Part 2 book “Accounting principles” has contents: Long-Term liabilities, financial statement analysis, managerial accounting, job order costing, process costing, budgetary planning, budgetary control and responsibility accounting, incremental analysis and capital budgeting, standard costs and balanced scorecard,… and other contents.
14 Corporations: Dividends, Retained Earnings, and Income Reporting CHAPTER PREVIEW As indicated in the Feature Story below, a profitable corporation like Van Meter Inc can provide real benefits to employees through its stock bonus plan And as employees learn more about the role of dividends, retained earnings, and earnings per share, they develop an understanding and appreciation for what the company is providing to them FEATURE STORY Owning a Piece of the Action Van Meter Inc., an electrical-parts distributor in Cedar Rapids, equivalent of about five years’ worth of salary For example, a Iowa, is 100% employee-owned For many years, the person earning a $30,000 salary would earn $300,000 in company has issued bonuses in the form of shares of wages over a 10-year period During that same 10-year company stock to all of its employees These bonus period, it was likely that the value of the employee’s shares distributions typically have a value equal to several weeks of would accumulate to about $150,000 (five years’ worth of pay Top management always thought that this was a great salary) This demonstrates in more concrete terms why program Therefore, it came as quite a surprise a few years employees should be excited about share ownership ago when an employee stood up at a company-wide meeting and said that he did not see any real value in receiving the company’s shares Instead, he wanted “a few hundred extra bucks for beer and cigarettes.” A 12-member employee committee has the responsibility of educating new employees about the program The committee also runs training programs so that employees understand how their cost-saving actions improve the company’s results— As it turned out, many of the company’s 340 employees felt and its stock price It appears that the company’s education this way Rather than end the stock bonus program, however, program to encourage employees to act like owners is the company decided to educate its employees on the value working Profitability has increased rapidly, and employee of share ownership The employees are now taught how to turnover has fallen from 18% to 8% Given Van Meter’s determine the worth of their shares, the rights that come with success, many of the 10,000 other employee-owned share ownership, and what they can to help increase the companies in the United States might want to investigate value of those shares whether their employees understand the benefits of share As part of the education program, management developed a ownership slogan, “Work ten, get five free.” The idea is that after Source: Adapted from Simona Covel, “How to Get Workers to Think and Act working 10 years, an employee’s shares would be worth the Like Owners,” Wall Street Journal Online (February 15, 2008) 608 Daisy Daisy/Photographer’s Choice/Getty Images, Inc CHAPTER OUTLINE Learning Objectives Explain how to account for cash dividends • Cash dividends • Dividend preferences DO IT! Common Stock Explain how to account for stock dividends and splits • Stock dividends • Stock splits DO IT! Splits Prepare and analyze a comprehensive stockholders’ equity section • Retained earnings • Statement presentation and analysis DO IT! Describe the form and content of corporation income statements • Income statement presentation • Income statement analysis DO IT! Dividends on Preferred and Stock Dividends and Stock Recording Business Retained Earnings Activities Statement Stockholders’ Equity and EPS Go to the REVIEW AND PRACTICE section at the end of the chapter for a review of key concepts and practice applications with solutions Visit WileyPLUS with ORION for additional tutorials and practice opportunities 610 14 Corporations: Dividends, Retained Earnings, and Income Reporting LEARNING OBJECTIVE Explain how to account for cash dividends A dividend is a corporation’s distribution of cash or stock to its stockholders on a pro rata (proportional to ownership) basis Pro rata means that if you own 10% of the common shares, you will receive 10% of the dividend Dividends can take four forms: cash, property, scrip (a promissory note to pay cash), or stock Cash dividends predominate in practice although companies also declare stock dividends with some frequency These two forms of dividends are therefore the focus of discussion in this chapter Investors are very interested in a company’s dividend practices In the financial press, dividends are generally reported quarterly as a dollar amount per share (Sometimes they are reported on an annual basis.) For example, Nike’s quarterly dividend rate in the fourth quarter of 2013 was 24 cents per share The dividend rate for the fourth quarter of 2013 for GE was 22 cents, and for ConAgra Foods it was 25 cents Cash Dividends A cash dividend is a pro rata distribution of cash to stockholders Cash dividends are not paid on treasury shares For a corporation to pay a cash dividend, it must have the following Retained earnings The legality of a cash dividend depends on the laws of the state in which the company is incorporated Payment of cash dividends from retained earnings is legal in all states In general, cash dividend distributions from only the balance in common stock (legal capital) are illegal A dividend declared out of paid-in capital is termed a liquidating dividend Such a dividend reduces or “liquidates” the amount originally paid in by stockholders Statutes vary considerably with respect to cash dividends based on paid-in capital in excess of par or stated value Many states permit such dividends Adequate cash The legality of a dividend and the ability to pay a dividend are two different things For example, Nike, with retained earnings of over $5.6 billion, could legally declare a dividend of at least $5.6 billion But Nike’s cash balance is only $3.3 billion Before declaring a cash dividend, a company’s board of directors must carefully consider both current and future demands on the company’s cash resources In some cases, current liabilities may make a cash dividend inappropriate In other cases, a major plant expansion program may warrant only a relatively small dividend Declared dividends A company does not pay dividends unless its board of directors decides to so, at which point the board “declares” the dividend The board of directors has full authority to determine the amount of income to distribute in the form of a dividend and the amount to retain in the business Dividends not accrue like interest on a note payable, and they are not a liability until declared The amount and timing of a dividend are important issues for management to consider The payment of a large cash dividend could lead to liquidity problems for the company On the other hand, a small dividend or a missed dividend may cause unhappiness among stockholders Many stockholders expect to receive a reasonable cash payment from the company on a periodic basis Many companies declare and pay cash dividends quarterly On the other hand, a number of high-growth companies pay no dividends, preferring to conserve cash to finance future capital expenditures Accounting for Cash Dividends 611 ENTRIES FOR CASH DIVIDENDS Three dates are important in connection with dividends: (1) the declaration date, (2) the record date, and (3) the payment date Normally, there are two to four weeks between each date Companies make accounting entries on the declaration date and the payment date On the declaration date, the board of directors formally declares (authorizes) the cash dividend and announces it to stockholders The declaration of a cash dividend commits the corporation to a legal obligation The company must make an entry to recognize the increase in Cash Dividends and the increase in the liability Dividends Payable To illustrate, assume that on December 1, 2017, the directors of Media General declare a 50 cents per share cash dividend on 100,000 shares of $10 par value common stock The dividend is $50,000 (100,000 $0.50) The entry to record the declaration is as follows Declaration Date Dec Cash Dividends Dividends Payable (To record declaration of cash dividend) A L 50,000 SE 250,000 Div 150,000 50,000 Cash Flows no effect Media General debits the account Cash Dividends Cash dividends decrease retained earnings We use the specific title Cash Dividends to differentiate it from other types of dividends, such as stock dividends Dividends Payable is a current liability It will normally be paid within the next several months For homework problems, you should use the Cash Dividends account for recording dividend declarations At the record date, the company determines ownership of the outstanding shares for dividend purposes The stockholders’ records maintained by the corporation supply this information In the interval between the declaration date and the record date, the corporation updates its stock ownership records For Media General, the record date is December 22 No entry is required on this date because the corporation’s liability recognized on the declaration date is unchanged Helpful Hint The purpose of the record date is to identify the persons or entities that will receive the dividend, not to determine the amount of the dividend liability Record Date Dec 22 No entry On the payment date, the company makes cash dividend payments to the stockholders of record (as of December 22) and records the payment of the dividend If January 20 is the payment date for Media General, the entry on that date is as follows Payment Date Jan 20 Dividends Payable Cash (To record payment of cash dividend) A L 50,000 250,000 50,000 Note that payment of the dividend reduces both current assets and current liabilities It has no effect on stockholders’ equity The cumulative effect of the declaration and payment of a cash dividend is to decrease both stockholders’ equity and total assets Illustration 14-1 (page 612) summarizes the three important dates associated with dividends for Media General 250,000 Cash Flows 250,000 SE 612 14 Corporations: Dividends, Retained Earnings, and Income Reporting Illustration 14-1 Key dividend dates December S Declaration date Board authorizes dividends M 14 15 21 22 28 29 Tu 16 23 30 W 10 17 24 31 Th F S 11 12 13 18 19 20 25 26 27 Record date Registered shareholders are eligible for dividend January S M Tu W Th F S 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Payment date The company issues dividend checks When using a Cash Dividends account, Media General should transfer the balance of that account to Retained Earnings at the end of the year by a closing entry The entry for Media General at closing is as follows Retained Earnings Cash Dividends (To close Cash Dividends to Retained Earnings) 50,000 50,000 Dividend Preferences I hope there’s some money left when it’s my turn Preferred Common stockholders stockholders Dividend preferences Preferred stockholders have the right to receive dividends before common stockholders For example, if the dividend rate on preferred stock is $5 per share, common shareholders cannot receive any dividends in the current year until preferred stockholders have received $5 per share The first claim to dividends does not, however, guarantee the payment of dividends Dividends depend on many factors, such as adequate retained earnings and availability of cash If a company does not pay dividends to preferred stockholders, it cannot pay dividends to common stockholders For preferred stock, companies state the per share dividend amount as a percentage of the par value or as a specified amount For example, Earthlink specifies a 3% dividend on its $100 par value preferred PepsiCo pays $4.56 per share on its no-par value stock Most preferred stocks also have a preference on corporate assets if the corporation fails This feature provides security for the preferred stockholder The preference to assets may be for the par value of the shares or for a specified liquidating value For example, Commonwealth Edison’s preferred stock entitles its holders to receive $31.80 per share, plus accrued and unpaid dividends, in the event of liquidation The liquidation preference establishes the respective claims of creditors and preferred stockholders in litigation involving bankruptcy lawsuits CUMULATIVE DIVIDEND Preferred stock often contains a cumulative dividend feature This feature stipulates that preferred stockholders must be paid both current-year dividends and any unpaid prior-year dividends before common stockholders are paid dividends When preferred stock is cumulative, preferred dividends not declared in a given period are called dividends in arrears To illustrate, assume that Scientific Leasing has 5,000 shares of 7%, $100 par value, cumulative preferred stock outstanding Each $100 share pays a $7 dividend (.07 $100) The annual dividend is $35,000 (5,000 $7 per share) If dividends are two years in arrears, preferred stockholders are entitled to receive the dividends shown in Illustration 14-2 Accounting for Cash Dividends Dividends in arrears ($35,000 2) Current-year dividends $ 70,000 35,000 Total preferred dividends $105,000 613 Illustration 14-2 Computation of total dividends to preferred stock The company cannot pay dividends to common stockholders until it pays the entire preferred dividend In other words, companies cannot pay dividends to common stockholders while any preferred dividends are in arrears Dividends in arrears are not considered a liability No obligation exists until the board of directors formally declares that the corporation will pay a dividend However, companies should disclose in the notes to the financial statements the amount of dividends in arrears Doing so enables investors to assess the potential impact of this commitment on the corporation’s financial position The investment community does not look favorably on companies that are unable to meet their dividend obligations As a financial officer noted in discussing one company’s failure to pay its cumulative preferred dividend for a period of time, “Not meeting your obligations on something like that is a major black mark on your record.” Payment of a cumulative dividend Dividend in arrears Current dividend Preferred stockholders ALLOCATING CASH DIVIDENDS BETWEEN PREFERRED AND COMMON STOCK As indicated, preferred stock has priority over common stock in regard to dividends Holders of cumulative preferred stock must be paid any unpaid prior-year dividends and their current year’s dividend before common stockholders receive dividends To illustrate, assume that at December 31, 2017, IBR Inc has 1,000 shares of 8%, $100 par value cumulative preferred stock It also has 50,000 shares of $10 par value common stock outstanding The dividend per share for preferred stock is $8 ($100 par value 8%) The required annual dividend for preferred stock is therefore $8,000 (1,000 shares $8) At December 31, 2017, the directors declare a $6,000 cash dividend In this case, the entire dividend amount goes to preferred stockholders because of their dividend preference The entry to record the declaration of the dividend is as follows A Dec 31 Cash Dividends Dividends Payable (To record $6 per share cash dividend to preferred stockholders) L SE 26,000 Div 16,000 6,000 6,000 Cash Flows no effect Because of the cumulative feature, dividends of $2 ($8 $6) per share are in arrears on preferred stock for 2017 IBR must pay these dividends to preferred stockholders before it can pay any future dividends to common stockholders IBR should disclose dividends in arrears in the financial statements At December 31, 2018, IBR declares a $50,000 cash dividend The allocation of the dividend to the two classes of stock is as follows Total dividend Allocated to preferred stock Dividends in arrears, 2017 (1,000 $2) 2018 dividend (1,000 $8) $50,000 $2,000 8,000 Remainder allocated to common stock Illustration 14-3 Allocating dividends to preferred and common stock 10,000 $40,000 The entry to record the declaration of the dividend is as follows A Dec 31 Cash Dividends Dividends Payable (To record declaration of cash dividends of $10,000 to preferred stock and $40,000 to common stock) 50,000 50,000 L SE 250,000 Div 150,000 Cash Flows no effect 614 14 Corporations: Dividends, Retained Earnings, and Income Reporting If IBR’s preferred stock is not cumulative, preferred stockholders receive only $8,000 in dividends in 2018 Common stockholders receive $42,000 Investor Insight Dividends in Demand Investors seeking dividend income enjoyed a great year in 2013 A total of 418 companies in the Standard & Poor’s 500 index paid a dividend, matching the highest total since 1998 As shown in the following chart, dividend growth since 2008 more than doubled S&P 500 Dividend Actions 400 Increases and initiations 350 300 Decreases and suspensions 250 Palto/iStockphoto 200 150 100 50 2008 2009 2010 2011 2012 2013 And for holders of dividend-paying stocks, corporate America may continue to sweeten the pot One reason for optimism is that the average dividend payout—the percentage of corporate profits paid out as dividends—remains low at 36% The historical average is 52% Source: Trevor Delaney and Jenni Sohn, “Dividends in Demand” Naples Daily News (January 8, 2014), p 5B What factors must management consider in deciding how large a dividend to pay? (Go to WileyPLUS for this answer and additional questions.) DO IT! Dividends on Preferred and Common Stock MasterMind Corporation has 2,000 shares of 6%, $100 par value preferred stock outstanding at December 31, 2017 At December 31, 2017, the company declared a $60,000 cash dividend Determine the dividend paid to preferred stockholders and common stockholders under each of the following scenarios The preferred stock is noncumulative, and the company has not missed any dividends in previous years The preferred stock is noncumulative, and the company did not pay a dividend in each of the two previous years Action Plan ✔ Determine dividends on preferred shares by multiplying the dividend rate times the par value of the stock times the number of preferred shares The preferred stock is cumulative, and the company did not pay a dividend in each of the two previous years Solution The company has not missed past dividends and the preferred stock is noncumulative Thus, the preferred stockholders are paid only this year’s dividend The dividend paid to preferred stockholders would be $12,000 (2,000 06 $100) The dividend paid to common stockholders would be $48,000 ($60,000 $12,000) Accounting for Stock Dividends and Splits The preferred stock is noncumulative Thus, past unpaid dividends not have to be paid The dividend paid to preferred stockholders would be $12,000 (2,000 06 $100) The dividend paid to common stockholders would be $48,000 ($60,000 $12,000) The preferred stock is cumulative Thus, dividends that have been missed (dividends in arrears) must be paid The dividend paid to preferred stockholders would be $36,000 (3 2,000 06 $100) Of the $36,000, $24,000 relates to dividends in arrears and $12,000 relates to the current dividend on preferred stock The dividend paid to common stockholders would be $24,000 ($60,000 $36,000) Related exercise material: BE14-2, E14-2 and LEARNING OBJECTIVE DO IT! 14-1 Action Plan (cont’d) ✔ Understand the cumulative feature If preferred stock is cumulative, then any missed dividends (dividends in arrears) and the current year’s dividend must be paid to preferred stockholders before dividends are paid to common stockholders Explain how to account for stock dividends and splits Stock Dividends A stock dividend is a pro rata (proportional to ownership) distribution of the corporation’s own stock to stockholders Whereas a company pays cash in a cash dividend, a company issues shares of stock in a stock dividend A stock dividend results in a decrease in retained earnings and an increase in paid-in capital Unlike a cash dividend, a stock dividend does not decrease total stockholders’ equity or total assets To illustrate, assume that you have a 2% ownership interest in Cetus Inc That is, you own 20 of its 1,000 shares of common stock If Cetus declares a 10% stock dividend, it would issue 100 shares (1,000 10%) of stock You would receive two shares (2% 100) Would your ownership interest change? No, it would remain at 2% (22 1,100) You now own more shares of stock, but your ownership interest has not changed Cetus has disbursed no cash and has assumed no liabilities What, then, are the purposes and benefits of a stock dividend? Corporations issue stock dividends generally for one or more of the following reasons To satisfy stockholders’ dividend expectations without spending cash To increase the marketability of the corporation’s stock When the number of shares outstanding increases, the market price per share decreases Decreasing the market price of the stock makes it easier for smaller investors to purchase the shares To emphasize that a company has permanently reinvested in the business a portion of stockholders’ equity, which therefore is unavailable for cash dividends When the dividend is declared, the board of directors determines the size of the stock dividend and the value assigned to each dividend Generally, if the company issues a small stock dividend (less than 20–25% of the corporation’s issued stock), the value assigned to the dividend is the fair value (market price) per share This treatment is based on the assumption that a small stock dividend will have little effect on the market price of the shares previously outstanding Thus, many stockholders consider small stock dividends to be distributions of earnings equal to the market price of the shares distributed If a company issues a large stock dividend (greater than 20–25%), the price assigned to the dividend is the par or stated value Small stock dividends predominate in practice Thus, we will illustrate only entries for small stock dividends 615 616 14 Corporations: Dividends, Retained Earnings, and Income Reporting ENTRIES FOR STOCK DIVIDENDS To illustrate the accounting for small stock dividends, assume that Medland Corporation has a balance of $300,000 in retained earnings It declares a 10% stock dividend on its 50,000 shares of $10 par value common stock The current market price of its stock is $15 per share The number of shares to be issued is 5,000 (10% 50,000) Therefore, the total amount to be debited to Stock Dividends is $75,000 (5,000 $15) The entry to record the declaration of the stock dividend is as follows A L SE 275,000 Div 150,000 CS 125,000 CS Cash Flows no effect Stock Dividends Common Stock Dividends Distributable Paid-in Capital in Excess of Par—Common Stock (To record declaration of 10% stock dividend) 75,000 50,000 25,000 Medland debits Stock Dividends for the market price of the stock issued ($15 5,000) (Similar to Cash Dividends, Stock Dividends decrease retained earnings.) Medland also credits Common Stock Dividends Distributable for the par value of the dividend shares ($10 5,000) and credits Paid-in Capital in Excess of Par— Common Stock for the excess of the market price over par ($5 5,000) Common Stock Dividends Distributable is a stockholders’ equity account It is not a liability because assets will not be used to pay the dividend If the company prepares a balance sheet before it issues the dividend shares, it reports the distributable account under paid-in capital as shown in Illustration 14-4 Illustration 14-4 Statement presentation of common stock dividends distributable Paid-in capital Common stock Common stock dividends distributable Paid-in capital in excess of par—common stock $500,000 50,000 25,000 Total paid-in capital $575,000 When Medland issues the dividend shares, it debits Common Stock Dividends Distributable and credits Common Stock, as follows A L SE 250,000 CS 150,000 CS Cash Flows no effect Common Stock Dividends Distributable Common Stock (To record issuance of 5,000 shares in a stock dividend) 50,000 50,000 EFFECTS OF STOCK DIVIDENDS How stock dividends affect stockholders’ equity? They change the composition of stockholders’ equity because they transfer a portion of retained earnings to paid-in capital However, total stockholders’ equity remains the same Stock dividends also have no effect on the par or stated value per share, but the number of shares outstanding increases Illustration 14-5 shows these effects for Medland Illustration 14-5 Stock dividend effects Stockholders’ equity Paid-in capital Common stock, $10 par Paid-in capital in excess of par Total paid-in capital Retained earnings Total stockholders’ equity Before Dividend Change After Dividend $ 500,000 — $ 50,000 25,000 $ 550,000 25,000 500,000 300,000 175,000 275,000 575,000 225,000 $800,000 Outstanding shares 50,000 Par value per share $10.00 $ $800,000 15,000 55,000 $ $10.00 Accounting for Stock Dividends and Splits In this example, total paid-in capital increases by $75,000 (50,000 shares 10% $15) and retained earnings decreases by the same amount Note also that total stockholders’ equity remains unchanged at $800,000 The number of shares increases by 5,000 (50,000 10%) Stock Splits A stock split, like a stock dividend, involves issuance of additional shares to stockholders according to their percentage ownership However, a stock split results in a reduction in the par or stated value per share The purpose of a stock split is to increase the marketability of the stock by lowering its market price per share This, in turn, makes it easier for the corporation to issue additional stock The effect of a split on market price is generally inversely proportional to the size of the split For example, after a 2-for-1 stock split, the market price of Nike’s stock fell from $111 to approximately $55 The lower market price stimulated market activity Within one year, the stock was trading above $100 again Illustration 14-6 shows the effect of a 4-for-1 stock split for stockholders Before stock split ABC Co 10 10 shares shares 10 10 shares shares After stock split “I owned 40 shares before and I own 160 shares now, but I still own only 1/4 of the company!” ABC Co 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 Helpful Hint A stock split changes the par value per share but does not affect any balances in stockholders’ equity Illustration 14-6 Effect of stock split for stockholders Number of shares owned increases, but percentage of company owned remains the same In a stock split, the company increases the number of shares in the same proportion that par or stated value per share decreases For example, in a 2-for-1 split, the company exchanges one share of $10 par value stock for two shares of $5 par value stock A stock split does not have any effect on total paid-in capital, retained earnings, or total stockholders’ equity However, the number of shares outstanding increases, and par value per share decreases Illustration 14-7 shows these effects for Medland Corporation, assuming that it splits its 50,000 shares of common stock on a 2-for-1 basis Before Stock Split Stockholders’ equity Paid-in capital Common stock Paid-in capital in excess of par Total paid-in capital Retained earnings Total stockholders’ equity Change $ 500,000 –0– After Stock Split $ 500,000 –0– 500,000 300,000 $ 0 500,000 300,000 $800,000 $ $800,000 Outstanding shares 50,000 150,000 100,000 Par value per share $10.00 2$5.00 $5.00 A stock split does not affect the balances in any stockholders’ equity accounts Therefore, a company does not need to journalize a stock split Illustration 14-7 Stock split effects 617 Subject Index Iacocca, Lee, 644 IASB, see International Accounting Standards Board Ideal standards, 1103 Identification of economic events, 4–5 IFRS, see International Financial Reporting Standards Ig Nobel Prize, 402 IMA, see Institute of Management Accountants IMA Statement of Ethical Professional Practice, 851 Imprest system, 370 Incentives, creating, 851 Income, 266 comprehensive, 705 net, see Net income other comprehensive, 259, 805–808 sustainable, 804–808 Income from operations, 224 Income ratios, 540–541, 545 Income statement, 21, 22 budget, 1018–1020 corporation, 623–626 CVP, 970–973, 982, 983 effect of cost flow methods on, 274–275 and errors in inventory accounting, 277–278 horizontal analysis of, 788–789 merchandising and manufacturing costs in, 844–845 for merchandising companies, 222–226 multiple-step, 223–225 sustainable income on, 804 transfer to worksheet, 236 variances on, 1116–1117 vertical analysis of, 790–792 Income taxes: on corporation income statements, 623 for corporations, 574 and depreciation, 454 payroll deductions for, 500, 501 Income taxes payable, 736–737, 754 Incremental analysis, 1148–1159 for accepting an order at a special price, 1151–1152 costs in, 1151–1159 for eliminating unprofitable segments, 1157–1159 for making vs buying, 1152–1155 management decision-making process in, 1148–1151 for repairing, retaining, or replacing equipment, 1156–1157 for selling vs processing further, 1155–1156 types of decisions involving, 1150 Indefinite life, 460 Independent contractors, 499 Independent internal verification, 362–363 of bank reconciliations, 408 and inventory fraud, 267 of net income, 447 of payroll expenses, 508 Indirect fixed costs, 1072 Indirect labor, 841 Indirect manufacturing costs, 841 Indirect materials, 840 Indirect method (statement of cash flows), 731–741 investing and financing activities, 738–739 net change in cash, 739–740 operating activities, 734–738 worksheet for, 751–755 Industry averages (norms), 786 Information, for internal control, 357 Information technology, 46 Initial public offering (IPO), 575 Insiders, cybercrime by, 330 Institute of Management Accountants (IMA), 851, 914 Insurance: adjusting entries for, 99–100 health, 511 Intangible assets, 460–463 accounting for, 460–462 on classified balance sheet, 171–172 and research and development costs, 462–463 statement presentation and analysis of, 463–465 Intercompany comparisons, 786 Interest, 106 accrued, 106 on bonds, 648, 659, 693 on buildings, 445 on notes receivable, 418–419 to partners, 541–542 on partners’ capital, 541 Interest coverage, 801 Interest rates: for bonds, 646, 649–650, 664 for mortgages, 656–657 Internal auditors, 363 Internal control, 356–381 with accounting software, 313, 314 for bank reconciliations, 408 components of, 357 and fraud, 314, 356–357 and inventory fraud, 267 limitations of, 365 for net income, 447 over cash, 366–373 for payroll, 508–509 principles of, 358–364 and Sarbanes-Oxley Act, 25, 46, 96 and theft of merchandise, 217 using banks for, 373–381 I-11 Internal rate of return (IRR) method, 1166–1168 Internal Revenue Service (IRS), 6, 26, 454, 508 Internal transactions, 14 Internal users, International Accounting Standards Board (IASB), 9, 46 definitional structure of, 90 on financial instrument accounting, 441, 687–688, 724 financial statement presentation project of, 203, 643, 782–783 financial statement structure project of, 260, 833 framework for accounting standards of, 353, 687–688 on liabilities, 531 pension project of, 531 revenue recognition project of, 147 International Auditing and Assurance Standards Board (IAASB), 403 International Financial Reporting Standards (IFRS), 9, 46, 47 for accounting information systems, 353 for adjusting accounts, 146–147 China’s adoption of, 171 for classified balance sheet, 202–203 for dividends, 642–643 for financial statement analysis, 832–833 financial statements required by, 21 and fraud, 402–403 for inventories, 308–309 for investments, 723–724 for liabilities, 530–531, 686–687 for merchandising operations, 259–260 for plant, property, and equipment, 487–488 for receivables, 441 recording process for, 90 for statement of cash flows, 782 and stockholders’ equity, 605–606 Internet, value chain and, 850 Interpretation of information, 4, Intracompany comparisons, 786 Inventoriable costs, 842 Inventory(-ies), 262–282 classifying, 264–265 cost flow methods, 282–284 See also Inventory costing determining quantities, 265–267 errors in accounting for, 277–278 estimating, 284–286 excessive levels of, 281 in financial statements, 277–280 IFRS and GAAP for, 308–309 and income, 266 for manufacturing companies, 846–847 I-12 Subject Index Inventory(-ies) (Continued) for merchandising companies, 846–847 periodic system for, 210, 235 perpetual system for, 209–211 for statement of cash flows, 752 Inventory costing, 268–276 consistency concept in, 275–276 cost flow assumptions, 269–276 financial statement and tax effects of methods, 274–275 lower-of-cost-or-market, 279–282 perpetual system, 282–284 specific identification method, 269 Inventory turnover, 280–282, 796 Investing activities: cash flows from, 728, 729 direct method for, 749–750 indirect method for, 738–739 noncash, 729–730 Investments, 690–706 associate, 724 on classified balance sheet, 171 debt investments, 692–695 IFRS and GAAP for, 723–724 long-term, 704 by owner, 13, 15 in partnerships, 550–551 reasons for making, 692–693 short-term, 703–704 speculative, 692 stock investments, 695–699 valuing and reporting, 700–706 Investment centers, 1070, 1073–1077 Investment portfolio, 695 Invoices: fake, 360 purchase, 212 sales, 216 IPO (initial public offering), 575 Irregularities, 68 IRR (internal rate of return) method, 1166–1168 IRS, see Internal Revenue Service J JIT (just-in-time) inventory, 264–265, 850 JIT (just-in-time) processing, 932–934 Job cost data, reporting, 895–897 Job cost sheet, 882, 883 Job order cost flow, 879–895 accumulating manufacturing costs, 879–882 assigning costs to cost of goods sold, 891 assigning costs to finished goods, 890–891 assigning manufacturing costs to work in process, 882–887 Job order costing, 878–879 advantages and disadvantages, 894–895 cost accounting systems, 878–879 job order cost flow, 879–895 reporting job cost data, 895–897 for service companies, 893–894 Job order cost systems, 878–879, 919 process cost systems vs., 919–920 standard cost accounting system with, 1120–1122 Journals, 55–57 See also General journal cash payments (disbursements), 326–328 cash receipts, 320–324 cross-footing, 323 footing, 323 posting to, see Posting purchases, 324–326 sales, 318–320 simple and compound entries in, 56 special, see Special journals Journalizing, 55–56 adjusting entries, 109–110, 158 cash payments transactions, 326–328 cash receipts transactions, 321–323 closing entries, 159–161, 233–234 credit purchases, 324–325 credit sales, 318–319 illustration of, 61–66 special journals for, 317–318 with standard cost accounting system, 1120–1122 Just-in-time (JIT) inventory, 264–265, 850 Just-in-time (JIT) processing, 932–934 K Knight, Philip “Phil,” 4, 570, 573 L Labor costs, 841, 881, 885–887, 919–922 Labor unions, as external users, Labor variances: direct, 1111–1113 price, 1112, 1113, 1115 quantity, 1112, 1113 total, 1111–1112 Land, 444–445, 448, 749, 754 Land improvements, 445 Last-in, first-out (LIFO), 272–273 financial statement and tax effects, 274–275 in GAAP and in IFRS, 309 in periodic inventory systems, 269–270 in perpetual inventory systems, 283 Last-in, still here (LISH), 271 LCM (lower-of-cost-or-market), 279–282 Lean manufacturing, 838, 850 Leases, 659–661 Leasing, 447 Ledgers, 57–60 See also General ledger; Subsidiary ledgers proving, 319, 321, 324 with standard cost accounting system, 1122 Lenders, information from, 422 Leveraging, 799 Liabilities (financial): in accounting equation, 12 accrued, 106 on classified balance sheet, 169, 172–173 contingent, 495–497, 530 current, 172–173, 492–499 in double-entry system, 51–52 IFRS and GAAP for, 530–531, 686–687 long-term, 173–174, 492 See also Long-term liabilities payroll, 504 pension, 512 Liability (legal), in partnerships, 535–536 Licenses, 461, 575 Life insurance benefits, 511 Life of a corporation, 573 LIFO, see Last-in, first-out LIFO conformity rule, 275 Limited liability, 10, 535–536, 572–573 Limited liability companies (LLCs), 535, 536 Limited liability partnerships (LLPs), 535, 536 Limited life, 460 Limited partners, 536 Limited partnerships (Ltd., LP), 535–536 Line positions, 839 Liquidating dividends, 610 Liquidation, of partnerships, 543–548 Liquidity: defined, 173, 497–498 excess, 173 listing current liabilities in order of, 497 of receivables, 423 short-term creditor interest in, 786 Liquidity ratios, 793–796, 802 LISH (last-in, still here), 271 LLCs (limited liability companies), 535, 536 LLPs (limited liability partnerships), 535, 536 Loans, bad, 422 Long-range planning, budgetary planning and, 1009 Subject Index Long-term creditor, 786 Long-term debt, 494–495 Long-term debt due within one year, 495 Long-term investments, 171, 704 Long-term liabilities, 492, 644–662 bond amortization, 662–667 bonds, 646–656 on classified balance sheet, 173 debt and equity financing, 658–659 on financial statements, 657–658 leases, 659–662 notes payable, long-term, 656–657 ratios, 658 Losses: from discontinued operations, 805 on disposal of plant assets, 456–458 realized, 544, 704–705 on sale of equipment, 734–735 unrealized, 701, 704–705 Lower-of-cost-or-market (LCM), 279–282 Lowry, Adam, 1146 LPs (limited partnerships), 535–536 Ltd (limited partnerships), 535–536 M Machine time used, 922 MACRS (Modified Accelerated Cost Recovery System), 454 Madoff, Bernard, 380 Mail receipts, cash, 368 Make-or-buy decisions, 1152–1155 Maker (promissory notes), 417 Management accounting, see Managerial accounting Management by exception, 1066 Management consulting, 25 Management decision-making: for accepting an order at a special price, 1151–1152 for eliminating unprofitable segments, 1157–1159 financial and nonfinancial information in, 1148 incremental analysis for, 1148–1151 for making vs buying, 1152–1155 for retaining vs replacing equipment, 1156–1157 for selling vs processing further, 1155–1156 Management of corporations, 573 Managers, functions of, 836–840 Managerial accounting, 26, 834–853 activities in, 836 business ethics in, 851 cost concepts in, 840–844 financial accounting vs., 836 managers’ functions in, 836–840 manufacturing costs, 840–841, 844–848 organizational structure, 838–839 product vs period costs, 842 trends in, 848–853 Manual accounting systems, 314 Manufacturing companies, 840–841 activity-based costing for, 936–940 classifying inventory in, 264–265 flexible budgets for, 1068 lean manufacturing by, 850 process cost systems for, 918 units-of-activity depreciation for, 451–452 Manufacturing costs, 840–841 See also Job order cost flow; Process cost system accumulating, 879–882 assigning, to work in process, 882–887 in balance sheet, 846–847 cost concepts, 842–844 and costing for service industries, 848–849 cost of goods manufactured, 844–848 in income statement, 844–848 in job order cost system, 919 journal entries for, 922 in process cost system, 919–923 Manufacturing overhead, 840–841, 881 under activity-based costing, 936–937 journal entries for, 921–923 process vs job order cost systems for, 919 under- or overapplied, 896 Manufacturing overhead budget, 1017–1018 Manufacturing overhead variance, 1113–1115 Margin of safety, 979, 980 Margin of safety ratio (CVP), 979, 980 Marketable securities, 703 Market interest rate, 647, 650 Market value: of bonds, 647–648 of stock, 578 Marshall, John, 572 Master budget, 1009–1010 Matching principle (expense recognition principle), 95 Materials, sell-vs.-processing further decisions for, 1155–1156 Materials costs, 840, 880, 883–885 journal entries for, 921–922 process vs job order cost systems for, 919–920 Materiality, 447, 1066 Materiality principle, 447 Materials variances, direct, 1108–1111 price, 1109, 1110 quantity, 1109–1111 total, 1109 I-13 Maturity date: for bonds, 646, 654 for notes receivable, 417–418 Mayor, David, 852 Measurement principles, 9, 120 Medicare deductions, 501 Members (LLCs), 535 Merchandise, theft of, 217 Merchandise inventory, 264 Merchandise purchases budget, 1025–1026, 1028 Merchandising, 264 Merchandising companies, 208–236 adjusting entries for, 220–222 budgetary planning for, 1025–1026 closing entries for, 220–221, 233–234 cost of goods in, 844–848 flow of costs in, 209–211 forms of financial statements for, 223–228 IFRS and GAAP for, 259–260 operating cycles in, 208–209 periodic inventory system for, 229–236 recording purchases of merchandise, 211–215 recording sales of merchandise, 216–219 worksheets for, 228–229, 234–236 Merchandising profit, 223 Mergers and acquisitions, 46 Mixed costs, in CVP, 965–966 Modified Accelerated Cost Recovery System (MACRS), 454 Monetary unit assumption, 9–10, 120 Monitoring, for internal control, 357 Mortgages, 656–657 Mortgage bonds, 646 Motion Picture Association of America, 1076 Moving-average method, 283–284 Multinational corporations, 46 Multiple-step income statement, 223–225 Murdoch, Rupert, 690 Murdock, Wilbert, 490 Mutual agency, in partnerships, 534 N Nation-states, cybercrime by, 330 Natural resources, 458–459, 463–465 Neal, Ray, 15 Net annual cash flow, 1162 Net cash from operating activities, net income vs., 730 Net change in cash: direct method, 751 indirect method, 739 I-14 Subject Index Net income, 21 converting from accrual to cash basis, 732, 734–738, 745–749 and fraud, 447 on multiple-step income statement, 224 net cash from operating activities vs., 730 for partnerships, 535, 539–542 target, 977–980 on worksheet, 156 Net losses, 21 closing entry for, 619 for partnerships, 535, 539–542 on worksheet, 156 Net pay, 502 Net present value (NPV) method, 1164–1166 Net (cash) realizable value, 410, 420 Net sales, 223 Net 30, 214 New York Stock Exchange (NYSE), 578 No capital deficiency (partnership liquidation), 544–546 Nominal accounts, 159 See also Temporary accounts Noncash activities, 729–730 Noncash current assets, changes to, 735 Noncash current liabilities, changes to, 735 Noncontrollable revenues/costs, 1066 Non-manufacturing companies, budgetary planning for, 1025–1027 Nonoperating activities, on multiple-step income statement, 224–225 No-par value stocks, 579, 582 Normal balances, in double-entry system, 51 Normal capacity, 1106 Normal range, see Relevant range Normal standards, 1103 Notes payable, 12 as current liabilities, 492–493 long-term, 656–657 Notes receivable, 406, 417–422 computing interest on, 418–419 disposing of, 420–422 maturity date for, 417–418 recognizing, 419 valuing, 420 Not-for-profit corporations/ organizations, 572, 1027, 1102 Not sufficient funds (NSF) checks, 376 NPV (net present value) method, 1164–1166 NSF (not sufficient funds) checks, 376 NYSE (New York Stock Exchange), 578 O Obsolescence, 449 Occupational fraud, 372 Off-balance-sheet financing, 661 Olympic Games, 1023 Operating activities, 226 cash flows from, 728, 729 direct method, 745–749 indirect method, 732, 734–738 Operating budgets, 1009, 1010 Operating cycles, 170, 208–209 Operating expenses, on multiple-step income statement, 224–225 Operating leases, 660 Operations costing, 931 Opportunity costs, 1149, 1153–1154 Ordinary repairs, 446 Organizational structure, 838–839 Organization charts, 838 Organization costs, 575 Organized crime, cybercrime and, 330 Other comprehensive income, 259, 805–808 Other expenses and losses, for merchandising companies, 224 Other receivables, 406 Other revenues and gains, for merchandising companies, 224 Outstanding checks, 377 Overhead: under activity-based costing, 936–937 journal entries for, 921–923 manufacturing, 840, 841, 881, 896 predetermined, 887–890 process vs job order cost systems for, 919 standard predetermined, 1105 Overhead variances, 1123–1124 controllable, 1114, 1123–1124 manufacturing, 1113–1115 total, 1113–1114 volume, 1114, 1124 Over-the-counter cash receipts, 366–368 Owner’s capital, 13, 52, 53 Owner’s equity See also Corporate capital in accounting equation, 13–14 on classified balance sheet, 169, 170, 174 decreases in, 13 in double-entry system, 52 increases in, 13 Owner’s equity statement, 21–23 Ownership of goods, 266–268 Ownership rights: in corporations, 572, 573 preemptive, 576 of stockholders, 576 P Pacioli, Luca, 5n.2 Paid absences, 510–511 Paid-in capital, 579, 587, 610 Paid-in capital in excess of par value, 581–582 Paper (phantom) profit, 275 Parent company, 698 Participative budgeting, 1008–1009 Partners, 536 admission of, 549–552 withdrawal of, 552–555 Partners’ capital statement, 541–542 Partnerships, 10, 46, 534–555 admission/withdrawal of partners, 549–555 advantages and disadvantages of, 537 characteristics of, 534–535 dividing net income/net loss, 539–542 financial statements for, 542–543 forming, 538–539 liquidation of, 543–548 owner’s equity account in, 174 partnership agreements, 537 types of, 535–536 Partnership agreements, 537 Partnership dissolution, 534 Partnership liquidation, 543–548 capital deficiency, 546–548 no capital deficiency, 544–546 realization for, 544 Par value, 578, 581–582 Patents, 460–461 Payee (promissory notes), 417 Payment date (cash dividends), 611, 612 Payout ratio, 800 Payroll accounting, 499–510 determining payroll, 499–502 employer payroll taxes, 506–507 filing/remitting payroll taxes, 508 and fraud, 508 fringe benefits, 510–513 internal control for, 508–510 recording payroll, 503–505 Payroll deductions, 500–502 Payroll processing centers, 506 Payroll register, 503 Payroll taxes, 506–510 Payroll tax expense, 506 PCAOB (Public Company Accounting Oversight Board), 356 Pensions, 511–512 P/E (price/earnings) ratio, 625n.3, 799–800 Percentage of receivables basis (uncollectibles), 413–414 Percentage of sales basis (uncollectibles), 412–413 Performance evaluation, 1066–1067, 1103 Subject Index Performance obligations, 95, 101 Period costs, 842 Periodic inventory systems, 210, 229–236, 265, 269–270 Periodicity assumption, 94 See also Time period assumption Permanent accounts, 159, 163–164 Perpetual inventory systems, 209–220 in cost accounting systems, 878 cost flow methods in, 221–222, 282–284 determining quantities in, 265 entries for periodic system vs., 232–233 merchandising entries with, 221–222 recording purchases under, 211–215 recording sales under, 216–220 Petty cash fund controls, 370–373 Phantom profit, 275 Physical controls, 217, 361–362 Physical inventory, 265–266 Physical units, 928 Physical unit flow, 928 Pickard, Thomas, Plan administrators, 511 Plant and equipment, 444 See also Plant assets Plant assets, 171, 444–467 buildings, 445 depreciation of, 448–455 determining cost of, 444–448 disposal of, 455–456 equipment, 445–446 exchange of, 465–467 expenditures during useful life of, 446–447 land, 444–445 land improvements, 445 statement presentation and analysis of, 463–465 Ponzi schemes, 380 Post-closing trial balance, 163–165 Posting, 59 of adjusting entries, 109–110, 158 cash payments journal, 327, 328 cash receipts journal, 323–324 of closing entries, 159, 161–162, 233–234 of correcting entries, 167 dual, 329 illustration of, 61–67 purchases journal, 325–326 sales journal, 319, 320 special journals for, 317–318 Post-retirement benefits, 511–513 Practical range, see Relevant range Predetermined overhead, 887–890 Preferred stock, 583, 612–614, 798–799 Premium: on bonds, 650, 652–654, 666–667 on stock, 581 Prenumbering documents, 361 Prepaid expenses (prepayments), 96 adjusting entries for, 98–101 alternative treatment of, 116–117 for statement of cash flows, 753–754 Present value, 647 of bonds, 647 of leases, 661 Price/earnings (P/E) ratio, 625n.3, 799–800 Price variances: labor, 1112, 1113, 1115 materials, 1109, 1110 Principal (bonds), 647 Principles in financial reporting, 120–121 Prior period adjustments, 620–621 Private accounting, 26 See also Managerial accounting Privately held corporations, 572 Process cost flow, 921 Process cost system, 878–879, 918–935 and activity-based costing, 934–935 assigning manufacturing costs, 921–923 equivalent units, 924–926 example of, 927–931 job order cost systems vs., 919–920 and just-in-time processing, 932–934 process cost flow, 921 for service companies, 919 uses of, 918 Products, sell-vs.-processing further decisions for, 1155–1156 Product costs, 842 Production budget, 1012–1013 Production cost report, 927–931 Product warranties, 496–497 Profits, retained, 642 Profitability, creditor interest in, 786 Profitability ratios, 796–800, 802 Profit and loss statement, 21 See also Income statement Profit centers, 1070–1073 Profit margin, 797 Promissory notes, 417 See also Notes receivable Property, plant, and equipment, 171, 444, 487–488 See also Plant assets Proprietorships, 10, 46, 174 Proving ledgers, 319, 321, 324 Provisions, 531 Public accounting, 25 Public Company Accounting Oversight Board (PCAOB), 356 Publicly held corporations, 572 Pull approach to manufacturing, 933 Purchases: of buildings, 445 of merchandise, recording, 211–215 recording, 231 transaction analysis for, 15–16 I-15 Purchase allowances, 214, 231 Purchase discounts, 214–215, 232 Purchase invoice, 212 Purchases journal, 324–326 Purchase of an interest (partnerships), 549–550 Purchase returns, 214, 231 Push approach to manufacturing, 932 Q Quantity variances: labor, 1112, 1113 materials, 1109–1111 Quarterly tax reports, 508 QuickBooks®, 310, 312, 313 Quick ratio, 794–795 See also Acid-test ratio R Ratio analysis, 786, 792–804 liquidity ratios, 793–796, 802 long-term liabilities, 658 profitability ratios, 796–800, 802 solvency ratios, 800–802 Raw materials, 264, 840 Raw materials costs, 880, 883–885 R&D (research and development) costs, 462–463 Real accounts, 159 See also Permanent accounts Real estate taxes payable, 12 Realized gain/loss, 704–705 Reasonable assurance concept, 365 Receivables, 404–423 accounts receivable, 406–416 on financial statements, 422–423 IFRS and GAAP for, 441 notes receivable, 417–422 types of, 406 Reconciling bank accounts, 376–381 electronic funds transfers, 380 entries from, 379–380 illustration of, 379–380 procedure for, 376–381 Reconciling items, for statement of cash flows, 752–755 Record date (cash dividends), 611, 612 Recording process, 48–70, 232–233 accounts in, 50–54 activities in, 4, debits and credits in, 50–54 for employer payroll taxes, 506–507 illustrated, 60–67 for payroll, 503–505 with periodic inventory system, 230–233 for purchases of merchandise, 211–215 for sales of merchandise, 216–219 for special and general journals, 329 steps in, 54–60 trial balance in, 68–70 I-16 Subject Index Recordkeeping, segregation of physical custody and, 360, 367 Recycling, 108, 926 Redeeming bonds, 654–656 Regression analysis, 968 Regular partnerships, 535 Regulations, government, 1102 for corporations, 574 as standards, 1102 See also Standard costs Regulatory agencies, Reimbursement requests, fraud involving, 361 Relevance: of figures, of financial information, 119 Relevant costs, 1149 Relevant range, 964–965, 1061 Repairs, ordinary, 446 Repurchase of shares, 587 Required rate of return, 1161, 1164 Research and development (R&D) costs, 462–463 Reserves, 605, 642 Residual claims, 576 Residual equity, 13 See also Owner’s equity Residual value, 488 Responsibility, establishment of, 358 Responsibility accounting, 1064–1073 controllable vs noncontrollable revenues/costs, 1066 responsibility centers, 1070–1073 responsibility reporting system, 1067–1070 Responsibility centers, 1070–1073 Responsibility reporting system, 1067–1070 Restricted cash, 382 Retailers, 208 Retail inventory method, 285–286 Retained earnings, 579–580, 619–621 payment of cash dividends from, 610 prior period adjustments, 620–621 restrictions on, 620 for statement of cash flows, 750, 755 Retained earnings statement, 621, 623, 789–790 Retained profits, 642 Retirement of plant assets, 456 Returns: purchase, 214 sales, 217–218 Return on assets, 798 Return on common stockholders’ equity, 622, 798 Return on investment (ROI), 1073–1075, 1119 Revenues, 13 accrued, 96, 104–105 controllable vs noncontrollable, 1066 in double-entry system, 53 recognizing, 95–96 for service companies, 894 on single-step income statement, 224 from stock investments, 697–698 unearned, see Unearned revenues Revenue expenditures, 446 Revenue recognition principle, 95, 121 Reversing entries, 166–168, 175–176 Risk assessment, 357 Risk levels of activities, 365 Rodgers, Aaron, 48, 49 ROI, see Return on investment Rolling Stones, 979 Rowlings, J.K., 460 Ryan, Eric, 1146 S Safe cash payments schedule, 545 See also Schedule of cash payments Sage 50, 312, 313 Salaries, 499, 500 See also Payroll accounting accrued, 106–108 to partners, 541–542 Salaries and wages payable, 12 Sales: of bonds, 693–694 credit card, 414–416 of equipment, loss on, 734–735 of merchandise, recording, 216–219 of notes receivable, 421 of plant assets, 456–458 of receivables, 415 recording, 232–233 of stocks, 696 Sales and administrative expense budget, 1018 Sales budget, 1011–1012 Sales commissions, fraud involving, 362 Sales discounts, 218–219, 232 Sales dollars, 974 Sales forecasts, 1007–1008, 1011–1012 Sales invoices, 216 Sales journal, 318–320 Sales returns and allowances, 217–218, 232 Sales revenue (sales), 208 Sales taxes payable, 12, 493 Sales units, 974 Salvage value, 449, 452 SAP ERP, 313 Sarbanes-Oxley Act: and accuracy of financial reports, 69 and corporation management, 573 and ethics, and fraud, 356–357, 402, 403 and human resources, 364 and internal auditor’s job, 26 and internal control, 25, 46, 96, 314 and software audit trails, 313 Schedule of cash payments, 545–546 Schultz, Howard, 1100 Scudamore, Brian, 1122 SEC, see Securities and Exchange Commission Secured bonds, 646 Securities: available-for-sale, 700–703, 806 held-to-maturity, 700 marketable, 703 trading, 700–701, 703, 806 Securities and Exchange Commission (SEC), 6, 9, 26, 380, 701, 723 Segments, in responsibility accounting, 1065 Segregation of duties, 359–360, 408 Service companies: budgetary planning for, 1026–1027 job order costing in, 893–894 and managerial accounting, 848–849 operating cycles for, 208 process cost systems for, 919 process vs job order cost systems for, 919 revenue for, 894 Service revenue, 894 Shares, sale of, 10 Shareholders’ equity, 579 See also Corporate capital Short-term creditor, 786 Short-term investments, 703–704 Short-term paper, 703n4 Simple entries, 56 Single-step income statement, 224 Sinking fund bonds, 646 “Slush” funds, 370 Social responsibility, see Corporate social responsibility Social Security, 511 Social Security taxes, 501 Software: for customization, 313 entry-level, 313 for fraud control, 314 for internal control, 313 network compatibility of, 313 Solvency, creditor interest in, 786 Solvency ratios, 800–802 SOX, see Sarbanes-Oxley Act Special journals, 317–329, 331 cash payments, 326–328 cash receipts, 320–324 effects on general journal, 329 purchases, 324–326 sales, 318–320 Subject Index Special order-price decisions, 1151–1152 Specific identification method (inventory), 269 Speculative investments, 692 Staff positions, 839 Standards See also Standard costs budgets vs., 1103 government, 1102 ideal vs normal, 1103 Standard costs, 1100–1115 analyzing and reporting variances, 1107–1108 balanced scorecard, 1117–1119 direct labor variances, 1110–1113 direct materials variances, 1108–1111 manufacturing overhead variances, 1113–1115 need for, 1102, 1103 reporting variances from, 1115–1120 setting, 1103–1107 and standards vs budgets, 1103 Standard cost accounting system, 1120–1122 Standard hours, 1114 Standard predetermined overhead, 1105 State income taxes, 501 Statement of cash flows, 21–24, 728–743 classification of cash flows, 728–729 company evaluation based on, 743–750 direct method for, 732, 743–750 format of, 730–731 IFRS and GAAP for, 782 indirect method for, 731–741 preparation of, 731–741 significant noncash activities, 729–730 T-account approach, 755–758 usefulness of, 728 worksheet for, 751–755 Statement of comprehensive income, 642, 804–807 Statement of earnings, 504–505 Statement of operations, 21 See also Income statement State unemployment taxes, 506 Static budgets, 1055–1057 Static budget reports, 1055–1057 Stocks, 576–579 authorized, 577 capital, 587 common, 576, 581–584 direct issues, 577 indirect issues, 577 issued for credit, 739 market value of, 578 no-par value, 579 par value of, 578 preferred, 583, 612–614 of tech companies, 740 treasury, 584–587 Stock certificates, 576–577 Stock dividends, 615–618 Stockholders, 786 limited liability of, 572–573 ownership rights of, 576 preferred, 612 Stockholders’ equity, 174, 579 See also Corporate capital on balance sheet, 588–589 contra account for, 585 effect of dividends on, 616–617 on financial statements, 622–623 and IFRS/GAAP, 605–606 preparing and analyzing, 619–623 Stock investments, 695–699 Stock option plans, 500, 588 Stockouts, 838 Stockpiling, 1014 Stock splits, 617–618 Straight-line amortization, 662–664 Straight-line depreciation, 450–451, 454 Su, Vivi, 404 Subchapter S corporations, 536 Subsidiary (affiliated) company, 698 Subsidiary ledgers, 315–317 job cost sheets as, 882, 884 posting from cash receipts journal to, 323–324 posting from purchases journal to, 325–326 Summa de Arithmetica, Geometria, Proportione et Proportionalite (Luca Pacioli), 5n.2 Summary entries, 881 Sunk costs, 1149 Supplies, adjusting entries for, 98–99 Sustainability reporting, 357, 459 Sustainable business practices, 852–853 Sustainable income, 804–808 defined, 804 discontinued operations, 805 other comprehensive income, 805–808 T Tabular summaries, 50 T accounts, 50–51, 755–758 Take-home pay, 502 See also Net pay “Tapping the cookie jar,” 414 Target net income, 977–980 Taxes: as accounting area, 25 on corporations, 574 and depreciation, 454 double taxation, 574 effect of cost flow methods on, 274, 275 on employers, 506–510 I-17 FICA, 500–501 income, see Income taxes for partnerships, 534 payroll, 500–502, 506–510 sales taxes payable, 493 and time period divisions, 94 Taxing authorities, Tech company stock, 740 Technology: cyber security, 330–331 investment in, 1163 value chain and, 850 Temporary accounts, 158, 164–165 Theft, 217, 365, 372 Theory of constraints, 850 Three-column form of account, 58 Tilton, Glenn, 1119 Times interest earned, 658, 801 Timeliness, 119 Time period assumption, 94–97, 120, 146 Time value of money, 647 Total quality management (TQM), 850 Total standard cost per unit, 1106 Total variance, 1107–1108 labor, 1111–1112 materials, 1109 overhead, 1113–1114 TQM (total quality management), 850 Trademarks, 461, 462 Trade names, 461 Trade receivables, 406 See also Accounts receivable; Notes receivable Trading on the equity, 799 Trading securities, 700–701, 703, 806 Transaction analysis, 14–20, 61–65 See also Business transactions Transparency, in financial reporting, 46 Transportation-in, 231 Transposition error, 69 Treasurers, 573, 839 Treasury stock, 584–587 Trend analysis, 787 See also Horizontal analysis Trial balances, 68–70 adjusted, 111–115 limitations of, 68–69 locating errors in, 90 outdated information in, 96 post-closing, 163–165 on worksheet, 151–155, 234–235 Triple bottom line, 852 Trustees (bonds), 646 U Uncollectible accounts, 408–416 allowance method, 409–414 direct write-off method, 409 Understandability, 119 Underwriting, 577–578 I-18 Subject Index Unearned revenues, 96 adjusting entries for, 101–103 alternative treatment of, 117–118 as current liabilities, 494 Unemployment taxes, 506 Unit contribution margin (CVP analysis), 971–972, 975, 978 United Nations, 964 Units-of-activity depreciation (units-of-production method), 451–452, 455 Unit production costs, 928–930 Unlimited liability, 535–537 Unprofitable segment elimination decisions, 1157–1159 Unrealized gains/losses, 701, 704–705 Unsecured bonds, 646 Useful financial information, 119 Useful life, 447, 449 Users of accounting data, 5–6 V Vacations, required, 363–364 Valuation: of accounts receivable, 408–414 cost allocation vs., 448 of investments, 700–706 of notes receivable, 420 Value chain, 849–850 Variable costs: in CVP, 962–963 in flexible budget, 1061 identifying, 969 in manufacturing overhead budget, 1017 Variable costing, 983–986 Variances from standards, 1107–1108 direct labor variances, 1111–1113 direct materials variances, 1108–1111 manufacturing overhead variance, 1113–1115 overhead, 1123–1124 reporting, 1115–1120 Venture capital firms, 535 Verifiability, 119 Verification, independent internal, see Independent internal verification Vertical analysis, 786, 790–792 Virtual closes, 162 Voucher register, 370 Voucher system controls, 370 W Wages, 499–500 See also Payroll accounting Wage and Tax Statement (Form W-2), 508–509 Warranties, product, 496–497 Wear and tear, 448 Weighted-average method, 924–926 Weighted-average unit cost, 273 West, Laura, 310 West, Paul, 310 Wholesalers, 208 Withdrawal of partners, 552–555 Working capital, 498, 794 Work in process, 264, 882–887 Work in process inventory, 845 Worksheets, 150–158 for merchandising companies, 228–229, 234–236 preparing adjusting entries from, 158 preparing financial statements from, 157–158 for statement of cash flows, 751–755 steps in preparing, 150–156 Y Years, fiscal, 94 Year-end, 23 Year-end balance, 896–897 Z Zero-interest bonds, 647 Zuckerberg, Mark, 575 RAPID REVIEW Chapter Content ACCOUNTING EQUATION (Chapter 2) INVENTORY (Chapters and 6) Ownership Basic Equation Assets = Liabilities + Expanded Equation Assets = Debit / Credit Effects Dr + Cr – Liabilities Dr – + Owner’s Equity Owner’s Capital Dr – Cr + Cr + – Owner’s Drawing Dr + Revenues + Cr – Dr – Cr + – Ownership of goods on public carrier resides with: Expenses Freight Terms Dr + FOB shipping point Buyer Buyer FOB destination Seller Seller Cr – Perpetual vs Periodic Journal Entries ADJUSTING ENTRIES (Chapter 3) Event Perpetual Adjusting Entry Deferrals Prepaid expenses Unearned revenues Dr Expenses Dr Liabilities Cr Assets Cr Revenues Purchase of goods Accruals Accrued r evenues Accrued expenses Dr Assets Dr Expenses Cr Revenues Cr Liabilities Freight (shipping point) Inventory Cash Freight-In Cash Return of goods Cash (or A/P) Inventory Cash (or A/P) Purchase Ret and All Sale of goods Cash (or A/R) Sales Revenue Cost of Goods Sold Inventory Cash (or A/R) Sales Revenue No entry Sales returns and allowances Sales Ret and All Accounts Receivable Inventory Cost of Goods Sold Sales Ret and All Accounts Receivable No entry Sales discounts Cash Sales Discounts Accounts Receivable Cash Sales Discounts Accounts Receivable End of period No entry Closing or adjusting entry required Interest Computation Interest = Face value of note Annual interest rate Time in terms of one year CLOSING ENTRIES (Chapter 4) Purpose: (1) Update the Owner’s Capital account in the ledger by transferring net income (loss) and Owner’s Drawings to Owner’s Capital (2) Prepare the temporary accounts (revenue, expense, Owner’s Drawings) for the next period’s postings by reducing their balances to zero Process Debit each revenue account for its balance (assuming normal balances), and credit Income Summary for total revenues Debit Income Summary for total expenses, and credit each expense account for its balance (assuming normal balances) STOP AND CHECK: Does the balance in your Income Summary account equal the net income (loss) reported in the income statement? Periodic* Type Note: Each adjusting entry will affect one or more income statement accounts and one or more balance sheet accounts Who pays freight costs: Debit (credit) Income Summary, and credit (debit) Owner’s Capital for the amount of net income (loss) Debit Owner’s Capital for the balance in the Owner’s Drawings account, and credit Owner’s Drawings for the same amount STOP AND CHECK: Does the balance in your Owner’s Capital account equal the ending balance reported in the balance sheet and the owner’s equity statement? Are all of your temporary account balances zero? ACCOUNTING CYCLE (Chapter 4) *Covered in appendix Cost Flow Methods • Specific identification • First-in, first-out (FIFO) Journalize the transactions FRAUD, INTERNAL CONTROL, AND CASH (Chapter 8) The Fraud Triangle Principles of Internal Control Activities Opportunity Financial pressure Rationalization • • • • • • Establishment of responsibility Segregation of duties Documentation procedures Physical controls Independent internal verification Human resource controls Bank Books Balance per bank statement Add: Deposit in transit Balance per books Add: Unrecorded credit memoranda from bank statement Deduct: Unrecorded debit memoranda from bank statement Adjusted cash balance Journalize and post closing entries Post to ledger accounts Prepare financial statements: Income statement Owner’s equity statement Balance sheet Prepare a trial balance Deduct: Outstanding checks Prepare an adjusted trial balance • Weighted-average • Last-in, first-out (LIFO) Prepare a post-closing trial balance Purchases Cash (A/P) Bank Reconciliation Analyze business transactions Inventory Cash (A/P) Journalize and post adjusting entries: deferrals/accruals Optional steps: If a worksheet is prepared, Steps 4, 5, and are incorporated in the worksheet If reversing entries are prepared, they occur between Steps and Adjusted cash balance Note: Errors should be offset (added or deducted) on the side that made the error Adjusting journal entries should only be made on the books STOP AND CHECK: Does the adjusted cash balance in the Cash account equal the reconciled balance? RAPID REVIEW Chapter Content RECEIVABLES (Chapter 9) BONDS (Chapter 15) Methods to Account for Uncollectible Accounts Premium Record bad debt expense when the company determines a particular account to be uncollectible Direct write-off method At the end of each period, estimate the amount of credit sales uncollectible Debit Bad Debt Expense and credit Allowance for Doubtful Accounts for this amount As specific accounts become uncollectible, debit Allowance for Doubtful Accounts and credit Accounts Receivable Allowance methods: Percentage-of-sales Percentage-of-receivables At the end of each period, estimate the amount of uncollectible receivables Debit Bad Debt Expense and credit Allowance for Doubtful Accounts in an amount that results in a balance in the allowance account equal to the estimate of uncollectibles As specific accounts become uncollectible, debit Allowance for Doubtful Accounts and credit Accounts Receivable Face Value Market interest rate Contractual interest rate Discount Market interest rate Contractual interest rate INVESTMENTS (Chapter 16) Comparison of Long-Term Bond Investment and Liability Journal Entries Event Investor Investee Purchase / issue of bonds Debt Investments Cash Cash Bonds Payable Interest receipt / payment Cash Interest Revenue Interest Expense Cash Comparison of Cost and Equity Methods of Accounting for Long-Term Stock Investments PLANT ASSETS (Chapter 10) Presentation Tangible Assets Market interest rate , Contractual interest rate Event Cost Equity Acquisition Stock Investments Cash Stock Investments Cash Investee reports earnings No entry Stock Investments Revenue from Stock Investments Investee pays dividends Cash Dividend Revenue Cash Stock Investments Intangible Assets Property, plant, and equipment Intangible assets (patents, copyrights, trademarks, franchises, goodwill) Natural resources Computation of Annual Depreciation Expense Trading and Available-for-Sale Securities Straight-line Cost Salvage value }}} Useful life (in years) Units-of-activity Depreciable cost }}} Units of activity during year Useful life (in units) Declining-balance Book value at beginning of year Declining balance rate* *Declining-balance rate Useful life (in years) Note: If depreciation is calculated for partial periods, the straight-line and decliningbalance methods must be adjusted for the relevant proportion of the year Multiply the annual depreciation expense by the number of months expired in the year divided by 12 months SHAREHOLDERS’ EQUITY (Chapter 13) Comparison of Equity Accounts Proprietorship Partnership Corporation Owner’s equity Owner’s capital Partner’s equity Name, Capital Name, Capital Stockholders’ equity Common stock Retained earnings No-Par Value vs Par Value Stock Journal Entries No-Par Value Par Value Cash Common Stock Cash Common Stock (par value) Paid-in Capital in Excess of Par—Common Stock DIVIDENDS (Chapter 14) Comparison of Dividend Effects Cash Common Stock Cash dividend ↓ No effect ↓ Stock dividend No effect ↑ ↓ Stock split No effect No effect No effect Trading Report at fair value with changes reported in net income Available-forsale Report at fair value with changes reported in the stockholders’ equity section STATEMENT OF CASH FLOWS (Chapter 17) Cash flows from operating activities (indirect method) Net income Add: Losses on disposals of assets Amortization and depreciation Decreases in current assets Increases in current liabilities Deduct: Gains on disposals of assets Increases in current assets Decreases in current liabilities Net cash provided (used) by operating activities Cash flows from operating activities (direct method) Cash receipts (Examples: from sales of goods and services to customers, from receipts of interest and dividends on loans and investments) Cash payments (Examples: to suppliers, for operating expenses, for interest, for taxes) Net cash provided (used) by operating activities $X X X X (X) (X) (X) $X $X (X) $X PRESENTATION OF NON-TYPICAL ITEMS (Chapter 18) Prior period adjustments (Chapter 14) Statement of retained earnings (adjustment of beginning retained earnings) Discontinued operations Income statement (presented separately after “Income from continuing operations”) Changes in accounting principle In most instances, use the new method in current period and restate previous year’s results using new method For changes in depreciation and amortization methods, use the new method in the current period but not restate previous periods Retained Earnings RAPID REVIEW Chapter Content MANAGERIAL ACCOUNTING (Chapter 19) COST-VOLUME-PROFIT (Chapter 22) Characteristics of Managerial Accounting Types of Costs Primary users Internal users Reports Internal reports issued as needed Purpose Special purpose for a particular user Content Pertains to subunits, may be detailed, use of relevant data Verification No independent audits Variable costs Vary in total directly and proportionately with changes in activity level Fixed costs Remain the same in total regardless of change in activity level Mixed costs Contain both a fixed and a variable element CVP Income Statement Format Types of Manufacturing Costs Total Direct materials Raw materials directly associated with finished product Direct labor Work of employees directly associated with turning raw materials into finished product Manufacturing overhead Costs indirectly associated with manufacture of finished product JOB ORDER AND PROCESS COSTING (Chapters 20 and 21) Sales Variable costs $xx xx xx xx $xx Contribution margin Fixed costs Net income Per Unit $xx xx $xx Unit contribution margin Unit selling price Unit variable costs Types of Accounting Systems Job order Costs are assigned to each unit or each batch of goods Process cost Costs are applied to similar products that are mass-produced in a continuous fashion Job Order and Process Cost Flow Job Order Cost Flow Process Cost Flow Direct Materials Direct Labor Manufacturing Overhead Direct Materials Direct Labor Manufacturing Overhead Work in Process Inventory Job No 101 Job No 102 Job No 103 Work in Process Finished Goods Inventory Finished Goods Inventory Cost of Goods Sold Cost of Goods Sold Break-even point in units Fixed costs Unit contribution margin Required sales in units Unit contribution (Fixed costs Target net income) for target net income margin RAPID REVIEW Chapter Content BUDGETS (Chapter 23) Materials price variance AQ AP AQ SP Materials quantity variance AQ SP SQ SP Labor price variance AH AR AH SR Labor quantity variance AH SR SH SR Components of the Master Budget Sales Budget Hayes Co Budget Production Budget Direct Materials Budget Direct Labor Budget Rightride * Overhead controllable variance Actual overhead Overhead budgeted Manufacturing Overhead Budget Operating Budgets * Overhead volume variance Fixed overhead rate Normal capacity hours Standard hours allowed *Appendix coverage Selling and Administrative Expense Budget INCREMENTAL ANALYSIS AND CAPITAL BUDGETING (Chapter 26) Incremental Analysis Budgeted Income Statement Capital Expenditure Budget Cash Budget Budgeted Balance Sheet Financial Budgets Identify the relevant costs associated with each alternative Relevant costs are those costs and revenues that differ across alternatives Choose the alternative that maximizes net income Opportunity costs are those benefits that are given up when one alternative is chosen instead of another one Opportunity costs are relevant costs Sunk costs have already been incurred and will not be changed or avoided by any future decision Sunk costs are not relevant costs Annual Rate of Return Annual rate of return Expected annual net income Average investment Cost of capital investment Net annual cash flow RESPONSIBILITY ACCOUNTING (Chapter 24) Cash Payback Types of Responsibility Centers Cash payback period Cost Profit Investment Expenses only Expenses and Revenues Expenses and Revenues and ROI Discounted Cash Flow Approaches Return on Investment Return on investment (ROI) Investment center controllable margin Average investment center operating assets STANDARD COSTS (Chapter 25) Standard Cost Variances Total materials variance Materials price variance Materials quantity variance Total labor variance Labor price variance Labor quantity variance Total overhead variance Overhead controllable variance Overhead volume variance Balanced Scorecard Linked process across perspectives: Financial Customer Internal Process Learning and Growth Net Present Value Compute net present value (a dollar amount) If net present value is zero or positive, accept the proposal If net present value is negative, reject the proposal Internal Rate of Return Compute internal rate of return (a percentage) If internal rate of return is equal to or greater than the minimum required rate of return, accept the proposal If internal rate of return is less than the minimum rate, reject the proposal RAPID REVIEW Financial Statements Order of Preparation Retained Earnings Statement Statement Type Date Income statement For the period ended Retained earnings statement For the period ended Balance sheet As of the end of the period Statement of cash flows For the period ended COMPANY NAME Retained Earnings Statement For the Period Ended Retained earnings, beginning of period Add: Net income (or deduct net loss) $X X X X $X Deduct: Dividends Retained earnings, end of period Income Statement (perpetual inventory system) STOP AND CHECK: Net income (loss) presented on the retained earnings statement must equal the net income (loss) presented on the income statement COMPANY NAME Income Statement For the Period Ended Sales Sales revenue Less: Sales returns and allowances Sales discounts Net sales Cost of goods sold Gross profit Operating expenses (Examples: store salaries, advertising, delivery, rent, depreciation, utilities, insurance) Income from operations Other revenues and gains (Examples: interest, gains) Other expenses and losses (Examples: interest, losses) Income before income taxes Income tax expense Net income Balance Sheet COMPANY NAME Balance Sheet As of the End of the Period $X X X $X X X X X X X X X X $X Assets Current assets (Examples: cash, short-term debt investments, accounts receivable, inventory, prepaids) Long-term investments (Examples: investments in bonds, investments in stocks) Property, plant, and equipment Land Buildings and equipment $X Less: Accumulated depreciation X Intangible assets Total assets $X X $X X X X $X Liabilities and Stockholders’ Equity Income Statement (periodic inventory system) COMPANY NAME Income Statement For the Period Ended Sales Sales revenue Less: Sales returns and allowances Sales discounts Net sales Cost of goods sold Beginning inventory Purchases $X Less: Purchase returns and allowances X Net purchases X Add: Freight-in X Cost of goods purchased Cost of goods available for sale Less: Ending inventory Cost of goods sold Gross profit Operating expenses (Examples: store salaries, advertising, delivery, rent, depreciation, utilities, insurance) Income from operations Other revenues and gains (Examples: interest, gains) Other expenses and losses (Examples: interest, losses) Income before income taxes Income tax expense Net income $X X X $X X Liabilities Current liabilities (Examples: notes payable, accounts payable, accruals, unearned revenues, current portion of notes payable) Long-term liabilities (Examples: notes payable, bonds payable) Total liabilities Stockholders’ equity Common stock Retained earnings Total liabilities and stockholders’ equity $X X X X X $X STOP AND CHECK: Total assets on the balance sheet must equal total liabilities and stockholders’ equity; and, ending retained earnings on the balance sheet must equal ending retained earnings on the retained earnings statement X X X Statement of Cash Flows COMPANY NAME Statement of Cash Flows For the Period Ended X X X X X X X X X $X Cash flows from operating activities (Note: May be prepared using the direct or indirect method) Net cash provided (used) by operating activities Cash flows from investing activities (Examples: purchase / sale of long-term assets) Net cash provided (used) by investing activities Cash flows from financing activities (Examples: issue / repayment of long-term liabilities, issue of stock, payment of dividends) Net cash provided (used) by financing activities Net increase (decrease) in cash Cash, beginning of the period Cash, end of the period $X X X X X $X STOP AND CHECK: Cash, end of the period, on the statement of cash flows must equal cash presented on the balance sheet RAPID REVIEW Using the Information in the Financial Statements Ratio Formula Purpose or Use Liquidity Ratios Current ratio Acid-test (quick) ratio Accounts receivable turnover Inventory turnover Current assets }}} Current liabilities Measures short-term debt-paying ability Cash 1 Short-term investments 1 Accounts receivable (net) }}}}}}} Current liabilities Measures immediate short-term liquidity Net credit sales }}}} Average net accounts receivable Cost of goods sold }}} Average inventory Measures liquidity of receivables Measures liquidity of inventory Profitability Ratios Profit margin Net income }} Net sales Measures net income generated by each dollar of sales Asset turnover Net sales } } } } Average total assets Measures how efficiently assets are used to generate sales Return on assets Net income } } } } Average total assets Measures overall profitability of assets Return on common stockholders’ equity 10 Earnings per share (EPS) Price-earnings (P-E) ratio 11 Payout ratio Net income Preferred dividends }}}}}} Average common stockholders’ equity Net income Preferred dividends }}}}}} Weighted-average common shares outstanding Market price per share of stock }}}} Earnings per share Measures profitability of owners’ investment Measures net income earned on each share of common stock Measures ratio of the market price per share to earnings per share Cash dividends }} Net income Measures percentage of earnings distributed in the form of cash dividends Total liabilities } }} Total assets Measures percentage of total assets provided by creditors Solvency Ratios 12 Debt to assets ratio 13 Times interest earned 14 Free cash flow Net income + Interest expense + Income tax expense } }}}}}} Interest expense Net cash provided by operating activities Capital expenditures Cash dividends Measures ability to meet interest payments as they come due Measures the amount of cash generated during the current year that is available for the payment of additional dividends or for expansion WILEY END USER LICENSE AGREEMENT Go to www.wiley.com/go/eula to access Wiley’s ebook EULA ... 15 21 22 28 29 Tu 16 23 30 W 10 17 24 31 Th F S 11 12 13 18 19 20 25 26 27 Record date Registered shareholders are eligible for dividend January S M Tu W Th F S 10 11 12 13 14 15 16 17 18 19 20 ... are eligible for dividend January S M Tu W Th F S 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Payment date The company issues dividend checks When using a Cash Dividends... growth since 20 08 more than doubled S&P 500 Dividend Actions 400 Increases and initiations 350 300 Decreases and suspensions 25 0 Palto/iStockphoto 20 0 150 100 50 20 08 20 09 20 10 20 11 20 12 2013 And