2nd Edition Financial Accounting An Integrated Statements Approach Jonathan E Duchac Wake Forest University James M Reeve University of Tennessee, Knoxville Carl S Warren Professor Emeritus of Accounting University of Georgia, Athens Financial Accounting: An Integrated Statements Approach, Second Edition Jonathan E Duchac, James M Reeve, Carl S Warren VP/Editorial Director: Jack W Calhoun Manager of Technology, Editorial: Vicky True Art Director: Bethany Casey Publisher: Rob Dewey Technology Project Editor: Sally Nieman Internal Designer: Stratton Design Executive Editor: Sharon Oblinger Web Coordinator: Scott Cook Cover Designer: Stratton Design Associate Developmental Editor: Allison Haden Rolfes Sr Manufacturing Coordinator: Doug Wilke Marketing Manager: Robin Farrar Project Manager: LEAP Publishing Services, Inc Production Project Manager: Heather Mann Compositor: GGS Book Services, Inc Printer: Quebecor World Dubuque, Iowa COPYRIGHT © 2007 Thomson South-Western, a part of The Thomson Corporation Thomson, the Star logo, and South-Western are trademarks used herein under license Printed in the United States of America 08 07 06 05 Student Edition: ISBN 0-324-31211-3 Instructor's Edition: ISBN 0-324-37460-7 ALL RIGHTS RESERVED No part of this work covered by the copyright hereon may be reproduced or used in any form or by any means— graphic, electronic, or mechanical, including photocopying, recording, taping, Web distribution or information storage and retrieval systems, or in any other manner—without the written permission of the publisher For permission to use material from this text or product, submit a request online at http://www.thomsonrights.com Cover Photo: Veer, Inc Digital Vision photography collection Photography Manager: John W Hill Photo Researcher: Rose Alcorn Library of Congress Control Number: 2005936759 For more information about our products, contact us at: Thomson Learning Academic Resource Center 1-800-423-0563 Thomson Higher Education 5191 Natorp Boulevard Mason, OH 45040 USA Brief Contents Chapter The Role of Accounting in Business Chapter Basic Accounting Concepts 52 Chapter Accrual Accounting Concepts 96 Chapter Accounting Information Systems 150 Chapter Accounting for Merchandise Operations 210 Chapter Inventories 264 Chapter Sarbanes-Oxley, Internal Control, and Cash 304 Chapter Receivables 354 Chapter Fixed Assets and Intangible Assets 398 Chapter 10 Liabilities 440 Chapter 11 Stockholders’ Equity: Capital Stock and Dividends 492 Chapter 12 Special Income and Investment Reporting Issues 536 Chapter 13 Statement of Cash Flows 578 Chapter 14 Financial Statement Analysis 630 Appendix A Interest Tables A-1 Glossary G-1 Subject Index I-1 Company Index I-7 This page intentionally left blank Contents Chapter Vertical Analysis 69 The Role of Accounting in Business Summary of Learning Goals 71 The Nature of a Business Glossary 71 Types of Businesses 4, Forms of Business 5, How Do Businesses Make Money? 6, Business Stakeholders Chapter Business Activities 10 Accrual Accounting Concepts 96 Financing Activities 10, Investing Activities 12, Operating Activities 12 What is Accounting and Its Role in Business? 13 Financial Statements 14 Income Statement 15, Retained Earnings Statement 16, Balance Sheet 16, Statement of Cash Flows 18, Integrated Financial Statements 19 Accounting Concepts 20 Business Entity Concept 21, Cost Concept 22, Going Concern Concept 22, Matching Concept 22, Objectivity Concept 22, Unit of Measure Concept 23, Adequate Disclosure Concept 23, Accounting Period Concept 23, Responsible Reporting 23 Horizontal Analysis 26 Basic Accrual Accounting Concepts Including the Matching Concept 98 Using Accrual Concepts of Accounting for Family Health Care’s November Transactions 99 The Adjustment Process 105 Deferrals and Accruals 105, Adjustments for Family Health Care 107 Financial Statements 110 Income Statement 110, Retained Earnings Statement 113, Balance Sheet 113, Statement of Cash Flows 115, Integration of Financial Statements 115 Accrual and Cash Bases of Accounting 116 Using the Cash Basis of Accounting 117, Using the Accrual Basis of Accounting 117, Summary of Differences between Summary of Learning Goals 27 the Cash and Accrual Bases of Accounting 117, Family Glossary 27 Health Care Under the Cash and Accrual Bases of Chapter Basic Accounting Concepts 52 Elements of an Accounting System 54 Rules 54, Framework 54, Controls 55 Recording a Corporation’s First Period of Operations 56 Financial Statements for a Corporation’s First Period of Operations 62 Income Statement 64, Retained Earnings Statement 64, Accounting 118, Importance of Accrual Basis of Accounting 118 The Accounting Cycle 119 Common-Sized Financial Statements 120 Appendix: Reconciliation: Net Cash Flows from Operations and Net Income 121 Summary of Learning Goals 123 Glossary 124 Balance Sheet 65, Statement of Cash Flows 65, Integration of Financial Statements 65 Chapter Recording a Corporation’s Second Period of Operations 65 Accounting Information Systems 150 Financial Statements for a Corporation’s Second Period of Business Information Systems 152 Operation 66 Basic Accounting Systems 153 Transaction Processing Systems 154 Chapter The Account 155, Rules of Debit and Credit 156, The Inventories 264 Journal 157, Effects of Journal Entries on the Financial Statements 158, Posting to the Ledger 160, Trial Balance 161 Financial Reporting System 163 Adjusting Entries 163, Financial Statements 165, Fiscal Year 168, Closing Entries 169, Post-Closing Trial Balance 171 The Accounting Cycle 172 EBITDA 173 Manufacturers 266 Control of Inventory 268 Inventory Cost Flow Assumptions 268 Inventory Costing Methods under a Perpetual Inventory System 271 First-In, First-Out Method 271, Last-In, First-Out Method 272, Average Cost Method 273, Computerized Perpetual Appendix: The Statement of Cash Flows 174 Inventory Systems 273 Summary of Learning Goals 177 Inventory Costing Methods under a Periodic Inventory Glossary 177 System 274 Chapter Accounting for Merchandise Operations 210 First-In, First-Out Method 274, Last-In, First-Out Method 275, Average Cost Method 276 Comparing Inventory Costing Methods 277 Merchandise Operations 212 Use of the First-In, First-Out Method 277, Use of the Last-In, Financial Statements for a Merchandising Business 213 First-Out Method 278, Use of the Average Cost Multiple-Step Income Statement 214, Single-Step Income Method 279 Statement 217, Retained Earnings Statement 218, Balance Valuation of Inventory at Other Than Cost 279 Sheet 218, Statement of Cash Flows 218, Integration of Valuation at Lower of Cost or Market 280, Valuation at Net Financial Statements 218 Realizable Value 280 Sales Transactions 220 Quick Response 281 Sales Discounts 223, Sales Returns and Allowances 223 Purchase Transactions 224 Purchase Discounts 225, Purchases Returns and Allowances 225 Transportation Costs and Sales Taxes 226 Transportation Costs 226, Sales Tax 228 Dual Nature of Merchandise Transactions 228 Merchandise Shrinkage 230 Effects of Inventory Misstatements on the Financial Statements 231 Gross Profit and Operating Profit Analysis 233 Inventory Analysis and Interpretation 282 Summary of Learning Goals 283 Glossary 284 Chapter Sarbanes-Oxley, Internal Control, and Cash 304 Sarbanes-Oxley Act of 2002 306 Internal Control 307 Objectives of Internal Control 308, Elements of Internal Control 309, Control Environment 310, Risk Assessment 311, Control Procedures 311, Monitoring 313, Information and Appendix: Statement of Cash Flows: The Indirect Method Communication 313 234 Cash Controls Over Receipts and Payments 315 Cash Flows from Operating Activities 235, Cash Flows Used Control of Cash Receipts 315, Control of Cash Payments for Investing Activities 235, Cash Flows Used for Financing 318 Activities 236 Summary of Learning Goals 237 Glossary 238 vi Inventory Classification for Merchandisers and Bank Accounts 319 Use of Bank Accounts 319, Bank Statement 319, Bank Accounts as a Control Over Cash 321 Bank Reconciliation 322 Declining-Balance Method 407, Comparing Depreciation Special-Purpose Cash Funds 325 Methods 408, Depreciation for Federal Income Tax 409, Financial Statement Reporting of Cash 326 Cash Ratios 327 Ratio of Cash Flow to Net Income 327, Ratio of Cash to Monthly Cash Expenses 328 Summary of Learning Goals 329 Glossary 330 Chapter Receivables 354 Classification of Receivables 356 Accounts Receivable 356, Notes Receivable 356, Other Receivables 357 Uncollectible Receivables 357 Direct Write-Off Method for Uncollectible Accounts 358 Allowance Method for Uncollectible Accounts 358 Write-Offs to the Allowance Account 359, Estimating Uncollectibles 360 Comparing Direct Write-Off and Allowance Methods 364 Notes Receivable 365 Characteristics of Notes Receivable 365, Accounting for Notes Receivable 366 Revising Depreciation Estimates 409 Fixed Asset Disposals 410 Discarding Fixed Assets 411, Selling Fixed Assets 412 Intangible Assets 412 Patents 413, Copyrights and Trademarks 413, Goodwill 414 Reporting Fixed Assets and Intangible Assets 415 Analyzing Fixed Assets 416 Operational Utilization Analysis 417, Financial Utilization Analysis 418 Summary of Learning Goals 419 Glossary 420 Chapter 10 Liabilities 440 Current Liabilities 442 Accounts Payable 442, Notes Payable 442, Payroll Liabilities 444 Long-Term Liabilities 447 Present Value Concepts 448, Bonds Issued at Face Value 451, Bonds Issued at Discount 454, Bond Discount Amortization 455, Bonds Issued at a Premium 456, Reporting Receivables on the Balance Sheet 367 Amortizing a Bond Premium 457, Bond Redemption 457, Managing Accounts Receivable 368 Zero-Coupon Bonds 458 Screening Customers 369, Determining Credit Terms 369, Deferred Liabilities 459 Monitoring Collections 370 Deferred Revenue 459, Deferred Expense 459 Accounts Receivable Turnover and Days’ Sales In Contingent Liabilities 461 Receivables 370 Reporting Liabilities 462 Summary of Learning Goals 372 Current Maturities of Long-Term Debt 462, Long-Term Liability Glossary 373 Disclosures 462, Contingent Liabilities 463 Liquidity Analysis 463 Chapter Current Liquidity Analysis 463, Long-Term Liability Fixed Assets and Intangible Assets 398 Analysis 465 Nature of Fixed Assets 400 Appendix: Effective Interest Rate Method of Classifying Costs 400, The Cost of Fixed Assets 401, Capital Amortization 467 and Revenue Expenditures 403 Amortization of Discount by the Interest Method 468, Accounting for Depreciation 404 Amortization of Premium by the Interest Method 469 Factors in Computing Depreciation Expense 405, Straight- Summary of Learning Goals 470 Line Method 406, Units-of-Production Method 407, Double- Glossary 471 vii Chapter 11 Chapter 13 Stockholders’ Equity: Capital Stock and Dividends 492 Statement of Cash Flows 578 Nature of a Corporation 494 Reporting Cash Flows 580 Characteristics of a Corporation 494, Forming a Cash Flows from Operating Activities 580, Cash Flows from Corporation 494 Investing Activities 581, Cash Flows from Financing Activities Sources of Paid-In Capital 496 582, Noncash Investing and Financing Activities 582, No Common Stock 496, Market for Common Stock 497, Cash Flow per Share 583 Preferred Stock 498 Statement of Cash Flows—The Indirect Method 584 Issuing Stock 499 Retained Earnings 584, Cash Flows from Operating Activities Premium on Stock 499, No-Par Stock 500, Stock Options 501 585, Depreciation 586, Current Assets and Current Liabilities Treasury Stock 501 Stock Splits 503 587, Gain on Sale of Land 587, Reporting Cash Flows from Operating Activities 588, Cash Flows Used for Payment of Dividends 588, Common Stock 589, Bonds Payable 589, Analyzing Financing Alternatives 504 Building 589, Land 590, Preparing the Statement of Cash Accounting for Dividends 505 Flows 591 Cash Dividends 505, Stock Dividends 507 Statement of Cash Flows—The Direct Method 591 Reporting Stockholders’ Equity 508 Cash Received from Customers 592, Cash Payments for Accumulated Other Comprehensive Income (Loss) 508, Merchandise 593, Cash Payments for Operating Expenses Reporting Stockholders’ Equity on the Balance Sheet 509 594, Gain on Sale of Land 594, Interest Expense 595, Cash Analyze Dividends 510 Dividend Yield 510, Dividend Payout Ratio 511 Summary of Learning Goals 512 Glossary 513 Chapter 12 Payments for Income Taxes 595, Reporting Cash Flows from Operating Activities—Direct Method 595 Analysis and Interpretation of Cash Flows 596 Cash Conversion Cycle 596, Free Cash Flow 597 Summary of Learning Goals 599 Glossary 599 Special Income and Investment Reporting Issues 536 Unusual Items Affecting the Income Statement 538 Unusual Items Reported Above Income from Continuing Operations 538, Unusual Items Reported Below Income from Continuing Operations 540 Earnings per Common Share 542 Accounting for Investments in Stocks 544 Short-Term Investments in Stocks 544, Long-Term Investments in Stocks 546, Sale of Investments in Stocks 547, Investment Reporting 548, Business Combinations 549 Investments in Bonds 549 Accounting for Bond Investments—Purchase, Interest, and Amortization 550, Accounting for Bond Investments— Sale 551 Market-Based Financial Measures 552 Price-Earnings Ratio 552, Price-Book Ratio 554 Summary of Learning Goals 555 Glossary 556 viii Chapter 14 Financial Statement Analysis 630 Horizontal and Vertical Analysis 632 Horizontal Analysis 632, Vertical Analysis 633, CommonSize Statements 635, Other Analytical Measures 635 Profitability Analysis 636 Rate Earned on Stockholders’ Equity 636, Rate Earned on Total Assets 637, Comprehensive Profitability Analysis 638 Margin Analysis and Asset Efficiency Analysis 640 Margin Analysis 641, Asset Efficiency 641, Accounts Receivable Analysis 642, Inventory Analysis 643, Fixed Asset Analysis 644, Asset Efficiency Summary 645 Leverage Analysis 645 Current Ratio 646, Quick Ratio 647, Ratio of Fixed Assets to Long-Term Liabilities 648, Ratio of Liabilities to Stockholders’ Equity 649, Number of Times Interest Charges Earned 649, Leverage Summary 650 Stockholder Ratios 650 Summary of Learning Goals 654 Earnings per Share 650, Price-Earnings Ratio 651, Dividend Glossary 655 Yield 651 Appendix A Summary of Analytical Measures 651 Interest Tables A-1 Corporate Annual Reports 653 Glossary G-1 Subject Index I-1 Company Index I-7 Management Discussion and Analysis 653, Report on Adequacy of Internal Control 654, Report on Fairness of Financial Statements 654 ix CHAPTER OUTLINE LEARNING GOALS IN-TEXT EXERCISES AND PROBLEMS The Nature of Business • Types of Businesses • Forms of Business • How Do Businesses Make Money? • Business Stakeholders Learning Goal 1: Describe the types and forms of businesses, how businesses make money, and business stakeholders Exercises 1-1, 1-2 Business Activities • Financing Activities • Investing Activities • Operating Activities Learning Goal 2: Describe the three business activities of financing, investing, and operating What Is Accounting and Its Role in Business? Learning Goal 3: Define accounting and describe its role in business Exercises 1-19 Financial Statements • Income Statement • Retained Earnings Statement • Balance Sheet • Statement of Cash Flows • Integrated Financial Statements Learning Goal 4: Describe and illustrate the basic financial statements and how they interrelate Exercises 1-3, 1-4, 1-5, 1-6, 1-7, 1-8, 1-9, 1-10, 1-11, 1-12, 1-13 (spreadsheet), 1-14 (spreadsheet), 1-15, 1-16, 1-17, 1-18, 1-20 (spreadsheet), 1-21, 1-22, 1-23 (spreadsheet), 1-24 (spreadsheet), 1-25, 1-26, 1-27 Accounting Application Problems 1-1A (spreadsheet), 1-2A, 1-3A (spreadsheet), 1-4A (spreadsheet), 1-5A (spreadsheet), 1-1B (spreadsheet), 1-2B (spreadsheet), 1-3B (spreadsheet), 1-4B (spreadsheet), 1-5B (spreadsheet) Accounting Concepts • Business Entity Concept • Cost Concept • Going Concern Concept • Matching Concept • Objectivity Concept • Unit of Measure Concepts • Adequate Disclosure Concept • Accounting Period Concept • Responsible Reporting Learning Goal 5: Describe eight accounting concepts underlying financial reporting Exercises 1-28 Horizontal Analysis Learning Goal 6: Describe and illustrate how horizontal analysis can be used to analyze and evaluate a company’s performance chapter The Role of Accounting in Business chapter Basic Accounting Concepts CHAPTER OUTLINE LEARNING GOALS IN-TEXT EXERCISES AND PROBLEMS Elements of an Accounting System • Rules • Framework • Controls Learning Goal 1: Describe the basic elements of a financial accounting system Exercises 2-1, 2-2, 2-3, 2-4, 2-5, 2-7, 2-8, 2-10, 2-11, 2-13, 2-14, 2-21 Accounting Application Problems 2-1A (spreadsheet), 2-2A (spreadsheet), 2-1B (spreadsheet), 2-2B (spreadsheet) Recording a Corporation’s First Period of Operations Learning Goal 2: Analyze, record, and summarize transactions for a corporation’s first period of operations Exercises 2-6, 2-8, 2-9, 2-10, 2-11, 2-21 Accounting Application Problems 2-1A (spreadsheet), 2-2A (spreadsheet), 2-1B (spreadsheet), 2-2B (spreadsheet) Financial Statements for a Corporation’s First Period of Operations • Income Statement • Retained Earnings Statement • Balance Sheet • Statement of Cash Flows • Integration of Financial Statements Learning Goal 3: Prepare financial statements for a corporation’s first period of operations Exercises 2-7, 2-12, 2-13, 2-14, 2-15, 2-16 (spreadsheet), 2-17 (spreadsheet), 2-18 (spreadsheet), 2-19 (spreadsheet), 2-20 (spreadsheet), 2-22 Accounting Application Problems 2-1A (spreadsheet), 2-2A (spreadsheet), 2-5A, 2-6A, 2-1B (spreadsheet), 2-2B (spreadsheet), 2-5B, 2-6B Recording a Corporation’s Second Period of Operations Learning Goal 4: Analyze, record, and summarize transactions for a corporation’s second period of operations Exercises 2-6, 2-7, 2-8, 2-9, 2-10, 2-11, 2-21 Accounting Application Problems 2-3A, 2-3B (spreadsheet), 2-4B (spreadsheet) Financial Statements for a Corporation’s Second Period of Operations Learning Goal 5: Prepare financial statements for a corporation’s second period of operations Exercises 2-7, 2-12, 2-13, 2-14, 2-15, 2-16 (spreadsheet), 2-17 (spreadsheet), 2-18 (spreadsheet), 2-19 (spreadsheet), 2-20 (spreadsheet), 2-22 Accounting Application Problems 2-3A, 2-4A (spreadsheet), 2-5A, 2-6A, 2-3B (spreadsheet), 2-4B (spreadsheet), 2-5B, 2-6B Vertical Analysis Learning Goal 6: Describe and illustrate how vertical analysis can be used to analyze and evaluate a company’s performance CHAPTER OUTLINE LEARNING GOALS Basic Accrual Accounting Concepts Including the Matching Concept Learning Goal 1: Describe basic accrual accounting concepts, including the matching concept Using Accrual Concepts of Accounting for Family Health Care’s November Transactions Learning Goal 2: Use accrual concepts of accounting to analyze, record, and summarize transactions Exercises 3-1, 3-5 Accounting Application Problems 3-1A (spreadsheet), 3-1B (spreadsheet) The Adjustment Process • Deferrals and Accruals • Adjustments for Family Health Care Learning Goal 3: Describe and illustrate the end-of-the-period adjustment process Exercises 3-2, 3-6, 3-7, 3-8, 3-9, 3-10, 3-11, 3-12, 3-13, 3-14, 3-15, 3-16, 3-17, 3-18, 3-19, 3-20, 3-21, 3-22, 3-23, 3-24, 3-25 Accounting Application Problems 3-2A (spreadsheet), 3-5A (spreadsheet), 3-6A (spreadsheet), 3-2B (spreadsheet), 3-5B (spreadsheet), 3-6B (spreadsheet) Financial Statements • Income Statement • Retained Earnings Statement • Balance Sheet • Statement of Cash Flows • Integration of Financial Statements Learning Goal 4: Prepare financial statements using accrual concepts of accounting, including a classified balance sheet Exercises 3-3, 3-26, 3-27, 3-28, 3-29 (spreadsheet), 3-30 (spreadsheet), 3-31 Accounting Application Problems 3-3A (spreadsheet), 3-4A (spreadsheet), 3-6A (spreadsheet), 3-3B (spreadsheet), 3-4B (spreadsheet), 3-6B (spreadsheet) Accrual and Cash Bases of Accounting • Using the Cash Basis of Accounting • Using the Accrual Basis of Accounting • Summary of Differences between the Cash and Accrual Bases of Accounting • Family Health Care Under the Cash and Accrual Bases of Accounting • Importance of Accrual Basis of Accounting Learning Goal 5: Describe how the accrual basis of accounting enhances the interpretation of financial statements The Accounting Cycle Learning Goal 6: Describe the accounting cycle for the accrual basis of accounting Common-Sized Financial Statements Learning Goal 7: Describe and illustrate how common-sized financial statements can be used to analyze and evaluate a company’s performance Appendix: Reconciliation: Net Cash Flows from Operations and Net Income IN-TEXT EXERCISES AND PROBLEMS Accounting Application Problems 3-3A (spreadsheet), 3-3B (spreadsheet) Exercises 3-4 chapter Accrual Accounting Concepts chapter Accounting Information Systems CHAPTER OUTLINE LEARNING GOALS Business Information Systems Learning Goal 1: Describe the nature of business information systems Basic Accounting Systems Learning Goal 2: Describe the nature of accounting information systems Transaction Processing Systems • The Account • Rules of Debit and Credit • The Journal • Effects of Journal Entries on the Financial Statements • Posting to the Ledger • Trial Balance Learning Goal 3: Describe and illustrate the basic elements of transaction processing systems Exercises 4-1, 4-2, 4-3, 4-4, 4-5, 4-6, 4-7, 4-8, 4-9, 4-10 (spreadsheet), 4-11, 4-12 (spreadsheet), 4-13 (spreadsheet), 4-14 (spreadsheet), 4-15, 4-16, 4-17, 4-18, 4-19, 4-20 (spreadsheet), 4-21, 4-22, 4-23, 4-24, 4-25, 4-26, 4-27 (spreadsheet), 4-28 (spreadsheet), 4-30 (spreadsheet), 4-31 (spreadsheet) Accounting Application Problems 4-1A (spreadsheet), 4-2A (spreadsheet), 4-4A (spreadsheet), 4-5A (spreadsheet), 4-1B (spreadsheet), 4-2B (spreadsheet), 4-3B (spreadsheet), 4-4B (spreadsheet), 4-5B (spreadsheet) Financial Reporting System • Adjusting Entries • Financial Statements • Fiscal Year • Closing Entries • Post-Closing Trial Balance Learning Goal 4: Describe and illustrate the basic elements of a financial reporting system Exercises 4-8, 4-9, 4-10 (spreadsheet), 4-11, 4-12 (spreadsheet), 4-13 (spreadsheet), 4-14 (spreadsheet), 4-15, 4-16, 4-17, 4-18, 4-19, 4-20 (spreadsheet), 4-21, 4-22, 4-23, 4-24, 4-25, 4-26, 4-27 (spreadsheet), 4-28 (spreadsheet), 4-29, 4-30 (spreadsheet), 4-31 (spreadsheet) Accounting Application Problems 4-3A (spreadsheet), 4-4A (spreadsheet), 4-5A (spreadsheet), 4-4B (spreadsheet), 4-5B (spreadsheet) The Accounting Cycle Learning Goal 5: Describe the accounting cycle for the double-entry accounting system Exercises 4-3 EBITDA Learning Goal 6: Describe and illustrate the computation and use of earnings before interest, taxes, depreciation, and amortization (EBITDA) Exercises 4-33, 4-34 Appendix: The Statement of Cash Flows IN-TEXT EXERCISES AND PROBLEMS CHAPTER OUTLINE LEARNING GOALS IN-TEXT EXERCISES AND PROBLEMS Merchandise Operations Learning Goal 1: Distinguish the activities and financial statements of a service business from those of a merchandise business Exercises 5-1, 5-2, 5-4, 5-5 Financial Statements for a Merchandising Business • Multiple-Step Income Statement • Single-Step Income Statement • Retained Earnings Statement • Balance Sheet • Statement of Cash Flows • Integration of Financial Statements Learning Goal 2: Describe and illustrate the financial statements of a merchandising business Exercises 5-6, 5-7, 5-8 (spreadsheet), 5-9, 510, 5-11 (spreadsheet), 5-12, 5-13, 5-14 (spreadsheet) Accounting Application Problems 5-1A (spreadsheet), 5-2A (spreadsheet), 5-1B (spreadsheet), 5-2B (spreadsheet) Sales Transactions • Sales Discounts • Sales Returns and Allowances Learning Goal 3: Describe the accounting for the sale of merchandise Exercises 5-15, 5-16, 5-17, 5-18, 5-19, 5-28, 5-30 Accounting Application Problems 5-3A, 5-5A, 5-6A, 5-3B (spreadsheet), 5-5B, 5-6B Purchase Transactions • Purchase Discounts • Purchases Returns and Allowances Learning Goal 4: Describe the accounting for the purchase of merchandise Exercises 5-20, 5-21, 5-22, 5-23, 5-24, 5-25, 5-29, 5-30 Accounting Application Problems 5-4A, 5-5A, 5-6A, 5-4B, 5-5B, 5-6B Transportation Costs and Sales Taxes • Transportation Costs • Sales Taxes Learning Goal 5: Describe the accounting for transportation costs and sales taxes Exercises 5-26, 5-27, 5-30 Accounting Application Problems 5-3A, 5-4A, 5-5A, 5-6A, 5-3B (spreadsheet), 5-4B, 5-5B, 5-6B Dual Nature of Merchandise Transactions Learning Goal 6: Illustrate the dual nature of merchandising transactions Accounting Application Problems 5-5A, 5-6A, 5-5B, 5-6B Merchandise Shrinkage Learning Goal 7: Describe the accounting for merchandise shrinkage Exercises 5-31 Effects of Inventory Misstatements on the Financial Statements Learning Goal 8: Describe and illustrate the effects of inventory misstatements on the financial statements Exercises 5-32, 5-33, 5-34, 5-35 Gross Profit and Operating Profit Analysis Learning Goal 9: Describe and illustrate the use of gross profit and operating income in analyzing a company’s operations Exercises 5-1, 5-2, 5-3, 5-4, 5-5, 5-36 Appendix: Statement of Cash Flows: The Indirect Method • Cash Flows from Operating Activities • Cash Flows Used for Investing Activities • Cash Flows Used for Financing Activities Accounting Application Problems 5-7A (spreadsheet), 5-7B (spreadsheet) chapter Accounting for Merchandise Operations chapter Inventories CHAPTER OUTLINE LEARNING GOALS IN-TEXT EXERCISES AND PROBLEMS Inventory Classification for Merchandisers and Manufacturers Learning Goal 1: Identify the types of inventory used by merchandisers and manufacturers Exercises 6-1, 6-2, 6-17 Control of Inventory Learning Goal 2: Summarize and provide examples of control procedures that apply to inventories Exercises 6-3, 6-4 Inventory Cost Flow Assumptions Learning Goal 3: Describe three inventory cost flow assumptions and how they impact the income statement and balance sheet Exercises 6-5 (spreadsheet), 6-6 (spreadsheet), 6-7 (spreadsheet), 6-8 (spreadsheet), 6-9, 6-10, 6-11 (spreadsheet) Accounting Application Problems 6-1A (spreadsheet), 6-2A (spreadsheet), 6-3A (spreadsheet), 6-1B (spreadsheet), 6-2B (spreadsheet), 6-3B (spreadsheet) Inventory Costing Methods Under a Perpetual Inventory System • First-In, First-Out Method • Last-In, First-Out Method • Average Cost Method • Computerized Perpetual Inventory Systems Learning Goal 4: Determine the cost of inventory under the perpetual inventory system, using the first-in, first-out; last-in, first-out; and average cost methods Exercises 6-5 (spreadsheet), 6-6 (spreadsheet), 6-7 (spreadsheet), 6-8 (spreadsheet), 6-9 Accounting Application Problems 6-1A (spreadsheet), 6-2A (spreadsheet), 6-1B (spreadsheet), 6-2B (spreadsheet) Inventory Costing Methods Under a Periodic Inventory System • First-In, First-Out Method • Last-In, First-Out Method Learning Goal 5: Determine the cost of inventory under the periodic inventory system, using the first-in, first-out; lastin, first-out; and average cost methods Exercises 6-10, 6-11 (spreadsheet) Accounting Application Problems 6-3A (spreadsheet), 6-3B (spreadsheet) Comparing Inventory Costing Methods • Use of the First-In, First-Out Method • Use of the Last-In, First-Out Method • Use of the Average Cost Method Learning Goal 6: Compare and contrast the use of the three inventory costing methods Exercises 6-10, 6-11 (spreadsheet), 6-12 Valuation of Inventory at Other Than Cost • Valuation at Lower of Cost or Market • Valuation at Net Realizable Value Learning Goal 7: Determine the proper valuation of inventory at other than cost, using the lower-of-cost-or-market and net realizable value concepts Exercises 6-13 (spreadsheet), 6-14 Accounting Application Problems 6-4A (spreadsheet), 6-4B (spreadsheet) Quick Response Learning Goal 8: Describe how inventories are being reduced through quick response Exercises 6-15 Inventory Analysis and Interpretation Learning Goal 9: Determine and interpret the inventory turnover ratio and the number of days’ sales in inventory Exercises 6-16, 6-17, 6-18 CHAPTER OUTLINE LEARNING GOALS IN-TEXT EXERCISES AND PROBLEMS Sarbanes-Oxley Act of 2002 Learning Goal 1: Describe the Sarbanes-Oxley Act of 2002 and its impact on internal controls and financial reporting Exercises 7-1, 7-10 Internal Control • Objectives of Internal Control • Elements of Internal Control • Control Environment • Risk Assessment • Control Procedures • Monitoring • Information and Communication Learning Goal 2: Describe and illustrate the objectives and elements of internal control Exercises 7-2, 7-3, 7-4, 7-5, 7-6, 7-7, 7-8, 7-9, 7-10, 7-11, 7-12, 7-13, 7-14, 7-15 Accounting Application Problems 7-1A, 7-1B Cash Controls Over Receipts and Payments • Control of Cash Receipts • Cash Received from Cash Sales • Cash Received in the Mail • Control of Cash Payments Learning Goal 3: Describe and illustrate the application of internal controls to cash Exercises 7-2, 7-3, 7-4, 7-5, 7-6, 7-7, 7-8, 7-9, 7-10, 7-11, 7-12, 7-13, 7-14, 7-15 Accounting Application Problems 7-1A, 7-1B Bank Accounts • Use of Bank Accounts • Bank Statement • Bank Accounts as a Control Over Cash Learning Goal 4: Describe the nature of a bank account and its use in controlling cash Exercises 7-16, 7-17, 7-18 (spreadsheet), 7-19, 7-20, 7-21 (spreadsheet), 7-22, 7-23 (spreadsheet) Accounting Application Problems 7-2A (spreadsheet), 7-3A (spreadsheet), 7-4A (spreadsheet), 7-2B (spreadsheet), 7-3B (spreadsheet), 7-4B (spreadsheet) Bank Reconciliation Learning Goal 5: Describe and illustrate the use of a bank reconciliation in controlling cash Exercises 7-16, 7-17, 7-18 (spreadsheet), 7-19, 7-20, 7-21 (spreadsheet), 7-22, 7-23 (spreadsheet) Accounting Application Problems 7-2A (spreadsheet), 7-3A (spreadsheet), 7-4A (spreadsheet), 7-2B (spreadsheet), 7-3B (spreadsheet), 7-4B (spreadsheet) Special-Purpose Cash Funds Learning Goal 6: Describe the accounting for special-purpose cash funds Exercises 7-24, 7-25 Financial Statement Reporting of Cash Learning Goal 7: Describe and illustrate the reporting of cash and cash equivalents in the financial statements Exercises 7-26 Cash Ratios • Ratio of Cash Flow to Net Income • Ratio of Cash to Monthly Cash Expenses Learning Goal 8: Describe, illustrate, and interpret the cash flow to net income ratio and the cash to monthly cash expenses ratio Exercises 7-27, 7-28, 7-29, 7-30, 7-31, 7-32 chapter Sarbanes-Oxley, Internal Control, and Cash chapter Receivables CHAPTER OUTLINE LEARNING GOALS IN-TEXT EXERCISES AND PROBLEMS Classification of Receivables • Accounts Receivable • Notes Receivable • Other Receivables Learning Goal 1: Describe the common classifications of receivables Exercises 8-1 Uncollectible Receivables Learning Goal 2: Describe the nature of and the accounting for uncollectible receivables Exercises 8-2 Direct Write-Off Method for Uncollectible Accounts Learning Goal 3: Describe the direct write-off method of accounting for uncollectible receivables Exercises 8-10, 8-12, 8-13, 8-14 Accounting Application Problems 8-3A (spreadsheet), 8-3B (spreadsheet) Allowance Method for Uncollectible Accounts • Write-offs to the Allowance Account • Estimating Uncollectibles Learning Goal 4: Describe the allowance method of accounting for uncollectible receivables Exercises 8-3, 8-4 (spreadsheet), 8-5 (spreadsheet), 8-6, 8-7 (spreadsheet), 8-8, 8-9, 8-10, 8-11, 8-13, 8-14, 8-24 Accounting Application Problems 8-1A, 8-2A (spreadsheet), 8-3A (spreadsheet), 8-1B, 8-2B (spreadsheet), 8-3B (spreadsheet) Comparing Direct Write-Off and Allowance Methods Learning Goal 5: Compare the direct write-off and allowance methods of accounting for uncollectible accounts Exercises 8-15, 8-16, 8-17, 8-18 Notes Receivable • Characteristics of Notes Receivable • Accounting for Notes Receivable Learning Goal 6: Describe the nature, characteristics, and accounting for notes receivable Exercises 8-19, 8-20, 8-21, 8-22, 8-23, 8-24 Accounting Application Problems 8-4A, 8-5A, 8-6A, 8-4B, 8-5B, 8-6B Reporting Receivables on the Balance Sheet Learning Goal 7: Describe the reporting of receivables on the balance sheet Exercises 8-25 (spreadsheet) Managing Accounts Receivable • Screening Customers • Determining Credit Terms • Monitoring Collections Learning Goal 8: Describe the principles of managing accounts receivable Accounts Receivable Turnover and Days’ Sales in Receivables Learning Goal 9: Compute and interpret the accounts receivable turnover and the number of days’ sales in receivables Exercises 8-26, 8-27, 8-28, 8-29, 8-30, 8-31 CHAPTER OUTLINE LEARNING GOALS IN-TEXT EXERCISES AND PROBLEMS Nature of Fixed Assets • Classifying Costs • The Cost of Fixed Assets • Capital and Revenue Expenditures Learning Goal 1: Define, classify, and account for the cost of fixed assets Exercises 9-1, 9-2, 9-3, 9-4, 9-5, 9-6, 9-7, 9-8, 9-9, 9-10 Accounting Application Problems 9-1A, 9-5A, 9-1B, 9-5B Accounting for Depreciation • Factors in Computing Depreciation Expense • Straight-Line Method • Units-of-Production Method • Double-Declining-Balance Method • Comparing Depreciation Methods • Depreciation for Federal Income Tax • Revising Depreciation Estimates Learning Goal 2: Compute depreciation, using the following methods: straight-line, units-of-production, and declining balance Exercises 9-11, 9-12, 9-13, 9-14, 9-15, 9-16, 9-17, 9-18, 9-19 Accounting Application Problems 9-2A, 9-3A, 9-4A, 9-2B, 9-3B, 9-4B Fixed Asset Disposals • Discarding Fixed Assets • Selling Fixed Assets Learning Goal 3: Account for the disposal of fixed assets Exercises 9-20, 9-21 Accounting Application Problems 9-4A, 9-5A, 9-4B, 9-5B Intangible Assets • Patents • Copyrights and Trademarks • Goodwill Learning Goal 4: Describe and account for intangible assets, such as patents, copyrights, and goodwill Exercises 9-22, 9-23, 9-24, 9-25, 9-26, 9-27 Accounting Application Problems 9-5A, 9-5B Reporting Fixed Assets and Intangible Assets Learning Goal 5: Describe how depreciation expense is reported in an income statement, and prepare a balance sheet that includes fixed assets and intangible assets Exercises 9-26, 9-27 Analyzing Fixed Assets • Operational Utilization Analysis • Financial Utilization Analysis Learning Goal 6: Analyze the utilization of fixed assets Exercises 9-28, 9-29 Accounting Application Problems 9-6A, 9-6B chapter Fixed Assets and Intangible Assets chapter 10 Liabilities CHAPTER OUTLINE LEARNING GOALS IN-TEXT EXERCISES AND PROBLEMS Current Liabilities • Accounts Payable • Notes Payable • Payroll Liabilities Learning Goal 1: Describe and illustrate current liabilities related to accounts payable, notes payable, and payroll transactions Exercises 10-1 (spreadsheet), 10-2, 10-3, 10-4, 10-5, 10-6, 10-11, 10-12, 10-13, 10-14, 10-15 Accounting Application Problems 10-1A, 10-2A, 10-1B, 10-2B Long-Term Liabilities • Present Value Concepts • Bonds Issued at Face Value • Bonds Issued at Discount • Bond Discount Amortization • Bonds Issued at a Premium • Amortizing a Bond Premium • Bond Redemption • Zero-Coupon Bonds Learning Goal 2: Describe the characteristics of long-term liabilities and apply present value concepts to bonds payable Exercises 10-16, 10-17, 10-18, 10-19, 10-20, 10-21, 10-22, 10-23, 10-24, 10-27, 10-28 Accounting Application Problems 10-3A, 10-4A, 10-5A, 10-3B, 10-4B, 10-5B Deferred Liabilities • Deferred Revenue • Deferred Income Taxes Learning Goal 3: Describe and illustrate deferred liabilities related to unearned revenue and deferred taxes Contingent Liabilities Learning Goal 4: Identify the characteristics of contingent liabilities Reporting Liabilities • Current Maturities of Long-Term Debt • Long-Term Liability Disclosures • Contingent Liabilities Learning Goal 5: Illustrate the reporting of liabilities on the balance sheet Current Liquidity Analysis • Long-Term Liability Analysis Learning Goal 6: Analyze and interpret long-term liability position with the number of times interest charges are earned and the ratio of total liabilities to total assets Appendix: Effective Interest Rate Method of Amortization • Amortization of Discount by the Interest Method • Amortization of Premium by the Interest Method Exercises 10-7, 10-8, 10-9, 10-10 Exercises 10-25, 10-26 CHAPTER OUTLINE LEARNING GOALS IN-TEXT EXERCISES AND PROBLEMS Nature of a Corporation • Characteristics of a Corporation • Forming a Corporation Learning Goal 1: Describe the nature of the corporate from of organization Sources of Paid-In Capital • Common Stock • Market for Common Stock • Preferred Stock Learning Goal 2: List the major sources of paid-in capital, including the various classes of stock Exercises 11-1, 11-2, 11-3, 11-9, 11-20 Accounting Application Problems 11-1A (spreadsheet), 11-1B (spreadsheet) Issuing Stock • Premium on Stock • No-Par Stock • Stock Options Learning Goal 3: Describe the financial statement effects of issuing stock Exercises 11-4, 11-5, 11-6, 11-7, 11-8, 11-9 Accounting Application Problems 11-2A, 11-3A, 11-4A (spreadsheet), 11-5A (spreadsheet), 11-2B, 11-3B, 11-4B, 11-5B (spreadsheet) Treasury Stock Learning Goal 4: Describe the financial statement effects of treasury stock transactions Exercises 11-10, 11-11, 11-12 Accounting Application Problems 11-3A, 11-4A (spreadsheet), 11-5A (spreadsheet), 11-3B, 11-4B, 11-5B (spreadsheet) Stock Splits Learning Goal 5: Describe the effect of stock splits on the financial statements Exercises 11-13, 11-16, 11-19 Accounting Application Problems 11-5A (spreadsheet), 11-5B (spreadsheet) Analyzing Financing Alternatives Learning Goal 6: Analyze the impact of issuing common stock or bonds Exercises 11-14, 11-15 Accounting Application Problems 11-4A (spreadsheet) Accounting for Dividends • Cash Dividends • Stock Dividends Learning Goal 7: Describe the financial statement effects of cash dividends and stock dividends Exercises 11-11, 11-12, 11-16, 11-17, 11-18, 11-19 Accounting Application Problems 11-3A, 11-4A (spreadsheet), 11-5A (spreadsheet), 11-3B, 11-4B, 11-5B (spreadsheet) Reporting Stockholders’ Equity • Accumulated Other Comprehensive Income (Loss) • Reporting Stockholders’ Equity on the Balance Sheet Learning Goal 8: Describe financial statement presentations of stockholders’ equity Exercises 11-24, 11-25, 11-26 (spreadsheet), 11-27 (spreadsheet) Analyze Dividends • Dividend Yield • Dividend Payout Ratio Learning Goal 9: Compute and interpret the dividend yield and dividend payout ratio on common stock Exercises 11-1, 11-20, 11-21, 11-22, 11-23, 11-24 11 chapter Stockholders’ Equity: Capital Stock and Dividends chapter 12 Special Income and Investment Reporting Issues CHAPTER OUTLINE LEARNING GOALS IN-TEXT EXERCISES AND PROBLEMS Unusual Items Affecting the Income Statement • Unusual Items Affecting Income from Continuing Operations • Unusual Items Not Affecting Income from Continuing Operations • Reporting Unusual Below-the-Line Items Learning Goal 1: Prepare an income statement reporting the following unusual items: fixed asset impairments, restructuring charges, discontinued operations, extraordinary items, and cumulative changes in accounting principles Exercises 12-1, 12-2, 12-3, 12-4, 12-5, 12-6, 12-8, 12-9, 12-10 (spreadsheet), 12-11 Accounting Application Problems 12-2B (spreadsheet) Earnings per Common Share Learning Goal 2: Prepare an income statement reporting earnings per share data Exercises 12-7, 12-10 (spreadsheet), 12-11 Accounting Application Problems 12-1A (spreadsheet), 12-2A (spreadsheet), 12-1B (spreadsheet), 12-2B (spreadsheet) Accounting for Investments in Stocks • Short-Term Investments in Stocks • Long-Term Investments in Stocks • Sale of Investments in Stocks • Investment Disclosures • Business Combinations Learning Goal 3: Describe the accounting for investments in stocks Exercises 12-12, 12-13, 12-14, 12-15 (spreadsheet), 12-16, 12-17, 12-18 (spreadsheet), 12-19, 12-20, 12-21, 12-22 Accounting Application Problems 12-1A (spreadsheet), 12-2A (spreadsheet), 12-3A, 12-1B (spreadsheet), 12-2B (spreadsheet) Investments in Bonds • Accounting for Bond Investments—Purchase, Interest, and Amortization • Accounting for Bond Investments—Sale Learning Goal 4: Record entries for the purchase, interest, discount and premium amortization, and sale of bond investments Exercises 12-23, 12-24 Accounting Application Problems 12-4A (spreadsheet), 12-3B, 12-4B (spreadsheet) Market-Based Financial Measures • Price-Earnings Ratio • Price-Book Ratio Learning Goal 5: Compute and interpret the price-earnings and price-book ratios Exercises 12-25, 12-26, 12-27 CHAPTER OUTLINE LEARNING GOALS IN-TEXT EXERCISES AND PROBLEMS Reporting Cash Flows • Cash Flows from Operating Activities • Cash Flows from Investing Activities • Cash Flows from Financing Activities • Noncash Investing and Financing Activities • No Cash Flow per Share Learning Goal 1: Summarize the types of cash flow activities reported in the statement of cash flows Exercises 13-1, 13-2, 13-3, 13-6 (spreadsheet) Statement of Cash Flows— The Indirect Method • Retained Earnings • Cash Flows from Operating Activities • Depreciation • Current Assets and Current Liabilities • Gain on Sale of Land • Reporting Cash Flows from Operating Activities • Cash Flows Used for Payment of Dividends • Common Stock • Bonds Payable • Building • Land • Preparing the Statement of Cash Flows Learning Goal 2: Prepare a statement of cash flows, using the indirect method Exercises 13-4, 13-5, 13-6 (spreadsheet), 13-7 (spreadsheet), 13-8, 13-9, 13-10, 13-11, 13-12, 13-13, 13-14, 13-15, 13-16, 13-17 (spreadsheet), 13-23 (spreadsheet), 13-24, 13-27 Accounting Application Problems 13-1A (spreadsheet), 13-2A (spreadsheet), 13-3A (spreadsheet), 13-1B (spreadsheet), 13-2B (spreadsheet), 13-3B (spreadsheet) Statement of Cash Flows— The Direct Method • Cash Received from Customers • Cash Payments for Merchandise • Cash Payments for Operating Expenses • Gain on Sale of Land • Interest Expense • Cash Payments for Income Taxes • Reporting Cash Flows from Operating Activities—Direct Method Learning Goal 3: Prepare a statement of cash flows, using the direct method Exercises 13-18, 13-19, 13-20, 13-21 (spreadsheet), 13-22 (spreadsheet) Accounting Application Problems 13-4A (spreadsheet), 13-5A (spreadsheet), 13-4B, 13-5B Analysis and Interpretation of Cash Flows • Cash Conversion Cycle • Free Cash Flow Learning Goal 4: Calculate and interpret the cash conversion cycle, flow ratio, and free cash flow Exercises 13-25, 13-26, 13-27, 13-28, 13-29 chapter 13 Statement of Cash Flows chapter 14 Financial Statement Analysis CHAPTER OUTLINE LEARNING GOALS IN-TEXT EXERCISES AND PROBLEMS Horizontal and Vertical Analyses • Horizontal Analysis • Vertical Analysis • Common-Size Statements • Other Analytical Measures Learning Goal 1: Construct and interpret horizontal and vertical analyses Exercises 14-1 (spreadsheet), 14-2 (spreadsheet), 14-3 (spreadsheet), 14-4 (spreadsheet), 14-5 (spreadsheet) Accounting Application Problems 14-1A, 14-2A, 14-1B (spreadsheet), 14-2B (spreadsheet) Profitability Analysis • Rate Earned on Stockholders’ Equity • Rate Earned on Total Assets • Comprehensive Profitability Analysis Learning Goal 2: Calculate and interpret the rate earned on stockholders’ equity and the rate earned on total assets Exercises 14-6, 14-7, 14-8, 14-29 Accounting Application Problems 14-4A (spreadsheet) 14-5A, 14-4B (spreadsheet), 14-5B Margin Analysis and Asset Efficiency Analysis • Margin Analysis • Asset Efficiency • Accounts Receivable Analysis • Inventory Analysis • Fixed Asset Analysis • Asset Efficiency Summary Learning Goal 3: Analyze the rate earned on total assets by evaluating the profit margin and the asset efficiency of a business Exercises 14-9, 14-10, 14-11, 14-12, 14-13, 14-14, 14-15, 14-16 Accounting Application Problems 14-4A (spreadsheet), 14-5A, 14-4B (spreadsheet), 14-5B Leverage Analysis • Current Ratio • Quick Ratio • Ratio of Fixed Assets to Long-Term Liabilities • Ratio of Liabilities to Stockholders’ Equity • Number of Times Interest Charges Earned • Leverage Summary Learning Goal 4: Determine and interpret leverage Exercises 14-17, 14-18, 14-19, 14-20, 14-21, 14-22, 14-23, 14-28, 14-29 Accounting Application Problems 14-3A (spreadsheet), 14-4A (spreadsheet), 14-3B (spreadsheet), 14-4B (spreadsheet) Stockholder Ratios • Earnings per Share • Price-Earnings Ratio • Dividend Yield Learning Goal 5: Calculate and interpret shareholder ratios: earnings per share, price-earnings ratio, and dividend yield Exercises 14-24, 14-25, 14-26, 14-27, 14-28 Accounting Application Problems 14-4A (spreadsheet), 14-4B (spreadsheet) Summary of Analytical Measures Learning Goal 6: Summarize the uses and limitations of analytical measures Corporate Annual Reports • Management Discussion and Analysis • Report on Adequacy of Internal Control • Report on Fairness of Financial Statements Learning Goal 7: Describe the contents of corporate annual reports Pixar Comparative Balance Sheet January 3, 2004, and January 1, 2005 (In thousands, except share data) 2004 2005 Assets Cash and cash equivalents Investments Trade accounts receivable, net of allowance for doubtful accounts of $186 and $177 as of January 3, 2004 and January 1, 2005, respectively Receivable from Disney, net of reserve for returns and allowance for doubtful accounts of $29,920 and $3,479 as of January 3, 2004 and January 1, 2005, respectively Other receivables Prepaid expenses and other assets Deferred income taxes Property and equipment, net Capitalized film production costs, net Total assets Liabilities and Stockholders’ Equity Accounts payable Income taxes payable Other accrued liabilities Unearned revenue Total liabilities Commitments and contingencies (Note 7) Shareholders’ Equity: Preferred stock; no par value; 5,000,000 shares authorized, no shares issued and outstanding Common stock; no par value; 100,000,000 shares authorized; 55,473,176 and 58,426,252 shares issued and outstanding as of January 3, 2004 and January 1, 2005, respectively Accumulated other comprehensive income (loss) Retained earnings Total shareholders’ equity Total liabilities and shareholders’ equity $ 48,320 473,603 $ 28,661 826,123 2,152 5,581 198,280 4,465 1,047 51,496 115,026 107,667 $1,002,056 68,074 8,307 2,227 70,424 125,602 140,038 $1,275,037 $ $ $ 1,803 37,595 13,007 9,141 61,546 — 546,999 314 393,197 $ 940,510 $1,002,056 $ 5,392 14,077 26,971 8,502 54,942 — 687,387 (2,211) 534,919 $1,220,095 $1,275,037 ... owner? ?s resources Small local businesses such as hardware stores, repair shops, laundries, restaurants, and maid services are often organized as proprietorships As a business grows and requires more... utilize its assets and resources to implement its business emphasis Milton Hershey? ?s business emphasis was to massproduce chocolate candies at an affordable cost As we will discuss later in this chapter,... Business Service businesses provide services rather than products to customers Examples of service businesses and the types of services they offer are shown below Service Business Service Disney