Horngren accounting 10ht global edtion by nobles matsumura

GLOBAL EDITION Horngren’s Accounting TENTH EDITION Nobles • Mattison • Matsumura HORNGREN’S ACCOUNTING TenTh ediTion Global Edition Tracie Nobles Texas State University–San Marcos Brenda Mattison Tri-County Technical College Ella Mae Matsumura University of Wisconsin–Madison Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montréal Toronto Delhi Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo Editor-in-Chief: Donna Battista Head of Learning Asset Acquisition: Laura Dent Acquisitions Editor: Lacey Vitetta Senior Acquisitions Editor, Global Editions: Steven Jackson Director of Editorial Services: Ashley Santora VP/Director of Development: Steve Deitmer Development Editor: Linda Harrison, Harrison Ridge Services Editorial Project Manager: Nicole Sam Editorial Assistants: Jane Avery and Lauren Zanedis Director of Marketing: Maggie Moylan Leen Marketing Manager: Alison Haskins Marketing Assistant: Kimberly Lovato Managing Editor, Production: Jeff Holcomb Senior Production Project Manager: Roberta Sherman Media Producer, Global Editions: M Vikram Kumar Project Editor, Global Editions: K.K Neelakantan Senior Production Manufacturing Controller, Global Editions: Trudy Kimber Permissions Project Manager: Jill Dougan Manufacturing Buyer: Carol Melville Senior Art Director: Anthony Gemmellaro Cover Design: Premedia Global Cover Photo: © mamanamsai/Shutterstock Editorial Media Project Manager: James Bateman Production Media Project Manager: John Cassar Full-Service Project Management and Composition: Integra Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on appropriate page within text or on pages 1797 and 1798 Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsonglobaleditions.com © Pearson Education Limited 2015 The rights of Tracie L Nobles, Brenda L Mattison and Ella Mae Matsumura to be identified as the authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988 Authorized adaptation from the United States edition, entitled Horngren’s Accounting, 10th edition, ISBN 978-0-13-311741-7, by Tracie L Nobles, Brenda l Mattison and Ella Mae Matsumura, published by Pearson Education © 2014 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a license permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS All trademarks used herein are the property of their respective owners The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 10 15 14 13 12 11 ISBN 10: 1-292-05651-7 ISBN 13: 978-1-292-05651-7 (Print) ISBN 13: 978-1-292-07473-3 (PDF) Typeset in Adobe Garamond Pro Regular, 11/13, Integra Printed and bound by Courier Kendallville in the United States In memory of Charles T Horngren 1926–2011 Whose vast contributions to the teaching and learning of accounting impacted and will continue to impact generations of accounting students and professionals About the Authors Tracie L Nobles, CPA, received her bachelor’s and master’s degrees in accounting from Texas A&M University She is currently a Senior Lecturer at Texas State University, San Marco, TX Previously she served as an Associate Professor of Accounting at Austin Community College and has served as department chair of the Accounting, Business, Computer Information Systems, and Marketing/ Management department at Aims Community College, Greeley, CO Professor Nobles has public accounting experience with Deloitte Tax LLP and Sample & Bailey, CPAs Professor Nobles is a recipient of the Texas Society of CPAs Outstanding Accounting Educator Award, NISOD Teaching Excellence Award and the Aims Community College Excellence in Teaching Award She is a member of the Teachers of Accounting at Two Year Colleges, the American Accounting Association, the American Institute of Certified Public Accountants, and the Texas State Society of Certified Public Accountants She is currently serving on the Board of Directors as secretary/webmaster of Teachers of Accounting at Two Year Colleges, as chair of the American Institute of Certified Public Accountants Pre-certification Executive Education committee, and as program chair for the Teaching, Learning and Curriculum section of the American Accounting Association In addition, Professor Nobles served on the Commission on Accounting Higher Education: Pathways to a Profession Tracie has spoken on such topics as using technology in the classroom, motivating non-business majors to learn accounting, and incorporating active learning in the classroom at numerous conferences In her spare time she enjoys spending time with her friends and family, and camping, fishing and quilting Brenda L Mattison has a bachelor’s degree in education and a master’s degree in accounting, both from Clemson University She is currently an Accounting Instructor at Tri-County Technical College in Pendleton, South Carolina Brenda previously served as Accounting Program Coordinator at TCTC and has prior experience teaching accounting at Robeson Community College, Lumberton, North Carolina; University of South Carolina–– Upstate, Spartanburg, South Carolina; and Rasmussen Business College, Eagan, Minnesota She also has accounting work experience in retail and manufacturing businesses Brenda is a member of Teachers of Accounting at Two Year Colleges and the American Accounting Association She is currently serving on the board of directors as Vice President of Registration of Teachers of Accounting at Two Year Colleges Brenda engages in the scholarship of teaching and learning (SOTL) While serving as Faculty Fellow at Tri-County Technical College, her research project was Using Applied Linguistics in Teaching Accounting, the Language of Business Brenda has presented her research findings Other presentations include using active learning and manipulatives, such as building blocks and poker chips, in teaching accounting concepts In her spare time, Brenda enjoys reading and spending time with her family, especially touring the United States in their motorhome She is also an active volunteer in the community, serving her church, local Girl Scouts, and other organizations Ella Mae Matsumura is a professor in the Department of Accounting and Information Systems in the School of Business at the University of Wisconsin– Madison, and is affiliated with the university’s Center for Quick Response Manufacturing She received an A.B in mathematics from the University of California, Berkeley, and M.Sc and Ph.D degrees from the University of British Columbia Matsumura has won two teaching excellence awards at the University of Wisconsin–Madison and was elected as a lifetime fellow of the university’s Teaching Academy, formed to promote effective teaching She is a member of the university team awarded an IBM Total Quality Management Partnership grant to develop curriculum for total quality management education Professor Matsumura was a co-winner of the 2010 Notable Contributions to Management Accounting Literature Award She has served in numerous leadership positions in the American Accounting Association (AAA) She was coeditor of Accounting Horizons and has chaired and served on numerous AAA committees She has been secretary–treasurer and president of the AAA’s Management Accounting Section Her past and current research articles focus on decision making, performance evaluation, compensation, supply chain relationships, and sustainability She coauthored a monograph on customer profitability analysis in credit unions Brief Contents Chapter Accounting and the Business Environment 26 Chapter Recording Business Transactions 86 Chapter The Adjusting Process 156 Chapter Completing the Accounting Cycle 230 Chapter Merchandising Operations 300 Chapter Merchandise Inventory 386 Chapter Accounting Information Systems 452 Chapter Internal Control and Cash 516 Chapter Receivables 572 Chapter 10 Plant Assets, Natural Resources, and Intangibles 632 Chapter 11 Current Liabilities and Payroll 688 Chapter 12 Partnerships 734 Chapter 13 Corporations 798 Chapter 14 Long-Term Liabilities 862 Chapter 15 Investments 920 Chapter 16 The Statement of Cash Flows 956 Chapter 17 Financial Statement Analysis 1032 Chapter 18 Introduction to Managerial Accounting 1102 Chapter 19 Job Order Costing 1154 Chapter 20 Process Costing 1216 Chapter 21 Cost-Volume-Profit Analysis 1292 Chapter 22 Master Budgets 1368 Chapter 23 Flexible Budgets and Standard Cost Systems 1454 Chapter 24 Cost Allocation and Responsibility Accounting 1524 Chapter 25 Short-Term Business Decisions 1596 Chapter 26 Capital Investment Decisions 1658 AppENdIx A—2011 Green Mountain Coffee Roasters, Inc Annual Report 1721 AppENdIx B—Present Value Tables 1767 GlossAry 1771 INdEx 1781 pHoTo CrEdITs 1797 Contents Chapter Accounting and the Business Environment 26 Why Is Accounting Important? 28 Decision Makers: The Users of Accounting Information The Accounting Profession 29 What Are the Organizations and Rules That Govern Accounting? 31 Governing Organizations 31 Generally Accepted Accounting Principles 31 The Economic Entity Assumption 32 The Cost Principle 32 The Going Concern Assumption 33 The Monetary Unit Assumption 33 International Financial Reporting Standards 33 Ethics in Accounting and Business 33 What Is the Accounting Equation? ■ Review 116 ■ Assess Your Progress ■ Critical Thinking What Is the Difference Between Cash Basis Accounting and Accrual Basis Accounting? 158 What Concepts and Principles Apply to Accrual Basis Accounting? 160 36 Transaction Analysis for Smart Touch Learning 37 42 Income Statement 42 Statement of Owner’s Equity 43 Balance Sheet 44 Statement of Cash Flows 45 How Do You Use Financial Statements to Evaluate Business Performance? 47 Green Mountain Coffee Roasters, Inc Return on Assets (ROA) 47 47 50 ■ Assess Your Progress 160 What Are Adjusting Entries and How Do We Record Them? 162 Prepaid Expenses 163 Unearned Revenues 169 Accrued Expenses 170 Accrued Revenues 174 What Is the Purpose of the Adjusted Trial Balance and How Do We Prepare It? 178 What Is the Impact of Adjusting Entries on the Financial Statements? 180 How Could a Worksheet Help in Preparing Adjusting Entries and the Adjusted Trial Balance? 181 AppENdIx 3A: Alternative Treatment of Recording Prepaid Expenses and Unearned Revenues 184 57 79 What Is an Alternative Treatment of Recording Prepaid Expenses and Unearned Revenues? 184 Prepaid Expenses 184 Unearned Revenues 185 Chapter recording Business Transactions 86 ■ Review What Is an Account? ■ Assess Your Progress 88 Assets 88 Liabilities 89 Equity 90 Chart of Accounts 90 Ledger 91 What Is Double-Entry Accounting? How Do You Record Transactions? 187 ■ Critical Thinking 196 222 92 The T-Account 92 Increases and Decreases in the Accounts 92 Expanding the Rules of Debit and Credit 93 The Normal Balance of an Account 93 Determining the Balance of a T-Account 94 95 Source Documents—The Origin of the Transactions 95 Journalizing and Posting Transactions 96 The Ledger Accounts After Posting 107 The Four-Column Account: An Alternative to the T-Account 109 124 152 35 How Do You Prepare Financial Statements? 111 How Do You Use the Debt Ratio to Evaluate Business Performance? 113 The Time Period Concept 160 The Revenue Recognition Principle The Matching Principle 161 How Do You Analyze a Transaction? ■ Critical Thinking Preparing Financial Statements From the Trial Balance Correcting Trial Balance Errors 112 Chapter The Adjusting process 156 Assets 35 Liabilities 35 Equity 35 ■ Review 28 What Is the Trial Balance? 111 Chapter Completing the Accounting Cycle 230 How Do We Prepare Financial Statements? 232 Relationships Among the Financial Statements 233 How Could a Worksheet Help in Preparing Financial Statements? 237 Section 5—Income Statement 237 Section 6—Balance Sheet 237 Section 7—Determine Net Income or Net Loss 237 What Is the Closing Process, and How Do We Close the Accounts? 239 Closing Temporary Accounts—Net Income 241 Closing Temporary Accounts—Net Loss 243 How Do We Prepare a Post-Closing Trial Balance? 245 What Is the Accounting Cycle? 247 How Do We Use the Current Ratio to Evaluate Business Performance? 248 ■ Review 377 Comprehensive Problem for Chapters 1–5 381 What Are the Accounting Principles and Controls That Relate to Merchandise Inventory? 388 254 ■ Assess Your Progress Accounting Principles 388 Control Over Merchandise Inventory 264 ■ Critical Thinking 292 Comprehensive Problem for Chapters 1–4 295 Comprehensive Problem for Chapters 1–4 297 389 How Are Merchandise Inventory Costs Determined Under a Perpetual Inventory System? 390 Specific Identification Method 392 First-In, First-Out (FIFO) Method 393 Last-In, First-Out (LIFO) Method 394 Weighted-Average Method 397 Chapter Merchandising operations 300 How Are Financial Statements Affected by Using Different Inventory Costing Methods? 399 What Are Merchandising Operations? 302 The Operating Cycle of a Merchandising Business 302 Merchandise Inventory Systems: Perpetual and Periodic Inventory Systems 304 How Are Purchases of Merchandise Inventory Recorded in a Perpetual Inventory System? 305 Purchase of Merchandise Inventory 306 Purchase Discounts 307 Purchase Returns and Allowances 308 Transportation Costs 310 Cost of Inventory Purchased 311 How Are Sales of Merchandise Inventory Recorded in a Perpetual Inventory System? 312 Sale of Merchandise Inventory 312 Sales Discounts 314 Sales Returns and Allowances 315 Transportation Costs—Freight Out 316 Net Sales Revenue and Gross Profit 317 Income Statement 400 Balance Sheet 400 How Is Merchandise Inventory Valued When Using the Lower-of-Cost-or-Market Rule? 403 Computing the Lower-of-Cost-or-Market 403 Recording the Adjusting Journal Entry to Adjust Merchandise Inventory 403 What Are the Effects of Merchandise Inventory Errors on the Financial Statements? 405 How Do We Use Inventory Turnover and Days’ Sales in Inventory to Evaluate Business Performance? 408 Inventory Turnover 408 Days’ Sales in Inventory 408 AppENdIx 6A: Merchandise Inventory Costs Under a Periodic Inventory System 409 How Are Merchandise Inventory Costs Determined Under a Periodic Inventory System? 409 What Are the Adjusting and Closing Entries for a Merchandiser? 318 Adjusting Merchandise Inventory Based on a Physical Count 318 Closing the Accounts of a Merchandiser 319 Worksheet for a Merchandising Business—Perpetual Inventory System 319 How Are a Merchandiser’s Financial Statements Prepared? 322 Income Statement 322 Statement of Owner’s Equity and the Balance Sheet Chapter Merchandise Inventory 386 250 Accounting for Accrued Expenses 250 Accounting Without a Reversing Entry 251 Accounting With a Reversing Entry 252 ■ Review 348 ■ Critical Thinking AppENdIx 4A: Reversing Entries: An Optional Step 250 What Are Reversing Entries? 336 ■ Assess Your Progress First-In, First-Out (FIFO) Method 411 Last-In, First-Out (LIFO) Method 411 Weighted-Average Method 411 AppENdIx 6B: Estimating Ending Merchandise Inventory 413 How Can the Cost of Ending Merchandise Inventory Be Estimated? 413 324 Gross Profit Method 413 The Retail Method 414 How Do We Use the Gross Profit Percentage to Evaluate Business Performance? 324 ■ Review AppENdIx 5A: Accounting for Merchandise Inventory in a Periodic Inventory System 326 ■ Critical Thinking How Are Merchandise Inventory Transactions Recorded in a Periodic Inventory System? 326 Chapter Accounting Information systems 452 Purchase of Merchandise Inventory 326 Sale of Merchandise Inventory 328 Adjusting and Closing Entries 328 Preparing Financial Statements 331 416 ■ Assess Your Progress 425 445 What Is an Accounting Information System? 454 Effective Accounting Information Systems 454 Components of an Accounting Information System 455 Contents How Are Sales and Cash Receipts Recorded in a Manual Accounting Information System? 457 Special Journals 458 Subsidiary Ledgers 458 The Sales Journal 459 The Cash Receipts Journal 462 What Are Common Types of Receivables and How Are Credit Sales Recorded? 574 How Are Purchases, Cash Payments, and Other Transactions Recorded in a Manual Accounting Information System? 466 The Purchases Journal 466 The Cash Payments Journal 468 The General Journal 471 Entry-Level Software 473 Enterprise Resource Planning (ERP) Systems QuickBooks® 473 Recording and Writing Off Uncollectible Accounts—Direct Write-Off Method 579 Recovery of Accounts Previously Written Off—Direct Write-Off Method 580 Limitations of the Direct Write-Off Method 580 473 478 ■ Assess Your Progress 484 How Are Uncollectibles Accounted for When Using the Allowance Method? 581 ■ Critical Thinking 510 Comprehensive Problem for Chapters 1–7 513 Recording Bad Debts Expense—Allowance Method 581 Writing Off Uncollectible Accounts—Allowance Method 582 Recovery of Accounts Previously Written Off—Allowance Method 583 Estimating and Recording Bad Debts Expense—Allowance Method 584 Comparison of Accounting for Uncollectibles 589 Chapter Internal Control and Cash 516 How Are Notes Receivable Accounted For? What Is Internal Control and How Can It Be Used to Protect a Company’s Assets? 518 Internal Control and the Sarbanes-Oxley Act 518 The Components of Internal Control 519 Internal Control Procedures 520 The Limitations of Internal Control—Costs and Benefits 523 What Are the Internal Control Procedures With Respect to Cast Receipts? 524 Cash Receipts Over the Counter Cash Receipts by Mail 524 524 What Are the Internal Control Procedures With Respect to Cash Payments? 525 How Can a Petty Cash Fund Be Used for Internal Control Purposes? 528 541 ■ Critical Thinking Contents 568 550 ■ Review 600 ■ Assess Your Progress 607 627 10 Land and Land Improvements 635 Buildings 636 Machinery and Equipment 636 Furniture and Fixtures 637 Lump-Sum Purchase 637 Capital and Revenue Expenditures 638 What Is Depreciation and How Is It Computed? 538 How Can the Cash Ratio Be Used to Evaluate Business Performance? 539 ■ Assess Your Progress Acid-Test (or Quick) Ratio 597 Accounts Receivable Turnover Ratio 598 Days’ Sales in Receivables 598 How Does a Business Measure the Cost of a Plant Asset? How Can the Bank Account Be Used as a Control Device? 532 ■ Review How Do We Use the Acid-Test Ratio, Accounts Receivable Turnover Ratio, and Days’ Sales in Receivables to Evaluate Business Performance? 596 Chapter plant Assets, Natural resources, and Intangibles 632 531 Signature Card 532 Deposit Ticket 532 Check 532 Bank Statement 533 Electronic Funds Transfer 534 Bank Reconciliation 534 Examining a Bank Reconciliation 537 Journalizing Transactions From the Bank Reconciliation 591 Indentifying Maturity Date 592 Computing Interest on a Note 593 Accruing Interest Revenue and Recording Honored Notes Receivable 593 Recording Dishonored Notes Receivable 596 ■ Critical Thinking Controls Over Payment by Check 525 Setting Up the Petty Cash Fund 528 Replenishing the Petty Cash Fund 529 Changing the Amount of the Petty Cash Fund Types of Receivables 574 Exercising Internal Control Over Receivables 575 Recording Sales on Credit 575 Recording Credit Card and Debit Card Sales 576 Factoring and Pledging Receivables 578 How Are Uncollectibles Accounted for When Using the Direct Write-Off Method? 579 How Are Transactions Recorded in a Computerized Accounting Information System? 473 ■ Review Chapter receivables 572 Factors in Computing Depreciation 640 Depreciation Methods 641 Partial-Year Depreciation 647 Changing Estimates of a Depreciable Asset Reporting Plant Assets 648 647 How Are Disposals of Plant Assets Recorded? Discarding Plant Assets 649 Selling Plant Assets 651 640 649 634 How Are Natural Resources Accounted For? 656 How Are Intangible Assets Accounted For? 657 How Are Partnership Profits and Losses Allocated? Accounting for Intangibles 657 Specific Intangibles 657 Reporting of Intangible Assets 660 How Do We Use the Asset Turnover Ratio to Evaluate Business Performance? 661 How Is the Admission of a Partner Accounted For? AppENdIx 10A: Exchanging Plant Assets 662 Admission by Purchasing an Existing Partner’s Interest Admission by Contributing to the Partnership 750 How Are Exchanges of Plant Assets Accounted For? 662 Exchange of Plant Assets—Gain Situation 662 Exchange of Plant Assets—Loss Situation 663 ■ Review ■ Critical Thinking 671 Sales of Assets at a Gain 755 Sales of Assets at a Loss With Capital Deficiency 759 684 11 ■ Review Chapter Current liabilities and payroll 688 Accounts Payable 690 Sales Tax Payable 691 Unearned Revenues 691 Short-Term Notes Payable 692 Current Portion of Long-Term Notes Payable ■ Critical Thinking 13 What Is a Corporation? 693 694 Gross Pay and Net (Take-Home) Pay 695 Employee Payroll Withholding Deductions 695 Payroll Register 698 Journalizing Employee Payroll 699 Employer Payroll Taxes 699 Internal Control Over Payroll 701 Cash Dividends 809 Stock Dividends 812 Stock Splits 816 Cash Dividends, Stock Dividends, and Stock Splits Compared 817 705 706 710 ■ Critical Thinking 717 730 12 818 Treasury Stock Basics 818 Purchase of Treasury Stock 818 Sale of Treasury Stock 819 Retirement of Stock 822 Statement of Retained Earnings 823 Statement of Stockholders’ Equity 824 What Are the Characteristics and Types of Partnerships? Partnership Characteristics 736 Types of Partnerships 738 Other Forms of Business 739 The Start-up of a Partnership 741 Partnership Financial Statements 742 How Is Treasury Stock Accounted For? How Is Equity Reported for a Corporation? 823 Chapter partnerships 734 How Are Partnerships Organized? 807 How Are Dividends and Stock Splits Accounted For? 809 How Do We Use the Times-Interest-Earned Ratio to Evaluate Business Performance? 708 ■ Assess Your Progress 804 Issuing Common Stock at Par Value 804 Issuing Common Stock at Premium 805 Issuing Common Stock at a Discount 806 Issuing No-Par Common Stock 806 Issuing Stated Value Common Stock 807 Issuing Common Stock for Assets Other Than Cash Issuing Preferred Stock 808 703 How Are Contingent Liabilities Accounted For? 800 Characteristics of Corporations 800 Stockholders’ Equity Basics 801 How Is the Issuance of Stock Accounted For? How Are Current Liabilities That Must Be Estimated Accounted For? 702 Remote Contingent Liability 706 Reasonably Possible Contingent Liability Probable Contingent Liability 706 771 792 Chapter Corporations 798 How Do Companies Account for and Record Payroll? Bonus Plans 702 Vacation, Health, and Pension Benefits Warranties 703 763 ■ Assess Your Progress How Are Current Liabilities of Known Amounts Accounted For? 690 ■ Review 749 749 How Is the Withdrawal of a Partner Accounted For? 753 How Is the Liquidation of a Partnership Accounted For? 755 665 ■ Assess Your Progress 742 Allocation Based on a Stated Ratio 743 Allocation Based on Capital Balances 744 Allocation Based on Services, Capital Balances, and Stated Ratios 744 Partner Withdrawal of Cash and Other Assets 747 Statement of Partners’ Equity 748 741 736 How Do We Use Stockholders’ Equity Ratios to Evaluate Business Performance? 825 Earnings per Share 825 Price/Earnings Ratio 826 Rate of Return on Common Stock ■ Review 826 828 ■ Assess Your Progress ■ Critical Thinking 836 855 Contents www.downloadslide.net 1784 Subject Index Cash, owner withdrawal of, 103 Cash payments by check, 526 internal control over, 525–528 Cash payments journal, 468–469 posting, 469–470 to the accounts receivable subsidiary ledger, 470 to the general ledger, 470–471 recording transactions, 470 Cash ratio, 539–540, 1048 evaluating business performance and, 539–540 Cash receipts, 457–473 internal control over, 524–525 by mail, 524 over the counter, 524 Cash receipts journal, 462–464 with posting, 463 posting, 465 to the accounts receivable subsidiary ledger, 465 to the general ledger, 465–466 recording transactions in, 464–465 Cash receipts of dividends, 979 Cash receipts of interest, 979 Centralized company, 1536 Certified Management Accountants (CMAs), 30 Certified Public Accountants (CPSs), 29 Chart of accounts, 90, 91 Check, 532 control over payment by, 525 outstanding, 535 Check with remittance advice, 532 Classified balance sheet, 234 Closing entries, 240, 320–321 journalizing and posting, 244 Closing process, 239–245 Closing the accounts, 239–245 journalizing and posting closing entries, 244 of merchandiser, 319 Cloud computing, 473 Co-ownership of Property, 738 Collection on account, 102 Collection period, 598 See also Days’ Sales in Receivables Collusion, 523 Commercial substance, 662 Common-size statement, 1042, 1043 Common stock, 802–803 cash flows from, 971–972 declaring and paying dividends, 810 issuing for assets other than cash, 807 at a discount, 806 no-par, 806 at par value, 804 at premium, 805 Comparative balance sheet, 962 Completed goods, journal entries in standard cost system, 1487 Compound interest, 885, 1672 vs simple interest, 885–886 Compound journal entry, 101 Comprehensive income, 933–934 Computerized Accounting Information System (AIS) bills in, 476 creating a sales invoice in, 475 entering bills in, 476 income statements and, 477 recording transactions in, 473–477 viewing financial statements in, 477 Conservatism, 389 Consistency principle, 388 Consolidated statements, 930 Consolidation accounting, 930 Consolidation company, 930 Consolidations, 930 Constraints, 1613 display space, 1617 machine hour, 1616 Contingent liability, 705–707 accounting for, 705–707 probable, 706 reasonably possible, 706 remote, 706 reporting of, 707 Continuing operations, 1063 Contra account, 167 Contributed capital, 803–804 See also Paid-in capital Contribution margin, 1302 unit, 1302 Contribution margin income statement, 1302–1303 Contribution margin ratio, 1302, 1306 per machine hour, 1615 Control account, 459 Control environment, 520 Control procedures, 519, 520–523 Controllable cost, 1548 controllable versus noncontrollable costs, 1548 Controller, 521 Controlling, 1104 Controlling interest investments, 924 Controls for efficiency, 701 monitoring of, 519–520 over purchases and payments, 525–527 to safeguard payroll disbursements, 701–702 Conversion costs, 1113, 1222 Copyright, 658–659 Corporation, 32 Corporations, 748, 798–861 accounting vocabulary, 833–834 advantages and disadvantages of, 801 assess your progress, 836–854 continuing problem, 854 exercises, 841–847 problems, 847–854 review questions, 836 short exercises, 837–840 characteristics of, 800 capital accumulation, 800 indefinite life, 800 lack of mutual agency, 800 no personal liability of the owners for business debts, 800 number of owners, 800 separate legal entity, 800 taxation, 800 critical thinking, 855–861 communication activity, 858 decision cases, 855–856 ethical issue, 856–857 financial statement case, 857 fraud case, 857 team project, 858 ethical issues, 808 paid-in capital and, 803–804 quick check, 834–835 reporting equity for, 823–825 retained earnings of, 803 review, 828–830 stock dividends of, 812 stockholders’ equity, 801–804, 805, 809, 818 summary problem, 830–832 Cosign a note payable, 705 Cost allocation, 1524–1595 accounting vocabulary, 1569–1570 assess your progress, 1572–1591 continuing problem, 1591 exercises, 1577–1583 problems, 1583–1591 review questions, 1572–1573 short exercises, 1573–1577 critical thinking, 1592 communication activity, 1593 decision cases, 1592 ethical issues, 1592 fraud case, 1592–1593 team projects, 1593 how companies assign and allocate cost, 1526–1536 activity based costing, 1529 multiple department rates, 1529 single plantwide rate, 1527–1529 quick check, 1570–1571 review, 1564–1565 summary problem, 1566–1569 www.downloadslide.net Subject Index Cost and efficiency variances, 1466 Cost-based transfer price, 1562 Cost/benefit analysis, 1105 Cost center, 1538 Cost driver, 1166 Cost method, accounting for equity securities, 926–927 Cost object, 1112 Cost of goods available for sale, 393 Cost of goods manufactured, 1115 calculating, 1115–1116 schedule of, 1118 Cost of goods sold budget, 1382–1383 Cost of goods sold (COGS), 303, 313, 322 calculating, 1115 estimating ending inventory and, 413–415 formula, 413–414 transferring costs to, 1170–1171 Cost of goods sold, journal entries in standard cost system, 1487 Cost-plus pricing, 1604, 1604–1605 Cost principle, 32, 634 Cost structure, 1312 Cost variance, 1466 Cost-volume-profit (CVP) analysis, 1292–1367 advertising decisions and, 1317 breakeven point, 1307 changes in costs with change in volume, 1294–1302 fixed costs, 1295–1297 mixed costs, 1297–1301 variable cost, 1294–1295 contribution margin, computing operating income with, 1302–1304 ethics: checking the formula, 1306 graph of, 1307–1308 other uses margin of safety, 1311 operating leverage, 1312–1314 sales mix, 1315–1317 review, 1330–1331 summary, 1328–1329 summary problem, 1331–1332 using, 1304–1309 assumptions, 1304–1309 target profit, three approaches, 1280–1309 using for sensitivity analysis, 1309–1311 variable costing, 1318–1329 vs absorption costing, 1319–1321 variable costing vs absorption costing, 1311–1321 operating income and, 1321–1328 production equals sales, 1311–1322 production exceeds sales, 1322–1325 production is less than sales, 1325–1327 summary, 1328 Costing methods, for inventory, 392–394 Costs, flow of through inventory accounts, 1118–1119 Coupon rate See Stated interest rate Credit, 92 Credit cards, sales, 576–577 Credit memorandum, 535 Credit sales, recording, 574–579 Credit terms, 307 Creditors, 29 Creditors, as users of accounting information, 29 Cumulative preferred stock, 811 Current assets, 235, 932 changes in, 966–967 Current liabilities, 235, 688–733 accounting for, 689 accounting vocabulary, 713–715 assess your progress continuing problem, 729 exercises, 720–723 problems, 724–729 review questions, 717 short exercises, 717–720 changes in, 966–967 critical thinking, 730 decision cases, 730 ethical issue, 730–731 financial statement case, 731–732 fraud case, 731 team project, 732 of known amounts, 690 accounts payable, 690–691 current portion of long-term notes payable, 693–694 current portion of notes payable, 693 sales tax payable, 691 short-term notes payable, 692–693 unearned revenue, 691–692 quick check, 715–716 review, 710–711 summary problem, 711–713 that must be estimated, 702–705 Current ratio, 248, 1046, 1047 Custody of assets, separating from accounting, 521 d Date of record (record date), 809 Days’ sales, 408–409 Days’ sales in inventory, 1050 Days’ sales in inventory ratio, 408 Days’ sales in receivables, 598, 599, 1052 See also Collection period Days’ sales in receivables ratio, 596–599 Debentures, 869 Debit, 92 Debit and credit, rules of, 94 accounting equation and, 93 1785 Debit cards, sales, 576–577 Debit memorandum, 535 Debt, decision to take on additional, 862 Debt ratio, 113, 1052 evaluating business performance using, 113–115 Debt securities, 922 accounting for investments in, 925–926 accounting method and financial statement effects, 934 vs equity securities, 922 purchase of, 925 reporting of, 931–935 Debt to equity ratio, 883–884, 1053 Debtor, 574 Decentralization advantages of, 1537 disadvantages of, 1537 Decentralized companies, 1536 transfer prices and, 1561–1563 decision cases, 588 Decisions: e-commerce internal controls, 522 Decisions: getting cash quickly, 578 Decisions: investing in the stock market, 48 Decisions: reporting contingencies, 707 Declaration date, 809 Default on a note, 596 See also Dishonor of a note Deferred revenue, 169 See also Unearned revenue; unearned revenue Deficit, 823 Degree of operating leverage, 1313 Depletion, 965 Depletion expense, 656 Deposit ticket, 532 Deposition at maturity, 925–926 Deposits in transit, 534–535, 537 Depreciable cost, 641 Depreciation, 165–166, 634, 639–649, 965 changing estimates of a depreciable asset, 647 changing useful life of depreciable asset, 640 computing, 639–649 factors in computing, 640 partial-year, 647 for tax purposes, 647 Depreciation expense, 166 Depreciation methods, 641–645 common, 646 comparison of, 646 double-declining balance, 644–645 straight-line, 641–643 units-of-production, 643–644 Differential analysis, 1599–1600 of special pricing decision, 1608 Direct cost, 1112 Direct labor budget, 1371 www.downloadslide.net 1786 Subject Index Direct labor (DL), 1113 journal entries in standard cost system, 1485–1486 Direct labor variances, 1472–1473 direct labor cost variance, 1472 direct labor efficiency variance, 1472 summary of, 1472–1473 Direct materials budget, 1378–1379 Direct materials (DM), 1113 Direct materials purchased journal entries in standard cost system, 1484–1485 Direct materials usage journal entries in standard cost system, 1485 Direct materials variances, 1469 cost variance, 1469 efficiency variance, 1469 summary of, 1469 Direct method, 961 Direct write-off method, 579–581 vs allowance method, 590 limitations of, 580 recovery of accounts previously written off, 580 Discarding plant assets, 649–651 Disclosure principle, 388–389 Discontinued operations, 1064 Discount, 806, 869 Discount (on a bond), 869 issuing bonds payable and, 874–876 Discount on bonds payable, 869 Discount rate, 1678 Discounted cash flow methods capital investment decisions and, 1677–1693, 1677–1693 internal rate of return (IRR), 1683–1686 net present value (NPV), 1678–1683 Discounting future cash flows, 887 Dishonor of a note, 596 See also Default on a note Dishonored notes receivable, recording, 596 Disposal of long-term assets, gains and losses on, 965–966 Disposition, 927 Dissolution, 737 Dividend payments, computing, 973–974 Dividend payout, 1058 Dividend revenue, 927 Dividend yield, 1058 Dividends, 802, 809 accounting for cash, 809–812 in arrears, 811 declaring and paying common stock, 810 preferred stock, 810–812 effects on the accounting equation, 817 stock, 812 Documents, 521 Dollar value basis, 1043 Double-declining-balance (DDB) depreciation method, 644–645 Double-declining balance (DDB) depreciation schedule, 644 Double-entry system of accounting, 92–95 increases and decreases in, 92–93 T-account, 92 Doubtful accounts expense, 579 Dropping unprofitable products and segments, 1610–1611 differential analysis and, 1612 effect of fixed costs, 1611–1613 other considerations, 1613 Due date See Maturity date e E-Commerce, 522 Earnings per share (EPS), 825–826, 1056, 1065 Economic entity assumption, 32 Effective-interest amortization for a bond discount, 890 of a bond premium, 891–892 Effective-interest amortization method, 890–893 Effective interest rate, 871 See also Market interest rate Efficiency variance, 1466 Electronic data interchange (EDI), 527 Electronic devices, 521 Electronic funds transfer (EFT), 534, 535, 537 Embezzlement, 86 Employee compensation See Payroll Employee payroll withholding deductions, 695 Employees, cost of, 688 Employer FICA tax, 699, 700 Employer payroll taxes, 699, 700–701 journalizing, 700–701 Encryption, 522 Enterprise resource planning (ERP) systems, 473, 1107 Entry-level software, 473 Equipment, 632, 634 cost of, 636–637 purchasing with debt, 114 Equity, 35–36, 90 reporting for a corporation, 823–825 stockholder’s, 801–804, 809, 818 Equity accounts, 90 Equity method of accounting for equity securities, 927–929 Equity securities, 922 with 20% or more, but less than 50% ownership, 927–929 with 50% or more ownership (consolidations), 930 accounting for, 927–929 accounting for investments in, 926–930 accounting method and financial statement effects, 934 cost method of accounting for, 926–927 vs debt securities, 922 disposition of, 929 dividends received and share of net income, 928–929 equity method of accounting for, 927–929 investments in, accounting for, 926–930 with less than 20% ownership, 926–927 purchase of, 926, 928 reporting of, 931–935 Equivalent units of production (EUP), 1222 Estimated useful life, 640 Ethics in accounting and business, 33–34 business statements and, 45 capitalize or expense, 643 changing transactions, 474 gifts from vendors and, 308 including inventory, 407 mutual agency and, 737 reclassifying notes payable, 971 recording accrued expenses, 173 recording revenue early, 249 reporting liabilities, 520 underestimating uncollectible accounts, 582 warranty expense and, 705 Evaluated receipts settlement (ERS), 527 Evaluating performance, 1548–1553 Expense recognition principles, 161 Expenses, 35 payment of with cash, 100–101, 104, 106 prepaid, 103, 184–186 External auditor, 520 Extraordinary items, 1064 Extraordinary repair, 638 F Face rate See Stated interest rate Face value, 868, 869 bonds payable and, 873 Fair value, 931 Federal Insurance Contributions Act (FICA), 696 Federal unemployment compensation tax (FUTA), 699, 700 Financial accounting, 28 Financial Accounting Standards Board (FASB), 31, 977 Financial budgets, 1376 for a manufacturing company, 1384–1395, 1402 budgeted statement of cash flows, 1409 budgeting balance sheet, 1407–1408 budgeting income statement, 1406 capital expenditures budget, 1384, 1402 cash budget, 1385–1392, 1402–1406 Financial performance measurement limitations of, 1542–1543, 1559 measurement issues, 1559–1560 short-term focus, 1560 www.downloadslide.net Subject Index Financial statement analysis, 1032–1101 accounting vocabulary, 1070–1071 analyze a business, 1045–1062 assess your progress, 1074–1095 continuing problem, 1095 exercises, 1079–1083 problems, 1083–1094 review questions, 1074 short exercises, 1074–1078 benchmarking, 1044 common size financial statements, 1043–1044 communication activity, 1098 critical thinking, 1096–1101 decision cases, 1096 ethical issue, 1096–1097 financial statement case, 1097 fraud case, 1097 team project, 1098 horizontal analysis, 1037–1041 preparing complete corporate income statement, 1062–1065 quick check, 1072 red flags in, 1059–1062 review, 1066–1067 summary problem, 1067–1070 using ratios in, 1060–1061 vertical analysis, 1041–1045 Financial statements, 42 adjusting entries and, 181 comparative, 1046 ethics in using, 45 evaluating business performance using, 47–48 impact of adjusting entries on, 180–181 information provided by, 47 inventory costing methods and, 399–403 periods of rising and declining inventory costs and, 402 preparation of, 42–47 preparation of, for merchandiser, 322–324, 331–332 preparing from trial balance, 111–112 preparing with worksheet, 237–239 relationships among, 233–237 viewing in a computerized accounting information system, 477 Financing activities, 45, 959 cash flows from, 970–974 Finished goods inventory (FG), 1111 transferring costs to, 1169 Firewalls, 522 First-in, first-out (FIFO) inventory costing method, 393, 400, 411, 1245 Fiscal year, 160, 161 Fixed assets, 235, 634 Fixed costs, 1295 changes in with changes in volume, 1295–1297 Fixed overhead variances, 1477 cost variance, 1478 summary of, 1478–1480 volume variance, 1478–1479 Fixtures, cost of, 637 Flexible budget, 1374–1375 variances for production costs, 1468 Flexible budget variance, 1460 Flexible budgets, 1454–1523 accounting vocabulary, 1497 assess your progress, 1500–1516 continuing problem, 1516 exercises, 1505–1508 problems, 1509–1515 review questions, 1500 short exercises, 1500–1505 budget variances, 1460 critical thinking, 1517–1523 communication activity, 1520 decision cases, 1517–1518 ethical issues, 1518–1519 fraud case, 1519 team project, 1520 performance reports and, 1458, 1461 preparing, 1459–1460 quick check, 1498 review, 1491–1493 summary problem, 1493–1496 using budgets to control business activities, 1457–1463 Flow of product costs, 1169 FOB destination, 310 FOB Shipping point, 310 Form 10-K, 1035 Four-column account, 109–110 Franchises, 659 Fraud, detecting, 86 Free cash flow, 977 Free On Board (FOB), 310 Freight costs, 310 Freight in, 310, 311 within discount period, 311 Freight out, 310, 316 Furniture, cost of, 637 Future payment, of accrued salaries expense, 172 g General journal, 471 General partnership, 738 Generally accepted accounting principles (GAAP), 31–32, 158, 404, 520, 580, 582, 589, 643, 660, 690, 707, 813, 1035 Goal congruence, 1513 Going concern assumption, 33 Goodwill, 659–660 Governing organizations, 31–35 Gross margin, 304 See also Gross profit 1787 Gross margin percentage, 324–325 See also Gross profit percentage Gross pay, 695 Gross profit, 304 See also Gross margin net sales revenue and, 317 Gross profit method, 413–414 Inventory, 414 Gross profit percentage, 324–325, 1050 evaluating business performance and, 324–326 h Hardware, 473 Held-to-maturity (HTM) investments, 923, 934 High-low method, 1298–1300 Horizontal analysis, 1037–1041 of balance sheet, 1038 comparative balance sheet, 1039 comparative income statement, 1038 of income statement, 1038 trend analysis and, 1038 i IFRS See International Financial Reporting Standards (IFRS) Impairment, 657 Imprest system, 529 Income statement, 42–43, 232, 237, 322, 400, 963 viewing in a computerized accounting information system, 477 Income-statement approach, 584 Income statement expenditures, 638–639 Income summary, 240 Income tax, partnerships and, 738 Income tax withholding, 695, 695–696 Indirect cost, 1112 Indirect labor, 1113 Indirect materials, 1113 Indirect method, 961, 984–987 adjustments to reconcile net income to net cash, 968 cash flows from operating activities, 978–984 of preparing statement of cash flows, 964, 985 Information system for internal control, 519–520 Information technology budgeting process budgeting software, 1396 sensitivity analysis, 1396 Institute of Management Accountants (IMA), 30 Intangible assets, 235, 657 accounting for, 633, 657–661 copyrights, 658–659 reporting of, 660 types of, 657–660 www.downloadslide.net 1788 Subject Index Interest, 591, 693 simple vs compound, 885, 885–886 Interest-coverage ratio See Times-interestearned-ratio Interest expense on bonds payable issued at a discount, 874–875 on bonds payable issued at a premium, 877 Interest period, 591 Interest rates, 591 bond, 871 Interest revenue, 537, 925 accruing on a note, 593–596 on checking account, 535 Internal auditor, 520 Internal control, 516–571 assess your progress continuing problem, 566 exercises, 550–556 problems, 557–565, 567–568 review questions, 550 short exercises, 550–551 summary problems, 542–543, 542–544 bank account, as control device, 532–539 bank reconciliation for, 534–535 cash payments and, 525–528 cash receipts and, 524–525 components of, 519 costs and benefits of, 523 critical thinking, 568 communication activity, 571 decision cases, 568–569 ethical issue, 569 financial statement case, 570 fraud case, 569 team project, 570 limitations of, 523 payroll and, 701 petty cash and, 528–531 procedures, 520–523 protecting company’s assets and, 518–523 quick check, 548–549 receivables and, 575 review, 541 Sarbanes-Oxley Act (SOX), 518–519 Internal control report, 519 Internal rate of return (IRR), 1683, 1683–1686 with equal periodic net cash inflows, 1684–1685 with unequal periodic net cash inflows, 1685–1686 Internal Revenue Service (IRS), 647 International Accounting Standards Board (IASB), 33 International Financial Reporting Standards (IFRS), 33, 322, 403, 519, 582, 648, 690, 702, 706, 824, 960 Inventory, 326–335 accounting for, in periodic system, 409–413 accounting for, in perpetual system, 305–317 accounting principles, 388–390 adjusting, based on physical count, 318–319 assess your progress continuing problem, 443 exercises, 429–435 practice set, 444 problems, 435–442 review questions, 425 short exercises, 425–428 balance sheet and, 400–402 control over, 389–390 costing methods, 311–312, 390–400 costing methods impact on financial statements, 399–403 critical thinking, 445 communication activity, 447–451 decision cases, 445–446 ethical issues, 446 financial statement case, 446 fraud case, 446 team project, 447 decision to mark down, 404 determining cost of, 387 effects of errors, 405–407 estimating ending, 413–415 ethics and, 407 financial statements in periods of rising and declining costs, 402 lower-of-cost-or-market rule, 403–405 perpetual inventory system, 390–399 purchase of, 306–307, 311–312 quick check, 423–424 recording journal entry to adjust, 403 recording purchase of, 305–312 shrinkage of, 318 summary problem, 418 Inventory accounts, flow of costs through, 1118–1119 Inventory errors, 406 Inventory turnover, 408–409, 1049 Investee, 922 Investing activities, 45, 959 cash flows from, 968–970 Investment center, 1539 Investment Center KPIs, 1559 Investments, 920–955 accounting vocabulary, 940 assess your progress, 943–951 continuing problem, 951 exercises, 946–948 problems, 949–951 review questions, 943 short exercises, 943–945 business investments of cash, 920 classification and reporting of, 923–924 critical thinking, 952–955 communication activity, 953 decision case, 952 ethical issue, 952 financial statements case, 953 fraud case, 952 team project, 953 in debt securities, accounting for, 925–926 decision to purchase more stock, 930 in equity securities, accounting for, 926–930 ethics of investment tips, 923 long-term, 235, 923 quick check, 941–942 rate of return on total assets, 935–936 reasons to invest, 921, 922 reasons to issue, 922–925 reporting debt and equity securities, 931–935 review, 937–938 short-term, 923 summary problem, 938–940 types of, 924 Investors, 922 as users of accounting information, 29 Invoice, 305 creating in a computerized system, 475 Irrelevant costs, 1599 Issue price, 804 Issued stock, 801 J Job, 1157 Job cost record, 1157 completed, 1167 direct labor recorded, 1162 direct materials recorded, 1160 Job order costing, 1154–1215, 1218 accounting vocabulary, 1183 adjustment of manufacturing overhead account and, 1172–1176 assess your progress, 1186–1209 continuing problem, 1209 exercises, 1190–1195 problems, 1196–1208 review questions, 1186 short exercises, 1187–1189 completion and sale of products and, 1169–1172 critical thinking, 1210–1215 communication activity, 1214 decision cases, 1210–1211 ethical issue, 1212 fraud case, 1212 team project, 1213 ethical issues and, 1164 labor, 1162–1164 www.downloadslide.net Subject Index manufacturing companies and, 1156–1157 materials and, 1158–1159 materials and labor costs, 1157–1164 overhead costs, 1164–1168 process costing and, 1157 quick check, 1183–1185 review, 1179–1180 service companies and, 1177–1178 summary problem, 1180–1182 Joint cost, 1624 Journal, 96 See also specific types of journals adjusting for inventory and, 403 posting, 96–97 Journal entries under LIFO, 394–396 weighted-average costing method, 398–399 Journalizing employee payroll, 699 Just-in-Time (JIT) Management, 1107 K Key performance indicators (KPIs), 1543 KPGM, 30 L Labor, job order costing and, 1162–1164 Labor time record, 1162 Lag indicator, 1542 Land cost of, 635 cost of improvements to, 635 purchase of for cash, 98–99 Large stock dividend, 813, 815 Last-in, first-out (LIFO) Inventory Costing Method, 400, 411–412 Lead indicator, 1542 Ledger, 91 journaling transactions and posting to, 107–108 Legal capital, 809 Leverage, 872 Liabilities, 35, 89, 235, 690, 882 accrued, 105 contingent, 705–707 current, 235 ethics of reporting, 520 long-term, 235, 690, 862–919 measuring ability to pay current, 1047 reporting on balance sheet, 881–883 Liability accounts, 89 Licenses, 659 Limited-liability company (LLC), 32, 739 Limited liability partnership (LLP), 739 Limited Life, 737 Limited partnership (LP), 739 Liquidation, 755, 802 Liquidity, 234 Lock-box system, 525 Long-term assets, 235, 932 gains and losses on disposal of, 965–966, 982 Long-term investments, 235, 923 Long-term liabilities, 235, 690, 862–919, 970 accounting vocabulary, 896–897 assess your progress, 900–913 continuing problem, 912–913 exercises, 904–908 problems, 908–912 review questions, 900 short exercises, 900–904 critical thinking, 914–919 communication activity, 915–918 decision case, 914 ethical issues, 914 financial statement case, 915 fraud case, 914 team project, 915 ethics of issuing additional debt, 884 quick check, 897–899 reporting on balance sheet, 881–883 review, 894–895 summary problem, 895–896 Long-term notes payable, 864–865 accounting for, 864–868 amortization schedule, 865 Lower-of-cost-or-market (LCM) rule, 403–405 computing, 403 Lump-sum (basket) purchase, cost of, 637 m Machinery, cost of, 636–637 Maker of the note (debtor), 591 Management accountability, 1105 Management by exception, 1482, 1483 Management’s Discussion and Analysis (MD&A), 1035 Managerial accounting, 28, 1102–1153 accounting vocabulary, 1126–1127 assess your progress, 1129–1148 continuing problem, 1148 exercises, 1134–1138 problems, 1139–1148 review questions, 1129 short exercises, 1130–1134 classification of costs, 1112–1115 critical thinking, 1149–1153 communication activity, 1152 decision cases, 1149 ethical issues, 1150 fraud case, 1150–1151 team projects, 1151 decisions: expansion, 1120 determination of costs of manufactured products, 1115–1121 importance of, 1104–1109 1789 quick check, 1127–1128 review, 1122–1123 for service, merchandising, and manufacturing companies, 1109–1112, 1121 summary problem, 1123–1126 Managers, decisions and, 1598 Manual accounting information system recording purchases, cash payments and other transactions in, 466–473 recording sales and cash receipts in, 457–473 recording transactions in, 457–473 Manufactured products determining costs of, 1115–1121 calculating cost of goods manufactured, 1115–1116 calculating cost of goods sold, 1115 unit product cost, 1119 Manufacturing company, 1110 product costs and period costs, 1117 Manufacturing overhead budget, 1381–1382 Manufacturing overhead (MOH), 1113 accounting for, 1173 journal entries in standard cost system, 1486 Margin of safety, 1311 Market-based transfer price, 1562 Market interest rate, 871 See also Effective interest rate Marketable securities, 923 See also Short-term investments Master budgets, 1368–1453 accounting vocabulary, 1415 assess your progress, 1418 continuing problem, 1447 exercises, 1423–1430 problems, 1431–1447 review questions, 1418–1447 short exercises, 1419–1423 capital expenditures budget, 1376 components of, 1375 cost of goods sold budget, 1382–1383 critical thinking, 1448–1452 communication activity, 1452 decision cases, 1448–1449 ethical issue, 1450 fraud case, 1450 team project, 1451–1452 direct labor budget, 1371 direct materials budget, 1378–1379 ethical issues and, 1374 financial budgets, 1376 for a manufacturing company, 1384–1395, 1402–1409 information technology and, 1396 manufacturing overhead budget, 1381–1382 for merchandising companies, 1397–1409 need to budget, 1392 www.downloadslide.net 1790 Subject Index Master budgets (Continued ) operating budgets, 1376 for a manufacturing company, 1377–1384, 1398–1402 production budget, 1378 quick check, 1415–1416 reasons managers use budgets, 1368–1377 review, 1410–1411 sales budget, 1377 selling and administrative expense budget, 1383–1384 summary problem, 1412–1414 types of budgets, 1374–1377 Matching principle, 161 Materiality concept, 389 Materials job order costing and, 1158–1159 purchasing, 1159 using, 1160 Materials requisition, 1159, 1160 Maturity date, 574, 591, 693, 868 identifying, 592–593 Maturity value, 591 See also Face value Medicare, 696, 699 Memorandum entry, 817 Merchandise inventory, 301, 312–314, 386–451 purchase of, 326–328 recording transactions in periodic inventory system, 326–335 Merchandisers, 302 Merchandising company, 1113 Merchandising operations, 300–385 accounting for inventory in, 301, 305–312, 312–314 adjusting and closing account, 319 adjusting and closing accounts, 329–331 adjusting and closing entries for, 318–322 decision guidelines for, 310 defining, 302–305 financial statement preparation, 322–324, 331–332 gross profit percentage, 324–325 worksheet and, 319 Mixed costs, 1297–1301 high-low method, 1298–1300 relevant range and relativity, 1300–1301 Modified Accelerated Cost Recovery System (MACRS), 647 Monetary unit assumption, 33 Mortgage payable, 865–867 accounting for, 864–868 amortization schedule, 866 Multi-step income statement, 322–323, 332 Multiple department rates of cost allocation, total cost per unit, 1529 Mutual agency, 737 n NASDAQ Stock Market, 804, 1035 Natural resources, 656 accounting for, 633, 656 Net cash provided by operating activities, 982–983 on statement of cash flows, 968 Net income, 36 adjustments made to reconcile to net cash provided by operating activities, 968 closing temporary accounts and, 241–243 determining, 237–238 Net loss, 36 closing temporary accounts and, 243 determining, 237–238 Net pay, 695 Net present value (NPV), 1678 with periodic net cash inflows, 1677–1680 profitability index and, 1681–1682 of a project with residual value, 1681 with unequal periodic net cash inflows, 1680–1681 Net purchases, 327 Net realizable value, 582 Net sales revenue, 317 gross profit and, 317 Net (take-home) pay, 695 Network, 473 New York Stock Exchange, 33, 804, 1035 No-par stock, 803 issuing, 806 Nominal accounts See Temporary accounts Nominal rate See Stated interest rate Non-cash expenses, 982 Non-cash investing and financing activities, 960, 975–976 Noncumulative preferred stock, 811 Nonsufficient funds (NSF) checks, 535, 537 Normal balance, 93, 94 Notes payable, 89, 104 short-term, 692 Notes receivable, 89, 574–575 accounting for, 591–596 accruing interest revenue on, 593–596 computing interest on, 593 recording honored, 593–596 O OASDI (old age, survivors and disability insurance), 696–697, 699 Obsolete, 640 Occupational Outlook Handbook 2010–2011 (US Department of Labor), 30 Office supplies, purchase of on credit, 99 Operating activities, 45, 959 cash flows from, 978–984 formats for, 961 Operating budgets, 1374, 1376 for a manufacturing company, 1377–1384 cost of goods sold budget, 1382–1383 direct labor budget, 1381 direct materials budget, 1379–1380 inventory, purchases, and costs of goods sold budget, 1400–1401 manufacturing overhead budget, 1381–1382 production budget, 1378–1379 sales budget, 1377–1378, 1398–1400 selling and administrative expense budget, 1383, 1401 Operating cycle, 235 Operating expenses, 304 Operating Income, 324 Operating leverage, 1312–1314 Operational budgets, 1374 Operations, separating from accounting, 521 Opportunity cost, 1562, 1621 Optional deductions, 695 Optional Withholding deductions, 697–698 Outsourcing, 1618–1623 decisions about, 1618–1625 differential analysis and, 1620, 1622 fixed costs and, 1620 opportunity cost, 1622 Outstanding checks, 535, 537 Outstanding deposits See Deposits in transit Outstanding stock, 802 Overallocated overhead, 1172 Overallocated overhead, journal entries in standard cost system, 1486 Overhead allocation process using department rates, 1529 Overhead costs, 1164–1168 adjusting for over- and under-allocated overhead, 1168 allocating, 1166 calculating predetermined overhead allocation rate, 1165–1166 Overtime, 694 Owner contribution, 37, 97–98, 105 Owner’s capital, 34, 35 Owner’s equity, 235–236 Owner’s withdrawals, 36 P Paid-in capital, 803–804 See also Contributed capital Paid-in capital in excess of par, 805 See also Additional paid-in capital Par value, 803 See also Face value Parent company, 930 Parent Teacher Association (PTA), 86 Partial balance sheet, 597 Partial-year depreciation, 647 Partners’ capital accounts, 738 www.downloadslide.net Subject Index Partnership agreement, 736–737 Partnerships, 32, 734–797 accounting vocabulary, 768 admission of partner, 749–751, 752 with bonus to existing partners, 751–752 with bonus to new partner, 752 by contributing to the partnership, 750–752 by contributing to the partnership at book value, 750–751 by purchasing existing partner’s interest, 749–750 advantages and disadvantages of, 738 allocation of profits and losses, 742–749 allocation of earnings, 747 based on a stated ratio, 743–744, 747 based on capital balances, 744–747 based on services, 744–747 partner withdrawal of cash and other assets, 747 statement of partner’s equity, 748 assess your progress continuing problem, 791 exercises, 774–778 problems, 779–784, 785–790 review questions, 771 short exercises, 771–774 balance sheet for, 742 characteristics of, 736–738 co-ownership of property, 738 limited life, 737 mutual agency, 737 no partnership income tax, 738 partners’ capital accounts, 738 partnership agreement, 736 unlimited personal liability, 737 written agreement, 736 critical thinking, 792–797 communication activity, 795 decision cases, 792 ethical issue, 793 financial statement case, 794 fraud case, 793 team project, 794 liquidation of, 755–762 balance sheet before, 756 sale of assets at a gain, 755–758 sale of assets at a loss with capital deficiency, 759–761 organization of, 741–742 partnership financial statements, 742 start-up of a partnership, 741 statement of partner’s equity, 742 organizing business as, 735 other forms of business and, 739–740 limited liability company (LLC), 739 S corporation, 740 quick check, 769–770 review, 763–764 summary problem, 765–768 types of, 738–739 general partnership, 738 limited partnership (LP), 739 withdrawal of a partner, 753–755 bonus to existing partners, 753–754 bonus to withdrawing partners, 754 at book value, 753 death of a partner, 754 Patents, 657 Payback, 1664–1667 capital investment and, 1664 comparing payback periods between investments, 1667 criticism of, 1666 with equal annual net cash inflows, 1664–1665 with unequal net cash inflows, 1665–1666 Payback method, capital investment decisions and, 1664–1671 Payee, 532 Payee of the note (creditor), 591 Payment date, 809 Payment packet, 526 Payments on account, 102 to employees, 981 for interest expense and income tax expense, 981–982 to suppliers, 979–981 Payroll, 688–733 accounting for, 689 accounting for and recording, 694–695 accounting vocabulary, 713–715 assess your progress continuing problem, 729 exercises, 720–723 problems, 724–729 review questions, 717 short exercises, 717–720 critical thinking, 730 communication activity, 732 decision cases, 730 ethical issue, 730–731 financial statement case, 731–732 fraud case, 731 team project, 732 employer payroll taxes, 699, 700–701 gross pay, 695 internal control over, 701 journalizing transactions, 700–701 net pay, 695 quick check, 715–716 review, 710–711 summary problem, 711–713 withholding deductions, 695, 697–698 1791 Payroll costs, 700 Payroll register, 698–699 Pension plan, 703 Percent-of-receivables method, 574, 585– 586 See also Balance-sheet approaches compared to aging-of-receivables method, 590 compared to percent-of-sales method, 590 Percent-of-sales method, 584–585, 593 See also Income-statement approach compared to aging-of-receivables method, 590 compared to percent-of-receivables method, 590 Performance evaluation in investment centers, 1553–1561 limitations of financial performance measurement, 1559 residual income (RI), 1557 return on investment (ROI), 1554 Performance evaluation system, 1539–1547 balanced scorecard, 1543 goals of, 1541 benchmarking, 1542 communicating expectations, 1542 goal congruence and coordination, 1541–1542 motivating segment managers, 1542 providing feedback, 1542 limitations of financial performance measurement, 1542–1543 Performance report, 1372 flexible budgets and, 1458 static budgets and, 1457–1463 Period cost, 1109 Periodic inventory system, 304 accounting for inventory in, 326–335 merchandise inventory transactions, 326–335 vs perpetual inventory, 333–335 physical count, 318–319 Permanent account, 240 Perpetual inventory record, 391 changes in cost per unit, 410 first-in, first-out (FIFO), 393 last-In, first-Out (LIFO) method, 395 specific identification method, 392 weighted-average costing method, 397–398 Perpetual inventory system, 304 accounting for inventory in, 305–317, 390–399 vs periodic inventory system, 333–335 worksheet for a merchandising business, 319 Personnel, role of in internal control, 521 Petty cash, 528 changing amount of the fund, 531 internal control over, 528–531 replenishing fund, 529–531 setting up fund, 528–529 www.downloadslide.net 1792 Subject Index Petty cash ticket, 529 Planning, 1104 Plant assets, 165–166, 235, 632–687 accounting for, 633 accounting for exchanges of, 662–664 assess your progress, 671 continuing problem, 683 exercises, 674–677 problems, 678–690 review questions, 671 short exercises, 671–674 changing useful life of, 640 cost of, measuring, 634–640 buildings, 636 capital expenditures, 638 furniture and fixtures, 637 land and land improvements, 635 lump-sum (basket) purchase, 637 machinery and equipment, 636–637 critical thinking, 684 communication activity, 685 decision cases, 684 ethical issue, 684 financial statement case, 685 fraud case, 684–685 team project, 685 disposing of, 649–655 ethical issues, 643 exchanging, 662–664 gain situation, 662 loss situation, 663 quick check, 669–670 reporting of, 648 review, 665–666 sales of, on statement of cash flows, 651–652 selling, 651–652 above book value, 653 below book value, 654 at book value, 652 summary problem, 666–668 types of, 634 Positive cost/benefit relationship, 455 Post-audit, 1662 Post-closing trial balance, 244, 245–246 Posting, 96–97, 107–108 Posting reference, 110 Predetermined overhead allocation rate, 1165, 1527 calculating, 1165–1166 Preemptive right, 802 Preferred stock, 803 declaring and paying dividends on, 810–812 issuing, 808 Premium of a bond, 869 on bonds payable, 869 of a stock, 805 Prepaid expenses, 96, 103, 163–164, 184–185 alternative treatment of recording, 184–186 office supplies, 164–165 Prepaid rent, 163–164 Present value, 870–871 of an annuity, 887–888 of bonds payable, 888 at a discount, 889 issued at a premium, 889–890 factors, 886–887 of lottery payout options, 1676 of a lump sum, 887 Price/earnings ratio, 826, 1057 Price-setter, 1601 Price-taker, 1601 Prices, setting regular, 1601 Pricing, short-term business decisions and, 1601–1610 Prime costs, 1113 Principal, 591, 693 Principal amount See Face value Prior-period adjustments, 824 Process, 1218 Process costing, 1157 Process costing system, 1157, 1216–1291, 1218 accounting vocabulary, 1262 assess your progress, 1265–1285 exercises, 1269–1276 problems, 1277–1285 review questions, 1265 short exercises, 1266–1269 comparison of weighted average and FIFO methods, 1256 costs flowing through, 1218–1221 critical thinking, 1286–1291 communication activity, 1289 decision cases, 1286–1287 ethical issue, 1287 team project, 1288–1289 equivalent units of production, 1221–1223 ethics of when to stop production, 1230 first-in, first-out (FIFO) method, 1245–1255 journal entries in, 1239–1244 production cost report making decisions with, 1244–1245 preparing, 1223–1239 preparing using the FIFO method quick check, 1262–1264 review, 1257–1258 summary problem, 1258–1261 Product cost, 1110 Product cost variance relationships, 1482–1483 Product cost variances responsibility for, 1481–1484 management by exception, 1483 variance relationships, 1481–1482 Product mix, 1613 Production budget, 1378–1379 Production cost report, 1224 preparing, 1223–1239 first process assembly department, 1224–1230, 1230–1239 second process cutting department, 1230–1239 weighted average method, 1224 using to make decisions, 1245–1256 Profit-and-loss-sharing ratio, 758 Profit center, 1539 Profit margin ratio, 1054, 1555 Profitability, evaluating, 1047, 1054–1058 Profitability index, 1682 Promissory note, 591, 592, 693 Property, 634 Public company, 518 Public Company Accounting Oversight Board (PCAOB), 34, 519 Purchase allowance, 308 Purchase discount, 307, 307–308 Purchase invoice, 96, 306, 326–327 Purchase of debt securities, 925 Purchase return, 308 Purchase returns, 308–309 and allowances, 308–309 Purchase returns and allowances, recording, 327 Purchases journal, 466, 466–467 posting, 467, 468 posting to accounts payable subsidiary ledger, 468 posting to the general ledger, 468 recording transactions, 468 Q Qualified opinions, 1035 Quick ratio See Acid-Test Ratio QuickBooks™, 455, 473–476 getting around page, 474–475 r Rate of return on common stock, 826–827 on common stockholders’ equity, 826, 1055 See also Return on equity on total assets, 935, 1054 using to evaluate business performance, 935–936 Ratios accounts receivable turnover, 598 acid-test, 597 days’ sales in receivables, 598–599 debt to equity, 883–884 evaluating business performance and, 596–599 gross profit percentage, 324–325 measuring ability to pay current liabilities, 1047 return on equity, 826 times-interest-interest, 708 www.downloadslide.net Subject Index Raw materials inventory (RM), 1110 Raw materials subsidiary ledger, 1159 Receivables, 572–631 accounting for, 573 accounts receivable, 574 assess your progress, 607 continuing problem, 621–625 exercises, 611–616 practice set, 626 problems, 617–620, 621–625 review questions, 607 short exercises, 608–611 common types of, 574–579 critical thinking, 627 communication activity, 629–631 decision cases, 627 ethical issue, 628 financial statement case, 628–629 fraud case, 628 team project, 629 factoring and pledging, 578 internal control over, 575 notes receivable, 574–575 other receivables, 575 quick check, 605 review, 600–601 summary problem, 601–604 types of, 574 Recovery of accounts previously written off, allowance method, 583–584 Relative-market-value method, 637 Relevant costs, 1598 Relevant information, 1598 relevant costs, 1598 Relevant nonfinancial information, 1599 Relevant range, 1300 Relevant range and relativity, 1300–1301 Remittance advice, 524 Rent, prepaid, 163–164 Required deductions, 695 Residual income (RI), 1557 Residual value, 166 Residual value (salvage value), 641 Responsibility accounting, 1524–1595 accounting vocabulary, 1569–1570 assess your progress, 1572–1591 continuing problem, 1591 exercises, 1577–1583 problems, 1583–1591 review questions, 1572–1573 short exercises, 1573–1577 critical thinking, 1592 communication activity, 1593 decision cases, 1592 ethical issues, 1592 fraud case, 1592–1593 team projects, 1593 decentralized companies and, 1536–1539 decisions: control and responsibility, 1552 evaluating performance in cost, revenue, and profit centers, 1548–1553 performance evaluation system, 1539–1547 quick check, 1570–1571 review, 1564–1565 summary problem, 1566–1569 Responsibility accounting system, 1538–1541 ethics: is the customer always right?, 1547 Responsibility centers, 1538–1539 Responsibility reports, 1540, 1548 cost centers, 1548–1550 profit centers, 1550–1551 revenue centers, 1550 Retail method, 414–415 Retailer, 302 Retained earnings, 803 appropriations of, 823–824 statement of, 823 prior-period adjustment, 824 Return on assets (ROA), 47, 1554 Return on equity, 826 See also Rate of return on common stockholders’ equity Return on investment (ROI), 1554 Revenue amount to record, 161 ethics of recording early, 249 unearned, 106 when to record, 161 Revenue center, 1538 Revenue earned, calculating, 157 Revenue expenditures, 638–639 Revenue recognition principle, 160–161 Revenues, 35 Reversing entries, 250–253 accounting with, 252–253 accounting without, 251–252 Risk assessment, 519 Routing number, 533 S S Corporation, 740 Sage 50™, 455 Salaries expense accrued, 170–172 payment of with cash, 106 Salary, 694 Sale above cost, 819–820 Sale at cost, 819 Sale below cost, 820–822 Sale of merchandise inventory, 328 Sales recording credit and debit card, 576–577 recording in a Manual Accounting Information System, 457–473 recording on credit, 575 Sales allowance, 316 Sales budget, 1378 1793 Sales discounts, 314–315 Sales invoice, 96, 313 creating in a computerized system, 475 Sales journal, 459 posting, 460, 462 to the accounts receivable subsidiary ledger, 462 to the general ledger, 462 recording transactions in, 459–462 Sales mix, 1315–1317, 1617 Sales returns and allowances, 315–316 within discount period, 316 Sales revenue, 312 Sales tax payable, 691 Sales volume variance, 1460 Sarbanes-Oxley Act (SOX), 34, 519 internal control and, 518–519 Schedule of goods manufactured, 1175 Secured bonds, 869 Securities and Exchange Commission (SEC), 31, 48 Security, 922 Selling expenses, 323 Sensitivity analysis, 1309–1311 changes in fixed costs, 1309–1311 changes in selling price, 1309–1311 changes in variable costs, 1309–1311 Separation of duties, 521 Serial bonds, 869 Server, 456 Service charge, 535, 537 Service company, 1109 Service revenue, 38–39 earning of for cash, 100, 107 earning of on account, 100 Shareholder’s equity See Stockholders’ equity Short-term business decisions, 1596–1657 accounting vocabulary, 1631–1632 affect of pricing on, 1601–1610 assess your progress, 1634–1651 continuing problem, 1651 exercises, 1638–1643 problems, 1644–1651 review questions, 1634 short exercises, 1635–1638 critical thinking, 1652–1657 communication activity, 1655 decision cases, 1652 ethical issue, 1653 fraud case, 1654 team project, 1654–1655 decisions: accepting an order, 1609 differential analysis and, 1599–1600 dropping unprofitable products and segments, 1610–1611 ethics: is this cost too good to be true?, 1623 joint cost, 1624 outsourcing decisions, 1618–1625 www.downloadslide.net 1794 Subject Index Short-term business decisions (Continued ) quick check, 1632–1633 relevant information and, 1598–1601 review, 1626–1628 sell or process further?, 1623 differential analysis and, 1624 summary problem, 1628–1631 which products to produce and cell, 1610–1618 Short-term investments, 923 Short-term notes payable, 692 Signature card, 532 Significant interest investments, 924 Simple interest, 885, 1672 vs compound interest, 885–886 Single-step income statement, 322 Small stock dividend, 813 Social Security (FICA) tax, 696, 697 Software, 473 Sole proprietorship, 32 Source documents, 95–96, 455 ledger accounts after posting, 107–108 Special journals, 458–469 recording transactions in, 472 Special pricing, 1606 Specific identification inventory costing method, 400 Specific identification method, 392 Spreadsheet, preparing indirect statement of cash flows using, 984–987 Stakeholder, 1105 Standard, 1463 Standard cost calculations, 1464 Standard cost systems, 1454–1523 accounting vocabulary, 1497 allocating overhead in, 1474–1480 assess your progress, 1500–1516 continuing problem, 1516 exercises, 1505–1508 problems, 1509–1515 review questions, 1500 short exercises, 1500–1505 benefits of, 1465 critical thinking, 1517–1523 communication activity, 1520 decision cases, 1517–1518 ethical issues, 1518–1519 fraud case, 1519 team project, 1520 decisions: How much time should employees report?, 1467 ethics: discussions of variances, 1471 flow of costs in, 1488 income statement, 1488–1489 journal entries in, 1484–1490 product cost variances, responsibility for, 1481–1484 quick check, 1498 review, 1491–1493 setting standards, 1463 cost standards, 1464 efficiency standards, 1465 summary problem, 1493–1496 used to determine direct materials and direct labor variances, 1468–1474 using budgets to control business activities, 1457–1463 using to control business activities, 1463–1468 using to determine manufacturing overhead variances, 1474–1480 variance analysis for product costs, 1466 Standards, setting, 1463 State and Federal Unemployment Compensation Taxes (SUTA), 699, 700 Stated interest rate, 868 interaction with market rate and price of bond, 871 Stated value stock, 803 issuing, 807 Statement of cash flows, 42, 45–46, 956–1031 accounting vocabulary, 992–993 assess your progress, 995–1025 continuing problem, 1025 exercises, 1001–1011 problems, 1011–1024 review questions, 995 short exercises, 996–1001 critical thinking, 1026–1031 communication activity, 1030 decision cases, 1026–1028 ethical issue, 1026–1028 financial statements case, 1029 fraud case, 1028–1029 team project, 1029 decisions about, 967 financing activities and, 959 investing activities and, 959 operating activities, 959 preparing direct method, 977–987 indirect method, 961–975 purpose of, 958 quick check, 993–994 review, 988–989 sections of, 960 summary problem, 989–992 Statement of financial position, 324 See also Balance sheet Statement of owner’s equity, 42, 43–44, 232 for merchandising company, 324 Statement of partner’s equity, 748 Static budget, 1374, 1457 performance reports and, 1457–1463 Static budget variance, 1458 Stock categories of, 802 issuing accounting for, 804–809 vs bond financing, 872 common, 807 common stock, 806 common stock at par value, 804, 805 no-par stock, 806 preferred stock, 808 liquidation value of, 802 retirement of, 822 treasury stock, 818–823 Stock certificate, 801 Stock dividends accounting for, 809–818 compared with cash dividends, 817 compared with stock splits, 809–818 large, 813, 815 reasons to issue, 812–816 conserve cash, 812 reduce market price of stock, 812 reward investors, 812 recording, 813 small, 813 Stock splits, 816–817 accounting for, 809–818 compared with cash dividends, 817 compared with stock dividends, 817 effects on the accounting equation, 817 Stockholders’ equity, 803–804, 805, 809, 818 after treasury stock transactions, 822 basics of, 801–804 evaluating business performance with ratios of, 825–827 no-par stock, 806 small stock dividend, 815 statement of, 824–825 Stockholders’ rights, 802 Straight-line amortization method, 875 of accounting for bonds payable, 873–878 of bond discount, 875–876 Straight-line amortization, of bond premium, 877–878 Straight-line method, 166 Straight-line (SL) depreciation method, 641–643 Straight time, 694 Strategic budgets, 1374 Streamlined procedures, 527 Subsidiary company, 930 Subsidiary ledgers, 458, 466 accounts payable, 459, 468 accounts receivable, 458–459 Sunk costs, 1599 Suppliers, 979 Supplies expense, 165 www.downloadslide.net Subject Index t T-account, 92, 109–110 determining the balance of, 94 increases and decreases in, 92–93 Target full product cost, 1602–1604 Target pricing, 1602 Target profit, 1304 breakeven point, 1307 contribution margin approach, 1305 contribution margin ratio, 1306 equation approach, 1304 Taxes, employer payroll taxes, 700–701 Taxing authorities, as users of accounting information, 29 Temporary accounts, 252 See also Nominal accounts; nominal accounts closing, 241–243 Temporary investments, 923 See also Short-term investments Term bonds, 869 Time-period concept, 160 Time value of money, 870, 884–890, 1671–1677 calculating present value of a future amount, 884–890 capital investment decisions and, 1671–1677 concepts of, 884–887, 1671–1672 present value factors, 886–887, 1673–1674 present value of a lump sum, 1674 present value of an annuity, 1674–1675 simple vs compound interest and, 1672 Times-interest-earned ratio, 708, 1053 Timing differences, 534 Total Quality Management (TQM), 1107 Trademark (trade name), 658–659 Trading investment, 923, 931–932 Trading on the equity, 1056 Traditional costing systems, compared to ABC systems, 1535 Transaction analysis, 37–41 Transactions, 36 accounting for, 36–42 analyzing, 36–42 Transactions, recording business, 86–155 accounting vocabulary, 99 analyzing and recording, 95–111 debit/credit (demo docs), 87–107 assess your progress, 150 exercises, 125–136 practice set, 150 problems, 136–150 in a computerized accounting information system, 473–477 critical thinking communication activity, 154–155 decision cases, 152 ethical issues, 152–153 financial statement case, 153 fraud case, 153 team projects, 153 ethics and, 96 journaling and posting, 96–110 quick check, 121, 154–155 receipts and, 96 steps in recording process, 87–107 Transfer price, 1561 negotiable range, 1562 setting, 1561 operating at capacity, 1562 operating below capacity, 1562 other issues, 1563 Transfer pricing, 1561–1563 objectives of, 1561 Transferred in costs, 1231 Transportation costs, 310–311, 316 recording, 328 Treasurer, 521 Treasury stock, 818 accounting for, 818–823 basics of, 818 cash flows from, 971–972 purchase of, 818–819 sale of, 819–822 stockholder’s equity after transactions, 822 Trend analysis, 1039–1040 Trial balance, 111–113 error correction, 112–113 post-closing, 245–246 preparing financial statements from, 111–112 U Unadjusted trial balance, 163 Uncollectible accounts accounting for, 579–581 accounting for with allowance method, 581–591 direct write-off method, 579–580 ethics of underestimating, 582 recording and writing off, 579–580 writing off with allowance method, 582–583 Uncollectible expense, 579 Uncollectibles, comparison of accounting methods for, 589–593 Underallocated overhead, 1172 Underwriter, 804 Unearned revenue, 106, 169–170, 185, 691– 692 See also Deferred revenue initially recorded as revenue, 185–186 1795 Unemployment compensation taxes, 700 Unit contribution margin, 1302 Unit product cost, calculating, 1119 Units-of-production depreciation schedule, 644 Units-of-production (UOP) depreciation method, 643–644 Unlimited liability, 737 Unlimited personal liability, 737 Unqualified opinions, 1035 V Vacation, health and pension benefits, 703 Value chain, 1107 Variable costing, 1318–1319 vs absorption costing, 1318–1319 comparison of unit costs, 1319 Variable costs, 1294 changes in with changes in volume, 1294–1295 Variable overhead variances, 1475–1476 variable overhead cost variance, 1476 Variance, 1457 Variance relationships, 1467, 1481–1482 Vendors, 303 gifts from, 308 Vertical analysis, 1041–1045 comparative balance sheet, 1042 comparative income statement, 1041 Vote, 802 Voucher, 527 Voucher system, 527 W W-4, 696 Wages, 694 Warranties, 703 Weighted-Average Inventory Costing Method, 397, 400, 411 Weighted-Average Method, 1231 Wholesaler, 302 Withholding allowances, 695 Withholding deductions, 695 Withholding for Employee Income Tax, 695–696 Withholding for Employee Social Security Tax (FICA), 696 Work-in-process inventory (WIP), 1111 Working capital, 1046, 1047 Worksheet, 181 adjusted trial balance and, 181–184 for completing accounting cycle, 237–239 for a merchandising business, 319 perpetual inventory system, 319 preparing adjusted entries and, 181–184 www.downloadslide.net Company Index A F O Amazon.com, 29, 30 America Online (AOL), 657 American Express, 576 Apple, Inc., 952 Arthur Andersen LLP, 518 Avis Car Rental, 659 Facebook, Inc., 799 Four Seasons Hotels and Resorts, 231 Olive Garden, 1103 g PepsiCo, Inc., 1217, 1525 Priceline.com, 732 PwC, 30 B Bahama Breeze, 1103 Baylor Associates, 544–545 Bear Paw Inn, 230–231 Berkshire Hathaway, Inc, 921, 953 Best Buy Co Inc., 1293 BP, 1552–1553 Buffalo Wild Wings Grill & Bar, 517 Burlington Northern Santa Fe, 921 c The Capital Grille, 1103 Caremark Corporation (CVS), 1369 Caribou Coffee Company, Inc., 48 CC Media Holdings, Inc., 157 Chevrolet, 659 Clear Channel Communications, 157 Clear Channel Outdoor Holdings, 157 The Coca-Cola Company, 921 ConocoPhillips, 633, 921 d Dallas Cowboys, 659 Darden Restaurants, Inc., 1103 Dave’s Gourmet, Inc., 453, 475 Dell, 30 Deloitte, 30 Delta Airlines, 1213 Dick’s Sporting Goods, Inc., 409–413 Dolby, 657 Dow Jones, 1045 Dunkin’ Brands Group, Inc., 48 e Enron, 34 Enron Corporation, 518 Ernst & Young, 30 1796 The Gap, 48 GEICO, 921 General Mills, 1103 Google, Inc., 952 Green Mountain Coffee Roasters, Inc., 47, 539–540, 596–597, 629, 708, 731, 826–827, 883, 935–936, 1036, 1096 i P Q QuikTrip Corporation, 1659 r Raymond James Financial, Inc., 1033 Red Lobster, 1103 Risk Management Association, 1047 Intel Corporation, 804 S J L Seasons 76, 1103 Sharemymovie.com, 798 Simon & Schuster, 658 Smith Barney, 804 Southwest Airlines, 732, 1213 Starbucks Corporation, 27, 48, 570, 628–629, 685, 731, 857, 953, 1029, 1097 Subway, 659 LexisNexis, 1045 Longhorn Steakhouse, 1103 t m Target Corporation, 957 Time Warner, 657 TruGreen, 633 J C Penney Company, Inc., 160 JetBlue, 1213 JP Morgan Chase & Co., 804 K Kellogg Company, 1455 M C Alexander, 1628–1630 Macy’s, Inc., 301 MasterCard, 576 Mattel, Inc., 1597 McDonald’s, 633, 659, 1218 McKinney Furniture Company, 550 Merrill Lynch and Company, Inc., 804 Microsoft, 658, 952, 1673 Morgan Stanley, 804 n NASCAR, 659 National Football League, 659 National HealthCare Corporation, 1369 Nike, Inc., 659, 804, 1628–1630 U University of Utah, 1716 Urban Outfitters, 48 V Visa, 576 W Wal-Mart Stores, Inc., 29–30, 160, 921 Walt Disney Company, 863 WorldCom, 34, 87, 518 www.downloadslide.net Photo Credits Front matter Page iv: (top) Bill Woodhull; (middle) Richard Smith; (bottom) Kam-Wah Tsui chapter Page 26: (top) Fotolia; (middle) Bragin Alexey/Shutterstock; (bottom) Barbara Tripp/Shutterstock; page 27: Corbis Super RF/Alamy; page 30: Monkey Business Images/Shutterstock; page 40: (top) Iodrakon/Shutterstock; (bottom) Shutterstock; page 43: Lisa F Young/Shutterstock; page 44: Rido/Shutterstock; page 45: Mike Flippo/Shutterstock chapter Page 86: (top) Djordje Radivojevic/Shutterstock; (bottom) Amasterphotographer/Shutterstock; page 87: Edyta Pawlowska/Shutterstock; page 88: (top) Denis Vrublevski/Shutterstock; page 89: Lithian/Shutterstock; page 91: Monkey Business Images/Shutterstock; page 92: Iodrakon/Shutterstock; page 101: Shutterstock chapter Page 156: (top) Ragnarocks/Fotolia; (bottom) Yaroslav Pavlov/Fotolia; page 157: Yuri Arcurs/Fotolia; page 158: (top) Illustrart/Fotolia; (bottom) Lisa F Young/Shutterstock; page 167: Rido/Shutterstock chapter Page 230: (top) Njaj/Shutterstock; (middle) Dimedrol68/Shutterstock; (bottom) Dmitriy Yakovlev/Shutterstock; page 231: Mountainpix/Shutterstock; page 238: Mike Flippo/Shutterstock; page 243: Lithian/Shutterstock chapter Page 300: (top) R Gino Santa Maria/Shutterstock; (middle) Wasanajai/Shutterstock; (bottom) Optimarc/ Shutterstock; page 301: Pavelbendov/Fotolia; page 302: (top) Eimantas Buzas/Shutterstock; (middle) Diana Taliun/Shutterstock; page 304: Monkey Business Images/Shutterstock; page 308: Iodrakon/Shutterstock chapter Page 386: (top) K Miri Photography/Shutterstock; (middle) Ari N./Shutterstock; (bottom) Marius Graf/Fotolia and Anankkml/Fotolia; page 387: Blend Images/Alamy; page 388: (top) Tritooth/Fotolia; (bottom) Steshkin Yevgeniy/Shutterstock; page 400: Shutterstock chapter Page 452: (top) Vincent Pen/Fotolia; (middle) Zhukov Oleg/Shutterstock; (bottom) Volff/Fotolia; page 453: Nat Ulrich/Shutterstock; page 454: Djama/Fotolia chapter Page 516: (top) Boris Rabtsevich/Shutterstock; (middle) Todd Taulman/Shutterstock; (bottom) Eric Gevaert/ Shutterstock; page 517: Michaeljung/Shutterstock; page 518: Krungchingpixs/Shutterstock; page 530: Rido/Shutterstock chapter Page 572: (top) Nenetus/shutterstock; (middle) Jmiks/Shutterstock; (bottom) Artjazz/Shutterstock; page 573: Andresr/ Shutterstock; page 574: Photobac/Shutterstock; page 582: Mike Flippo/Shutterstock; page 587: Lithian/Shutterstock chapter 10 Page 632: (top) Yanas/Shutterstock; (middle) J Helgason/Shutterstock; (bottom) Mradlgruber/Shutterstock; page  633: Dmitry Kalinovsky/Shutterstock; page 634: JPL Designs/Shutterstock; page 647: Monkey Business Images/Shutterstock; page 658: Iodrakon/Shutterstock chapter 11 Page 688: (top) Valentyn Volkov/Shutterstock; (middle) Y.H Lim/Alamy; (bottom) Wavebreakmedia/ Shutterstock; page 689: Carlo Dapino/Shutterstock; page 690: Pan Xunbin/Shutterstock; page 697: Shutterstock chapter 12 Page 734: (top) Philip Lange/Shutterstock; (middle) Gualberto Becerra/Shutterstock; (bottom) IDreamstock/Alamy; page 735: Yuri Arcurs/Shutterstock; page 736: ArtyFree/Shhutterstock; page 749: Lisa F Young/Shutterstock chapter 13 Page 798: (top) Pakhnyushcha/Shutterstock; (middle) AG-Photos/Shutterstock; (bottom) Andersphoto/Shutterstock; page 799: Yuri Arcurs/Shutterstock; page 800: David Castillo Dominici/Shutterstock; page 803: Rido/Shutterstock 1797 www.downloadslide.net 1798 Photo Credits chapter 14 Page 862: (top) Jim Barber/Shutterstock; (middle) Albachiaraa/Fotolia; (bottom) Jordeangjelovik/Shutterstock; page 863: Corbis RF/Alamy; page 864: (top) Shutterstock; (bottom) Alex Staroseltsev/Shutterstock; page 867: Mike Flippo/Shutterstock; page 872: Lithian/Shutterstock chapter 15 Page 920: (top) Corgarashu/Shutterstock; (middle) Iodrakon/Shutterstock; (bottom) 501room/Shutterstock; page 921: Peter Bernik/Shutterstock; page 922: Jeka84/Shutterstock; page 928: Monkey Business Images/Shutterstock chapter 16 Page 956: (top) Hassel Sinar/Shutterstock; (middle) Nielskliim/Shutterstock; (bottom) Kongsky/Shutterstock; page 957: HomeArt/Shutterstock; page 958: (top) Aaron Amat/Shutterstock; (bottom) Sean Gladwell/ Shutterstock; page 966: Iodrakon/Shutterstock; page 982: Shutterstock chapter 17 Page 1032: (top) Natika/Fotolia; (middle) Get4net/Fotolia; (bottom) Rangizzz/Fotolia; page 1033: Imagemore Co Ltd./Alamy; page 1034: Pokomeda/Shutterstock; page 1040: Lisa F Young/Shutterstock chapter 18 Page 1102: (top) Cultura Creative/Alamy; (middle) Jiri Hera/Shutterstock; (bottom) Mihai Simonia/Shutterstock; page 1103: Chris Ryan/Alamy; page 1104: Africa Studio/Shutterstock chapter 19 Page 1154: (top) RT Images/Alamy; (middle) Elena Elisseeva/Alamy; (bottom) Maxx-Studio/Shutterstock; page 1155: EdBockStock/Alamy; page 1156: (top) Photonic 18/Alamy; (bottom) M.Brodie/Alamy; page 1159: Rido/Shutterstock; page 1172: Mike Flippo/Shutterstock chapter 20 Page 1216: (top) Tetra Images/Alamy; (middle) Jakub Krechowicz/Shutterstock; (bottom) Volozhanin Ivan/ Shutterstock; page 1217: Kadmy/Fotolia; page 1218: Seaskylab/Shutterstock; page 1233: Lithian/Shutterstock; page 1256: Monkey Business Images/Shutterstock chapter 21 Page 1292: (top) Denphumi/Shutterstock; (middle) Jmiks/Shutterstock; (bottom) Timmary/Shutterstock; page 1293: Martin Barraud/Alamy; page 1294: Scanrail/Fotolia; page 1297: Iodrakon/Shutterstock; page 1300: Shutterstock; page 1328: Lisa F Young/Shutterstock chapter 22 Page 1368: (top) Antos777/Shutterstock; (middle) Ali Ender Birer/Shutterstock; (bottom) Peredniankina/ Shutterstock; page 1369: OJO Images Ltd./Alamy; page 1370: Ilolab/Shutterstock; page 1382: Rido/Shutterstock; page 1404: Mike Flippo/Shutterstock chapter 23 Page 1454: (top) Denis Vrublevski/Shutterstock; (middle) Fotonic/Shutterstock; (bottom) Paul Orr/Shutterstock; page 1455: Fancy/Alamy; page 1456: Thumb/Shutterstock; page 1469: Lithian/Shutterstock; chapter 24 Page 1524: (top) Maks Narodenko/Shutterstock; (middle) Valentyn Volkov/Alamy; (bottom) Corbis Super RF/ Alamy; page 1525: Tetra Images/Alamy; page 1526: Rosseforp/Imagebroker/Alamy; page 1535: Monkey Business Images/Shutterstock; page 1555: Iodrakon/Shutterstock; page 1558: Shutterstock chapter 25 Page 1596: (top) David Gilder/Shutterstock; (middle) Julia Ivantsova/Shutterstock; (bottom) Africa Studio/ Shutterstock; page 1597: Kurhan/Shutterstock; page 1598: (top) James Kingman/Shutterstock; (bottom) Maen CG/Shutterstock; page 1599: Lisa F Young/Shutterstock; page 1603: Rido/Shutterstock chapter 26 Page 1658: (top) Mopic/Shutterstock; (middle) Olga Nayashkova/Shutterstock; (bottom) Krapivin/Shutterstock; page 1659: Wavebreakmedia/Shutterstock; page 1660: (top) Crepesoles/Shutterstock; (bottom) Mats/Shutterstock; page 1663: Mike Flippo/Shutterstock; page 1667: Lithian/Shutterstock ... United States edition, entitled Horngren s Accounting, 10th edition, ISBN 978-0-13-311741-7, by Tracie L Nobles, Brenda l Mattison and Ella Mae Matsumura, published by Pearson Education © 2014 All.. .HORNGREN S ACCOUNTING TenTh ediTion Global Edition Tracie Nobles Texas State University–San Marcos Brenda Mattison Tri-County Technical College Ella Mae Matsumura University... new and redefined Horngren s Accounting We welcome your feedback, suggestions, and comments Please don’t hesitate to contact us at HorngrensAccounting@pearson.com Tracie L Nobles, CPA Brenda