 391-408.6. Theory of Firm and Organization*Coase, R.H. "The Nature of the Firm," Economica, (1937), 386-405.*Alchian, A.A. "Uncertainty, Evolution and Economic Theory," Journal of Political Economy,(1950), 211-21.*Alchian, A.A. and H. Demsetz, "Production, Information Costs and Economic Organization," American Economic Review, (1972), 777-795.* Sah, R. and J. Stiglitz, "The Architecture of Economic Systems: Hierarchies and Polyarchies," American Economic Review (1986), 716-727Aoki, M. "Horizontal vs. Vertical Information Structure of the Firm," American Economic Review (1986), 971-983.Tirole, J. "Hierarchies and Bureaucracies," Journal of Law, Economics and Organization (1986), 181-214.Christensen, J. "Communication in Agencies," Bell Journal of Economics, (1981), 661-674.Grossman, S. and O. Hart, "The Costs and Benefits of Ownership: A Theory of Vertical and Horizontal Integration," Journal of Political Economy, (1986), 691-719.Mookherjee, D. "Optimal Incentive Schemes with Many Agents," Review of Economic Studies (1984), 433-46.Demski, J. and D. Sappington, "Optimal Incentives with Multiple Agents," Journal of Economic Theory (1984), 152-71.Holmstrom, B. and J. Tirole, "The Theory of the Firm," in Handbook of Industrial Organization, 1990.Williamson, O. Markets and Hierarchies, 1975Williamson, O. The Economic Institution of Capitalism, 1985, Ch.6, 9, 11.7. Accounting and Internal Control*Demski, J. and D. Sappington, "Hierarchical Structure and Responsibility Accounting," Journal of Accounting Research, 1989.6*Coase, R.H., "Accounting and the Theory of Firm," Journal of Accounting and Economics, (1990), 3-13.Jordan, J., "The Economics of Accounting Information Systems," American Economic Review, 1989.Antle, R. and J. Fellingham, "Resource Rationing and Oganizational Slack in aTwo-Period Model," Journal of Accounting Research, (1990) 1-24.Demski, J., J. Patell, and M. Wolfson, "Decentralized Choice of Monitoring Systems," Accounting Review, (1984), 16-34.Penno, M. "Accounting Systems, Participation in Budgeting, and Performance Evaluation," Accounting Review, (1990), 303-314.Melumed, N.D. and S. Reichelstein, "Centralized vesus Delegation and the Value of Communication," Journal of Accounting Research, (1987 Supplement), 1-21.8. Field Studies of Management Accounting*Baiman, S., D.F. Larcker, and M.V. Rajan, "Organizational Design for Business Units," Journal of Accounting Research, 33 (Autumn 1995): 205-231.Lee, C.J. “Financial Restructuring of State-owned Enterprises in China: The Case of Shanghai Sunve Co.” Accounting, Organization and Society, fo rthcoming.Part 3. Auditing and Accounting Regulation9. Role of Auditing*R.A. Dye, B.V. Balachandran, and R.P. Magee, "Contingent Fees for Audit Firms," Journal of Accounting Research, (1990), 239-266.*L. DeAngelo, "Auditor Independence, 'Low Balling,' and Disclosure Regulation," Journal of Accounting and Economics, (1981), 113-27.*Lee, C.J. and Z. Gu, " Low Balling, Legal Liability and Auditor Independence,” Accounting Review, 1998.Magee, R.P. and M. Tseng, "Audit Pricing and Independence," Accounting Review, (1990), 315-336.Datar, S., G.A. Feltham, and J.S. Hughes, "The Role of Audits and Audit Quality in Valuing New Issues," Journal of Accounting and Economics, (1991), 3-50.7Penno, M. "Auditing for Performance Evaluation," Accounting Review, (1990),520-536.Melumad, N.D. and L. Thoman, "On Auditors and the Courts in an Adverse Selection Setting," Journal of Accounting Research, (1990) 77-120.Baiman, S., J.H. Evans III, and N.J. Nagarajan, "Collusion in Auditing," Journal of Accounting Research, (1991), 1-18.10. Financial Accounting Standards*Dye, R. and R.E. Verrecchia, "Discretion vs. Uniformity: Choices Among GAAP," Accounting Review, July 1995, 389-415.Farrell, J. and G. Saloner, "Standardization, Compatibility, and Innovation," Rand Journal of Economics. 16 (Spring 1985): 70-83.*Lev, B. "Toward a Theory of Equitable and Efficient Accounting Policy," Accounting Review, January 1988.11. The Market of CPAs*Dye, R. "Incorporation and the Audit Market," Journal of Accounting and Economics, 19 (1995): 75-114.*Lee, C.J., C. Liu, and T. Wang, “The 150 Hours Rule,” Journal of Accounting and Economics, 1999.Liu, C., C.J. Lee, and T. Wang, “Human Capital, Auditor Independence, and Legal Liability,” working paper.Riodan, M. and D. Sappington, "Information, Incentives, and Organizational Mode,"Quarterly Journal of Economics, 102 (1987): 243-264.*Gigler, F. and M. Penno, "Imperfect Competition in Audit Markets and its Effects on the Demand for Audit-Related Services," Accounting Review, 70 (April 1995):317-336.。
Financial Accounting Theory (7)
Copyright © 2015 Pearson Canada Inc.
7-8
7.4 Financial Instruments
• Definition
– A contract that creates a financial asset of one firm and a financial liability or equity instrument of another firm
• Recognition is sooner than under historical cost
• Increases in value recognized when realized under historical cost
Copyright © 2015 Pearson Canada Inc.
• After acquisition, most liabilities valued at amortized cost
Copyright © 2015 Pearson Canada Inc. 7 - 10
7.5.3 The Fair Value Option
• Under IFRS 9, firm may designate financial assets/liabilities at acquisition as valued at fair value to reduce a mismatch.
• Barth, Hodden, and Stubben (2008)
– IFRS 9 requires own credit risk gains/losses to be included in OCI
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金融学原理英文第七单元课后答案
⾦融学原理英⽂第七单元课后答案CHAPTER 7ANSWERS7-1 The four financial statements contained in most annual reports are the balance sheet, income statement, statement of retained earnings, andstatement of cash flows.7-2 No, because the $20 million of retained earnings probably would not be held as cash. The retained earnings figure represents the reinvestmentof earnings by the firm. Consequently, the $20 million would be aninvestment in all of the assets of the firm.7-3 Liquidating assets, borrowing more funds, and issuing stock would constitute sources of funds. Purchasing assets, paying off debt, and stockrepurchases would constitute uses of funds. Thus, the following general rules can be used to determine what changes in balance sheet accountsrepresent sources and uses of funds:Sources of cash: Uses of Cash:in a liability or equity account in a liability of equity accountin an asset account in an asset account7-4 The emphasis of the various types of analysts is by no means uniform nor should it be. Management is interested in all types of ratios for two reasons.First, the ratios point out weaknesses that should be strengthened; second,management recognizes that the other parties are interested in all theratios and that financial appearances must be kept up if the firm is tobe regarded highly by creditors and equity investors. Equity investorsare interested primarily in profitability, but they examine the otherratios to get information on the riskiness of equity commitments. Long-term creditors are more interested in the debt ratio, TIE, and fixed chargecoverage ratios, as well as the profitability ratios. Short-term creditorsemphasize liquidity and look most carefully at the liquidity ratios.7-5 The most important aspect of ratio analysis is the judgment used when interpreting the results to reach an overall conclusion concerning a firm'sfinancial position. The analyst should be aware of, and include in theinterpretation, the fact that: (1) large firms with many differentdivisions are difficult to categorize in a single industry; (2) financialstatements are reported at historical costs; (3) seasonal factors candistort the ratios; (4) some firms try to "window dress" their financial statements to look good; (5) firms use different accounting procedures to compute inventory values, depreciation, and so on; (6) there might notexist a single value that can be used for comparing firms' ratios (e.g.,a current ratio of 2.0 might not be good); and (7) conclusions concerningthe overall financial position of a firm should be based on a representativenumber of ratios, not a single ratio.7-6 Differences in the amounts of assets necessary to generate a dollar of sales cause asset turnover ratios to vary among industries. For example,a steel company needs a greater number of dollars in assets to producea dollar in sales than does a grocery store chain such as Safeway. Also,profit margins and turnover ratios might vary due to differences in theamount of expenses incurred to produce sales. For example, one would expecta grocery store chain like Safeway to spend more per dollar of sales thandoes a steel company. Often, a large turnover will be associated with a low profit margin, and vice versa.7-7 ROE can be writtenTotal assets divided by owners' equity, which is termed the equity multiplier, is a measure of debt utilization; the more debt, the higher the equity multiplier. Thus, using more debt will increase the equity multiplier, resulting in a higher ROE.7-8 a. Cash, receivables, and inventories, as well as current liabilities, vary over the year for firms with seasonal sales patterns. Therefore,those ratios that examine balance sheet figures will vary unlessaverages (monthly ones are best) are used.b. Common equity is determined at a point in time, say, December 31, 2002.Profits are earned over time, say, during 2002. If a firm is growing rapidly, year-end equity will be much larger than beginning-of-year equity, so the calculated rate of return on equity will be different depending on whether end-of-year, beginning-of-year, or average common equity is used as the denominator. Average common equity is conceptually the best figure to use.In public utility rate cases, people are reported to have deliberately used end-of-year or beginning-of-year equity to make returns on equity appear exces-sive or inadequate. Similar problems can arise when a firm is being evaluated.7-9 Source(+)2002 2001 or Use(-)?Cash $ 400 $ 500 +Accounts receivable 250 300 +Inventory 450 400 -Current assets 1,100 1,200Net property & equipment 1,000 950 -aTotal assets $2,100 $2,150Accounts payable $ 200 $ 400 -Accruals 300 250 +Notes payable 400 200 +Current liabilities 900 850Long-term debt 800 900 - Total liabilities 1,700 1,750Common stock 250 300 -Retained earnings 150 100 +bTotal liabilities $2,100 $2,150and equitya The book value of property & equipment is stated net of depreciation.Because the book value of fixed assets increased, and depreciation is an adjustment that reduces the account balance, Batelan must have purchased additional fixed assets; but, without more information we cannot determine the amount of the purchase.b The retained earning balance increased in 2002, so Batelan must havegenerated a positive net income. But, without additional information (i.e.the amount of net income), we cannot tell whether dividends were paid in 2002.7-10 Total EffectCurrent Current on NetAssets Ratio Incomea. Cash is acquired through issuanceof additional common stock. + + 0b. Merchandise is sold for cash. + + +(When merchandise is sold, its price is greater than its cost.)c. Federal income tax due forthe previous year is paid. ─ + 0(Both current assets and current liabilities decrease by the samedollar amount. But, because the current ratio is greater than 1.0,it increases as a result of the payment.)d. A fixed asset is sold forless than book value. + + ─e. A fixed asset is sold formore than book value. + + +f. Merchandise is sold on credit. + + +g. Payment is made to tradecreditors for previous purchases. ─ + 0h. A cash dividend is declaredand paid. ── 0i. Cash is obtained through short-term bank loans. + ─ 0j. Short-term notes receivableare sold at a discount. ───k. Marketable securities aresold below cost. ───l. Advances are made to employees. 0 0 0(There is no change in current assets or the current ratio because cash decreases by the same amount prepaid expenses increases.) m. Current operating expensesare paid. ───to trade creditors in exchangefor past due accounts payable. 0 0 0o. Ten-year notes are issued topay off accounts payable. 0 + 0p. A fully depreciated assetis retired. 0 0 0q. Accounts receivable are collected. 0 0 0r. Equipment is purchased withshort-term notes. 0 ─ 0s. Merchandise is purchased on credit. + ─ 0t. The estimated taxes payableare increased. 0 ──SOLUTIONS7-1a.Dollar amounts are in millions.Poor9.9% 7.7% 376$8.28$assets Total income Net averageNear 4.6% 4.1% 700$8.28$Sales income Net Marginal45.0% 48.1% 376$181$assets Total debt Total Average4.1 4.0 175$700$assets Fixed Sales Bad7.2 5.5 101$560$s Inventorie sold goods of Cost Poordays 33.5 days 41.1 )360/700($80$360/Sales receivable Accounts Average3.9 8.3 53$201$s liabilitie Current assets Current Comment Average Argile Industry======??==??====??==b.The ratios do not show any particular strengths. However, Argile does have a low inventory turnover, higher than normal days sales outstanding, and poor return on assets. According to its 2001 ratios, it appears Argile has liquidity problems. c.Ratio 20022001 TrendCurrent ratio 3.6?3.8? Worse Days sales outstanding 43.2 days 41.1 days Worse Inventory turnover4.4?5.5? Worse Fixed assets turnover 3.9? 4.0? Same Debt ratio51.1% 48.1% WorseProfit margin on sales 3.6% 4.1% Worse Return on assets 6.3%7.7%WorseThe above comparison shows that Argile's financial position worsened from 2001 to 2002.d. It would be helpful to know the future plans Argile has with respect to improving its currentfinancial position, introducing new products, liquidating unprofitable investments, and so on. Perhaps the fixed assets turnover ratio and return on assets figures are low because the firm has expanded its product distribution, and this process has a large cost "up front" with significant payoffs beginning in two or three years.7-2 a.60.0%61.90% 500,947$500,586$assets Total debt Total 9.0%7.56% 000,361$300,27$equity Common income Net 3.6%2.88% 500,947$300,27$assets Total income Net 1.2%1.70% 500,607,1$300,27$Sales income Net 3.0 1.70 500,947$500,607,1$assets Total Sales 5.6 5.60 500,241$000,353,1$s Inventorie sold goods of Cost days35.0 days 24.75 28.465,4$000,336$360/Sales receivable Accounts 2.0 98.1 000,330$000,655$s liabilitie Current assets Current Average Campsey Industry ========?========b.For Campsey, ROA = PM ? TA turnover = 1.7% ? 1.7 = 2.89%.For the industry, ROA = 1.2% ? 3.0 = 3.6%.c.Campsey's days sales outstanding is more than twice as long as the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets decreased, or both. While Campsey's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry--net income should be higher given the amount of equity and assets. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry. d.If 2002 represents a period of supernormal growth for Campsey, ratios based on this year will be distorted and a comparison between them and industry averages will have little meaning. Potential investors who look only at 2002 ratios will be misled, and a return to normal conditions in 2003 could hurt the firm's stock price.7-3(1) Total liabilities and equity = Total assets = $300,000.(2) Debt = (0.50)(Total assets) = (0.50)($300,000) = $150,000. (3) Accounts payable = Debt ─ Long-term debt = $150,000 ─$60,000= $90,000.(4) (5)Sales = (1.5)(Total assets) = (1.5)($300,000) = $450,000.(6)Cost of goods sold = Sales(1 - 0.25) = $450,000(.75) = $337,500(7)Inventory = (CGS)/5 = $337,500/5 = $67,500.(8)Accounts receivable = (Sales/360)(DSO)= ($450,000/360)(36) = $45,000.(9) (Cash + Accounts receivable)/(Accounts payable) = 0.80? Cash + Accounts receivable = (0.80)(Accts payable) Cash + $45,000 = (0.80)($90,000) Cash = $72,000 ─ $45,000= $27,000.(10) Fixed assets = Total assets ─ (Cash + Accts Rec. + Inventories) = $300,000 ─ ($27,000 + $45,000 + $67,500) = $160,500.$52,500= $97,500 $150,000 $300,000 = earnings Retained - Debt - equity and s liabilitie Total = stock Common ??? ????? ?? Balance Sheet Cash$ 27,000 Accounts payable $ 90,000Accounts receivables 45,000 Long-term debt 60,000 Inventories 67,500 Common stock 52,500 Fixed assets 160,500 Retained earnings 97,500 Total assets$300,000$300,0007-4 a.12.9%8.57% 315$27$ equity Total income Net equitytotal on Return 9.0%6.00% 450$27$ assets Total income Net assets total onReturned 3.0%3.40% 795$27$ Sales income Net margin Profit 3.0 1.77 450$795$ assets Total Sales Turnover assets Total 6.0 5.41 147$795$ assets Fixed Sales Turnoverassets Fixed days24.0 days 29.89 360/795$66$ 360/Sales receivable AccountsDSO 8.5 4.15 159$660$ s Inventorie sold goods of Cost turnoverInventory7.0 11.00 5.4$5.49$ Interest EBIT earned interestTimes 30.0%30.00% 450$135$ assets Total Debt assetstotal to Debt 2.0 2.73 111$303$ s liabilitie Current assets Current ratio Current Average Finnerty Industry==============================b. ROA = Profit margin ? Total assets turnover=Net income Sales Sales Total assets = 3.4% 1.77 = 6.0%=$27$795$795$450Finnerty Industry Comment Profit margin 3.4% 3.0% Good Total assets turnover 1.77? 3.0? Poor Return on total assets 6.0%9.0% Poorc. Analysis of the Du Pont equation and the set of ratios shows that the turnover ratio of sales toassets is quite low. Either sales should be increased at the present level of assets, or the current level of assets should be decreased to be more in line with current sales. Thus, the problem appears to be in the balance sheet accounts.d. The comparison of inventory turnover ratios shows that other firms in the industry seem to begetting along with about half as much inventory per unit of sales as Finnerty. If Finnerty's inventory could be reduced this would generate funds that could be used to retire debt, thus reducing interest charges and improving profits, and strengthening the debt position. There might also be some excess investment in fixed assets, perhaps indicative of excess capacity, as shown by a slightly lower than average fixed assets turnover ratio. However, this is not nearly as clear-cut as the over-investment in inventory.e. If Finnerty had a sharp seasonal sales pattern, or if it grew rapidly during the year, many ratiosmight be distorted. Ratios involving cash, receivables, inventories, and current liabilities, as well as those based on sales, profits, and common equity, could be biased. It is possible to correct for such problems by using average rather than end-of-period figures.7-5 a. Here are Cary's base case ratios and other data as compared to the industry:Cary Industry Comment Quick 0.85? 1.0? Weak Current 2.33 2.7? Weak Inventory turnover 4.00? 5.8? PoorDays sales outstanding 37 days 32 days Poor Fixed assets turnover 10.0? 13.0? Poor Total assets turnover 2.34? 2.6? Poor Return on assets 5.9% 9.1% Bad Return on equity 13.07% 18.2% Bad Debt ratio 54.8% 50.0% High Profit margin on sales 2.5% 3.5% Bad EPS $4.71 n.a. -- Stock Price $23.57 n.a. -- P/E ratio 5.0? 6.0? Poor M/B ratio 0.65 n.a. --Cary appears to be badly managed--all of its ratios are worse than the industry averages, and the result is low earnings, a low P/E, a low stock price, and a low M/B ratio. The company needs to do something to improve.b.A decrease in the inventory level would improve the inventory turnover, total assets turnover, and ROA, all of which are too low. It would have some impact on the current ratio, but it is difficult to say precisely how that ratio would be affected. If the lower inventory level allowed Cary to reduce its current liabilities, then the current ratio would improve. The lower cost of goods sold would improve all of the profitability ratios and, if dividends were not increased, would lower the debt ratio through increased retained earnings. All of this should lead to a higher market/book7-6We are given ROA = 3% and Sales/Total assets = 1.5?.From Du Pont equation: ROA = Profit margin ? Total assets turnover 3% = Profit margin (1.5) Profit margin = 3%/1.5 = 2%.We can also calculate Zumwalt's debt ratio in a similar manner, given the facts of the problem. We aregiven ROA, which is NI/A and ROE, which is NI/Equity; if we use the reciprocal of ROE we have the following equation: Debt/Assets = 1 - Equity/A = 1 - 0.60 = 0.40 = 40.0%Thus, Zumwalt's net profit margin = 2% and its debt ratio = 40%.7-7 Present current ratio = $1,312,500/$525,000 = 2.5Minimum current ratio = $1,312,500 + NP$525,000 + NP ?? = 2.0$1,312,500 + ΔNP = $1,050,000 + 2ΔNPΔNP = $262,500.Short-term debt can increase by a maximum of $262,500 without violating a 2-to-1 current ratio, assuming that the entire increase in notes payable is used to increase current assets. Because we assumed that the additional funds would be used to increase inventory, the inventory account will increase to $637,500, and current assets will total $1,575,000.Quick ratio = ($1,575,000 ─ $637,500)/$787,500 = $937,500/$787,500 = 1.19? 7-8 (1)Current liabilities = $270,000. (2)Inventories = $432,000.=?=0.3s liabilitie Current 000,810$0.3sliabilitie Current assetsCurrent ?=-?=4.1$270,000s Inventorie $810,000 4.1sliabilitie Current sInventorie -assets Current(3) Current assets = Cash & Marketable securities+ Accounts receivable + Inventories$810,000 = $120,000 + Accounts receivable + $432,000Accounts receivable = $258,000.(4) ?=?=0.5$432,000CGS0.5Inventory sold goods of CostCGS = $2,160,000.(5) CGS = 0.86 (Sales) 628,511,2$86.0000,160,2$Sales ==(6)7-9TIE = EBIT/INT, so find EBIT and INT. Interest = $500,000 ? 0.1 = $50,000.Net income = $2,000,000 ? 0.05 = $100,000.Taxable income (EBT) = $100,000/(1 - T) = $100,000/0.8 = $125,000. EBIT = $125,000 + $50,000 = $175,000. TIE = $175,000/$50,000 = 3.5?.7-10ROE = NI/EquityNow we need to determine the inputs for the equation from the data that were given. On the left we set up an incomestatement, and we put numbers in it on the right:Sales (given) $10,000- Cost na EBIT (given) $ 1,000 - INT (given) (300) EBT $ 700 - Taxes (30%) (210) NI $ 490Now we can use some ratios to get some more data:Total assets turnover = 2 = S/TA; TA = S/2 = $10,000/2 = $5,000.D/TA = 60%; so E/TA = 40%; therefore, equity = TA ? E/TA= $5,000 ? 0.40 = $2,000days37 360/628,511,2$$258,000 360/Sales receivableAccounts DSO ===ROE = NI/E = $490/$2,000 = 24.5%, and ROA = NI/TA = $490/$5,000 = 9.8%.7-11 a. Currently, ROE is ROE1 = $15,000/$200,000 = 7.5%.The current ratio will be set such that 2.5 = CA/CL. CL is $50,000, and it will not change, so we can solve to find the new level of current assets: CA = 2.5(CL) = 2.5($50,000) = $125,000. Thisis the level of current assets that will produce a current ratio of 2.5?.At present, current assets amount to $210,000, so they can be reduced by $210,000 ─ $125,000 = $85,000.If the $85,000 generated is used to retire common equity, then the new common equity balance will be $200,000 ─ $85,000 = $115,000.Assuming that net income is unchanged, the new ROE will be ROE2 = $15,000/$115,000 =13.04%. Therefore, ROE will increase by 13.04% ─ 7.50% = 5.54%.b. (1) Doubling the dollar amounts would not affect the answer; the ROE increase would still be5.54%.(2) Current assets would increase by $25,000, which would mean a new ROE of$15,000/$140,000 = 10.71%, which would mean a difference of 10.71% ─7.50% =3.21%.(3)If the company had 10,000 shares outstanding, then its EPS would be $15,000/10,000 = $1.50. The stock has a book value of $200,000/10,000 = $20, so the shares retiredwould be $85,000/$20 = 4,250, leaving 10,000 ─ 4,250 = 5,750 shares. The new EPSwould be $15,000/5,750 = $2.6087, so the increase in EPS would be $2.6087 ─ $1.50 =$1.1087, which is a 73.91% increase, the same as the increase in ROE.(4)If the stock was selling for twice book value, or 2 ? $20 = $40, then only half as manyshares could be retired ($85,000/$40 = 2,125), so the remaining shares would be 10,000─ 2,125 = 7,875, and the new EPS would be $15,000/7,875 = $1.9048, for an increase of$1.9048 ─ $1.5000 = $0.4048.c. We could have started with lower inventories and higher accounts receivable, then had youcalculate the DSO, then move to a lower DSO that would require a reduction in receivables, andthen determine the effects on ROE and EPS under different conditions. Similarly, we couldhave focused on fixed assets and the FA turnover ratio. In any of these cases, we could have hadyou use the funds generated to retire debt, which would have lowered interest charges and consequently increased net income and EPS.If we had to increase assets, then we would have had to finance this increase by adding eitherdebt or equity, which would have lowered ROE and EPS, other things held constant.Finally, note that we could have asked some conceptual questions about the problem, either as apart of the problem or without any reference to the problem. For example, "If funds are generatedby reducing assets, and if those funds are used to retire common stock, will the effect on EPSand/or ROE be affected by whether or not the stock sells above, at, or below book value?"7-12 a. Sources and Uses of Funds Analysis:Lloyd Lumber CompanyBalance Sheets (millions of dollars)Jan. 1 Dec. 31 Source UseCash $ 7 $ 15 $ 8Marketable securities 0 11 11Net receivables 30 22 $ 8Inventories 53 75 22Gross fixed assets $ 75 $125 50 Less: depreciation ( 25) ( 35) 10Net fixed assets $ 50 $ 90Total assets $140 $213Accounts payable $ 18 $ 15 3 Notes payable 3 15 12Other current liabilities 15 7 8 Long-term debt 8 24 16 Common stock 29 57 28 Retained earnings 67 95 28 Total liabilitiesand equity $140 $213 $102 $102b. Lloyd Lumber CompanyStatement of Cash Flows, 2002(millions of dollars)Operating Activities:Net income $ 33Other additions (sources of cash):Depreciation $ 10Decrease in accounts receivable 8Subtractions (uses of cash):Increase in inventories ($22)Decrease in accounts payable (3)Decrease in other current liabilities (8)Net cash flow from operations $ 18Long-term Investing Activities:Acquisition of fixed assets ($ 50)Financing Activities:Increase in notes payable $ 12Sale of long-term debt 16Sale of common stock 28Payment of dividends ( 5)Net cash flow from financing $ 51Net increase in cash and marketablesecurities $ 19Cash and marketable securities atbeginning of year 7Cash and marketable securities atend of year $ 26c. Investments were made in plant and inventories. Funds were also utilized to reduce accounts payable and other current liabilities and to increase the cash and marketable securities accounts. Most funds were obtained by increasing long-term debt, selling common stock, and retaining earnings. The remainder was obtained from increasing notes payable and reducing receivables. A quick check of the ratios shows that the company's credit has not deteriorated--the current and quick ratios have increased, and the debt ratio has gone down slightly. Ratio analysis and the sources and uses statement both indicate a healthy situation.7-13 a. Dollars are in millions.Income CashStatement FlowsSales revenues $12.0 $12.0Costs, except depreciation* (9.0) (9.0)Depreciation (1.5) ---Total operating costs (10.5) ( 9.0) (Cash costs)Earnings before taxes $ 1.5 $ 3.0 (Pre-tax CF)Taxes (40%) ( 0.6) ( 0.6) (Cash taxes)Net income (NI) $ 0.9Add back depreciation 1.5Net cash flow = NI + DEP $ 2.4 $ 2.4* Costs, except depreciation = 0.75 $12.0 = $9.0b. Depreciation doubles.Income CashStatement FlowsSales revenues $12.0 $12.0Costs, except depreciation (9.0) (9.0)Depreciation (3.0) ---Total operating costs (12.0) ( 9.0) (Cash costs)Earnings before taxes $ 0.0 $ 3.0 (Pre-tax CF)Taxes (40%) ( 0.0) ( 0.0) (Cash taxes)Net income (NI) $ 0.0Add back depreciation 3.0Net cash flow = NI + DEP $ 3.0 $ 3.0c. Depreciation halves.Income CashStatement FlowsSales revenues $12.00 $12.00Costs, except depreciation (9.00) (9.00)Depreciation (0.75) ---Total operating costs ( 9.75) ( 9.00) (Cash costs)Earnings before taxes $ 2.25 $ 3.00 (Pre-tax CF)Taxes (40%) ( 0.90) ( 0.90) (Cash taxes)Net income (NI) $ 1.35Add back depreciation 0.75Net cash flow = NI + DEP $ 2.10 $ 2.10d. The after-tax cash flows are greater if Congress increases the allowance for depreciation, so you should prefer greater depreciation.7-14 The solution is given in the Instructor's Manual, Solutions to Integrative Problems. 7-17 Computer-Related Problema. The revised data and ratios are shown below:INPUT DATA: KEY OUTPUT:2000 Cary IndustryCash $ 84,527 Quick 1.2 1.0A/R 395,000 Current 3.0 2.7Inventories 700,000 Inv. turn. 6.1 5.8Land and bldg 238,000 DSO 33 32Machinery 132,000 F.A.turn. 8.3 13.0Other F.A. 150,000 T.A.turn. 2.5 2.6ROA 10.5% 9.1% Accts & Notes Pay. $ 275,000 ROE 19.9% 18.2%Accruals 120,000 TD/TA 47.0% 50.0%Long-term debt 404,290 PM 4.2% 3.5%Common stock 575,000 EPS $7.78 n.a.Retained earnings 325,237 Stock Price $46.68 n.a.__________P/E ratio 6.0 6.0Total assets $1,699,527 M/B 1.19 n.a.Total claims $1,699,527Income statementSales $4,290,000Cost of G.S. 3,450,000Adm. & sales exp. 248,775Depreciation 159,000Misc. 134,000Net income $ 178,935P/E ratio 6No. of shares 23,000Cash dividend $ 0.95Under these new conditions, Cary Corporation looks much better. Its turnover ratiosare still low, but its ROA and ROE are above the industry average, its estimated P/Eratio is better, and its stock price is anticipated to double. There is still room forimprovement, but the company is in much better shape.b. The financial statements and ratios for the scenario in which the cost of goods solddecreases by an additional $125,000 are shown on the next page. As you can see, the profit ratios are quite high and the stock price has risen to $66.24.INPUT DATA: KEY OUTPUT:2000 Cary IndustryCash $ 159,527 Quick 1.4 1.0A/R 395,000 Current 3.2 2.7Inventories 700,000 Inv. turn. 4.8 5.8Land and bldg 238,000 DSO 33 32Machinery 132,000 F.A.turn. 8.3 13.0Other F.A. 150,000 T.A.turn. 2.4 2.6ROA 14.3% 9.1% Accts & Notes Pay. $ 275,000 ROE 26.0% 18.2%Accruals 120,000 TD/TA 45.0% 50.0%Long-term debt 404,290 PM 5.9% 3.5%Common stock 575,000 EPS $11.04 n.a.Retained earnings 400,237 Stock Price $66.24 n.a.__________P/E ratio 6.0 6.0Total assets $1,774,527 M/B 1.56 n.a.Total claims $1,774,527Income statementSales $4,290,000Cost of G.S. 3,325,000Adm. & sales exp. 248,775Depreciation 159,000Misc. 134,000__________Net income $ 253,935P/E ratio 6No. of shares 23,000Cash dividend $ 0.95c. The financial statements and ratios for the scenario in which the cost of goods soldincreases by $125,000 over the revised estimate are shown on the next page. As you can see, profits would decline sharply. The ROE would drop to 12.6%, EPS wouldfall to $4.52, the stock price would drop to $27.11, and the M/B ratio would be only0.76.INPUT DATA: KEY OUTPUT:2000 Cary IndustryCash $ 9,527 Quick 1.0 1.0A/R 395,000 Current 2.8 2.7Inventories 700,000 Inv. turn. 5.1 5.8Land and bldg 238,000 DSO 33 32Machinery 132,000 F.A.turn. 8.3 13.0Other F.A. 150,000 T.A.turn. 2.6 2.6ROA 6.4% 9.1%Accts & Notes Pay. $ 275,000 ROE 12.6% 18.2%Accruals 120,000 TD/TA 49.2% 50.0%Long-term debt 404,290 PM 2.4% 3.5%Common stock 575,000 EPS $4.52 n.a.Retained earnings 250,237 Stock Price $27.11 n.a.__________P/E ratio 6.0 6.0Total assets $1,624,527 M/B 0.76 n.a.Total claims $1,624,527Income statementSales $4,290,000Cost of G.S. 3,575,000Adm. & sales exp. 248,775Depreciation 159,000Misc. 134,000__________Net income $ 103,935P/E ratio 6No. of shares 23,000Cash dividend $ 0.95d. Computer models allow us to analyze quickly the impact of operating and financialdecisions on the firm's overall performance. A firm can analyze its financial ratios under different scenarios to see what might happen if a decision, such as the purchase of a new asset, did not produce the expected results. This gives the managers some idea about what might happen under the best and worst cases and helps them to make better decisions.。
Financial Accounting Theory
Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan
4.11
Chapter 4: Accounting for changing prices
Calculating indices
4.12
Chapter 4: Accounting for changing prices
Performing current purchase power adjustments
• All adjustments are performed at the end of the period
Financial Accounting Theory
Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan
4.1
Financial Accounting Theory
Craig Deegan
Chapter 4 Normative theories of accounting - the case of accounting for changing prices
Slides written by Michaela Rankin
Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan
• literature then moved towards current cost accounting
Financial accounting theory chapter7实证会计理论ppt课件
7.5
Chapter 7: Positive Accounting Theory
PAT defined—continued
• Focuses on relationships between various individuals and how accounting is used to assist in the functioning of these relationships
7.4
Chapter 7: Positive Accounting Theory
Positive Accounting Theory defined
• PAT…is concerned with explaining accounting practice. It is designed to explain and predict which firms will and which firms will not use a particular method…but it says nothing as to which method a firm should use
7.6
Chapter 7: Positive Accounting Theory
Assumptions underlying PAT
• All individuals’ action is driven by selfinterest and individuals will act in an opportunistic manner to the extent that the actions will increase their wealth
– some criticisms of PAT
第七版答案(翻译-英译中结果)
内容第1章介绍 (1)第二章会计..........................................................在理想的条件7第三章财务报告的决策有用法 (68)第四章......................................................................有效的证券市场129第五章会计信息的价值相关性 (153)第六章决策有用性................................测量方法194第七章........................................................................测量应用237第8章有效的决策有用的契约方法 (285)第九章的分析冲突 (321)第十章高管薪酬 (371)第十一章盈余管理 (425)第十二章标准设置:经济问题 (487)第十三章标准设置:政治问题 (527)版权©2015年皮尔森加拿大公司。
第一章介绍1.1 这本书的目的1.2 一些历史的角度来看1.3 2007-2008年的市场崩盘1.4 有效的合同1.5 关于道德行为的说明1.6 基于规则的与基于原则的会计准则1.7 财务会计和报告信息的复杂性1.8 会计研究的作用1.9 信息不对称的重要性1.10财务会计理论的基本问题1.11监管作为对根本问题的反应1.12本书的组织结构1.12.1理想条件1.12.2逆向选择1.12.3道德风险1.12.4标准设定1.12.5标准设定过程1.13财务会计理论与会计实务的相关性学习目标及建议教学方法1. 这本书的概要我使用图1.1作为模板来描述这本书的大致轮廓。
由于学生们通常没有机会在第一节课上阅读第一章，所以我非常关注这一章的内容。
我讨论的要点是:•理想的会计环境。
在这里，基于现值的会计是很自然的。
我讨论了这种会计基础可行所需的理想条件，但没有详细讨论，因为这个主题在第2章有更深入的讨论。
会计学原理Financial Accounting by Robert Libby第八版 第七章 答案
Chapter 7Reporting and Interpreting Cost of Goods Sold and InventoryANSWERS TO QUESTIONS1. Inventory often is one of the largest amounts listed under assets on the balancesheet which means that it represents a significant amount of the resources available to the business. The inventory may be excessive in amount, which is a needless waste of resources; alternatively it may be too low, which may result in lost sales. Therefore, for internal users inventory control is very important. On the income statement, inventory exerts a direct impact on the amount of income.Therefore, statement users are interested particularly in the amount of this effect and the way in which inventory is measured. Because of its impact on both the balance sheet and the income statement, it is of particular interest to all statement users.2. Fundamentally, inventory should include those items, and only those items,legally owned by the business. That is, inventory should include all goods that the company owns, regardless of their particular location at the time.3. The cost principle governs the measurement of the ending inventory amount.The ending inventory is determined in units and the cost of each unit is applied to that number. Under the cost principle, the unit cost is the sum of all costs incurred in obtaining one unit of the inventory item in its present state.4. Goods available for sale is the sum of the beginning inventory and the amount ofgoods purchased during the period. Cost of goods sold is the amount of goods available for sale less the ending inventory.5. Beginning inventory is the stock of goods on hand (in inventory) at the start of theaccounting period. Ending inventory is the stock of goods on hand (in inventory) at the end of the accounting period. The ending inventory of one period automatically becomes the beginning inventory of the next period.6. (a) Average cost–This inventory costing method in a periodic inventorysystem is based on a weighted-average cost for the entire period. At theend of the accounting period the average cost is computed by dividing thegoods available for sale in units into the cost of goods available for salein dollars. The computed unit cost then is used to determine the cost ofgoods sold for the period by multiplying the units sold by this average unitcost. Similarly, the ending inventory for the period is determined bymultiplying this average unit cost by the number of units on hand.(b) FIFO–This inventory costing method views the first units purchased as thefirst units sold. Under this method cost of goods sold is costed at theoldest unit costs, and the ending inventory is costed at the newest unitcosts.(c) LIFO–This inventory costing method assumes that the last unitspurchased are the first units sold. Under this method cost of goods sold iscosted at the newest unit costs and the ending inventory is costed at theoldest unit costs.(d) Specific identification–This inventory costing method requires that eachitem in the beginning inventory and each item purchased during the periodbe identified specifically so that its unit cost can be determined byidentifying the specific item sold. This method usually requires that eachitem be marked, often with a code that indicates its cost. When it is sold,that unit cost is the cost of goods sold amount. It often is characterized asa pick-and-choose method. When the ending inventory is taken, thespecific items on hand, valued at the cost indicated on each of them, is theending inventory amount.7. The specific identification method of inventory costing is subject to manipulation.Manipulation is possible because one can, at the time of each sale, select (pick and choose) from the shelf the item that has the highest or the lowest (or some other) unit cost with no particular rationale for the choice. The rationale may be that it is desired to influence, by arbitrary choice, both the amount of income and the amount of ending inventory to be reported on the financial statements. To illustrate, assume item A is stocked and three are on the shelf. One cost $100;the second one cost $115; and the third cost $125. Now assume that one unit is sold for $200. If it is assumed arbitrarily that the first unit is sold, the gross profit will be $100; if the second unit is selected, the gross profit will be $85; or alternatively, if the third unit is selected, the gross profit will be $75. Thus, the amount of gross profit (and income) will vary significantly depending upon which one of the three is selected arbitrarily from the shelf for this particular sale. This assumes that all three items are identical in every respect except for their unit costs. Of course, the selection of a different unit cost, in this case, also will influence the ending inventory for the two remaining items.8. LIFO and FIFO have opposite effects on the inventory amount reported underassets on the balance sheet. The ending inventory is based upon either the oldest unit cost or the newest unit cost, depending upon which method is used.Under FIFO, the ending inventory is costed at the newest unit costs, and under LIFO, the ending inventory is costed at the oldest unit costs. Therefore, when prices are rising, the ending inventory reported on the balance sheet will be higher under FIFO than under LIFO. Conversely, when prices are falling the ending inventory on the balance sheet will be higher under LIFO than under FIFO.9. LIFO versus FIFO will affect the income statement in two ways: (1) the amount ofcost of goods sold and (2) income. When the prices are rising, FIFO will give a lower cost of goods sold amount and hence a higher income amount than will LIFO. In contrast, when prices are falling, FIFO will give a higher cost of goods sold amount and, as a result, a lower income amount.10. When prices are rising,LIFO causes a lower taxable income than does FIFO.Therefore, when prices are rising, income tax is less under LIFO than FIFO. A lower tax bill saves cash (reduces cash outflow for income tax). The total amount of cash saved is the difference between LIFO and FIFO inventory amounts multiplied by the income tax rate.11. LCM is applied when market (defined as current replacement cost) is lower thanthe cost of units on hand. The ending inventory is valued at market (lower), which (a) reduces net income and (b) reduces the inventory amount reported on the balance sheet. The effect of applying LCM is to include the holding loss on the income statement (as a part of CGS) in the period in which the replacement cost drops below cost rather than in the period of actual sale.12. When a perpetual inventory system is used, the unit cost must be known for eachitem sold at the date of each sale because at that time two things happen: (a) the units sold and their costs are removed from the perpetual inventory record and the new inventory balance is determined; (b) the cost of goods sold is determined from the perpetual inventory record and an entry in the accounts is made as a debit to Cost of Goods Sold and a credit to Inventory. In contrast, when a periodic inventory system is used the unit cost need not be known at the date of each sale. In fact, the periodic system is designed so that cost of goods sold for each sale is not known at the time of sale. At the end of the period, under the periodic inventory system, cost of goods sold is determined by adding the beginning inventory to the total goods purchased for the period and subtracting from that total the ending inventory amount. The ending inventory amount is determined by means of a physical inventory count of the goods remaining on hand and with the units valued on a unit cost basis in accordance with the cost principle (by applying an appropriate inventory costing method). ANSWERS TO MULTIPLE CHOICE1. c)2. d)3. a)4. a)5. c)6. c)7. a)8. c)9. c) 10. a)Authors' Recommended Solution Time(Time in minutes)* Due to the nature of these cases and projects, it is very difficult to estimate the amount of time students will need to complete the assignment. As with any open-ended project, it is possible for students to devote a large amount of time to these assignments. While students often benefit from the extra effort, we find that some become frustrated by the perceived difficulty of the task. You can reduce student frustration and anxiety by making your expectations clear. For example, when our goal is to sharpen research skills, we devote class time to discussing research strategies. When we want the students to focus on a real accounting issue, we offer suggestions about possible companies or industries.MINI-EXERCISESM7–1.Type of BusinessType of Inventory Merchandising ManufacturingWork in process XFinished goods XMerchandise XRaw materials XM7–2.To record the purchase of 90 new shirts in accordance with the cost principle (perpetual inventory system):Inventory (+A) .............................................................. 2,150Cash ( A) .......................................................... 2,150 Cost: $1,800 + $185 + $165 = $2,150.The $108 interest expense is not a proper cost of the merchandise; it is recorded as prepaid interest expense and later as interest expense.M7–3.(1) Part of inventory (2) Expense as incurreda. Wages of factory workers Xb. Costs of raw materials purchased Xc. Sales salaries Xd. Heat, light, and power for the factory building Xe. Heat, light, and power for the headquartersoffice buildingXComputation: Simply rearrange the basic inventory model (BI + P – EI = CGS): Cost of goods sold ................................................. $11,042 million + Ending inventory .................................................... 2,916 million –Beginning inventory ............................................... (3,213) million Purchases .............................................................. $10,745 millionM7–5.(a) Declining costsHighest net income LIFOHighest inventory LIFO(b) Rising costsHighest net income FIFOHighest inventory FIFOM7–6.LIFO is often selected when costs are rising because it reduces the company’s tax liability which increases cash and benefits shareholders. However, it also reduces reported net income.M7–7.Quantity Cost perItem ReplacementCost per ItemLower of Costor MarketReported onBalance SheetItem A 70 $ 110 $100 $100 70 x $100 = $7,000 Item B 30 60 85 60 30 x $60 = $1,800 Total $8,800 M7–8.+ (a) Parts inventory delivered daily by suppliers instead of weekly.NE (b)Extend payments for inventory purchases from 15 days to 30 days.+ (c) Shorten production process from 10 days to 8 days.Understatement of the 2014 ending inventory by $50,000 caused 2014 pretax income to be understated and 2015 pretax income to be overstated by the same amount. Overstatement of the 2014 ending inventory would have the opposite effect; that is, 2014 pretax income would be overstated by $50,000 and 2015 pretax income understated by $50,000. Total pretax income for the two years combined would be correct.EXERCISESE7–1Item Amount ExplanationEnding inventory (physical count onDecember 31, 2014)$34,500 Per physical inventory.a. Goods purchased and in transit + 700 Goods purchased and in transit,F.O.B. shipping point, are ownedby the purchaser.b. Samples out on trial tocustomer + 1,800 Samples held by a customer ontrial are still owned by the vendor;no sale or transfer of ownershiphas occurred.c. Goods in transit to customer Goods shipped to customers,F.O.B. shipping point, are ownedby the customer becauseownership passed when they weredelivered to the transportationcompany. The inventory correctlyexcluded these items.d. Goods sold and in transit + 1,500 Goods sold and in transit, F.O.B.destination, are owned by the selleruntil they reach destination.Correct inventory, December 31, 2014 $38,500E7–2.(Italics for missing amounts only.)Case A Case B Case CNet sales revenue .......... $7,500 $4,800$5,000 Beginning inventory ........ $11,200 $ 7,000 $ 4,000 Purchases .................. 4,500 8,050 9,500Goods available for sale . 15,700 15,050 13,500Ending inventory ............ 9,000 11,050 9,300Cost of goods sold.......... 6,700 4,000 4,200 Gross profit .................. 800 800 800 Expenses .................. 300 1,000 700 Pretax income ................ $ 500 $ (200) $ 100E7–3.E7–4.Computations:Simply rearrange the cost of goods sold equationBI + P – EI = CGSP = CGS – BI + EICost of goods sold ................................... $1,639,188,000 –Beginning inventory .................................. (385,857,000) + Ending inventory ...................................... 569,818,000 Purchases ................................................ $1,823,149,000E7-5AverageUnits FIFO LIFO Cost Cost of goods sold:Beginning inventory ($5) ............. 2,000 $10,000 $10,000 $10,000 Purchases (March 21) ($6) ......... 5,000 30,000 30,000 30,000 (August 1) ($8) .......... 3,000 24,000 24,000 24,000Goods available for sale .. 10,000 64,000 64,000 64,000 Ending inventory* ....................... 4,000 30,000 22,000 25,600 Cost of goods sold** ........ 6,000 $34,000 $42,000 $38,400 *Ending inventory computations:FIFO: (3,000 units @ $8) + (1,000 units @ $6) = $30,000.LIFO: (2,000 units @ $5) + (2,000 units @ $6) = $22,000.Average: [(2,000 units @ $5) + (5,000 units @ $6) + (3,000 units @ $8)] =$64,000 ÷ 10,000 units = $6.40 per unit.4,000 units @ $6.40 = $25,600.**Cost of goods sold computations:FIFO: (2,000 units @ $5) + (4,000 units @ $6) = $34,000.LIFO: (3,000 units @ $8) + (3,000 units @ $6) = $42,000.Average: [(2,000 units @ $5) + (5,000 units @ $6) + (3,000 units @ $8)] =$64,000 ÷ 10,000 units = $6.40 per unit.6,000 units @ $6.40 = $38,400.E7–6AverageUnits FIFO LIFO Cost Cost of goods sold:Beginning inventory ($5) ............. 2,000 $10,000 $10,000 $10,000 Purchases (March 21) ($4) ......... 6,000 24,000 24,000 24,000 (August 1) ($2) .......... 4,000 8,000 8,000 8,000Goods available for sale .. 12,000 42,000 42,000 42,000 Ending inventory* ....................... 3,000 6,000 14,000 10,500 Cost of goods sold ........... 9,000 $36,000 $28,000 $31,500 *Ending inventory computations:FIFO: (3,000 units @ $2) = $6,000.LIFO: (2,000 units @ $5) + (1,000 units @ $4) = $14,000.Average: [(2,000 units @ $5) + (6,000 units @ $4) + (4,000 units @ $2)] =$42,000 ÷ 12,000 units = $3.50 per unit.3,000 units @ $3.50 = $10,500.**Cost of goods sold computations:FIFO: (2,000 units @ $5) + (6,000 units @ $4) + (1,000 units @ $2) = $36,000.LIFO: (4,000 units @ $2) + (5,000 units @ $4) = $28,000.Average: [(2,000 units @ $5) + (6,000 units @ $4) + (4,000 units @ $2)] =$42,000 ÷ 12,000 units = $3.50 per unit.9,000 units @ $3.50 = $31,500.E7–7.Req. 1BROADHEAD COMPANYIncome StatementFor the Year Ended December 31, 2015Case A Case BFIFO LIFOSales revenue1 .............................. $500,000 $500,000 Cost of goods sold:Beginning inventory ................ $ 27,000 $ 27,000Purchases .............................. 195,000 195,000Goods available for sale2 222,000 222,000 Ending inventory3 .................. 125,000 87,000Cost of goods sold4......... 97,000 135,000 Gross profit .................................. 403,000 365,000 Expenses .................................. 195,000 195,000 Pretax income ................................ $208,000 $170,000 Computations:(1) Sales: (10,000 units @ $50) = $500,000(2) Goods available for sale (for both cases):Units Unit Cost Total Cost Beginning inventory 3,000 $9 $ 27,000Purchase, April 11, 2015 9,000 10 90,000Purchase, June 1, 2015 7,000 15 105,000 Goods available for sale 19,000 $222,000 (3) Ending inventory (19,000 available – 10,000 units sold = 9,000 units):Case A FIFO:(7,000 units @ $15 = $105,000) +(2,000 units @ $10 = $20,000) = $125,000.Case B LIFO:(3,000 units @ $9 = $27,000)+(6,000 units @ $10 = $60,000) = $87,000.E7–7. (continued)Req. 1 (continued)(4) Cost of goods sold (10,000 units sold):Case A FIFO:(3,000 units @ $9 = $27,000) +(7,000 units @ $10 = $70,000) = $97,000Case B LIFO:(7,000 units @ $15 = $105,000) +(3,000 units @ $10 = $30,000) = $135,000Req. 2Comparison of AmountsCase A Case BFIFO LIFOPretax Income $208,000 $170,000Difference $38,000Ending Inventory 125,000 87,000Difference 38,000The above tabulation demonstrates that the pretax income difference between the two cases is exactly the same as the inventory difference. Differences in inventory have a dollar-for-dollar effect on pretax income.Req. 3LIFO may be preferred for income tax purposes because it reports less taxable income (when prices are rising) and hence (a) reduces income tax and (b) as a result reduces cash outflows for the period.E7–8.Req. 1BECK INC.Income StatementFor the Year Ended December 31, 2015Case A Case BFIFO LIFOSales revenue1 .............................. $704,000 $704,000 Cost of goods sold:Beginning inventory ................ $ 35,000 $ 35,000Purchases .............................. 281,000 281,000Goods available for sale2 316,000 316,000 Ending inventory3 .................. 128,000 80,000Cost of goods sold4......... 188,000 236,000 Gross profit .................................. 516,000 468,000 Expenses .................................. 500,000 500,000 Pretax income ................................ $16,000 $(32,000) Computations:(1) Sales: (8,000 units @ $28) + (16,000 units @ $30) = $704,000(2) Goods available for sale (for both cases):Units Unit Cost Total Cost Beginning inventory 7,000 $5 $ 35,000Purchase, March 5, 2015 19,000 9 171,000Purchase, September 19, 2015 10,000 11 110,000 Goods available for sale 36,000 $316,000 (3) Ending inventory (36,000 available – 24,000 units sold = 12,000 units):Case A FIFO:(10,000 units @ $11 = $110,000) +(2,000 units @ $9 = $18,000) = $128,000.Case B LIFO:(7,000 units @ $5 = $35,000)+(5,000 units @ $9 = $45,000) = $80,000.E7–8. (continued)Req. 1 (continued)(4) Cost of goods sold (24,000 units sold):Case A FIFO:(7,000 units @ $5 = $35,000) +(17,000 units @ $9 = $153,000) = $188,000Case B LIFO:(10,000 units @ $11 = $110,000) +(14,000 units @ $9 = $126,000) = $236,000Req. 2Comparison of AmountsCase A Case BFIFO LIFOPretax Income $16,000 $(32,000)Difference $48,000Ending Inventory 128,000 80,000Difference 48,000The above tabulation demonstrates that the pretax income difference between the two cases is exactly the same as the inventory difference. Differences in inventory have a dollar-for-dollar effect on pretax income.Req. 3LIFO may be preferred for income tax purposes because it reports less taxable income (when prices are rising) and hence (a) reduces income tax and (b) as a result reduces cash outflows for the period.E7–9.Req. 1AverageUnits FIFO LIFO Cost Cost of goods sold:Beginning inventory .................... 2,000 $ 76,000 $ 76,000 $ 76,000Purchases................................... 8,000 320,000 320,000 320,000 Goods available for sale .. 10,000 396,000 396,000 396,000 Ending inventory* ....................... 1,800 72,000 68,400 71,280 Cost of goods sold** ........ 8,200 $324,000 $327,600 $324,720Average Income statement FIFO LIFO Cost Sales revenue ....................................... $615,000 $615,000 $615,000 Cost of goods sold................................. 324,000 327,600 324,720 Gross profit ......................................... 291,000 287,400 290,280 Expenses ......................................... 194,500 194,500 194,500 Pretax income ....................................... 96,500 92,900 95,780 Income tax expense (30%) ......... 28,950 27,870 28,734 Net income ......................................... $ 67,550 $ 65,030 $ 67,046*Ending inventory computations:FIFO: 1,800 units @ $40 = $72,000.LIFO: 1,800 units @ $38 = $68,400.Average: [(2,000 units @ $38) + (8,000 units @ $40)] ÷ 10,000 units =$396,000 ÷ 10,000 units = $39.60 per unit.$39.60 x 1,800 units = $71,280.**Cost of goods sold computations:FIFO: (2,000 units @ $38) + (6,200 units @ $40) = $324,000.LIFO: (8,000 units @ $40) + (200 units @ $38) = $327,600.Average: [(8,000 units @ $38) + (8,000 units @ $40)] =$396,000 ÷ 10,000 units = $39.60 per unit.8,200 units @ $39.60 = $324,720.Req. 2FIFO produces a more favorable (higher) net income because when prices are rising it gives a lower cost of goods sold amount. FIFO allocates the old (lower) unit costs to cost of goods sold.LIFO produces a more favorable cash flow than FIFO because, when prices are rising, it produces a higher cost of goods sold amount and lower taxable income and, therefore, lower income tax expense for the period. Cash outflow is less under LIFO by the amount of income tax reduction. LIFO causes these comparative effects because it allocates the new (higher) unit costs to cost of goods sold.E7–9. (continued)Req. 3When prices are falling, the opposite effect occurs–LIFO produces higher net income and less favorable cash flow than does FIFO.E7–10.Req. 1AverageFIFO LIFO Cost Cost of goods sold:Beginning inventory (400 units @ $28) ... $11,200 $11,200 $11,200 Purchases (475 units @ $35) ................. 16,625 16,625 16,625 Goods available for sale ......................... 27,825 27,825 27,825 Ending inventory (525 units)*.................. 18,025 15,575 16,695 Cost of goods sold (350 units)** ............. $ 9,800 $12,250 $ 11,130 *Computation of ending inventory:FIFO: (475 units x $35) + (50 units x $28) = $18,025LIFO: (400 units x $28) + (125 units x $35) = $15,575Average: [(400 units @ $28) + (475 units @ $35)] ÷ 875 units =$27,825 ÷ 875 units = $31.80 per unit.$31.80 x 525 units = $16,695.**Cost of goods sold computations:FIFO: (350 units @ $28) = $9,800.LIFO: (350 units @ $35) = $12,250.Average: [(400 units @ $28) + (475 units @ $35)] ÷ 875 units =$27,825 ÷ 875 units = $31.80 per unit.$31.80 x 350 units = $11,130.Req. 2AverageFIFO LIFO Cost Sales revenue ($50 x 350) ............................... $17,500 $17,500 $17,500 Cost of goods sold............................................. 9,800 12,250 11,130 Gross profit ..................................................... 7,700 5,250 6,370 Expenses ..................................................... 1,700 1,700 1,700 Pretax income ................................................... $ 6,000 $ 3,550 $ 4,670E7–10. (continued)Req. 3Ranking in order of favorable cash flow: The higher rankings are given to the methods that produce the lower income tax expense because the lower the income tax expense the higher the cash savings.(1) LIFO–produces the lowest pretax income, hence the lowest amount of cash to bepaid for income tax.(2) Weighted average–produces next lower pretax income.(3) FIFO–produces the highest pretax income and as a result the highest income tax.This result causes the lowest cash savings on income tax.The above comparative effects occurred because prices were rising. If prices were falling the three methods would have produced the opposite ranking.E7–11.Inventory valuation that should be used (LCM) $6,980E7–12.Req. 1Inventory valuation that should be used (LCM) $4,875 Req. 2The write-down to lower of cost or market will increase cost of goods sold expense by the amount of the write-down, $150:Total Cost - LCM Valuation = Write-down$5,025 - $4,875 = $150 Write-downReq. 1Inventory turnover = Cost of Goods Sold = $48,260 35.68Average Inventory ($1,301+$1,404)/2Average days to sell inventory = 365 / inventory turnover = 365 / 35.68 = 10.2 days Req. 2The inventory turnover ratio reflects how many times average inventory was produced and sold during the period. Thus, Dell produced and sold its average inventory nearly 36 times during the year.The average days to sell inventory indicates the average time it takes the company to produce and deliver inventory to customers. Thus, Dell takes an average of about 10.2 days to produce and deliver its computer inventory to its customers.CASE A – FIFO:Goods available for sale for FIFO:Units (19 + 25 + 50) (94)Amount ($304 + 325 + 950) ......................................... $1,579Ending inventory: 94 units – 65 units = 29.Ending inventory (29 units x $19) ................................ $ 551Cost of goods sold: [(19 units @ $16) +(25 units @ $13)+ (21 units @ $19)] .................... $1,028Inventory turnover = Cost of Goods Sold = $1,028 = 2.40Average Inventory ($304+$551)/2CASE B – LIFO:Goods available for sale for LIFO:Units (19 + 25 + 50) (94)Amount ($228 + 325 + 950) ......................................... $1,503Ending inventory: 94 units – 65 units = 29.Ending inventory (19 units x $12) + (10 units x $13) ... $ 358Cost of goods sold [(50 units @ $19) +(15 units @ $13)] $1,145Inventory turnover = Cost of Goods Sold = $1,145 = 3.91Average Inventory ($228+$358)/2The FIFO inventory turnover ratio is normally thought to be a more accurate indicator when prices are changing because LIFO can include very old inventory prices in ending inventory balances.Req. 1 The reported ending inventory for Ford was $5,901 million. If FIFO were used exclusively, the ending inventory would have been $928 million higher than reported, or $6,829 million.Req. 2 The restated cost of goods sold amount must reflect the restatement of both beginning and ending inventory:Beginning inventory ............................................... $865 millionLess: Ending inventory .......................................... 928 millionImpact on COGS ................................................... ($ 63 million)If FIFO had been used exclusively, cost of goods sold would have been $113,345 - $63 = $113,282 million. In this case, FIFO cost of goods sold is less than LIFO cost of goods sold. This is likely the result of increasing prices.Req. 3 When costs are rising, LIFO normally produces lower net income before taxes and lower current tax payments.Req. 1 Net Income for 2014 will be Overstated. An understatement of purchases produces an understatement of cost of goods sold which produces an overstatement of the current period’s income.BI + P - EI = CGSUnderstate UnderstateReq. 2 Net Income for 2015 will be Understated. An overstatement of purchases produces an overstatement of cost of goods sold which produces an understatement of the current period’s income.BI + P - EI = CGSOverstate OverstateReq. 3 Retained Earnings for December 31, 2014, will be Overstated because of the overstatement of Net Income for 2014.Req. 4 Retained Earnings for December 31, 2015, will be Correct because the overstatement of Net Income for 2014 and understatement of Net Income for 2015 will offset one another.Req. 1When the ending inventory is overstated, cost of goods sold is understated which in turn results in an overstatement of net income. Gibson’s income from operations should be reduced by $8,806,000 and tax expense should be reduced by $3,460,758 (i.e., $8,806,000 x 0.393). Therefore, net income should be:As reported: ........................................................ $25,852,000Increase in cost of goods sold ............................ (8,806,000)Reduction in tax expense ................................... 3,460,758Corrected income ............................................... $20,506,758Req. 2The incorrect accounts can be summarized as follows:(a) Year of (b) SubsequentAccount Error YearBeginning inventory correct overstatedCost of goods sold understated overstatedEnding inventory overstated correctIncome tax expense overstated understatedNet income overstated understatedRetained earnings overstated correctTaxes payable* overstated understated*The income tax payable for each year is incorrect by the same amount; therefore the total income tax paid was correct.。
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Learning Objectives
• In this chapter you will be introduced to
• how a positive theory differs from a normative theory
• the origins of Positive Accounting theory • the perceived role of accounting in minimising the
• some criticisms of PAT
Financial accounting theory chapter7实证会计理论
Positive compared to normative theories
• A positive theory seeks to explain and predict
Financial accounting theory chapter7实证会计理论
PAT defined—continued
• Focuses on relationships between various individuals and how accounting is used to assist in the functioning of these relationships
Financial Accounting Theory
Craig Deegan
Chapter 7 Positive Accounting Theory
Slides written by Michaela Rankin
Financial accounting theory chapter7实证会计理论
• All individuals’ action is driven by self-interest and individuals will act in an opportunistic manner to the extent that the actions will increase their wealth
• capital markets react in an efficient and unbiased manner to publicly available information
• Ball and Brown (1968) paper was crucial to the acceptance of the positive research paradigm
Financial accounting theory chapter7实证会计理论
Positive Accounting Theory defined
• PAT…is concerned with explaining accounting practice. It is designed to explain and predict which firms will and which firms will not use a particular method…but it says nothing as to which method a firm shoulves
• how particular accounting-based agreements with parties such as debtholders and managers can provide incentives for managers to manipulate accounting numbers
• does not incorporate notions of loyalty or morality
Financial accounting theory chapter7实证会计理论
Origins of PAT
• Started coming to prominence in mid 1960s
transaction costs of an organisation • how accounting can be used to reduce the costs
associated with various political processes
Financial accounting theory chapter7实证会计理论
• examples of relationships:
• owners and managers • managers and the firm’s debt providers
Financial accounting theory chapter7实证会计理论
Assumptions underlying PAT
Financial accounting theory chapter7实证会计理论
Origins of PAT—capital markets research
• Development of Efficient Markets Hypothesis (EMH) by Fama and others
particular phenomena • normative theories prescribe how a particular
practice should be undertaken
• the prescription might depart from existing practice
• paradigm shift from normative theories
• dominant research paradigm in 1970s and 1980s
• shift resulted from US reports on business education, and improved computing facilities enabling largescale statistical analysis