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Financial Accounting: A Valuation Emphasis

Financial Accounting: A Valuation Emphasis

John S. Hughes, Frances L. Ayres, Robert E. Hoskin

ISBN: 978-0-471-20359-9

Dec 2004

592 pages

Select type: Hardcover

In Stock

$222.95

Description

Want to discover how Investment bankers, analysts and individual investors use financial accounting information to arrive at a Valuation for companies such as Google? The first edition of ‘Financial Accounting: A Valuation Emphasis’ brings new perspectives to the fore in laying a foundation for understanding and interpreting financial statements and related accounting disclosures in estimating firm value, where “the rubber meets the road”. Considerable emphasis is given to the economic consequences of accounting practices. Intended for the core introductory financial accounting course at the MBA / EMBA level or an honors course / strong accouting program for undergraduates. The book provides a solid background in basic accounting processes and disclosures emphasizing the valuation role of accounting throughout. 

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CHAPTER 1. Financial Reporting: The Institutional Setting.

LEARNING OBJECTIVES.

REAL WORLD VIGNETTE.

Reporting of the Activities of the Firm.

Regulation of Financial Reporting.

Determining Generally Accepted Accounting Principles.

Independent Audits of Financial Statements.

Economic Consequences of Accounting Practices.

Financial Reporting and Valuation.

Summary and Transition.

CHAPTER 2. Financial Statements: An Overview.

LEARNING OBJECTIVES.

REAL WORLD VIGNETTE.

Forms of Business Organization.

Financial Accounting Reports.

Statement of Financial Position.

ASSETS.

LIABILITIES.

STOCKHOLDERSâ?? EQUITY.

THE ACCOUNTING EQUATION.

STATEMENT OF FINANCIAL POSITION: ROSS STORES.

Flow Statements: Changes in Financial Position.

Statement of Earnings.

Statement of Cash Flows.

Articulation of the Financial Statements.

Statement of Changes in Stockholdersâ?? Equity.

Other Statement Disclosures.

The Influence of Financial Statements.

Summary and Transition.

CHAPTER 3. The Accounting Process.

LEARNING OBJECTIVES.

REAL WORLD VIGNETTE.

Balance Sheet Accounts.

ASSETS.

LIABILITIES.

STOCKHOLDERSâ?? EQUITY.

NOMINAL ACCOUNTS.

Accounting for Transactions.

Double-Entry Accounting Systems.

T-ACCOUNTS.

JOURNAL ENTRIES.

COMPUTERIZED ACCOUNTING.

An Illustration of Transaction Analysis.

ANALYSIS OF FINANCING AND INVESTING ACTIVITIES.

Issuing Stock.

Purchasing Fixtures.

Borrowing Funds.

Using Journal Entries and T-Accounts to Record Transactions.

CONSTRUCTION THE FINANCIAL STATEMENTS.

ANALYSIS OF OPERATING ACTIVITIES.

Revenues and Expenses.

Using the Accounting Equation to Analyze Operating Activities.

Purchasing Inventory on Account (Transaction 4).

Selling Inventory on Account (Transaction 5).

Recognizing Cost of Goods Sold (Transaction 6).

Collecting Receivables (Transaction 7).

Paying Accounts Payable (Transaction 8).

Paying Selling and Administrative  Costs (Transaction 9).

Depreciating Fixtures (Transaction 10).

Paying Interest (Transaction 11).

Dividends (Transaction 12).

Nominal Accounts Revisited.

Using Journal Entries and T-Accounts to Record Transactions.

CONSTRUCTING THE FINANCIAL STATEMENTS.

CLOSING ENTRIES.

The Accounting Cycle.

Analyzing Financial Statements.

Summary and Transition.

CHAPTER 4.  Income Measurement and Reporting.

LEARNING OBJECTIVES.

REAL WORLD VIGNETTE.

Accrual Accounting.

Revenue Recognition.

REVENUE RECOGNITION CRITERIA.

At Point of Delivery.

As Service Is Provided or Cost Incurred.

Based on Contractual Agreements.

At Time of Production.

As Cash Is Collected.

During Construction.

Expense Recognition.

Recording Accrual Entries.

REVENUES THAT ARE RECEIVED IN CASH BEFORE THEY ARE EARNED.

REVENUES THAT ARE EARNED BEFORE THEY ARE RECEIVED IN CASH.

EXPENSES THAT ARE PAID IN CASH BEFORE THEY ARE INCURRED.

EXPENSES THAT ARE INCURRED BEFORE THEY ARE PAID IN CASH.

Valuation Implications of Income Recognition.

Income Statement Format.

LINE ITEM DEFINITIONS.

INCOME STATEMENT LABELS.

Income from Continuing Operations.

Nonrecurring Items.

Discontinued Operations.

Extraordinary Items.

Accounting Changes and Errors.

Pro Forma Earnings.

Earnings per Share.

Comprehensive Income.

Summary and Transition.

CHAPTER 5.  Financial Statements: Measuring Cash Flow.

Cash Flow Statement Components.

CASH FLOW FROM OPERATING ACTIVITIES.

CASH FLOW FROM INVESTING ACTIVITIES.

CASH FLOW FROM FINANCING ACTIVITIES.

Preparation of the Statement of Cash Flows.

WORKSHEET ENTRIES FOR CASH FROM OPERATIONS.

Adjusting Net Income.

Revenue Adjustments to Net Income.

Cost of Goods Sold Adjustment to Net Income.

Depreciation Adjustment to Net Income.

Prepaid Expense Adjustment to Net Income.

WORKSHEET ENTRIES FOR CASH FROM INVESTING.

WORKSHEET ENTRIES FOR CASH FROM FINANCING.

SUMMARY OF CASH FLOW STATEMENT PREPARATIONâ??INDIRECT METHOD.

Articulation of the Cash Flow Statement.

Supplemental Disclosures to the Cash Flow Statement.

Interpreting the Cash Flow Statement.

Valuation Implications of the Cash Flow Statement.

Summary and Transition.

CHAPTER 6.  Financial Statement Analysis.

LEARNING OBJECTIVES.

REAL WORLD VIGNETTE.

Overview of Financial Statement Analysis.

CHAPTER 8.  Valuing Inventories.

Learning Objectives.

REAL WORLD VIGNETTE.

Merchandise and Manufacturing Inventories.

INVENTORY COSTS.

INVENTORY-LEVEL MANAGEMENT.

VALUING INVENTORY.

ACCOUNTING FOR INVENTORY.

Inventory Recording Procedures.

PERIODIC METHOD.

PERPETUAL METHOD.

Inventory Cost Flow Assumptions.

FIRST-IN, FIRST-OUT.

LAST-IN, FIRST-OUT.

WEIGHTED AVERAGE.

SPECIFIC IDENTIFICATION.

Illustration of Cost Flow Assumptions.

PERIODIC INVENTORY COMPUTATIONS.

Periodic FIFO.

Periodic LIFO.

Periodic Weighted Average.

PERPETUAL INVENTORY COMPUTATIONS.

Perpetual FIFO.

Perpetual LIFO.

Perpetual Weighted Average.

COMPARISON OF INVENTORY METHODS.

Inventory Method Choices and Firm Value.

LIFOâ??s Effect on Financial Statements.

LATE PURCHASES.

LIFO LIQUIDATIONS.

Financial Analysis and Inventory: Converting from LIFO to FIFO.

RATIO ANALYSIS IMPLICATIONS.

Transition and Summary.

CHAPTER 9.  Valuing Long-Lived Assets.

LEARNING OBJECTIVES.

REAL WORLD VIGNETTE.

Capitalization Criteria.

INTEREST CAPITALIZATION.

BASKET PURCHASES.

Creating Comparable Data for Financial Statement Analysis.

â??AS IFâ?? RESTATEMENTS.

MANDATED ACCOUNTING CHANGES.

DISCRETIONARY ACCOUNTING CHANGES.

Using Financial Ratios to Assess Past Performance.

ASSESSING PROFITABILITY.

ASSESSING TURNOVER RATIOS.

ASSESSING DEBT REPAYMENT ABILITY.

SHORT-TERM DEBT.

LONG-TERM DEBT.

Using Financial Ratios to Assess Comparative Performance.

INTER-TEMPORAL COMPARISONS.

CROSS-SECTIONAL COMPARISONS.

Forecasting.

TIME SERIES ANALYSIS.

PRO FORMA STATEMENTS.

Time Value of Money.

FUTURE VALUE.

PRESENT VALUE.

ADJUSTING FOR UNCERTAINTY.

Model for Valuing Equity.

DCF APPROACH.

RI APPROACH.

Summary and Transition.

CHAPTER 7.  Valuing Receivables.

LEARNING OBJECTIVES.

REAL WORLD VIGNETTE.

Accounts Receivable.

DOUBTFUL ACCOUNTS RECOGNITION.

ILLUSTRATION OF DOUBTFUL ACCOUNTS METHODS.

Direct Write-Off Method.

Allowance Method.

REAL COMPANY ILLUSTRATION OF DOUBTFUL ACCOUNTS.

ESTIMATING DOUBTFUL ACCOUNTS.

SALES RETURNS AND ALLOWANCES.

Accounts Receivable and Revenue Recognition.

Financing Receivables.

Selling Receivables.

Summary and Transition.

IMPROVEMENTS AND REPAIRS.

ASSET EXCHANGES.

Depreciation.

DEPRECIATION METHODS.

Straight-Line Depreciation.

Declining Balance Methods.

Tax Depreciation.

CHOICE OF DEPRECIATION METHODS.

EFFECT OF CHANGES IN ESTIMATES.

Asset Impairments.

Intangible Assets.

RESEARCH AND DEVELOPMENT.

COMPUTER SOFTWARE.

OIL AND GAS EXPLORATION COSTS AND RESERVES.

GOODWILL.

Transition and Summary.

CHAPTER 10.  Operating Liabilities: Recognition and Disclosure.

LEARNING OBJECTIVES.

REAL WORLD VIGNETTE.

Liability Recognition.

Balance Sheet Classification.

Accounts Payable.

Advances on Sales and Unearned Revenue.

Accrued Liabilities.

Contingencies.

Purchase and Sales Commitment.

Restructuring Charges.

Income Taxes.

Deferred Tax Liabilities.

Deferred Tax Assets.

Reporting of Deferred Taxes.

Pensions and Other Postretirement Benefits.

DEFINED BENEFIT PLANS.

DEFINED CONTRIBUTION PLANS.

Summary and Transition.

CHAPTER 11.  Debt: Pricing, Covenants, and Disclosure.

LEARNING OBJECTIVES.

REAL WORLD VIGNETTE.

Notes Payable.

Pricing of Debt.

Accounting for Discounts on Debt.

Zero-Coupon Debt.

Fair Value of Debt.

Early Debt Retirement.

Debt Covenants.

Credit Agreements.

Bonds Payable.

Accounting for Coupon Bonds.

Leases.

Special Purpose Entities.

Summary and Transition.

CHAPTER 12. Stockholdersâ?? Equity: The Residual Interest.

LEARNING OBJECTIVES.

REAL WORLD VIGNETTE.

Overview of Stockholdersâ?? Equity.

Types of Stock.

COMMON STOCK.

PREFERRED STOCK.

Distributions to Stockholders.

CASH DIVIDENDS.

STOCK REPURCHASES.

Stock Dividends and Stock Splits.

SMALL STOCK DIVIDENDS.

LARGE STOCK DIVIDENDS.

STOCK SPLITS.

Stock Options and Compensation.

Convertible Securities.

Earnings per Share.

DILUTED EARNINGS PER SHARE.

Retained Earnings and Comprehensive Income.

Statement of Changes in Stockholdersâ?? Equity.

Summary and Transition.

CHAPTER 13.  Intercorporate Investments.

LEARNING OBJECTIVES.

REAL WORLD VIGNETTE.

Overview of Intercorporate Investments.

Passive Minority Ownership.

HELD TO MATURITY DEBT SECURITIES.

TRADING SECURITIES.

AVAILABLE FOR SALE SECURITIES.

NONMARKETABLE SECURITIES.

VALUATION AND MARKETABLE SECURITIES.

Active Minority Investments.

Majority Investments.

Special Purpose Entities.

Summary and Transition.

CHAPTER 14. Introduction to Valuation Analysis.

LEARNING OBJECTIVES.

REAL WORLD VIGNETTE.

Overview of Fundamental Analysis Methods.

Pro Forma Financial Statements.

PRO FORMA INCOME STATEMENTS.

Sales Forecasting.

Operating Expense Forecasting.

Depreciation Forecasting.

Interest Expense Forecasting.

Tax Expense Forecasting.

Other Forecasting Items.

PRO FORMA BALANCE SHEETS.

Plant, Property and Equipment.

Alternative Assumptions.

Cash Forecasting.

Effects of Intercorporate Investments.

Debt Forecasting.

Deferred Taxes.

Ownersâ?? Equity.

PRO FORMA CASH FLOW STATEMENTS.

Discounted Cash Flow (DCF) Approach.

FREE CASH FLOWS.

TERMINAL VALUE.

COST OF EQUITY.

EXAMPLE OF DCF ANALYSIS WITH DEBT FINANCING.

Residual Income (RI) Approach.

SIMPLE EXAMPLE CONTINUED.

Applying the Valuation Approaches.

PRO FORMA STATEMENTS.

DCF ANALYSIS.

RI ANALYSIS.

Valuing a Real Company.

PRO FORMA STATEMENTS.

VALUATION ANALYSES.

Valuation and Pricing Multiples.

Summary and Transition.

Appendixes:

A. Adjusting Entries.

B. Time Value of Money.

C. Comprehensive Case and Chicoâ??s 10K Report Fiscal 2002.

D. Journal References.

E. Official Accounting Pronouncements.

Glossary.

Index.

  • Chapter feature highlights the valuation and economic consequences of core accounting concepts.
  • Emphasizes the construction of financial accounting information and how that information affects the value of the firm.
  • The text has received high marks for readability, use of real-world examples, and real-world transactions.
  • Provides early treatment of statement of cash flows and financial statement analysis.
  • An integrated example of a hypothetical company illustrates key concepts including valuation models.
  • Motivates students by helping them appreciate the significance of accounting information to managers, investors, regulators, and others with an interest in the firm's affairs.