The McGraw-Hill 36-Hour Accounting Course Book

Preface     xiii
Instructions and Study Plan     xvii
The Balance Sheet     1
What Is a Balance Sheet?     1
The Balance Sheet-What Good Is It?     1
Does the Balance Sheet Really Show Financial Position?     2
Does the Balance Sheet Actually Show What You Think It May?     3
How Are Assets Valued?     4
Why Are Nonmonetary Assets Reported at Cost?     4
Balance Sheet Illustrations     6
Balance Sheet Categories     9
Balance Sheet Relationships     10
Balance Sheet Terminology     10
Test Problem     11
Required     11
Test Problem Solution Space     11
The Income Statement     12
What Is the Income Statement's Purpose?     12
What Is Net Income?     13
What Is Revenue?     14
The Accrual Concept     15
What Is an Expense?     15
Some Other Offsets to Revenue     17
What Are Income Taxes?     17
Interest and Dividends     18
Income Statement Illustrated     18
Comments on Illustrative Income Statement     19
Test Problem     22
Revenue Data     22
Expense Data     22
Required     23
Test Problem Solution Space     23
The Accounting Structure     24
Management Decisions     24
Business Forms     25
The Accounting Journal     26
The Accounting Ledger     26
The Ledger Account     27
Asset and Expense Accounts     28
Equity and Revenue Accounts     30
The Process of Recording Complete Transactions     31
The General Journal     34
Comments on Figures 3.7 and 3.8     36
Closing Entries Revisited     36
Use of Subsidiary Ledgers     37
The Trial Balance     38
The Financial Statements     40
Conclusion     40
Test Problem     41
Transaction Data (Month of July)     41
Test Problem Solution Space     42
The Accounting Cycle     44
Elements of the Accounting Cycle     44
What Is Meant, by the Accounting Period?     45
What and Why Are Adjusting Entries?     46
Problem Data     48
The Worksheet     52
The Worksheet-Comments     53
Financial Statements     53
Are Interim Statements Dependable?     56
Internal Control Structure     58
Conclusion     59
Test Problem     59
Required     59
Test Problem Solution Space     60
Working Capital     63
What Is Working Capital?     63
Cash Receipts Transactions     64
Cash Disbursement Transactions     65
Marketable Securities     66
Accounts Receivable     67
Inventories     69
Prepayments     70
Current Liabilities     71
What Can Your Accountants Do for You?     72
The Budget     72
The Cash Budget     73
Comments on Cash Budget Illustration     75
Control of Receivables     76
Comments on Aging Schedule     76
Test Problem     78
Test Problem Solution Space     79
Statement of Cash Flows     80
Cash Receipts and Disbursement Statement     80
Major Sources and Uses of Cash     82
"Funds" Provided by Operations     82
Extended Example      89
Certain Noncash Items     90
Test Problem     91
Required     92
Test Problem Solution Space     92
Inventories     93
What Are Inventories?     93
Typical Inventory Transactions     94
Inventory Valuation     97
Specific Identification Method     98
First-in, First-out     99
What Are Inventory Profits and Holding Gains?     100
Last-in, First-out     102
Dollar Value LIFO     103
Average Cost     104
Cost or Market, the Lower     104
Inventory Turnover     105
Inventory Reports for Management     105
Gross Profit (or Gross Margin) Method of Inventory Estimation     106
Example     106
Test Problem     107
Required     107
Test Problem Solution Space     107
Property, Plant, and Equipment and Depreciation     108
Classes of Noncurrent (Long-Term) Assets     108
Initial Valuation of Property, Plant, and Equipment     109
Historical Cost Less Depreciation     111
Replacement Cost     111
Depreciation of Property, Plant, and Equipment      113
What Is Depreciation?     113
Depreciation Patterns     114
Straight-Line Depreciation     114
Wavy-Line Depreciation     115
Decreasing-Line Depreciation     116
Composite and Group Depreciation     117
Typical Depreciation Entries     118
A Caveat     119
Change of Depreciation Estimates     119
Depreciation Fallacies     120
Test Problem     121
Required     121
Test Problem Solution Space     122
Corporation Accounts     124
What Is Unique about Corporation Accounting?     124
The Issue of Capital Stock with Par Value     125
The Issue of Capital Stock with No Par Value     126
The Issue of Capital Stock for Property     126
Treasury Stock-What, Why, and How?     127
Stock Splits-What, Why and How?     130
Stock Rights     131
Stock Options     131
Stock Warrants     132
Convertible Preferred Stock     133
Callable Preferred Stock     133
Common Stock Equivalents     134
Earnings Per Share     134
Organization Costs      135
Test Problem     136
Required     136
Test Problem Solution Space     137
Dividends and Reserves     139
What Is a True Dividend?     139
Corporate Investment in Affiliated Company     141
Liquidating "Dividends"     142
Stock Dividends     143
What Do Accountants Mean by "Reserves"?     145
Contra Accounts Used to Be Called Reserves     145
Some Liabilities Used to Be Called Reserves     146
Retained Earnings May Be Reserved     146
Deferred Credits when in Doubt     147
Cumulative Preferred Stock     149
Test Problem     150
Required     150
Test Problem Solution Space     150
Long-Term Debt     151
Why Go into Debt?     151
Installment Purchases     152
Leases and Sale-and-Leaseback Transactions     154
Long-Term Notes     156
Mortgage Loans     157
Mortgage and Debenture Bonds     157
Sale of Bonds Between Interest Payment Dates     162
Convertible Bonds     163
Bonds with Warrants Attached     164
Test Problem      165
Required     165
Test Problem Solution Space     165
Basic Cost Accounting     167
What Is Cost Accounting?     167
What Are the Purposes of Cost Accounting?     167
Job-Order versus Process Cost Accounting     168
Use of Subsidiary Ledgers     169
Job-Order Cost Accounting     170
Process Cost Accounting     174
Test Problem     177
Test Problem Solution Space     177
Cost Standards     180
What's a Standard?     180
Illustration of Standards-Standard Cost per Unit     181
Raw Materials Standards     181
Raw Materials Accounting-Standard Costs     182
Direct Labor Accounting-Standard Costs     184
Manufacturing Overhead Accounting-Standard Costs     186
Standard Cost Applications     189
Test Problem     189
Required     190
Test Problem Solution Space     190
Internal Management Accounting     192
The Concept of Management Accounting     192
Responsibility Accounting     193
Standard Costing     193
Direct Costing     194
Differential Costs and Related Decisions     195
Should We Make It or Buy It?     197
Decisions to Acquire Plant Assets     199
Miscellaneous Topics     202
Test Problem     202
Test Problem Solution Space     203
Federal Income Tax Concepts     204
Taxpayers and Tax Returns     205
Accounting Periods and Methods     212
Income     215
Deductions     217
Property Transactions     219
Credits Against Tax     224
Rate Structure     224
Tax Shelters     225
Summary     227
Test Problems     227
Personal Computers and Software     229
Acknowledgment     232
Consolidated Statements     233
What Is a Consolidated Statement?     233
Why Isn't a Consolidated Statement a Combined Statement?     234
Consolidation Buzz Words     235
Elimination Entries     238
Where Are Elimination Entries Recorded?     241
Consolidation of Balance Sheets at Acquisition Date     242
Consolidated Balance Sheet Sometime Later     243
Consolidation of Income Statements      246
Consolidated Statements-Conclusion     247
Test Problem     248
Required     249
Test Problem Solution Space     250
Income Tax Allocation     252
Why Bother?     252
What Conditions Make Interperiod Allocation Necessary?     252
General Principles of Interperiod Allocation     253
Revenue Recognized before It Is Taxed     254
Expenses Recognized before They Become Tax Deductions     256
Revenue Taxed before It Is Recognized     257
Expenses as Tax Deductions before They Are Recognized     258
Tax Allocation and Permanent Differences     262
Arguments Against Tax Allocation     262
Tax Allocation with in a Period     262
Test Problems     263
Business Combinations: Mergers, Acquisitions, and Consolidations     264
How Business Combinations Are Achieved     264
Valuation Using the Purchase Method     265
The Physiology of an Acquisition Under the Purchase Method     266
Impact of Acquisition Transaction on Income     269
Required Disclosure under the Purchase Method     270
Test Problem     271
Required     272
Test Problem Solution Space     272
Accounting for Foreign Operations     274
Our Foreign Relations     274
Accounts Receivable     274
Accounts Payable     275
Foreign Branches     275
Foreign Subsidiaries     276
Accounting for Receivables and Payables     276
Foreign Branch Accounting     278
Foreign Currency Translation     281
Identifying a Foreign Entity's Functional Currency     282
Accounting for the Cumulative Translation Adjustment     282
Solutions to Tests     285
Supplementary Problems     308
Solutions to Supplementary Problems     333
Index     367
Final Examination     385
About the Authors     403