Financial Accounting, 6e

by Hanlon, Magee, Pfeiffer, Dyckman

ISBN: 978-1-61853-311-1 | Copyright 2020

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Welcome to the sixth edition of Financial Accounting.

We wrote this book to equip students with the accounting techniques and insights necessary to succeed in today’s business environment. It reflects our combined experience in teaching financial accounting to college students at all levels. For anyone who pursues a career in business, the ability to read, analyze, and interpret published financial reports is an essential skill. Financial Accounting is written for future business leaders who want to understand how financial statements are prepared and how the informa-tion in published financial reports is used by investors, creditors, financial analysts, and managers. Our goal is to provide the most engaging, relevant, and accessible textbook available.

Financial Accounting is intended for use in the first financial accounting course at either the under-graduate or graduate level; one that balances the preparation of financial statements with their analysis and interpretation. This book accommodates mini-courses lasting only a few days as well as extended courses lasting a full semester.Financial Accounting is real-world oriented and focuses on the most salient aspects of accounting. It teaches students how to read, analyze, and interpret Financial accounting data to make informed business decisions. To that end, it consistently incorporates real company data, both in the body of each chapter and throughout the assignment material.

Real Data Incorporated Throughout

Today’s business students must be skilled in using real financial statements to make business decisions. We feel strongly that the more exposure students get to real financial statements, the more comfortable they become with the variety in financial statements that exists across companies and industries. Through their exposure to various financial statements, students will learn that, while financial statements do not all look the same, they can readily understand and interpret them to make business decisions. Furthermore, today’s students must have the skills to go beyond basic financial statements to interpret and apply nonfinancial disclosures, such as footnotes and supplementary reports. We expose students to the analysis and interpretation of real company data and nonfinancial disclosures through the use of focus companies in each chapter, the generous incorporation of footnotes, financial analysis discussions in nearly every chapter, and an abundance of assignments that draw on real company data and disclosures.

Focus Companies for Each Chapter

Each chapter's content is explained through the accounting and reporting activities of real companies. Each chapter incorporates a “focus company“ for special emphasis and demonstration. The enhanced instructional value of focus companies comes from the way they engage students in real analysis and interpretation. Focus companies were selected based on student appeal and the diversity of industries.

Footnotes and Management Disclosures

We incorporate footnote and other management disclosures, where appropriate, throughout the book. We explain the significance of the footnote and then demonstrate how to use the disclosed information to make managerial inferences and decisions. A representative sample follows.

Financial Analysis Discussions

Each chapter includes a financial analysis discussion that introduces key ratios and applies them to the financial statements of the chapter's focus company. By weaving some analysis into each chapter, we try to instill in students a deeper appreciation for the significance of the accounting methods being discussed. One such analysis discussion follows.

Assignments that Draw on Real Data

It is essential for students to be able to apply what they have learned to real financial statements. Therefore, we have included an abundance of assignments in each chapter that draw on recent, real data and disclosures. These assignments are readily identified by an icon in the margin that usually includes the company's ticker symbol and the exchange on which the company's stock trades. A representative example follows.


As instructors of introductory financial accounting, we recognize that the first financial accounting course serves the general business students as well as potential accounting majors. Financial Accounting embraces this reality. This book balances financial reporting, analysis, interpretation, and decision making with the more standard aspects of accounting such as journal entries, T-accounts, and the preparation of financial statements.

3-Step Process: Analyze, Journalize, Post

One technique we use throughout the book to maintain a balanced approach is the incorporation of a 3-step process to analyze and record transactions. Step 1 analyzes the impact of various transactions on the financial statements using the financial statement effects template. Step 2 records the transaction using journal entries, and Step 3 requires students to post the journal entries to T-accounts.

The template captures each transaction’s effects on the four financial statements: the balance sheet, income statement, statement of stockholders’ equity, and statement of cash flows. For the balance sheet, we differentiate between cash and noncash assets to identify the cash effects of transactions. Likewise, equity is separated into the contributed and earned capital components (the latter includes retained earnings as its major element). Finally, income statement effects are separated into revenues, expenses, and net income (the updating of retained earnings is denoted with an arrow line running from net income to earned capital). This template provides a convenient means to represent financial accounting transactions and events in a simple, concise manner for assessing their effects on financial statements.


The convergence of U.S. GAAP and International Financial Reporting Standards (IFRS) is in process. Our introductory students should be prepared for this eventuality with a basic understanding of the similarities and differences in the current reporting requirements and methods under U.S. GAAP and IFRS. Consequently, we incorporate discussions that examine these similarities and differences where appropriate throughout the book in Global Perspective boxes, as illustrated here:

We also include exercises and problems throughout the text, where appropriate, to stimulate a discussion of international reporting differences. Our approach is conceptual-we purposefully avoid the detailed mechanics that are more appropriate for an intermediate level accounting course at either the undergraduate or graduate level. We feel strongly that our IFRS coverage exposes students to the similarities and differences without overwhelming them.

Business Insights

Students appreciate and become more engaged when they can see the real world relevance of what they are learning in the classoom. We have included a generous number of current, real world examples throughout each chapter in Business Insight boxes. The following is a representative example:

Decision Making Orientation

One primary goal of a financial accounting course is to teach students the skills needed to apply their accounting knowledge to solving real business problems. With that goal in mind, You Make the Call boxes in each chapter encourage students to apply the material presented to solving actual business scenarios.

Mid-Chapter and Chapter-End Reviews

Financial accounting can be challenging - especially for students lacking business experience or previous exposure to business courses. To reinforce concepts presented in each chapter and to ensure student comprehension, we include mid-chapter and chapter-end reviews that require students to recall and apply the financial accounting techniques and concepts described in each chapter.

Research Insights for Business Students

Academic research plays an important role in the way business is conducted, accounting is performed, and students are taught. It is important for students to recognize how modern research and modern business practice interact. Therefore, we periodically incorporate relevant research to help students understand the important relation between research and modern business.


Many instructors have approached us to ask about suggested chapter coverage based on courses of varying length. To that end, we provide the following table of possible course designs:

Chapter15 Week 
Semester Course
10 Week 
Quarter Course
6 Week 
1 Week 
Intensive Course
1Week 1Week 1Week 1Day 1
2Week 2 & 3Week 2Week 1 & 2
3Week 3 & 4Week 3 & 4Week 2 & 3Day 2
4Week 5 & 6Week 4 & 5OptionalOptional
5Week 6 & 7OptionalOptionalOptional
6Week 7 & 8Week 6Week 3Day 3
7Week 9Week 7Week 4Day 4
8Week 10Week 8Week 5Day 4
9Week 11 & 12Week 9Week 6Day 5
10Week 12 & 13Week 10Week 6 (optional)Skim
11Week 14OptionalOptionalOptional
12Week 15OptionalOptionalOptional
  • Updated for New Revenue Recognition Standard: The text and assignments have been updated to reflect the new revenue recognition standard
  • Updated for Lower of Cost or Net Realizable Value: The inventory chapter (Chapter 7) reflects the new standard on lower of cost or net realizable standard.
  • Updated for New Lease Standard: The text and assignments have been updated to reflect the new lease standard.
  • Updated for New Investment Standard: The text and assignments in Chapter 12 on investments have been revised to reflect the latest standard.
  • Road Map: Each chapter opens with a grid that identifies each learning objective for the chapter, the related pages, eLecture and Guided Example videos, and the end of chapter assignments. This allows students and faculty to quickly grasp the chapter contents and to efficiently navigate to the desired topic.
  • Updated Data: The real data used throughout the text and assignments have been updated to reflect the most current financial statements available at the time of the revision. New companies have been incorporated into the assignments and Business Insight boxes throughout the text to maintain the fresh and engaging style that is a hallmark of the book.

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Road Map
LO Learning Objective Page eLecture Guided Example Assignments

Describe and construct the balance sheet and understand how it can be used for analysis.


14, 15, 16, 17, 19, 21, 24, 25, 26, 27, 29, 30, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 46, 49, 50, 51, 52, 53, 54, 55, 56, 59, 60, 66


Use the financial statement effects template (FSET) to analyze transactions.


18, 29, 30, 31, 44, 45, 47, 57, 62, 67, 69


Describe and construct the income statement and discuss how it can be used to evaluate management performance.


19, 20, 21, 22, 23, 28, 31, 35, 37, 39, 40, 41, 42, 43, 44, 47, 49, 50, 51, 54, 57, 61, 62, 64, 65, 66, 67, 69, 71, 72


Explain revenue recognition, accrual accounting, and their effects on retained earnings.


18, 19, 20, 22, 23, 25, 26, 28, 29, 31, 39, 44, 47, 57, 62, 67, 69, 71


Illustrate equity transactions and the statement of stockholders' equity.


18, 21, 22, 23, 24, 27, 31, 35, 36, 37, 53, 66, 67, 69, 71


Use journal entries and T-accounts to analyze and record transactions.


32, 33, 45, 48, 58, 63, 68, 70


Compute net working capital, the current ratio, and the quick ratio, and explain how they reflect liquidity.


34, 36, 38, 41, 42, 46, 52, 55, 56, 59, 60

Expand/Collapse All
About the Authors (pg. iii)
Preface (pg. v)
Brief Contents (pg. xv)
Contents (pg. xvi)
Chapter 1 Introducing Financial Accounting (pg. 2)
Demand for Accounting Information (pg. 4)
Who Uses Financial Accounting Information? (pg. 5)
Costs and Benefits of Disclosure (pg. 7)
Business Activities (pg. 7)
Planning Activities (pg. 8)
Investing Activities (pg. 8)
Financing Activities (pg. 9)
Operating Activities (pg. 10)
Financial Statements (pg. 11)
Balance Sheet (pg. 12)
Income Statement (pg. 12)
Statement of Cash Flows (pg. 14)
Financial Statement Linkages (pg. 15)
Information Beyond Financial Statements (pg. 16)
Mid-Chapter Review (pg. 16)
Financial Reporting Environment (pg. 17)
Generally Accepted Accounting Principles (pg. 17)
Regulation and Oversight (pg. 18)
Role of the Auditor (pg. 19)
A Global Perspective (pg. 20)
Analyzing Financial Statements (pg. 21)
Profitability Analysis (pg. 21)
Analysis Objective (pg. 21)
Credit Risk Analysis (pg. 23)
Analysis Objective (pg. 23)
Technology and Accounting (pg. 24)
Organization of the Book (pg. 25)
Chapter-End Review (pg. 25)
Appendix 1A: Conceptual Framework for Financial Reporting (pg. 26)
Objective of Financial Reporting (pg. 26)
Qualitative Characteristics of Useful Financial Information (pg. 26)
Enhancing Qualitative Characteristics (pg. 27)
The Cost Constraint (pg. 28)
Additional Underlying Basic Assumptions (pg. 28)
Summary (pg. 28)
Guidance Answers . . . You Make the Call (pg. 30)
Key Ratios (pg. 30)
Key Terms (pg. 30)
Multiple Choice (pg. 31)
Questions (pg. 31)
Mini Exercises (pg. 32)
Exercises (pg. 33)
Problems (pg. 35)
Solutions to Review Problems (pg. 39)
Chapter 2 Constructing Financial Statements (pg. 42)
Reporting Financial Condition (pg. 44)
Assets (pg. 44)
Liabilities and Equity (pg. 47)
Reporting Financial Performance (pg. 53)
Accrual Accounting for Revenues and Expenses (pg. 54)
Retained Earnings (pg. 56)
Analyzing and Recording Transactions for the Income Statement (pg. 56)
Reporting on Equity (pg. 60)
Analyzing and Recording Equity Transactions (pg. 60)
Statement of Stockholders’ Equity (pg. 61)
Mid-Chapter Review 3 (pg. 61)
Journalizing and Posting Transactions (pg. 62)
T-Account (pg. 62)
Debit and Credit System (pg. 62)
T-Account with Debits and Credits (pg. 63)
The Journal Entry (pg. 64)
Analyze, Journalize, and Post (pg. 64)
Analyzing Financial Statements (pg. 71)
Analysis Objective (pg. 71)
Chapter-End Review (pg. 73)
Summary (pg. 73)
Guidance Answers . . . You Make the Call (pg. 74)
Key Ratios (pg. 74)
Key Terms (pg. 75)
Multiple Choice (pg. 75)
Questions (pg. 76)
Mini Exercises (pg. 76)
Exercises (pg. 80)
Problems (pg. 86)
Cases and Projects (pg. 92)
Solutions to Review Problems (pg. 93)
Chapter 3 Adjusting Accounts for Financial Statements (pg. 100)
Accounting Cycle (pg. 102)
Analyzing and Recording Transactions (pg. 103)
Review of Accounting Procedures (pg. 103)
Review of Recording Transactions (pg. 103)
Adjusting the Accounts (pg. 109)
Preparing an Unadjusted Trial Balance (pg. 110)
Types of Adjustments (pg. 110)
Ethics and Adjusting Entries (pg. 117)
Mid-Chapter Review (pg. 117)
Constructing Financial Statements from Adjusted Accounts (pg. 118)
Preparing an Adjusted Trial Balance (pg. 118)
Preparing Financial Statements (pg. 118)
Closing Temporary Accounts (pg. 122)
Closing Process (pg. 123)
Closing Steps Illustrated (pg. 123)
Preparing a Post-Closing Trial Balance (pg. 124)
Subsequent Events (pg. 125)
Summarizing the Accounting Cycle (pg. 125)
Financial Statement Analysis (pg. 125)
Using Information on Levels and Flows (pg. 125)
Chapter-End Review (pg. 127)
Summary (pg. 128)
Guidance Answers . . . You Make the Call (pg. 128)
Key Terms (pg. 129)
Multiple Choice (pg. 129)
Questions (pg. 130)
Mini Exercises (pg. 130)
Exercises (pg. 133)
Problems (pg. 136)
Cases and Projects (pg. 145)
Solutions to Review Problems (pg. 147)
Chapter 4 Reporting and Analyzing Cash Flows (pg. 156)
Purpose of the Statement of Cash Flows (pg. 158)
What Do We Mean by “CASH”? (pg. 158)
What Does a Statement of Cash Flows Look Like? (pg. 159)
Framework for the Statement of Cash Flows (pg. 159)
Operating Activities (pg. 160)
Investing Activities (pg. 160)
Financing Activities (pg. 160)
Usefulness of Classifications (pg. 161)
Mid-Chapter Review 1 (pg. 162)
Preparing the Statement of Cash Flows-Operating Activities (pg. 162)
Converting Revenues and Expenses to Cash Flows from Operating Activities (pg. 164)
Mid-Chapter Review 2 (pg. 171)
Reconciling Net Income and Cash Flow from Operating Activities (pg. 171)
Cash Flow from Operating Activities Using the Indirect Method (pg. 173)
Mid-Chapter Review 3 (pg. 174)
Preparing the Statement of Cash Flows-Investing and Financing Activities (pg. 174)
Cash Flows from Investing Activities (pg. 174)
Cash Flows from Financing Activities (pg. 175)
Mid-Chapter Review 4 (pg. 177)
Additional Detail in the Statement of Cash Flows (pg. 177)
Case Illustration (pg. 177)
Gains and Losses on Investing and Financing Activities (pg. 179)
Noncash Investing and Financing Activities (pg. 180)
Mid-Chapter Review 5 (pg. 181)
The Effects of Foreign Currencies on the Cash Flow Statement (pg. 181)
Supplemental Disclosures (pg. 182)
Analysis Objective (pg. 183)
Chapter-End Review (pg. 186)
Appendix 4A: A Spreadsheet Approach to Preparing the Statement of Cash Flows (pg. 186)
Step 1: Classify the balance sheet accounts. (pg. 186)
Step 2: Compute the changes in the balance sheet accounts. (pg. 187)
Step 3: Handle the accounts that have single classifications. (pg. 187)
Step 4: Enter the effect of investing/financing transactions that do not involve cash. (pg. 188)
Step 5: Analyze the change in retained earnings. (pg. 188)
Step 6: Analyze the change in plant assets. (pg. 188)
Step 7: Total the columns. (pg. 188)
Step 8: Prepare the cash flow statement. (pg. 188)
Appendix 4A Review (pg. 189)
Summary (pg. 189)
Guidance Answers . . . You Make the Call (pg. 190)
Key Ratios (pg. 191)
Key Terms (pg. 191)
Multiple Choice (pg. 191)
Questions (pg. 192)
Mini Exercises (pg. 193)
Exercises (pg. 197)
Problems (pg. 201)
Cases and Projects (pg. 209)
Solutions to Review Problems (pg. 214)
Chapter 5 Analyzing and Interpreting Financial Statements (pg. 218)
Introduction (pg. 220)
Assessing the Business Environment (pg. 220)
Vertical and Horizontal Analysis (pg. 221)
Mid-Chapter Review 1 (pg. 223)
Return on Investment (pg. 225)
Return on Equity (ROE) (pg. 225)
Return on Assets (ROA) (pg. 225)
Return on Financial Leverage (ROFL) (pg. 226)
Mid-Chapter Review 2 (pg. 227)
Disaggregating ROA (pg. 228)
Liquidity and Solvency (pg. 233)
Liquidity Analysis (pg. 235)
Solvency Analysis (pg. 237)
Limitations of Ratio Analysis (pg. 239)
Chapter-End Review (pg. 240)
Appendix 5A: Analyzing and Interpreting Core Operating Activities (pg. 241)
Reporting Operating Activities in the Income Statement (pg. 241)
Reporting Operating Activities in the Balance Sheet (pg. 242)
Disaggregating RNOA (pg. 242)
Appendix 5A Review (pg. 243)
Appendix 5B: Financial Statement Forecasts (pg. 243)
Step 1. Forecast Sales Revenue (pg. 243)
Step 2. Forecast Operating Expenses (pg. 244)
Step 3. Forecast Operating Assets and Liabilities (pg. 244)
Step 4. Forecast Nonoperating Assets, Liabilities, Revenues and Expenses (pg. 244)
Step 5. Forecast Net Income, Dividends, and Retained Earnings (pg. 245)
Step 6. Forecast Cash (pg. 246)
Step 7. Prepare the Cash Flow Statement Forecast (pg. 247)
Additional Considerations (pg. 247)
Appendix 5B Review (pg. 248)
Summary (pg. 248)
Key Ratios (pg. 249)
Key Terms (pg. 250)
Multiple Choice (pg. 250)
Guidance Answers . . . You Make the Call (pg. 251)
Questions (pg. 251)
Mini Exercises (pg. 251)
Exercises (pg. 255)
Problems (pg. 259)
Cases and Projects (pg. 265)
Solutions to Review Problems (pg. 266)
Chapter 6 Reporting and Analyzing Revenues, Receivables, and Operating Income (pg. 270)
Reporting Operating Income (pg. 272)
Revenue Recognition (pg. 274)
Revenue Recognition Subsequent to Customer Purchase (pg. 276)
Mid-Chapter Review 1 (pg. 279)
Mid-Chapter Review 2 (pg. 283)
Reporting Accounts Receivable (pg. 283)
Determining the Allowance for Uncollectible Accounts (pg. 284)
Reporting the Allowance for Uncollectible Accounts (pg. 285)
Recording Write-offs of Uncollectible Accounts (pg. 286)
Footnote Disclosures and Interpretations (pg. 288)
Mid-Chapter Review 3 (pg. 291)
Analyzing Financial Statements (pg. 291)
Net Operating Profit After Taxes (NOPAT) (pg. 292)
Analysis Objective (pg. 292)
Analysis Objective (pg. 294)
Earnings Management (pg. 296)
Chapter-End Review (pg. 298)
Appendix 6A: Reporting Nonrecurring Items (pg. 298)
Discontinued Operations (pg. 299)
Exit or Disposal Costs (pg. 299)
Appendix 6A Review (pg. 301)
Summary (pg. 301)
Guidance Answers . . . You Make the Call (pg. 302)
Key Ratios (pg. 302)
Key Terms (pg. 303)
Multiple Choice (pg. 303)
Questions (pg. 304)
Mini Exercises (pg. 304)
Exercises (pg. 308)
Problems (pg. 314)
Cases and Projects (pg. 317)
Solutions to Review Problems (pg. 321)
Chapter 7 Reporting and Analyzing Inventory (pg. 326)
Reporting Operating Expenses (pg. 328)
Expense Recognition Principles (pg. 328)
Reporting Inventory Costs in the Financial Statements (pg. 329)
Recording Inventory Costs in the Financial Statements (pg. 330)
Inventory and the Cost of Acquisition (pg. 331)
Inventory Reporting by Manufacturing Firms (pg. 331)
Inventory Costing Methods (pg. 332)
Illustration (pg. 333)
First-In, First-Out (FIFO) (pg. 333)
Last-In, First-Out (LIFO) (pg. 334)
Inventory Costing and Price Changes (pg. 336)
Average Cost (AC) (pg. 336)
Lower of Cost or Net Realizable Value (pg. 337)
Mid-Chapter Review (pg. 339)
Financial Statement Effects and Disclosure (pg. 340)
Financial Statement Effects of Inventory Costing (pg. 341)
Analyzing Financial Statements (pg. 345)
Analysis Objective (pg. 345)
Analysis Objective (pg. 347)
Chapter-End Review (pg. 350)
Appendix 7A: LIFO Liquidation (pg. 351)
Analysis Implications (pg. 352)
Appendix 7A Review (pg. 352)
Summary (pg. 353)
Guidance Answers . . . You Make the Call (pg. 354)
Key Ratios (pg. 354)
Key Terms (pg. 354)
Multiple Choice (pg. 355)
Questions (pg. 356)
Mini Exercises (pg. 356)
Exercises (pg. 359)
Problems (pg. 362)
Cases and Projects (pg. 365)
Solutions to Review Problems (pg. 366)
Chapter 8 Reporting and Analyzing Long-Term Operating Assets (pg. 372)
Introduction (pg. 374)
Property, Plant, and Equipment (PPE) (pg. 374)
Determining Costs to Capitalize (pg. 375)
Depreciation (pg. 376)
Depreciation Methods (pg. 377)
Changes in Accounting Estimates (pg. 380)
Asset Sales and Impairments (pg. 381)
Footnote Disclosure (pg. 383)
Analyzing Financial Statements (pg. 384)
Analysis Objective (pg. 384)
Analysis Objective (pg. 385)
Cash Flow Effects (pg. 387)
Mid-Chapter Review (pg. 387)
Intangible Assets (pg. 388)
Research and Development Costs (pg. 388)
Patents (pg. 389)
Trademarks (pg. 389)
Franchise Rights (pg. 390)
Amortization and Impairment of Identifiable Intangible Assets (pg. 390)
Goodwill (pg. 392)
Footnote Disclosures (pg. 392)
Analysis Implications (pg. 393)
Chapter-End Review (pg. 394)
Summary (pg. 394)
Guidance Answers . . . You Make the Call (pg. 395)
Key Ratios (pg. 395)
Key Terms (pg. 395)
Multiple Choice (pg. 396)
Questions (pg. 396)
Mini Exercises (pg. 397)
Exercises (pg. 399)
Problems (pg. 402)
Cases and Projects (pg. 405)
Solutions to Review Problems (pg. 407)
Chapter 9 Reporting and Analyzing Liabilities (pg. 412)
Introduction (pg. 414)
Current Liabilities (pg. 415)
Accounts Payable (pg. 415)
Mid-Chapter Review 1 (pg. 417)
Accrued Liabilities (pg. 417)
Other Current Liabilities (pg. 421)
Mid-Chapter Review 2 (pg. 422)
Current Nonoperating (Financial) Liabilities (pg. 422)
Mid-Chapter Review 3 (pg. 424)
Long-Term Liabilities (pg. 424)
Installment Loans (pg. 425)
Bonds (pg. 427)
Pricing of Bonds (pg. 427)
Effective Cost of Debt (pg. 429)
Reporting of Bond Financing (pg. 430)
Effects of Discount and Premium Amortization (pg. 432)
The Fair Value Option (pg. 434)
Effects of Bond Repurchase (pg. 435)
Financial Statement Footnotes (pg. 436)
Interest and the Statement of Cash Flows (pg. 437)
Disclosure of Commitments and Contingencies (pg. 438)
Analyzing Financial Statements (pg. 438)
Analysis Objective (pg. 439)
Debt Ratings and the Cost of Debt (pg. 441)
Chapter-End Review (pg. 443)
Summary (pg. 443)
Guidance Answers . . . You Make the Call (pg. 444)
Key Ratios (pg. 444)
Key Terms (pg. 444)
Multiple Choice (pg. 445)
Questions (pg. 445)
Mini Exercises (pg. 446)
Exercises (pg. 449)
Problems (pg. 452)
Cases and Projects (pg. 456)
Solutions to Review Problems (pg. 458)
Chapter 10 Reporting and Analyzing Leases, Pensions, Income Taxes, and Commitments and Contingencies (pg. 462)
Introduction (pg. 464)
Leases (pg. 465)
Lessee Reporting of Leases (pg. 466)
Footnote Disclosures of Leases (pg. 473)
Mid-Chapter Review 1 (pg. 476)
Pensions (pg. 477)
Balance Sheet Effects of Defined Benefit Pension Plans (pg. 477)
Income Statement Effects of Defined Benefit Pension Plans (pg. 479)
Footnote Disclosures-Components of Plan Assets and PBO (pg. 480)
Footnote Disclosures-Components of Pension Expense (pg. 481)
Footnote Disclosures and Future Cash Flows (pg. 483)
Other Post-Employment Benefits (pg. 485)
Mid-Chapter Review 2 (pg. 486)
Accounting For Income Taxes (pg. 486)
Book-Tax Differences (pg. 487)
Revaluation of Deferred Tax Assets and Liabilities due to a Tax Rate Change (pg. 493)
Income Tax Disclosures (pg. 494)
Deferred Taxes in the Cash Flow Statement (pg. 497)
Computation and Analysis of Taxes (pg. 497)
Mid-Chapter Review 3 (pg. 497)
Commitments and Contengencies and Other Disclosures (pg. 498)
Analyzing Financial Statements (pg. 499)
Analysis Objective (pg. 499)
Summary (pg. 501)
Guidance Answers . . . You Make The Call (pg. 502)
Key Ratios (pg. 502)
Key Terms (pg. 502)
Multiple Choice (pg. 502)
Questions (pg. 503)
Mini Exercises (pg. 504)
Exercises (pg. 506)
Problems (pg. 512)
Cases and Projects (pg. 518)
Solutions to Review Problems (pg. 523)
Chapter 11 Reporting and Analyzing Stockholders’ Equity (pg. 528)
Introduction (pg. 530)
Contributed Capital (pg. 531)
Classes of Stock (pg. 531)
Accounting for Stock Transactions (pg. 533)
Mid-Chapter Review 1 (pg. 538)
Earned Capital (pg. 538)
Cash Dividends (pg. 538)
Mid-Chapter Review 2 (pg. 540)
Stock Dividends and Splits (pg. 540)
Stock Transactions and the Cash Flows Statement (pg. 542)
Mid-Chapter Review 3 (pg. 543)
Comprehensive Income (pg. 543)
Summary of Stockholders’ Equity (pg. 544)
Analyzing Financial Statements (pg. 544)
Analysis Objective (pg. 544)
Mid-Chapter Review 4 (pg. 546)
Earnings Per Share (pg. 546)
Computation and Analysis of EPS (pg. 547)
Chapter-End Review (pg. 549)
Appendix 11A: Dilutive Securities: Accounting for convertible securities, stock options, and restr (pg. 549)
Convertible Securities (pg. 549)
Stock Rights (pg. 550)
Employee Stock Options (pg. 551)
Restricted Stock (pg. 552)
Appendix 11A Review (pg. 555)
Summary (pg. 555)
Guidance Answers . . . You Make the Call (pg. 556)
Key Ratios (pg. 556)
Key Terms (pg. 557)
Multiple Choice (pg. 557)
Questions (pg. 558)
Exercises (pg. 563)
Problems (pg. 568)
Cases and Projects (pg. 572)
Solutions to Review Problems (pg. 576)
Chapter 12 Reporting and Analyzing Financial Investments (pg. 580)
Introduction (pg. 582)
Fair Value: An Introduction (pg. 584)
Passive Investments in Debt Securities (pg. 584)
Acquisition of the Investment (pg. 585)
Investments Reported at Cost (pg. 585)
Sale of the Investment (pg. 586)
Debt Investments Marked to Fair Value (pg. 587)
Passive Investments in Equity Securities (pg. 591)
Financial Statement Disclosures (pg. 592)
Potential for Earnings Management (pg. 595)
Mid-Chapter Review 1 (pg. 595)
Investments with Significant Influence (pg. 596)
Accounting for Investments with Significant Influence (pg. 596)
Equity Method Accounting and Effects on Ratios (pg. 598)
Financial Statement Disclosures (pg. 598)
Mid-Chapter Review 2 (pg. 600)
Investments with Control (pg. 600)
Accounting for Investments with Control (pg. 600)
Reporting of Acquired Assets and Liabilities (pg. 602)
Noncontrolling Interest (pg. 606)
Financial Statement Analysis (pg. 608)
Chapter-End Review (pg. 609)
Appendix 12A: Equity Method Mechanics (pg. 609)
Appendix 12B: Consolidation Accounting Mechanics (pg. 611)
Appendix 12C: Accounting for Investments in Derivatives (pg. 612)
Reporting of Derivatives (pg. 612)
Disclosure of Derivatives (pg. 613)
Summary (pg. 613)
Guidance Answers . . . You Make the Call (pg. 615)
Key Terms (pg. 615)
Questions (pg. 616)
Mini Exercises (pg. 616)
Exercises (pg. 619)
Problems (pg. 626)
Cases and Projects (pg. 630)
Solutions to Review Problems (pg. 632)
Appendix A Compound Interest and the TimeValue of Money (pg. A-1)
Future Value Concepts (pg. A-2)
Present Value Concepts (pg. A-3)
Present Value of a Single Amount (pg. A-3)
Present Value of an Annuity (pg. A-4)
Installment Loans (pg. A-5)
Bond Valuation (pg. A-5)
Calculating Bond Yields (pg. A-6)
Future Value of Annuities (pg. A-6)
Using Excel to Compute Time Value (pg. A-7)
Future Value Calculations (pg. A-7)
Present Value Calculations (pg. A-10)
Key Terms (pg. A-17)
Exercises (pg. A-17)
Appendix B Data Analytics (pg. B-1)
Index (pg. I-1)
Michelle L. Hanlon

Michelle L. Hanlon

Michelle L. Hanlon is the Howard W. Johnson Professor at the MIT Sloan School of Management. She earned her doctorate at the University of Washington.

Prior to joining MIT, she was a faculty member at the University of Michigan. Professor Hanlon has taught financial accounting to undergraduates, MBA students, executive MBA students, and Masters of Finance students. Professor Hanlon also teaches Taxes and Business Strategy to MBA students. She is the winner of the 2013 Jamieson Prize for Excellence in Teaching at MIT Sloan.

Professor Hanlon’s research focuses primarily on the intersection of taxation and financial accounting. Her recent work examines the capital market effects of the accounting for income tax, the reputational effects of corporate tax avoidance, and the economic consequences of U.S. international tax policies for multinational corporations. She has published research studies in the Journal of Accounting and Economics, the Journal of Accounting Research, The Accounting Review, the Review of Accounting Studies, the Journal of Finance, the Journal of Financial Economics, the Journal of Public Economics, and others. She has won several awards for her research and has presented her work at numerous universities and conferences. Professor Hanlon has served on several editorial boards and currently serves as an editor at the Journal of Accounting and Economics. 

Professor Hanlon has testified in front of the U.S. Senate Committee on Finance and the U.S. House of Representatives Committee on Ways and Means about the interaction of financial accounting and tax policy. She served as a U.S. delegate to the American-Swiss Young Leaders Conference in 2010 and worked as an Academic Fellow at the U.S. House Ways and Means Committee in 2015.

Robert P. Magee

Robert P. Magee

Robert P. Magee is Keith I. DeLashmutt Professor of Accounting Information and Management at the Kellogg School of Management at Northwestern University.

He received his A.B., M.S. and Ph.D. from Cornell University. Prior to joining the Kellogg faculty in 1976, he was a faculty member at the University of Chicago's Graduate School of Business. For academic year 1980-81, he was a visiting faculty member at IMEDE (now IMD) in Lausanne, Switzerland.

Professor Magee's research focuses on the use of accounting information to facilitate decision-making and control within organizations. He has published articles in The Accounting Review, the Journal of Accounting Research, the Journal of Accounting and Economics, and a variety of other journals. He is the author of Advanced Managerial Accounting and co-author (with Thomas R. Dyckman and David H. Downes) of Efficient Capital Markets and Accounting: A Critical Analysis. The latter book received the Notable Contribution to the Accounting Literature Award from the AICPA in 1978. Professor Magee has served on the editorial boards of The Accounting Review, the Journal of Accounting Research, the Journal of Accounting and Economics and the Journal of Accounting, Auditing and Finance. From 1994-96, he served as Editor of The Accounting Review, the quarterly research journal of the American Accounting Association. He received the American Accounting Association's Outstanding Accounting Educator Award in 1999 and the Illinois CPA Society Outstanding Educator Award in 2000.

Professor Magee teaches financial accounting to MBA and Executive MBA students. He has received several teaching awards at the Kellogg School, including the Alumni Choice Outstanding Professor Award in 2003.

Glenn M. Pfeiffer

Glenn M. Pfeiffer

Glenn M. Pfeiffer is Professor of Accounting at the George L. Argyros School of Business and Economics at Chapman University.

He received his M.S. and Ph.D. from Cornell University after he earned a bachelor's degree from Hope College. Prior to joining the faculty at the Argyros School, he held appointments at the University of Washington, Cornell University, the University of Chicago, the University of Arizona, and San Diego State University.

Professor Pfeiffer’s research focuses on financial reporting and capital markets. He has investigated issues relating to lease accounting, LIFO inventory liquidation, earnings per share, employee stock options, corporate reorganization, and technology investments. He has published articles in The Accounting Review, the Financial Analysts Journal, the International Journal of Accounting Information Systems, the Journal of Applied Business Research, the Journal of High Technology Management Research, the Journal of Accounting Education, and several other academic journals. In addition, he has published numerous case studies in financial accounting and reporting.

Professor Pfeiffer teaches financial accounting and financial analysis to undergraduate, MBA, and Executive students. He has also taught managerial accounting for MBAs. He has won several teaching awards at both the undergraduate and graduate levels.

Thomas R. Dyckman

Thomas R. Dyckman

Thomas R. Dyckman is Ann Whitney Olin Professor Emeritus of Accounting and Quantitative Analysis at Cornell University’s Johnson Graduate School of Management.

In addition to teaching accounting and quantitative analysis, he has taught in Cornell’s Executive Development Program. He earned his doctorate degree from the University of Michigan. He is a former member of the Financial Accounting Standards Board Advisory Committee and the Financial Accounting Foundation, which oversees the FASB. He was president of the American Accounting Association in 1982 and received the association’s Outstanding Educator Award for the year 1987. He also received the AICPA’s Notable Contributions to Accounting Literature Award in 1966 and 1977.

Professor Dyckman has extensive industrial experience that includes work with the U.S. Navy and IBM. He has conducted seminars for Cornell Executive Development Program and Managing the Next Generation of Technology, as well as for Ocean Spray, Goodyear, Morgan Guaranty, GTE, Southern New England Telephone, and Goulds Pumps.

Professor Dyckman has coauthored eleven books and written over 50 journal articles on topics from financial markets to the application of quantitative and behavioral theory to administrative decision making. He has been a member of the editorial boards of The Accounting Review, The Journal of Finance and Quantitative Analysis, The Journal of Accounting and Economics, The Journal of Management Accounting Research, and The Journal of Accounting Education.

Last Updated: Apr 21 2020

Attached are corrections identified after the book's printing. 

Appendix B
Last Updated: Sep 17 2019

Appendix B to the text.

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