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Confirming Pages Financial Accounting ssppii1100882233__ffmm__ii--xxxxxxvv..iinndddd ii 88//44//1100 66::3366 PPMM Confirming Pages FINANCIAL ACCOUNTING Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020. Copyright © 2011, 2009 by The McGraw-Hill Companies, Inc. All rights reserved. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning. Some ancillaries, including electronic and print components, may not be available to customers outside the United States. This book is printed on acid-free paper. 1 2 3 4 5 6 7 8 9 0 WDQ/WDQ 1 0 9 8 7 6 5 4 3 2 1 0 ISBN-13: 978-0-07-811082-5 ISBN-10: 0-07-811082-3 Vice president and editor-in-chief: Brent Gordon Editorial director: Stewart Mattson Publisher: Tim Vertovec Senior sponsoring editor: Dana L. Woo Director of development: Ann Torbert Senior development editor: Daryl Horrocks Vice president and director of marketing: Robin J. Zwettler Senior marketing manager: Kathleen Klehr Vice president of editing, design, and production: Sesha Bolisetty Lead project manager: Pat Frederickson Buyer II: Debra R. Sylvester Cover and interior designer: Laurie Entringer Senior photo research coordinator: Jeremy Cheshareck Photo researcher: Ira C. Roberts Lead media project manager: Kerry Bowler and Ron Nelms Cover design: tbd Interior design: tbd Typeface: 10/12.5 New Aster Lt Std Compositor: Laserwords Private Limited Printer: Worldcolor Library of Congress Cataloging-in-Publication Data Spiceland, J. David, 1949– Financial accounting/J. David Spiceland, Wayne Thomas, Don Herrmann.—2nd ed. p. cm. Includes index. ISBN-13: 978-0-07-811082-5 (alk. paper) ISBN-10: 0-07-811082-3 (alk. paper) 1. Accounting. I. Thomas, Wayne, 1969– II. Herrmann, Don. III. Title. HF5636.S77 2011 657—dc22 2010030759 www.mhhe.com ssppii1100882233__ffmm__ii--xxxxxxvv..iinndddd iiii 88//44//1100 66::3366 PPMM Confirming Pages Financial Accounting S E C O N D E D I T I O N J. DAVID SPICELAND University of Memphis WAYNE THOMAS University of Oklahoma DON HERRMANN Oklahoma State University ssppii1100882233__ffmm__ii--xxxxxxvv..iinndddd iiiiii 88//44//1100 66::3366 PPMM Rev. Confirming Pages Dedicated to: David’s wife Charlene, daughters Denise and Jessica, and three sons Michael David, Michael, and David Wayne’s wife Julee, daughter Olivia, and three sons Jake, Eli, and Luke Don’s wife Mary, daughter Rachel, and three sons David, Nathan, and Micah ssppii1100882233__ffmm__ii--xxxxxxvv..iinndddd iivv 88//1122//1100 1122::2233 PPMM Confirming Pages About the Authors DAVID SPICELAND Studies, and Contemporary Accounting Research. He has won several research awards, including the Ameri- David Spiceland is profes- can Accounting Association’s Competitive Manuscript sor of accounting at the Uni- Award. Professor Thomas has won teaching awards at versity of Memphis, where he the university, college, and departmental levels, and has teaches intermediate accounting received the Outstanding Educator Award from the and other financial accounting Oklahoma Society of CPAs. courses at the undergraduate Wayne enjoys playing sports (basketball, tennis, golf, and master’s levels. He received and ping pong), solving crossword puzzles, and coaching his BS degree in finance from the University of Tennes- little league sports. He has participated in several adven- see, his MBA from Southern Illinois University, and ture races, like you’ll read about in the Great Adventures his PhD in accounting from the University of Arkansas. continuing problem at the end of each chapter. Professor Spiceland’s primary research interests are in earnings management and educational research. He has published articles in a variety of journals includ- DON HERRMANN ing The Accounting Review, Accounting and Business Don Herrmann is the Chair of the Research, Journal of Financial Research, and J ournal Accounting Department at Okla- of Accounting Education. David has received university homa State University, where and college awards and recognition for his teaching, he teaches financial accounting, research, and technological innovations in the class- intermediate accounting, and a room. David is lead author of McGraw-Hill’s best-selling doctoral-level course in financial Intermediate Accounting text. accounting research. He received David is the Memphis Tigers’ No. 1 basketball fan. his bachelor’s degree in business He enjoys playing basketball, is a former all-state line- from John Brown University, his master’s degree in backer, and an avid fisherman. Cooking is a passion accounting from Kansas State University, and his PhD for David, who served as sous chef for Paula Deen at a in accounting from Oklahoma State University. Mid-South Fair cooking demonstration. Professor Herrmann’s research interests are in earnings forecasts, segment reporting, financial statement analysis, and international accounting issues. He is WAYNE THOMAS past president of the American Accounting Associa- Wayne Thomas is the John T. tion International Section and has served on the edi- Steed Chair in Accounting at the torial and review board of the top research journal in University of Oklahoma, where the field of accounting, T he Accounting Review. He has he teaches introductory financial published articles in a variety of journals including T he accounting to nearly 600 students Accounting Review, Journal of Accounting Research, per year. He received his bach- Accounting Horizons, Journal of Business, Finance, and elor’s degree in accounting from Accounting, and the J ournal of Accounting and Public Southwestern Oklahoma State Policy. Don Herrmann and Wayne Thomas often work University, and his master’s and PhD in accounting together, having co-authored over 15 research arti- from Oklahoma State University. cles. Professor Herrmann has received many teaching Professor Thomas’s primary research interests are awards at the department, college, and university levels, in markets-based accounting research, financial dis- including Professor of the Year in the University Greek closures, financial statement analysis, and interna- System. tional accounting issues. He currently serves as an Don, like his co-authors, is a big sports fan. He editor of The Accounting Review and has published played tennis on scholarship in college and enjoys articles in a variety of journals including The Account- playing soccer, basketball, running, biking, and swim- ing Review, Journal of Accounting and Economics, ming. He also coaches soccer, basketball, and little Journal of Accounting Research, Review of Accounting league baseball in his home town. ssppii1100882233__ffmm__ii--xxxxxxvv..iinndddd vv 88//44//1100 66::3366 PPMM Confirming Pages CELEBRATING STUDENT SUCCESS This is simply an outstanding textbook. It combines an interesting, H ave you experienced those moments in your engaging, and highly readable writing course when students became fully engaged? style with excellent, comprehensive, up-to- When the “Aha!” revelations are bursting date, and conceptually rich discussions. — lliike fireworks? David Spiceland, Wayne Thomas, and Marianne James , C alifornia State University–Los Angeles DDon Herrmann have developed a unique textbook bbbased on over 50 collective years of experience in the classroom. They’ve brought together best practices I read the book in two like highlighting Common Mistakes, offering frequent weekends and was so delighted Let’s Review exercises, integrating the course with in the quality of content and the a running Continuing Problem, demonstrating the presentation style.—Steven Ault, Montana relevance of the course to nonmajors with a Career State University Corner, and communicating it all in a student- friendly conversational writing style. After the proven success of the first edition of F inancial Accounting, You have created a text that is likely to we’re confident that the new and improved second become the gold standard of Intro edition will not only motivate, engage, and challenge texts.—Christian Wurst, Temple University students—it will illuminate the financial accounting course like never before. This is an excellent book and I love the writing style. I would describe the text as well- written with excellent examples that truly describes how accounting information is used to make better business decisions. — Mark Judd , University of San Diego If you like Spiceland’s intermediate text, you will be thrilled with the financial accounting principles text. It is written in the same conversational style, addresses topics directly and clearly, and the illustrations are terrific too.—Nancy L. Snow, University of Toledo vi ssppii1100882233__ffmm__ii--xxxxxxvv..iinndddd vvii 88//44//1100 66::3377 PPMM Confirming Pages Key to Financial Accounting’s remarkable first edition success are the five core precepts around which the textbook is built The authors successfully employ 1 Conversational Writing Style The authors took humor and a conversational special care to write a textbook that fosters a writing style in developing scenarios, friendly dialogue between the text and each in- examples and explanations which dividual student. The tone of the presentation is intentionally conversational—creating the im- remain in the reader’s mind and make pression of speaking with the student, as op- these oftentimes complicated subjects posed to teaching to the student. understandable.—Dennis L. Kovach, Community College of Allegheny County It offers a very readable presentation, with easy to follow pedagogy. The writing 2 Innovative Pedagogy Reviewers enthusiasti- is clear and crisp—it is not cally embraced the innovative pedagogy used boring.—Al Hartgraves, Emory University throughout the book, including Common Mis- take boxes that help students avoid common pitfalls of beginning students and Flip Side 3 Real-World Focus Students learn best problems and scenarios that show students the two sides of various accounting transactions. when they see how concepts are applied in the real world. For that reason, real- world examples from companies, such as Dell and Apple, are used extensively and routinely to enhance the presentation. The real-world focus adds realism to dis- This text has a cussions and serves as the foundation for logical layout and exercises, problems, and cases. incorporates tools to keep the student’s 4 Decision Maker’s Perspective Each chapter attention. It makes the includes one or more distinctive Decision Maker’s student think about Perspective sections, which offer insights into how the impact on the the information discussed in the chapters affects financials based upon decisions made by investors, creditors, managers, and others. Each chapter also contains Decision Points the different principles highlighting specific decisions in the chapter that can and estimates selected. be made using financial accounting information. — Victor Stanton , University of California–Berkeley 5 A Strong Supplements Package The authors write all of the major supplements for Financial Accounting, including the Testbank, Solutions Manual, and the Instructor’s Manual. With iPod material, narrated PowerPoints, online quizzing, Excel templates, and QuickBooks templates integrated into the end-of-chapter material, Spiceland’s Financial Accounting provides the cutting-edge technology demanded by today’s accounting instructors and students. vviiii ssppii1100882233__ffmm__ii--xxxxxxvv..iinndddd vviiii 88//44//1100 66::3377 PPMM Confirming Pages viii CHAPTER 1 Chapter Title Runs In Here A LOGICAL ORGANIZATION The sequence of topics is inspired, and I wonder why it hasn’t been done before.—Laurel Bond Mitchell, University of Redlands 1 Accounting Information and Spiceland’s Chapter 1 has beautifully set the stage for Decision Making the finest presentation of financial accounting pedagogy I have read to date in a textbook format. — Sherry Gordon , Palomar College 2 The Accounting I like the overall layout of the chapter. Information System Specifically, I like how the authors first cover how a transaction affects the accounting equation, and then cover the details of journal entries.— — Martha Lou Fowler , 3 Missouri Western State University The Financial Reporting Process STH goes beyond the “textbook” mode and discusses/ presents in pictures, diagrams, etc., and I think it makes the whole adjusting process much easier to understand.—Peter Theuri, Northern Kentucky University 4 Cash and Internal Controls The authors provide an excellent chapter on Receivables and Sales. They provide a comprehensive discussion, along with effective illustrations. I prefer the STH sequence of 5 topics.—Al Nagy , J ohn Carroll University Receivables and Sales The inventory chapter in Spiceland is the best I’ve ever seen! —James Aitken, Central Michigan University 6 Inventory and Cost Good, comprehensive but readable walk through the of Goods Sold many types of property transactions. Chapter 7 does an especially good job in talking about intangible assets. —Laura Ilcisin, University of Nebraska–Omaha 7 Long-Term Assets The Spiceland chapter is excellent; it provides comprehensive, yet easy to understand discussions, and effective development of concepts 8 Current Liabilities and coverage of the topics related to current liabilities.—Marianne James, California State University– viii Los Angeles ssppii1100882233__ffmm__ii--xxxxxxvv..iinndddd vviiiiii 88//44//1100 66::3377 PPMM Confirming Pages CHAPTER 1 Chapter Title Runs In Here ix THAT MAKES LEARNING MORE EFFICIENT Overall, the chapter covers a complex topic in a clear way and in the right amount of detail.— Frank H odge , 9 Long-Term University of Washington Liabilities 10 Stockholddeerrss’’ I REALLY enjoyed this chapter. Spiceland has presented this chapter in a very interesting manner. I like the simplicity of the presentation. I especially like Equity the “Decision Maker’s Perspectives” throughout the chapter. Not only is this chapter well-written, it is interesting!—Steve Teeter, Utah Valley State College 11 Statement of Cash Flowss STH does a great job of summarizing and illustrating the steps in preparing both the indirect and direct methods. In addition, STH is more current than other 12 Financial Sttaatteemmeenntt texts in its references to IFRS.— Nancy Lynch , West Virginia University Analysis Wow! I was really impressed with this chapter! The conservative and aggressive accounting example was really a great way to teach students about quality of earnings. The rest of the chapter was also put together very well. Great ratio illustration with Under Armour and Nike, two companies that students are interested in.—Christa Morgan, Georgia Perimeter College Appendix A Annual Report of American Eagle The text contains realistic examples, Outfitters, Inc. excellent explanations, and Appendix B Annual illustrated example problems Report of The Buckle, Inc. within the text. The EOC material is also well done. It is definitely worth Appendix C looking at for adoption. — Time Value of Money Kreag Danvers, Clarion University of Pennsylvania Appendix D Investments I generally like to cover selected topics in this area, Appendix E so I would definitely use [this appendix]. International Financial I think this would be very beneficial.—Stephen Benner , Reporting Standards Eastern Illinois University ix ssppii1100882233__ffmm__ii--xxxxxxvv..iinndddd iixx 88//44//1100 66::3377 PPMM