Financial and Managerial Accounting

1550 Pages·2019·41.477 MB·English

by  Carl S. Warren, Jefferson P. Jones, William Tayler

Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Financial and Managerial
Accounting
15e
Carl S. Warren
Professor Emeritus of Accounting
University of Georgia, Athens
Jefferson P. Jones
Associate Professor of Accounting
Auburn University
William B. Tayler
Brigham Young University
Australia • Brazil • Canada • Mexico • Singapore • United Kingdom • United States
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Financial and Managerial Accounting, 15e © 2020, 2018 Cengage Learning, Inc. ALL RIGHTS RESERVED.
Carl S. Warren
Unless otherwise noted, all content is © Cengage.
Jefferson P. Jones
WCN: 02-300
William B. Tayler
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Preface
Roadmap for Success
Warren/Jones/Tayler Financial and Managerial Accounting, 15e, provides a sound pedagogy for
giving students a solid foundation in business and accounting. Warren/Jones/Tayler covers the fun-
damentals AND motivates students to learn by showing how accounting is important to businesses.
Warren/Jones/Tayler is successful because it reaches students with a combination of new and
tried-and-tested pedagogy.
This revision includes a range of new and existing features that help Warren/Jones/Tayler pro-
vide students with the context to see how accounting is valuable to business. These include:
▪ New! Certified Management Accountant (CMA®) Examination Questions
▪ New! Make a Decision section
▪ New! Pathways Challenge
Warren/Jones/Tayler also includes a thorough grounding in the fundamentals that any busi-
ness student will need to be successful. These key features include:
▪ Stepwise approach to accounting cycle
▪ Presentation style designed around the way students learn
▪ At the start of each chapter, a schema, or roadmap, shows students what they are going
to learn and how it is connected to the larger picture. In the early chapters, the schema
illustrates how the steps in the accounting cycle are interrelated. In later financial chapters,
the schema shows how each chapter’s topics are connected to the financial statements.
4 7
Chapter The Accounting Cycle Chapter Internal Control and Cash
Chapter 1 Transactions
Statement of Statement of caSh flowS
StockholderS’ equity For the Year Ended December 31, 20Y5
For the Year Ended December 31, 20Y5
Cash flows from (used for)
Accounting SyStem CoSmtomcko n ERaertnaiinnegds Total Caosph eflroawtins gfr aocmti v(uitsieesd for) $XXX
Accounting Equation Balances, Jan. 1, 20Y5 $XXX $ XXX $ XXX investing activities XXX
Assets = Liabilities + Equity Issued common stock XXX XXX Cash flows from (used for)
Net income XXX XXX financing activities XXX
Dividends (XXX) (XXX) Net increase (decrease) in cash $XXX
Chapter 2 Account Balances, Dec. 31, 20Y5 $XXX $ XXX $ XXX CCaasshh bbaallaannccee,, JDaencueamryb 1e,r 2301Y, 52 0Y5 $ XXXXXX
Debits Credits
RuleS of Debit AnD cReDit Balance Sheet
Balance Sheet Accounts income Statement December 31, 20Y5
For the Year Ended December 31, 20Y5
Assets
DiBnaecAlbrae(isn+tacs )fsAeoeerstS AScECdcerTeocdSrue(i– tna )fstoesrs =DdLeeicbaLri(bet–I aif)AosliertB sy I LACiBIcnTarccelIraodeE(niu+atcS s)nfeeo tsrs +Dde e cbCri(et–o af)moserS sm ToOnCiBnCar ceSlraKdet(ni+aoHtc s)feceoOksr LD+ERDdRSeeecb'rt i(eta–E af)iosQnere sU dI TECiBnYaarcelrradne(ni+aitcn s)feeogsrs SCGO aoWAUrpolsedetastisrv lgsoai e t eptfirei srgtn soieogs fexio inetxpd gxpesp ene senxsonesples dee n ss: e $XXXXXXXXX $$ ( XXXXXXXXX) T PC oru ICAo nt rc aapvTrcelsoee oanhntrusattt sy lnoa e,ct rsptsuyss le rr a retnescnt:e,t ia vanasdbs eleetq s u ipment $ XXXXXXXXX $$XXXXXXXXX
Depreciation expense XXX Liabilities
IncomAcec Sotuanttesment T o…ta l operating expenses XXX (XXX) CLounrrge-ntet rlmiab liialibtieilist ies $ XXXXXX
Dinecbre(i+ta Dfs)oeirsv ideCdneredcdrs(ei–t a ) fsoers DdReeecbvri(et–e af)noseru se ACincrccerdoe(i+aut s)fneostr s OONepthte eirnar ctrioenvmge enin u ceo maned expense $$ XXXXXXXXX TCRoeottmaalim nlieaodSbnt i elosiattciorekncshik no glds ers’ Equity $ XXXXXX $XXX
Balance Balance TToottaall lsiatobcilkithieosl danerds ’s etoqcukihtyo lders’ equity $ XXXXXX
Expense Accounts
Debit for Credit for
increases decreases
(+) (–)
Balance
Unadjusted Trial Balance
158 Total Debit Balances = Total Credit Balances 350
98169_ch04_ptg01_158-231.indd 158 25/09/17 5:27 PM 98169_ch07_ptg01_350-395.indd 350 25/09/17 5:28 PM
iii
Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
02663_fm_ptg01_i-xxv.indd 3 12/1/22 6:51 PM
iv Preface
▪ The schema for the managerial chapters illustrates
how the chapter content lays the foundation
with managerial concepts and principles. Then it 15
er Introduction to
moves students through developing the informa- hapt Managerial Accounting
C
tion and ultimately into evaluating and analyzing
information in order to make decisions.
Principles
Chapter 15 Introduction to Managerial Accounting
Developing Information
COST SYSTEMS COST ALLOCATIONS
Chapter 16 Job Order Costing Chapter 19 Support Departments
Chapter 17 Process Costing Chapter 19 Joint Costs
Chapter 18 Activity-Based Costing
Decision Making
PLANNING AND EVALUATING TOOLS STRATEGIC TOOLS
Chapter 20 C ost-Volume-Profit Analysis Chapter 26 Capital Investment Analysis
Chapter 21 Variable Costing Chapter 27 Lean Manufacturing
Chapter 22 Budgeting Systems Chapter 27 Activity Analysis
Chapter 23 S tandard Costing and Variances Chapter 28 The Balanced Scorecard
Chapter 24 D ecentralized Operations Chapter 28 Corporate Social Responsibility
Chapter 25 D ifferential Analysis
748
02663_ch15_ptg01_748-791.indd 748 17/08/18 2:30 PM
Chapter 6 Inventories 301
Finally, controls for safeguarding inventory should include security measures to prevent d amage
and customer or employee theft. Some examples of security measures include the following:
Best Buy ▪▪Storing inventory in areas that are restricted to only authorized employees
▪▪Locking high-priced inventory in cabinets
AsBseumste Bthuayt i(nB SBeYp)te. Amtb tehre ysoamu ep utirmchea, yseodu pau Srcohnays eHdD aT VD efrnoomn identBicuasli nmeesrscehs asnudcihse a iss Bpeusrtc hBausye md aatk ed isffimerielanrt acsossutsm. Fpotiro enxsa wmhpelen, ▪▪Using two-way mirrors, cameras, security tags, and guards
ssuo rwroeulnl dth saotu innd N soyvsetemmb feorr y$o5u9 9p.u99rc. hYoasue ldik eadn yidoeunr tsiucarrlo Duenndo sno usynsd- Bsyesstte Bmusy o mveayr thhaev pe apsut rycehaars aetd d tihffoeuresannt dcos sotfs .D Aetn tohne seunrdro oufn ad p seoruiondd, Best Buy uses scanners to screen customers as they leave the store for merchandise that has not been pur- Link to
tmemov oedn tsoa lae nfoerw $ 5a4p9a.r9tm9 feonr ty aonudr bine tdhreo opmro TceVs. sO ovfe ur nthpea chkoilnidga dyiss,c yoovu- shoamvee boef ethne s Doledn. oBnu ts ywstheimchs wcoilslt sst irlel blaete in t oin vtheen tsooryld, asnydst seomms,e awnidll cthhaats ecadn. I nb ea dudseitdio tno, sBheospt Blifuty m setarctihoannsd girseee.ters at the store’s entrance to keep customers from bringing in bags Best Buy
ered that one of the Denon surround sound systems was missing. which costs relate to the Denon systems still in inventory? Best
Luckily, your renters or homeowners insurance policy will cover the Buy’s assumption about inventory costs can involve large dollar Reporting Inventory
theft; but the insurance company needs to know the cost of the amounts and, thus, can have a significant impact on the financial
system that was stolen. statements. For example, Best Buy reported $5,051 million of inven- A physical inventory or count of inventory should be taken near year-end to make sure that
The Denon systems were identical. However, to respond to tory and net income of $897 million for a recent year. the quantity of inventory reported in the financial statements is accurate. After the quantity
the insurance company, you will need to identify which system was This chapter discusses such issues as how to determine the ▪of inveLntiorny okn hatnod i st dheteerm i“neod, pthee cnosti onf tghe incvoentmory pis aassnignyed” f oro refp oertiangc inh th ec hapter
stolen. Was it the first system, which cost $599.99, or was it the sec- cost of merchandise in inventory and the cost of goods sold. How- financial statements. Most companies assign costs to inventory using one of three inventory
omconamdy psdyaesnttyee.mrm, iwnhe icthhe c oasmt o$5u4n9t .9th9a?t W yhoiuc hreevceeriv aes sfurommp ttihoen iynosuu rmanakcee eovveerr, itnhvies ncthoarpy.ter begins by discussing the importance of control © Photo credit here ctBphoreeessd t tiicfn ltBvoiipcneuwngnay altao o cslsonrsstlyn uahs dmdycujo upce.osstt sttim o Tomunnecgnsah.totyh siI nffboei gaaer s p txphpehh eyssftaysttiic.smeaimhcla actroelo ud cpno awtausls nor etdf esieinsssv cne hrncooitbto oeoprfydo tn wshhisnrion boutl hgeeaeh wo oacruc pti ntptchtveeeehno ynddetieauoxr r a yatnsc t rao et obhtca oeisn rtisned hfnsoc drga e mreoeo f p nnitoiohtsotti rspa is nvcuga he iai alnsanpndbte eltier,.rnd og LBidi ennscukt otBctohm eu yde-
real world by real companies.
Inventory Cost Flow Assumptions Objective 2
Describe three
An accounting issue arises when identical units of merchandise are acquired at different unit costs inventory cost flow
during a period. In such cases, when an item is sold, it is necessary to determine its cost using a assumptions and how
caonsdt rfleolawte ads siunmvepnttioorny acnods trienlga tmede tihnovedns toarrey cshoostwinng imn eEthxohdib. iTt h1r.ee common cost flow assumptions tsshthaeetyee timm.epnatc at nthde b ianlcaonmcee
©richard Levine/aLamy Stock Photo 1. Ciinno cswuth rfrilecodhw. tihse i nc othsets o wrdeerer 2. Cowroedsreet r f ilinoncw wu rihsrei cidnh. tthhee rceovsetrss e 3. Cthoes Ect oxflsohtwsib. isi ta n1 aveCroasgte Folfo w Assumptions
Link to Best Buy Pages 301, 303, 314, 315, 316 First-in, First-out Last-in, First-out Weighted Average Cost
(FIFO) (LIFO)
Why It Matters Page 308 Purchased Purchased Sold Purchased
Analysis for Decision Making Pages 320–321 Goods Goods Goods Goods
FIFO LIFO WAVECEIOGRSHATTGEED GSoooldds
299
Sold
Goods
98169_ch06_rev05_298-349.indd 299 18/08/17 2:25 pm
98169_ch06_rev05_298-349.indd 301 18/08/17 2:29 pm
Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
02663_fm_ptg01_i-xxv.indd 4 12/1/22 6:51 PM
Intangible
Asset Description Amortization Period Periodic Expense Comparison of
Patent Exclusive right to benefit Estimated useful life not Amortization expense Intangible Assets
from an innovation to exceed legal life
Copyright Exclusive right to benefit Estimated useful life not Amortization expense
from a literary, artistic, or to exceed legal life
musical composition
Trademark Exclusive use of a name, None Impairment loss if fair
term, or symbol value less than carrying
value (impaired)
Goodwill Ea xbcuessisn oefs sp ouvrcehr atshee pfariicr e of None Ivmalpuaei rlemses ntht alons sc aifr rfayiinr g Preface v
value of its net assets value (impaired)
(assets ] liabilities)
▪ New! Pathways Challenge encourages students’ interest in accounting and emphasizes
the critical thinking aspect of accounting. A suggested answer to the Pathways Challenge
is provided at the end of the chapter.
Pathways Challenge
This is Accounting!
Economic Activity
Verizon Communications Inc. (VZ) is the largest wireless service provider in the United States
with over 114 million retail subscribers. To deliver its products and services, Verizon must have access to
spectrum—the radio frequencies that carry sound, data, and video to wireless devices. However, spectrum
is a limited resource that the Federal Communications Commission (FCC) licenses to businesses for a period
of 10 years, subject to renewal. In a recent year, Verizon acquired almost $10 billion in wireless licenses.
Critical Thinking/Judgment Chapter 9 Long-Term Assets: Fixed and Intangible 445
How should Verizon account for its acquisition of wireless licenses?
As showWnha ti ins t hEe uxsehfuilb lifiet of1 a, w cirellaesss sliicfenysien? g a cost involves the following steps:
Should Verizon expense (amortize) the cost of its wireless licenses?
▪ Step 1. Is the purchased item long-lived? Suggested answer at end of chapteCrh.apter 9 Long-Term Assets: Fixed and Intangible 493
If yes, the item is recorded as an asset on the balance sheet, either as a fixed asset
or an investment. Proceed to SPteapt 2h.ways Challenge
If no, the item is classified and recorded as an expense.
This is Accounting!
▪ Step 2. Is the asset used in normal operations?
If yes, the asset is classified anIdnf orremcoatridone/dC oanss eaq ufeinxceeds asset.
Because a wireless license does not exist physically, Verizon’s (VZ) wireless licenses are intangible assets.
If no, the asset is classified andAll orfe thceo corsdtse ofd a cqausir inagn a wiirnelevses lsictemnsee snhotu.ld be recorded as an asset. In a recent year, Verizon report-
ed almost $87 billion of wireless licenses, representing 35% of its total assets.
Items that are classified and recorded as fixed assets include land, buildings, or equip-
Even though the FCC license is granted for a 10-year period, Verizon considers this license to have an indef-
ment. Such assets normally last more thainnite uas efyule lifae.r T hais nis dbe caaursee t hue lsiceendse iisn su btjehcte t o nreonerwmal aat la loowp ceosrt aantido, hnistso ricoalfly , the FCC has
the business. However, standby equipmenretn efwoedr Veuriszoen ’s dlicuenrsiens. g peak periods or when other equip-
ment breaks down is still classified as a fViexrizeond d oaess snoet te,x peenvsee n(am tohrtiozeu) tgheh c ositt o fi ists wniroelte ssu lisceendses . vInestreayd , othef tliecenns.e sI anre reviewed for
any impaired value.
contrast, fixed assets that have been abandoned or are no longer used in operations are not
classified as fixed assets. Suggested Answer
98169_ch09_ptg01_442-493.indd 467 25/09/17 5:38 PM
In a recent financial statement, McDonald’s reported total property, plant, and equipment of over $34 billion, Link to
▪ Locatewdhi chin co ensaisctsh o fc lahnad,p btueildr,in Wgs, hanyd eIqtu iM pmaetntt.ers shows students how accounting is important
McDonald’s
to businesses with which they are familiar. A Concept Clip icon indicates which Why
It Matters features have an accompanying concept clip video in CNOWv2.
CONCEPT CLIP
Why It Matters
CONCEPT CLIP
Fixed Assets the proportion of fixed assets to total assets. Retail has the high-
est percent of fixed assets to total assets, while social media and
Fixed assets often represent a significant portion of a company’s software are on the lower end of the scale. High-tech service com-
total assets. The table that follows shows the fixed assets as panies often use fewer fixed assets to deliver their services than
a percent of total assets for some select companies across a will companies that use stores, equipment, planes, cell towers,
variety of industries. As can be seen, the type of industry will impact or theme parks.
Percent of Fixed Assets
Company Industry to Total Assets
McDonald’s Corporation (MCD) Food Retail 69%
Target Corporation (TGT) Merchandise Retail 63%
Delta Air Lines, Inc. (DAL) Transportation 48%
Verizon Communications Inc. (VZ) Communications 35%
The Walt Disney Company (DIS) Entertainment 30%
Facebook, Inc. (FB) Social Media 13%
9816M9_chi0c9_prtgo01_s44o2-4f93t.in dCd 4o93rporation (MSFT) Software 9% 25/09/17 5:39 PM
Fixed assets have important properties that require management ▪ Fixed assets need to be maintained during use. Managers need to
attention: develop maintenance programs to keep the investment in fixed as-
▪ Fixed assets require a long-term commitment. Mistakes in acquir- sets productive.
ing fixed assets can be very costly and difficult to reverse; thus, ▪ Fixed assets often require significant funds to purchase. Managers
managers must take special care in acquiring fixed assets. must acquire funding internally or by other sources to finance the
▪ Fixed assets wear out over time and need to be replaced. Managers purchase of fixed assets.
must monitor fixed assets and know when to replace fixed assets
due to wear and tear or obsolescence.
Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
98169_ch09_ptg01_442-493.indd 445 25/09/17 5:34 PM
02663_fm_ptg01_i-xxv.indd 5 12/1/22 6:51 PM
vi Preface
238 238ChaptCerh a5p tAecr c5o unAticncgo fuonrt iRnegt afoilr B Ruestianiel sBsuessinesses
▪ To aid comprehension and to demonstrate the impact of transactions, journal entries
iUnnclduedrU etnh dethe pre et rhnpeee pttu eearlfp fienetvcueta nlo tionf rvyteh nseyto strteryma sny, ssctaaescmhti , pocunars choh npas uetrhsc heoa f samecsec roocfuh mnanteidrncishgea neadrqeius reae tcaioroern dre.edco arsd efodl laosw fso:llows:
20Y8 20Y8
A 5 A L 51 L E1 E Jan. 3Jan.In3ventoInryventory 2,510 2,510
12 12
Cash Cash 2,510 2,510
PurchasPeudr cihnavesendto inryv efrnotmor By ofrwoemn BCoow.en Co.
PurchPasuersc hoaf siensv eonf tionrvye notno rayc coonu nact caorue nrte caorer dreedco arsd efodl laosw fso:llows:
A 5 A L 51 LE 1 E Jan. 4Jan.In4ventoInryventory 9,250 9,250
1 1 1 1 AccounAtsc cPoauynabtsl eP—ayTahbolem—asT hCoomrpaosr aCtoiorpnoration 9,250 9,250
PurchasPeudr cihnavesendto inryv eonnt aocrcyo ounn at.ccount.
The teTrhmes toefr mpus rocfh pasuersc hoans easc coonu nact caoruen nt oarrme anlloyr minadlilcya itneddi coant etdh eo nin tvhoei cien voori cbeil lo trh bati llt hthe aste tlhleer seller
▪ The link between the journal entry and the accounting equation is also included in
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the accompanying CengageNOWv2 course in the accounting cycle chapters, reminding
ExhibiEt x3h.ibit 3.
students of the link—but not requiring them to actively make the link.
ExhibEitx h3ibit 3
AlphaA Tlepchhan Toelochgnieosl ogies InvoiceInvoice
InvoiceInvoice
1000 M1a0t0ri0x M Blavtdri.x Blvd. 106-8106-8
San JosSea,n C JAo s9e5, 1C1A6 -915010106-1000
Made inM Ua.dSe.A in. U.S.A.
Sold TSoo ld To CUSToCMUESRT o MER oRdERo RdER
NetSoluNteiotSnos lutions oRdERo NRod.E R No. dATE dATE
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CincinnCaitni,c OinHn a 4ti5, 2O2H7 - 54150212 7-5101
dATE SdhAIpTpEE Sdh IppEd how ShhoIpwpE Sdh AIpNpdE dR oAUNTdE R oUTE TERMST ERMS INvoICIEN vdoATICEE dATE
Jan. 5, 2J0anY.8 5 , 20Y8 US ExprUeSs sE Txrpurceksisn Tgr uCcok. i ng Co. 2/10, n/23/01 0, n/30 Jan. 5, 2J0anY.8 5, 20Y8
FRoM FRoM F.o.B.F.o.B.
San JosSea n Jose CincinnCaitnicinnati
▪ To aid learning and problem solving, throughout each chapter Check Up Corners provide
QUANTQIUTyA NTITy dESCRdIpETSICoRNIp TIoN UNIT pURNICITE pRICE AMoUANMToUNT
students with step-by-step guidance on how to solve problems. Problem-solving tips help
20 20 HC9 PriHnCte9r /PFrainx/tCero/pFaiexr/sC opiers 150.00 150.00 3,000.030,000.00
462studeCnhatpst ear v9o iLdon gc-Toermm mAssoents: Feixrerdo anrds .Intangible
Check Up Corner 9-2 Selling Fixed Assets
The teTrhmes tfeorrm ws hfoern wphayemn epnatysm foern tms eforcrh manedrcishea nadreis eto a bree tmo abdee maraed eca allreed c tahllee dc rtehdei tc rteerdmits t. eIrfm s. If
paymOenp ntahtye imfsir sert nedqta yui soif r rethedeq yuoeianrr, e dFdiree lofiavnll e Cdroyme,l pitavhneeyr pytue, rrcthhmaesse dtae errqemu icpsam asehrnet oactr aa n schoes tto ocrfa $ns3he40.t ,0Oc0a0tsh. Theh.re wO eqitushiepe,mr twehnites eb, utyheer bisu yaellro iws eadll oawn ed an
amouwnaastm e oxopfeu ctnitemtd oeto,f hktainmveo eaw ,u nkse nfauosl l witfehn oe fa fcsoru terh ydeeia trc sp,r aee rdresiiiotd udpa,le virnailu owed oh,f ii$cn2h0 w, 0t0oh0 ,i pcanhady t.iso Td phepearey cc. iraTetehddei at t c par eestrdriaioitg dhpt -eursiuoadl luy sbueaglliyn sb ewgiitnhs with
line rate of 25%. Firefall sold the equipment at the beginning of the fourth year when the balance in the
the daactcthueme ou dlfa attethde ed oespfa retlcehi aeat iossn as alhecco oawusn nts whoaons w$ t2nh40 eo,0 ni0n0 .vt Jhooeuicr niena.l ivzeo tihcee e. ntry to record the sale if the equipment
Iwf aps asoylIdmf f oeprn:aty mis ednut ei sw dituhei nw ait hstiant ead s ntautemdb neru mofb dear yosf adfateyrs tahfete irn tvhoei cien vdoaitcee, sduacteh, assu c3h0 adsa y3s0, dthaey s, the
termas. t a$e9rr5em,0 0ns0 eatr e3 0n edta y3s0. Tdahyess.e T theermses tmeramys b me awy rbitete wn raistt enn/ 3a0s. 2n I/f3 p0.a2y Imf epnaty mis ednut ei sb dy uteh eb ye ntdh eo ef nthde o f the
monbth. m $i1no05n w,0th0h0 iicnh w thheic sha lteh ew saasl em wadase ,m thaed ete, rtmhes taerrem ws rairttee nw raist tenn/e aosm n./eom.
2 The wSor2od Tl hnuee ttw aioso rudns ne:det haesr ues deode hse nroe td hoaevse n tohte h uasvuea tl hmee uasnuianlg m oef aan ninugm obfe ar nafutmerb deerd auftcetiro dnesd huacvteio bnese hna svueb bteraecnt esudb, atrsa icnt endet, ainsc ionm nee.t income.
a. Equipment sold for $95,000:
Cash terms, ttehremns t, hthee c9no5 ,mt0h00pea cnoym isp aabnyle i sto a bulsee tsou puspeli esursp tpol ifeinrsa tnoc efi nthaen coep t-he op-
WhWy Ihyt IMta Mtteartsters
Accumulated Depreciation—Equipment eratinge rcaytcinleg. Fcoy24cr0 l,ee0x0. 0aFmorp elex,a Ampplpe,l Ae p(AplAeP (LA)A isP aLbl)e i st oa bcolel lteoc tc oonlle ct on
Loss on Sale of Equipment sales wsiatlheisn w ainth aivn5e, 0ar0an0g aev eorfa agpep orof xaipmpartoexliym 3a0t edlayy 3s0. Hdoawyse. vHeor,w Aepvpelre, Apple
ApplAe’ps pClree’sd Citr Teedrimt Tse rms Equipment 340,000
uses auns aevs earna gaev eorfa agpep orof xaipmpartoexliym 1a0te0l yd a1y0s0 t od apyasy t oit sp sauyp itpsl iseursp. pliers.
WWorkingo crakpinitga lc aepffiitcaiel necffyic iise nincfylu ies nincefldu ebnyc tehde b rye ltahteio rneslhatipio nshiTph us, ATphpusle, AcoplpleSleecl lticnsog flPalreiscctee t–sr B ftoahoska tVnea lrui tet h=p aany si,t apllaoyws,iA naccglulo mAwuplaipntelgde Atop pulsee ttoh ue se the
betweebne ttwheee snu pthpeli esursp’ panliedr cs’u asntodm cuersst’o cmreedrist’ cterermdist . tIef rtmhes. If thseu ppliesursp’ pmlioenrse’ ym$ 9a5os,0n 0ae0n y– i$an1st0 e0a,r0ne0 0sitn-tfererees lto-farne efo lor athnDe fe op7rr0e ct-ihdateaioy n7 a(01t - 0d0a yd a(1y0s0 – days –
suppliesrusp’ cprleiedrist’ tcerremdist atererm lobs.n agErqeeur il potmhnaegnnet srto htldhe afconur $st1th0oe5m, 0c0eu0rs:st’o cmreedrist’ cred3it0 day3s)0 d difafeysre) ndcifefe.rence. the End of Year 3
Source: ASpopulrec®e: Apple® Cash 105,000
Accumulated Depreciation—Equipment 240,000
Equipment 340,000
Gain on Sale of Equipment 5,000 Selling Price – Book Value =
$105,000 – $100,000
Check Up Corner
98169_ch90851_6r9e_vc0h30_52_3r2e-v20937_.i2n3d2d- 2 9273.8indd 238 16/08/17 1 65/:0180/ 1p7m 5:10 pm
Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Objective 4 Natural Resources
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Describe the
accounting for natural Some businesses own natural resources such as timber, minerals, or oil. The characteristics of
02663_fm_ptg01_i-xxv.indd 6 resources, including 12/1/22 6:51 PM
.........................................
Accumulated depreciation........................................ (13,185.8)
Net property and equipment.................................... 21,257.6
Goodwill.............................................................. 2,336.5
Note to Financial Statements:
Land ......................................................... $ 5,465.0
Buildings and improvements................................... 25,207.1
Equipment and other.......................................... 3,771.3
Total cost..................................................... $34,443.4 Preface vii
Source: Adapted from McDonald’s Corporation’s 2016 annual report.
▪ Analysis for Decision Making highlights how companies use accounting information to
Tmhea ckoest adnedc riesliaotend sa cacunmdu laetveda ldueaplteeti otnh oefi mr ibneurasli nrigehstss .a rTe hnoisrm palrlyo vshiodwens ass tpuadrt eonf tthse with context of why
“Fixed assets” section of the balance sheet. The mineral rights may be shown net of depletion on
accounting is important to companies.
the face of the balance sheet. In such cases, a supporting note discloses the accumulated depletion.
Analysis for Decision Making
Fixed Asset Turnover Ratio Objective 7
Describe and illustrate
The fixed asset turnover ratio measures the number of sales dollars earned per dollar of the fixed asset
fixed assets. The higher the ratio, the more efficiently a company is using its fixed assets in turnover ratio to
generating sales. The ratio is computed as follows: assess the efficiency
of a company’s use of
Fixed Asset Turnover Ratio = Sales its fixed assets.
Average Book Value of Fixed Assets
To illustrate, the following data (in millions) were taken from a recent financial statement
of McDonald’s Corporation (MCD):
Sales $24,621.9
Fixed assets (net):
Beginning of year 21,257.6
End of year 23,117.6
McDonald’s fixed asset turnover ratio for the year is computed as follows (rounded to one
decimal place):
Sales
Fixed Asset Turnover Ratio=
Average Book Value of Fixed Assets
$24,621.9
=
($21,257.6 + $23,117.6) ÷ 2
$24,621.9
= = 1.1
$22,187.6
Is 1.1 efficient? To answer this question, McDonald’s fixed asset turnover ratio can be com-
pared to other quick-service restaurant companies, as shown in Exhibit 14. Yum! Brands (YUM)
operates KFC, Pizza Hut, and Taco Bell quick-service restaurants. The other restaurants are likely
familiar by name.
▪ Make a Decision in the end-of-chapter material gives students a chance to analyze real-world
business decisions.
98169_ch09_ptg01_442-493.indd 469 25/09/17 5:20 PM
Make a Decision
Fixed Asset Turnover Ratio
MAD 9-1 Analyze and compare Amazon.com to Netflix Obj. 7
Amazon.com, Inc. (AMZN) is the world’s leading Internet retailer of merchandise and
media. Amazon also designs and sells electronic products, such as e-readers. Netflix, Inc.
REAL WORLD
(NFLX) is one of the world’s leading Internet television networks. Both companies compete
in the digital media and streaming space. However, Netflix is more narrowly focused in the
digital streaming business than is Amazon.
Sales and average book value of fixed assets information (in millions) are provided for
Amazon and Netflix for a recent year as follows:
Amazon.com Netflix
Sales $135,987 $8,830
Average book value of fixed assets 25,476 212
a. Compute the fixed asset turnover ratio for each company. Round to one decimal place.
b. Which company is more efficient in generating sales from fixed assets?
c. Interpret your results.
MAD 9-2 Analyze and compare Alaska Air, Delta Air Lines, and Southwest Airlines Obj. 7
Alaska Air Group (ALK), Delta Air Lines (DAL), and Southwest Airlines (LUV) reported
the following financial information (in millions) in a recent year:
REAL WORLD
Alaska Air Group Delta Air Lines Southwest Airlines
Sales $5,931 $39,639 $20,425
Average book value of fixed assets 5,234 23,707 16,323
a. Determine the fixed asset turnover ratio for each airline. Round to one decimal place.
b. Based on the fixed asset turnover ratio, which airline appears to be the most ef-
ficient in the use of its fixed assets?
c. The most important fixed asset to an airline is the aircraft. Given this, what factors
might influence the efficient use of fixed assets for an airline?
MAD 9-3 Analyze Verizon Obj. 7
Verizon Communications Inc. (VZ) is a major telecommunications company in the
United States. Two recent balance sheets for Verizon disclosed the following information
Copyright R2E0A2L 0W COReLnDgage Learning. All Rirgehtgs aRredseirnvegd . fMixaye dno t abse sceoptsie:d, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Beginning of
End of Year Year
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Property, plant, and equipment $ 232,215 $ 220,163
02663_fm_ptg01_i-xxv.indd 7 Accumulated depreciation (147,464) (136,622) 12/1/22 6:52 PM
viii Preface
▪ At the end of each chapter, Let’s Review is a new chapter summary and self-assessment
feature that is designed to help busy students prepare for an exam. It includes a summary
of each learning objective’s key points, key terms, multiple-choice questions, exercises, and
a sample problem that students may use to practice.
▪ Sample multiple-choice questions allow students to practice with the type of assessments
they are likely to see on an exam.
▪ Short exercises and a longer problem allow students to apply their knowledge.
▪ Answers provided at the end of the Let’s Review section let students check their knowl-
edge immediately.
▪ Take It Further in the end-of-chapter activities allows instructors to assign other special
activities related to ethics, communication, and teamwork.
▪ NEW! Certified Management Accountant (CMA®) Examination Questions help students
prepare for the CMA exam so they can earn CMA certification.
CengageNOWv2
CengageNOWv2 is a powerful course management and online homework resource that pro-
vides control and customization to optimize the student learning experience. Included are
many proven resources, such as algorithmic activities, a test bank, course management tools,
reporting and assessment options, and much more.
NEW! Excel Online
Cengage and Microsoft have partnered in CNOWv2 to provide students with a uniform, authen-
tic Excel experience. It provides instant feedback, built-in video tips, and easily accessible
spreadsheet work. These features allow you to spend more time teaching college accounting
applications, and less time troubleshooting Excel.
These new algorithmic activities offer pre-populated data directly in Microsoft Excel Online.
Each student receives his or her own version of the problem to perform the necessary data cal-
culations in Excel Online. Their work is constantly saved in Cengage cloud storage as a part of
homework assignments in CNOWv2. It’s easily retrievable so students can review their answers
without cumbersome file management and numerous downloads/uploads.
Motivation: Set Expectations and Prepare Students
for the Course
CengageNOWv2 helps motivate students and get them ready to learn by reshaping their misconcep-
tions about the introductory accounting course and providing a powerful tool to engage students.
CengageNOWv2 Start-Up Center
Students are often surprised by the amount of time they need to spend outside of class work-
ing through homework assignments in order to succeed. The CengageNOWv2 Start-Up Center
will help students identify what they need to do and where they need to focus in order to
be successful with a variety of new resources.
▪ What Is Accounting? Module ensures students understand course expectations and how to
be successful in the introductory accounting course. This module consists of two assign-
able videos: Introduction to Accounting and Success Strategies. The Student Advice Videos
offer advice from real students about what it takes to do well in the course.
▪ Math Review Module, designed to help students get up to speed with necessary math
skills, includes math review assignments and Show Me How math review videos to ensure
that students have an understanding of basic math skills.
▪ How to Use CengageNOWv2 Module focuses on learning accounting, not on a particular
software system. Quickly familiarize your students with CengageNOWv2 and direct them
to all of its built-in student resources.
Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
02663_fm_ptg01_i-xxv.indd 8 12/1/22 6:52 PM