Managerial Accounting for Undergraduates, 1e

by Christensen, Hobson, Wallace

ISBN: 978-1-61853-112-4 | Copyright 2017

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Welcome to Managerial Accounting for Undergraduates.

We have written this book to introduce future business professionals to management accounting concepts and decision-making tools that will help them manage their companies in an increasingly competitive global market. While working for both small and large service firms and teaching in a university setting, we observed that some business professionals, although possessing a technically sound knowledge of accounting principles and methods, had difficulty understanding how the “answer” applied in the context of real business issues faced by these firms. Although a business professional may be able to calculate the materials efficiency variance, for example, determining who might have been responsible for the variance and what should be done to address the variance requires a broader understanding of the overall business. We want young professionals to be better prepared to make good business decisions and contribute to the overall strategy of the companies for which they work.

Many undergraduate managerial accounting textbooks focus primarily on calculations and formulas and how to apply these accounting skills in a manufacturing environment. However, business professionals must be able to apply their technical accounting knowledge and expertise in a broader context in making good business decisions. Moreover, because the U.S. market is increasingly service oriented, professionals must develop experience in applying these skills to decision making in a service environment. Having spent several years supplementing existing textbook problems with more real-world and service industry examples, we saw a need for a new approach. Hence, we focus on helping students to (1) develop strong analytical skills and (2) apply them in realistic decision-making contexts. Finally, we have written the book with a heavy emphasis on managerial decisions in service and merchandising enterprises.

Target Audience

Managerial Accounting for Undergraduates is intended for use in the first managerial accounting course at the undergraduate level—one that balances the development of management accounting tools with their implementation in decision making. This book teaches future business professionals how to read, analyze, and interpret accounting and other company, industry, and economic data to make informed business decisions.

We believe students become more engaged in the course when they see how the course content pertains to their future careers. Once engaged in the course, students perform much better and enjoy the class more. Furthermore, we believe accounting is a discipline best learned by doing. Unlike some other disciplines, accounting needs to be practiced. Consequently, we have taken great care to incorporate a number of pedagogical devices and real company examples that illustrate the relevance of managerial accounting to professional careers.


Business professionals know that the economy has changed dramatically over the last two decades and that the demands placed on professionals now require an understanding of broad business disciplines, including finance, marketing, organizational behavior, supply chain management, operations management, and strategy. By exposing students to real-world companies and the challenges that they face, they can begin to understand the need to integrate accounting information with other business information in making good decisions.

One of the authors is a former founder, owner, and chief financial officer of a very successful regional consulting firm, HFH Consultants, LLC. The author was intimately involved in the strategy, marketing, human resource management, finance, and accounting of this service firm from its founding with three partners and a secretary to its growth to include four offices, approximately two dozen professionals and staff, and over $3.5 million in annual revenue. His extensive experience managing this firm for 14 years is reflected throughout the textbook in the form of a continuous problem based on a fictitious service firm. This practical experience is also reflected in other real-world examples and problems based on real companies.

The following features are used throughout the textbook to help students understand how managerial accounting principles are used in real businesses today.

Real Company Examples

Students are more likely to engage in the learning process and retain the concepts taught if the examples used are real companies with which they are familiar. Throughout the textbook, we incorporate a wide range of examples using real companies such as Microsoft, Amazon, Google, and Waste Management. In addition, the Service Industry in Focus section in the assignments of each chapter requires the students to use the financial and operational data of a fictitious consulting company, Environmental Business Consultants, LLC, to address real business issues.

Merchandising and Service Firms Merchandising firms have only one inventory account—merchandise inventory. This is similar to the finished goods inventory account at a manufacturer because it contains finished products that are available for immediate sale. As discussed previously, manufacturing firms usually have three primary inventory accounts: materials, work in process, and finished goods.

Most chapters also include real-world examples from Fezzari, a custom bike manufacturer.

Accounting in Practice

these boxed inserts help students bridge the gap between the classroom and what students encounter in the real world. Accounting in Practice illustrations document situations a student will likely encounter and present choices that companies face in making decisions.

Service in Focus

tThe service sector is the fastest growing segment of the U.S. economy. The Service Industry in Focus inserts help students understand how managerial accounting is applied to improve the competitiveness of service companies.

Decision Time

Often, companies are faced with a choice among alternative courses of action where the correct choice is not apparent. The decision time inserts help students look beyond the accounting numbers to see the importance of other business information in making the best decision.

Student Success

Managerial accounting is often challenging—especially for students lacking business experience or previous exposure to business courses. to help students succeed in the course and better prepare for a career in business management, we include many features that provide direction to students and require them to recall and apply the managerial accounting techniques and tools described in each chapter.

Putting Each Chapter in Context

Often, students lose sight of the big picture. The Past/Present/Future feature provides students with an overview of where the chapter fits within the whole course

Mapping Each Chapter

Each chapter begins with an overview that visually depicts the layout of the chapter.

Your Turn!

Your Turn boxes are integrated throughout each chapter as a means of reinforcing the material just presented. Solutions are provided at the end of the chapter so students can check their work.

A.K.A. Boxes

A.K.A. (Also Known As) boxes inform students of commonly used alternative terms that they may encounter in practice.


Helpful suggestions are inserted in the margin as Hints to help students understand difficult concepts.


These in-chapter summaries ensure that students grasp key concepts before proceeding to the next topic.


Enron, WorldCom, Waste Management, Bernie Madoff, and other high-profile incidents of fraud highlight the consequences of unethical decisions made by real people facing difficult challenges in businesses today. Although most students will not face such significant decisions, they will certainly be confronted with day-to-day decisions that have ethical implications and could lead to more serious challenges. For example, students may be tempted to inflate chargeable hours when performance evaluations and bonuses are based on achieving a target level of chargeability. We discuss ethics where appropriate in the textbook, including an assignment in most chapters that raises an ethical issue. Assignments involving ethics are identified by the icon in the margin.

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eLecture Videos

97 eLecture Videos

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Narrated demonstration videos

89  Guided Example Videos

  • Created by the authors of the textbook
  • Provide problem solving strategies as well as solutions
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Auto-graded assignments

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  • Additional randomized versions of assignments provide extra practice
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Expand/Collapse All
About the Authors (pg. iii)
Preface (pg. iv)
Brief Contents (pg. xi)
Contents (pg. xii)
Chapter 1: Overview of Managerial Accounting (pg. 2) Three Companies Under One Roof (pg. 3)
Introduction To Managerial Accounting (pg. 4)
Managerial Accounting versus Financial Accounting (pg. 4)
Objectives of Managerial Accounting (pg. 5)
Types Of Business Entities (pg. 5)
Your Turn! 1.1 (pg. 6)
Major Trends In Business And Managerial Accounting (pg. 6)
Outsourcing (pg. 6)
Factory Automation (pg. 7)
Just-in-Time Inventory Systems (pg. 7)
Lean Manufacturing (pg. 8)
Customer Profitability (pg. 8)
Big Data and Predictive Analytics (pg. 9)
Introducing Two New Companies (pg. 9)
Fezzari—A U.S. Bicycle Manufacturer and Distributor (pg. 9)
Environmental Business Consultants, LLC—AU.S. Service Firm (pg. 10)
Careers In Managerial Accounting (pg. 11)
Alternative Career Paths (pg. 11)
Work/Life Balance (pg. 12)
Professional Certifications (pg. 13)
Certified Public Accountant (CPA) (pg. 13)
Certified Management Accountant (CMA) (pg. 13)
Other Professional Certifications (pg. 13)
Summary of Learning Objectives (pg. 14)
Key Terms (pg. 15)
Self-Study Questions (pg. 15)
Questions (pg. 15)
Extending Your Knowledge (pg. 16)
Answers to Self-Study Questions: (pg. 17)
Your Turn! Solutions (pg. 17)
Chapter 2: Managerial Accounting Concepts and Cost Flows (pg. 18)
Apple Inc.: Innovative ConsumerElectronics (pg. 19)
Key Objectives of a Managerial Accounting System (pg. 20)
Product Costing in a Manufacturing Environment (pg. 20)
Product Costing in a Service and MerchandisingEnvironment (pg. 23)
Cost Control (pg. 24)
Inventories and Cost Categories (pg. 24)
Inventories (pg. 24)
Manufacturing Product Cost Categories (pg. 25)
Product Cost Flows (pg. 27)
Raw Materials (pg. 27)
Labor (pg. 28)
Manufacturing Overhead (pg. 29)
Cost of Goods Manufactured (pg. 30)
Cost of Goods Sold (pg. 31)
Illustration of Product Cost Accumulation (pg. 31)
Introduction of T-Accounts (pg. 31)
Real-World Manufacturing Example (pg. 32)
Schedule of Cost of Goods Manufactured (pg. 32)
Calculating Cost of Goods Sold (pg. 34)
Income Statement for a Manufacturing Firm (pg. 35)
Illustration of Product Cost Journal Entries (pg. 35)
Cost Flows (pg. 37)
Financial Statements (pg. 38)
Service Industry in Focus (pg. 41)
Comprehensive Problem (pg. 44)
Appendix 2A: Year-End Accounting Procedures (pg. 45)
Year-End Accounting Procedures for a Manufacturing Firm (pg. 45)
Adjusting Entries (pg. 46)
Closing Entries (pg. 47)
Summary of Learning Objectives (pg. 47)
Key Terms (pg. 48)
Self-Study Questions (pg. 49)
Questions (pg. 49)
Exercises—Set A (pg. 50)
Exercises—Set B (pg. 51)
Problems—Set A (pg. 52)
Problems—Set B (pg. 57)
Certified Management Accountant (CMA®) Exam Sample Questions (pg. 60)
Extending Your Knowledge (pg. 61)
Answers to Self-Study Questions: (pg. 63)
Your Turn! Solutions (pg. 63)
Decision Time Solution (pg. 63)
Chapter 3: Cost Accounting Systems: Job Order Costing (pg. 64)
CH2M Hill: Global Service Provider (pg. 65)
Cost Accounting Systems (pg. 66)
Two Basic Types Of Cost Accounting Systems (pg. 66)
Your Turn! 3.1 (pg. 67)
Timely Product Costing (pg. 67)
Your Turn! 3.2 (pg. 68)
Predetermined Overhead Rates (pg. 69)
Calculation of Predetermined Overhead Rate (pg. 69)
Your Turn! 3.3 (pg. 70)
Annual versus Monthly Rates (pg. 70)
Job Order Costing Systems (pg. 71)
Illustration of Job Order Costing for a Manufacturer (pg. 72)
Illustration of Job Order Costing for a Service Firm (pg. 81)
Accounting for Service Departments (pg. 82)
Service Departments as Cost Centers (pg. 82)
Service Department Costs as Product Costs (pg. 82)
Method of Cost Allocation (pg. 83)
Choosing an Allocation Basis (pg. 84)
Departmental Overhead Rates (pg. 85)
Departmental Overhead Rates (pg. 85)
Your Turn! 3.4 (pg. 86)
Service Industry in Focus (pg. 86)
Comprehensive Problem (pg. 88)
Key Terms (pg. 90)
Self-Study Questions (pg. 90)
Questions (pg. 90)
Exercises—Set A (pg. 91)
Exercises—Set B (pg. 93)
Problems—Set A (pg. 96)
Problems—Set B (pg. 100)
Certified Management Accountant (CMA®) Exam Sample Questions (pg. 105)
Extending Your Knowledge (pg. 107)
Answers to Self-Study Questions: (pg. 108)
Your Turn! Solutions (pg. 109)
Decision Time Solution (pg. 109)
Chapter 4: Cost Accounting Systems: Process Costing (pg. 110)
General Mills Inc. (pg. 111)
Introduction to Process Costing (pg. 112)
Job Order Costing Review (pg. 112)
Process Costing (pg. 113)
Characteristics of Process Costing (pg. 114)
Manufacturing Departments (pg. 115)
Basic Processing Patterns (pg. 115)
Process Costing Steps (pg. 116)
Step 1: Visualize the Physical Flow of the Units (pg. 118)
Step 2: Calculate the Equivalent Units (pg. 119)
Your Turn! 4.1 (pg. 121)
Step 3: Determine the Per-Unit Costs (pg. 121)
Step 4: Calculate the Cost of Goods Manufactured (pg. 122)
Step 5: Calculate the Ending Work in ProcessInventory (pg. 123)
The Product Cost Report (pg. 123)
Companies with Multiple Production Processes (pg. 125)
Journal Entries Illustrated (pg. 125)
Material (pg. 125)
Labor (pg. 125)
Manufacturing Overhead (pg. 125)
Your Turn! 4.2 (pg. 126)
Service Industry in Focus (pg. 126)
Comprehensive Problem (Including Transferred-in Costs) (pg. 128)
Appendix 4A: Process Costing Using FIFO Method (pg. 130)
Process Costing Steps (pg. 130)
The Product Cost Report (pg. 136)
Journal Entries Illustrated (pg. 138)
Summary of Learning Objectives (pg. 139)
Key Terms (pg. 141)
Self-Study Questions (pg. 141)
Questions (pg. 141)
Exercises—Set A (pg. 142)
Exercises—Set B (pg. 144)
Problems—Set A (pg. 147)
Problems—Set B (pg. 150)
Certified Management Accountant (CMA®) Exam Sample Questions (pg. 154)
Extending Your Knowledge (pg. 156)
ANSWERS TO Self-Study Questions: (pg. 156)
Your Turn! Solutions (pg. 157)
Chapter 5: Activity-Based Costing (pg. 158)
California State BarAssociation (pg. 159)
Understanding Indirect Costs Using Activity-Based Costing (pg. 160)
Changing Cost Environment (pg. 161)
Activity-Based Costing (pg. 162)
ABC Product Costing Model (pg. 164)
Traditional Product Costing and ABC Compared (pg. 165)
Applying Overhead with Activity-Based Costing (pg. 166)
Your Turn! 5.1 (pg. 168)
Limitations of ABC Illustration (pg. 169)
Comparing Traditional and Activity-Based Costing (pg. 169)
ABC and Customer Profitability Analysis (pg. 171)
Customer Profitability Profile (pg. 171)
ABC Implementation Issues (pg. 169)
Activity-Based Management (pg. 173)
Services Industry in Focus (pg. 174)
Customer Profitability Analysis (pg. 174)
Summary of Learning Objectives (pg. 175)
Key Terms (pg. 176)
Self-Study Questions (pg. 177)
Questions (pg. 177)
Exercises—Set A (pg. 177)
ExerciseS—Set B (pg. 179)
Problems—Set A (pg. 181)
Problems—Set B (pg. 186)
Certified Management Accountant (CMA®) Exam Sample Questions (pg. 192)
Extending Your Knowledge (pg. 194)
Answers to Self-Study Questions: (pg. 195)
Your Turn! Solution (pg. 195)
Chapter 6: Cost-Volume-Profit Relationships (pg. 196)
iTunes (pg. 197)
Cost Behavior Analysis (pg. 198)
Selecting the Activity Basis (pg. 198)
Cost-Volume Graphs (pg. 199)
Classifications of Cost Behavior Patterns (pg. 200)
Relevant Range (pg. 201)
Analyzing Cost Behavior (pg. 202)
Scattergraph Method (pg. 202)
Your Turn! 6.1 (pg. 203)
High-Low Method (pg. 203)
Your Turn! 6.2 (pg. 205)
Least Squares Regression Method (pg. 205)
Analyzing Costs in Practi (pg. 206)
Cost-Volume-Profit (CVP) Analysis (pg. 207)
Break-Even Analysis (pg. 207)
Contribution Margin Analysis (pg. 209)
Planning For Profit (pg. 211)
Desired Profit (pg. 211)
Margin of Safety (pg. 214)
Operating Leverage (pg. 214)
Your Turn! 6.3 (pg. 218)
Using Cost-Volume-Profit Relationships (pg. 218)
Break-Even Analysis and Multiple Products (pg. 219)
Cost-Volume-Profit Analysis for Retail Businesses (pg. 220)
Service Industry in Focus (pg. 222)
Comprehensive Problem (pg. 223)
Summary of Learning Objectives (pg. 224)
Key Terms (pg. 226)
Self-Study Questions (pg. 226)
Questions (pg. 227)
Exercises—Set A (pg. 228)
Exercises—Set B (pg. 229)
Problems—Set A (pg. 231)
Problems—Set B (pg. 234)
Certified Management Accountant (CMA®) Exam Sample Questions (pg. 237)
Extending Your Knowledge (pg. 238)
Answers to Self-Study Questions: (pg. 239)
Your Turn! Solutions (pg. 239)
Decision Time Solution (pg. 239)
Chapter 7: Variable Costing: A Tool for Decision Making (pg. 240)
General Motors (pg. 241)
Treatment of Product Costs (pg. 242)
Absorption Costing (pg. 242)
Variable Costing (pg. 242)
Appropriate Use of Absorption Costing and VariableCosting (pg. 244)
Variable Costing Income Statement (pg. 244)
Income Statement Preparation (pg. 244)
Income Reconciliation (pg. 246)
Your Turn! 7.1 (pg. 247)
Advantages and Disadvantages of Variable Costing (pg. 248)
Advantages (pg. 248)
Disadvantages (pg. 249)
Services Industry in Focus (pg. 249)
Comprehensive Problem (pg. 252)
Summary of Learning Objectives (pg. 253)
Key Terms (pg. 253)
Self-Study Questions (pg. 254)
Questions (pg. 254)
Exercises—Set A (pg. 254)
Exercises—Set B (pg. 255)
Problems—Set A (pg. 256)
Problems—Set B (pg. 257)
Certified Management Accountant (CMA®) Exam Sample Questions (pg. 258)
Extending Your Knowledge (pg. 259)
Answers to Self-Study Questions: (pg. 260)
Your Turn! Solution (pg. 260)
Chapter 8: Relevant Costs and Short-Term Decision Making (pg. 262)
John Deere (pg. 263)
Management and the Decision-Making Process (pg. 264)
Who Makes Decisions? (pg. 264)
Phases of Decision Making (pg. 266)
Relevant Costs and Differential Analysis (pg. 267)
Illustrations of Differential Analysis (pg. 269)
The Special Order (pg. 269)
Make or Buy? (pg. 271)
Dropping Unprofitable Segments (pg. 272)
Sell or Process Further? (pg. 273)
Constrained Resources (pg. 277)
Your Turn! 8.2 (pg. 278)
Service Industry in Focus (pg. 278)
Summary of Learning Objectives (pg. 279)
Key Terms (pg. 280)
Self-Study Questions (pg. 280)
Questions (pg. 281)
Exercises—Set A (pg. 281)
Exercises—Set B (pg. 284)
Problems—Set A (pg. 286)
Problems—Set B (pg. 289)
Certified Management Accountant (CMA®) Exam Sample Questions (pg. 291)
Extending Your Knowledge (pg. 293)
Answers to Self-Study Questions: (pg. 295)
Your Turn! Solutions (pg. 295)
Decision Time Solutions (pg. 295)
Chapter 9: Planning and Budgeting (pg. 296)
Monsanto (pg. 297)
The Planning Process (pg. 298)
Strategic Planning (pg. 299)
Your Turn! 9.1 (pg. 300)
Operational Planning (pg. 300)
Progress Measurement and Reporting (pg. 301)
The Budgeting Process (pg. 301)
Advantages of Budgeting (pg. 302)
Elements of Effective Budgeting (pg. 303)
Zero-Base Budgeting (pg. 304)
The Framework of the Master Budget (pg. 305)
Illustration of a Master Budget and its Components (pg. 306)
Sales Budget (pg. 306)
Production Budget (pg. 307)
Direct Material Budget (pg. 308)
Direct Labor Budget (pg. 309)
Manufacturing Overhead Budget (pg. 309)
Selling and Administrative Expense Budget (pg. 311)
Capital Expenditures Budget (pg. 311)
Cash Budget (pg. 312)
Your Turn! 9.2 (pg. 313)
Illustration of a Service Firm’s Budgets (pg. 313)
Budgeted Financial Statements (pg. 315)
Services Industry in Focus (pg. 318)
Comprehensive Problem (pg. 319)
Summary of Learning Objectives (pg. 322)
Key Terms (pg. 324)
Self-Study Questions (pg. 324)
Questions (pg. 325)
Exercises—Set A (pg. 325)
Exercises—Set B (pg. 327)
Problems—Set A (pg. 329)
Problems—Set B (pg. 332)
Certified Management Accountant (CMA®) Exam Sample Questions (pg. 334)
Extending Your Knowledge (pg. 335)
Answers to Self-Study Questions: (pg. 336)
Decision Time Solution (pg. 337)
Your Turn! Solutions (pg. 337)
Chapter 10: Standard Costing and Variance Analysis (pg. 338)
Boeing (pg. 339)
Standard Costs (pg. 340)
Uses of Standard Cost Accounting (pg. 341)
Determining Standard Costs (pg. 342)
Direct Material Standards (pg. 342)
Direct Labor Standards (pg. 342)
Variable Overhead Standards (pg. 343)
Total Standard Costs (pg. 344)
Cost Variances (pg. 345)
Direct Materials Variances (pg. 346)
Fezzari’s Direct Materials Variances (pg. 348)
Your Turn! 10.1 (pg. 349)
Direct Labor Variances (pg. 350)
Fezzari’s Direct Labor Variances (pg. 351)
Your Turn! 10.2 (pg. 352)
Variable Overhead Variances (pg. 353)
Fezzari’s Variable Overhead Variances (pg. 354)
Your Turn! 10.3 (pg. 355)
Standard Costs In Financial Statements (pg. 355)
Services Industry in Focus (pg. 356)
Appendix 10A: Cost Variance Journal Entries Illustrated (pg. 357)
Journal Entries Illustrated (pg. 357)
Comprehensive Problem (pg. 359)
Summary of Learning Objectives (pg. 361)
Key Terms (pg. 362)
Self-Study Questions (pg. 362)
Questions (pg. 363)
Exercises—Set A (pg. 363)
Exercises—Set B (pg. 364)
Problems—Set A (pg. 366)
Problems—Set B (pg. 368)
Certified Management Accountant (CMA®) Exam Sample Questions (pg. 369)
Extending Your Knowledge (pg. 370)
Answers to Self-Study Questions: (pg. 372)
Decision Time Solution (pg. 372)
Your Turn! Solutions (pg. 372)
Chapter 11: Flexible Budgets, Segment Reporting, and Performance Analysis (pg. 374)
Microsoft Corporation (pg. 375)
Static Budgets (pg. 376)
Flexible Budgets (pg. 377)
Flexible Budgets in a ManufacturingEnvironment (pg. 377)
Flexible Budgets in a Service Environment (pg. 380)
Internal Reporting of Segment Operations (pg. 383)
Decentralized Organizations (pg. 383)
Segment Reporting (pg. 384)
Types of Business Segments (pg. 384)
Your Turn! 11.1 (pg. 385)
Performance Reporting (pg. 386)
Departmental Operations (pg. 388)
Contribution Margin Income Statement (pg. 388)
Segment Performance Evaluation (pg. 388)
Service Company Segment Reporting Illustration (pg. 389)
Office Margin (pg. 389)
Your Turn! 11.2 (pg. 393)
Performance Analysis (pg. 393)
Return on Investment (pg. 393)
Return on Sales (pg. 394)
Asset Utilization (pg. 395)
Residual Income (pg. 395)
Balanced Scorecard (pg. 396)
Service Industry in Focus (pg. 398)
Appendix 11A: Transfer Pricing (pg. 400)
Domestic Transfer Pricing (pg. 400)
International Transfer Pricing (pg. 406)
Comprehensive Problem (pg. 406)
Summary of Learning Objectives (pg. 407)
Key Terms (pg. 409)
Self-Study Questions (pg. 409)
Questions (pg. 409)
Exercises—Set A (pg. 410)
Exercises—Set B (pg. 411)
Problems—Set A (pg. 413)
Problems—Set B (pg. 415)
Certified Management Accountant (CMA®) Exam Sample Questions (pg. 418)
Extending Your Knowledge (pg. 419)
Anwsers To Self-Study Questions (pg. 420)
Your Turn! Solutions (pg. 420)
Decision Time Solution (pg. 420)
Chapter 12: Capital Budgeting (pg. 422)
Waste Management (pg. 423)
Elements Of Capital Budgeting (pg. 424)
Capital Budgeting Phases (pg. 424)
Capital Expenditure Analysis (pg. 425)
Required Rates of Return and the Time Value of Money (pg. 426)
Cost of Capital (pg. 426)
Your Turn! 12.1 (pg. 428)
Time Value of Money (pg. 428)
Performing Net Present Value Calculations (pg. 429)
Single-Sum Cash Flows (pg. 429)
Your Turn! 12.2 (pg. 430)
Annuity Flows (pg. 430)
Measurement of Investments and Returns (pg. 431)
Cash Flows (pg. 431)
After-Tax Cash Flows (pg. 432)
Depreciation Tax Shield (pg. 432)
Illustration of After-Tax Cash Flows (pg. 433)
Summary of Concerns Underlying Capital Budgeting (pg. 435)
Net Present Value Analysis (pg. 435)
Basic Steps (pg. 435)
Illustration of Net Present Value Analysis (pg. 436)
Liquidation Proceeds (pg. 440)
Excess Present Value Index (pg. 441)
Other Capital Budgeting Analyses (pg. 442)
Cash Payback Analysis (pg. 442)
Average Rate of Return Analysis (pg. 443)
Capital Budgeting: A Complex Subject (pg. 445)
Service Industry in Focus (pg. 445)
Appendix 12A: Time Value of Money Calculations (pg. 447)
Using a Financial Calculator (pg. 447)
Using an Electronic Spreadsheet (pg. 448)
Comprehensive Problem (pg. 449)
Summary of Learning Objectives (pg. 451)
Key Terms (pg. 452)
Self-Study Questions (pg. 452)
Questions (pg. 453)
Exercises—Set A (pg. 453)
Exercises—Set B (pg. 454)
Problems—Set A (pg. 456)
Problems—Set B (pg. 458)
Certified Management Accountant (CMA®) Exam Sample Questions (pg. 461)
Extending Your Knowledge (pg. 462)
Answers to Self-Study Questions: (pg. 464)
Your Turn! Solutions (pg. 464)
Decision Time Solutions (pg. 464)
Chapter 13: Statement of Cash Flows (pg. 466)
Home Depot: A Company with a Vision (pg. 467)
Cash and Cash Equivalents (pg. 468)
Activity Classifications in theStatement of Cash Flows (pg. 469)
Operating Activities (pg. 470)
Investing Activities (pg. 470)
Financing Activities (pg. 470)
An Illustration of Activity Classification Usefulness (pg. 471)
Noncash Investing and Financing Activities (pg. 472)
Using the Statement of Cash Flows (pg. 472)
Cash Flow from Operating Activities (pg. 473)
Your Turn! 13.1 (pg. 474)
Preparing The Statement Of cash Flows Using The Indirect Method (pg. 474)
Five Steps to Preparing a Statement of Cash Flows (pg. 475)
Your Turn! 13.2 (pg. 481)
Analyzing Cash Flows (pg. 482)
Free Cash Flow (pg. 482)
Operating-Cash-Flow-to-Current-Liabilities Ratio (pg. 482)
Operating-Cash-Flow-to-Capital-Expenditures Ratio (pg. 483)
Your Turn! 13.3 (pg. 484)
Comprehensive Problem (pg. 485)
Appendix 13A: Preparing the Statement of Cash Flows Under the Direct Method (pg. 487)
YourTurn! 13A.1 (pg. 489)
Summary of Learning Objectives (pg. 489)
Key Terms (pg. 490)
Self-Study Questions (pg. 491)
Questions (pg. 492)
Short Exercises (pg. 493)
Exercises—Set A (pg. 494)
Exercises—Set B (pg. 497)
Problems—Set A (pg. 501)
Problems—Set B (pg. 505)
Extending Your Knowledge (pg. 510)
Answers to Self-Study Questions: (pg. 514)
Your Turn! Solutions (pg. 514)
Chapter 14: Analysis and Interpretation of Financial Statements (pg. 516)
Procter & Gamble (pg. 517)
Persistent Earnings and the Income Statement (pg. 518)
Discontinued Operations (pg. 520)
Changes in Accounting Principles (pg. 520)
Comprehensive Income (pg. 521)
Sources of Information (pg. 522)
Analytical Techniques (pg. 522)
Horizontal Analysis (pg. 523)
Trend Analysis (pg. 525)
Your Turn! 14.2 (pg. 527)
Vertical Analysis (pg. 527)
Ratio Analysis (pg. 529)
Analyzing Firm Profitability (pg. 529)
Your Turn! 14.4 (pg. 533)
Analyzing Short‑Term Firm Liquidity (pg. 533)
Your Turn! 14.5 (pg. 538)
Analyzing Long‑Term Firm Solvency (pg. 538)
Your Turn! 14.6 (pg. 540)
Financial Ratios for Common Stockholders (pg. 541)
Your Turn! 14.7 (pg. 543)
Limitations of Financial Statement Analysis (pg. 544)
Comprehensive Problem (pg. 545)
Appendix 14A: Financial Statement Disclosures (pg. 546)
Parenthetical Disclosures (pg. 546)
Notes to the Financial Statements (pg. 546)
Supplementary Information (pg. 549)
Summary of Learning Objectives (pg. 549)
Summary of Financial Statement Ratios (pg. 550)
Analyzing Firm Profitability (pg. 550)
Analyzing Short-Term Firm Liquidity (pg. 551)
Analyzing Long‑Term Firm Solvency (pg. 551)
Financial Ratios for Common Stockholders (pg. 551)
Key Terms (pg. 552)
Self-Study Questions (pg. 553)
Questions (pg. 554)
Short Exercises (pg. 555)
Exercises—Set A (pg. 557)
Exercises—Set B (pg. 559)
Problems—Set A (pg. 562)
Problems—Set B (pg. 567)
Extending Your Knowledge (pg. 573)
Answers to Self-Study Questions: (pg. 580)
Your Turn! Solutions (pg. 580)
Appendix A: Accounting and the Time Value of Money (pg. A-1)
Time Value of Money Concept (pg. A-2)
Time Value of Money: Simple Interest Model (pg. A-2)
Time Value of Money: Compound Interest Model (pg. A-2)
Future Value of an Amount (pg. A-3)
Future Value of an Annuity (pg. A-5)
Present Value of an Amount (pg. A-6)
Present Value of an Annuity (pg. A-9)
Calculations Using a Calculator and aSpreadsheet (pg. A-10)
Summary of Learning Objectives (pg. A-10)
Glossary of Key Terms (pg. A-10)
Self-Study Questions (pg. A-11)
Exercises—Set A (pg. A-11)
Exercises—Set B (pg. A-12)
Answers to Self-Study Questions: (pg. A-14)
Index (pg. I-1)
Theodore E. Christensen

Theodore E. Christensen

Director and Terry Distinguished Chair of Business in the J.M. Tull School of Accounting at the University of Georgia (UGA).

Prior to coming to UGA, he was on the faculty at Brigham Young University from 2000-2015 and at Case Western Reserve University from 1995-2000. He was a visiting professor at the University of Michigan (2013-2014) and the University of Utah (2012) and has taught at Santa Clara University in a summer program since 2005. He received a B.S. degree in accounting from San Jose State University, an M.Acc. degree in tax from Brigham Young University, and a Ph.D. in accounting from the University of Georgia. Professor Christensen has authored and coauthored articles published in many journals, including The Accounting Review; the Journal of Accounting and Economics; the Journal of Accounting Research; Review of Accounting Studies; Contemporary Accounting Research; Accounting Organizations and Society; the Journal of Business Finance & Accounting; the Journal of Accounting, Auditing, and Finance; Accounting Horizons; and Issues in Accounting Education.

L. Scott Hobson

L. Scott Hobson

L. Scott Hobson is a teaching Professor of Accounting at Brigham Young University (BYU) since 2003.

He received his B.S. in Accounting and Master of Accountancy Degrees from BYU in 1983. Prior to his career in academics, Professor Hobson was the founder and the owner of Hilton Farnkopf & Hobson (now HFG Consultants), a management consulting firm headquartered in Walnut Creek, California, for 14 years. He also worked in public accounting at Price Waterhouse for 5.5 years in both audit and consulting. While at Price Waterhouse, he taught for 2 years as an adjunct faculty at San Jose University. He has taught accounting at all levels, from principles to M.B.A. courses, including managerial accounting, financial accounting, governmental and not-for-profit accounting, and management consulting. Professor Hobson is licensed as a CPA (inactive) in California. Professor Hobson has published a case titled "Managing the CPA Firm at Dodge Company" in Issues in Accounting Education.

James S. Wallace

James S. Wallace

Associate Professor at The Peter F. Drucker and Masatoshi Ito Graduate School of Management at The Claremont Graduate University.

He received his Bachelors of Arts from the University of California, Santa Barbara, his MBA from the University of California, Davis, and his PhD from the University of Washington. Professor Wallace also holds a CPA certification from the state of California. He previously served on the faculty of the University of California, Irvine and has served as a visiting professor at the University of California, San Diego. Professor Wallace's work has appeared in leading academic journals including the Journal of Accounting and Economics, the Journal of Corporate Finance, and Information Systems Research, along with leading applied journals such as the Journal of Applied Corporate Finance, the Journal of Accountancy, Issues in Accounting Education and Accounting Horizons. Prior to his career in academics, Professor Wallace worked in public accounting and in industry with a Fortune 500 company. He has done consulting work with numerous companies in multiple industries.

Last Updated: Aug 17 2016
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