ebook download Financial and Managerial Accounting, 15th Edition Carl S. Warren - eBook PDF all chapter

Financial and Managerial Accounting,
15th Edition Carl S. Warren - eBook

PDF
Go to download the full and correct content document:
https://ebooksecure.com/download/financial-and-managerial-accounting-15th-edition-
ebook-pdf/
More products digital (pdf, epub, mobi) instant
download maybe you interests ...
(eBook PDF) Financial & Managerial Accounting 15th

Edition by Carl Warren
http://ebooksecure.com/product/ebook-pdf-financial-managerial-
accounting-15th-edition-by-carl-warren/
(eBook PDF) Financial Accounting 15th Edition by Carl

Warren
http://ebooksecure.com/product/ebook-pdf-financial-
Corporate Financial Accounting 16th Edition Carl S.

Warren - eBook PDF
https://ebooksecure.com/download/corporate-financial-accounting-
ebook-pdf/
(eBook PDF) Corporate Financial Accounting 14th Edition

by Carl S. Warren
http://ebooksecure.com/product/ebook-pdf-corporate-financial-
accounting-14th-edition-by-carl-s-warren/
(eBook PDF) Accounting 26th Edition by Carl S. Warren
http://ebooksecure.com/product/ebook-pdf-accounting-26th-edition-
by-carl-s-warren/
(eBook PDF) Accounting 27th Edition by Carl S. Warren
http://ebooksecure.com/product/ebook-pdf-accounting-27th-edition-
by-carl-s-warren/
(eBook PDF) Financial Accounting 16th Edition by Carl

Warren
http://ebooksecure.com/product/ebook-pdf-financial-
(eBook PDF) Survey of Accounting 8th Edition by Carl S.

Warren
http://ebooksecure.com/product/ebook-pdf-survey-of-
accounting-8th-edition-by-carl-s-warren/
Financial Accounting, 16th Edition Carl Warren &

Christine Jonick & Jennifer Schneider - eBook PDF
https://ebooksecure.com/download/financial-accounting-16th-
edition-ebook-pdf/
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
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.
This is an electronic version of the print textbook. Due to electronic rights restrictions,
some third party content may be suppressed. Editorial review has deemed that any suppressed
content does not materially affect the overall learning experience. The publisher reserves the right
to remove content from this title at any time if subsequent rights restrictions require it. For
valuable information on pricing, previous editions, changes to current editions, and alternate
formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for
materials in your areas of interest.
Important Notice: Media content referenced within the product description or the product
text may not be available in the eBook version.
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 © 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
No part of this work covered by the copyright herein may be reproduced
or distributed in any form or by any means, except as permitted by U.S.
Senior Vice President, Higher Ed Product, copyright law, without the prior written permission of the copyright owner.
Content, and Market Development: Erin Joyner
Product Director: Jason Fremder For product information and technology assistance, contact us at
Cengage Customer & Sales Support, 1-800-354-9706
Product Manager: Matt Filimonov or support.cengage.com.
Sr. Content Manager: Diane Bowdler
For permission to use material from this text or product, submit all
Product Assistant: Aiyana Moore requests online at www.copyright.com.
Executive Marketing Manager: Nathan Anderson
Production Service: Lumina Datamatics, Inc. Microsoft Excel® is a registered trademark of Microsoft Corporation.
Designer: Chris Doughman © 2018 Microsoft.
Cover and Internal Design: Ke Design Library of Congress Control Number: 2018955049
Cover Image: hkeita/Shutterstock.com

ISBN: 978-1-337-90266-3
Intellectual Property Analyst: Reba Frederics
Intellectual Property Project Manager: Cengage

Carly Belcher 200 Pier 4 Boulevard
Boston, MA 02210
USA
Cengage is a leading provider of customized learning solutions with

employees residing in nearly 40 different countries and sales in more
than 125 countries around the world. Find your local representative at
www.cengage.com.
To learn more about Cengage platforms and services, register or access

your online learning solution, or purchase materials for your course, visit
www.cengage.com.
Printed in the United States of America

Print Number: 10 Print Year: 2022
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
Chapter
The Accounting Cycle 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)
Common Retained operating activities $XXX
Accounting SyStem Cash flows from (used for)
Stock Earnings Total
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 Balances, Dec. 31, 20Y5 $XXX $ XXX $ XXX Cash balance, January 1, 20Y5 XXX
Account
Cash balance, December 31, 20Y5 $XXX
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
Sales $ XXX Current assets:
ASSET S = L IABILIT IE S + STOCKHOLDE RS' E QUIT Y
Cost of goods sold (XXX) Cash $XXX
Asset Accounts Liability Accounts Common Stock + Retained Earnings
Debit for Credit for Debit for Credit for
Gross profit $ XXX Accounts receivable XXX
increases decreases decreases increases Operating expenses: Inventory XXX
decreases increases decreases increases
(+) (–) (–) (+) (–) (+) (–) (+) Wages expense $XXX Total current assets $XXX
Balance Balance Advertising expense XXX Property, plant, and equipment XXX
Balance Balance
Utilities expense XXX Total assets $XXX
Depreciation expense XXX Liabilities
Income Statement … XXX Current liabilities $XXX
Accounts Total operating expenses (XXX) Long-term liabilities XXX
Dividends Revenue Accounts Operating income $ XXX Total liabilities $XXX
Other revenue and expense XXX Stockholders’ Equity
increases decreases decreases increases Net income $ XXX Common stock $XXX
(+) (–) (–) (+) Retained earnings XXX
Balance Balance Total stockholders’ equity XXX
Total liabilities and stockholders’ equity $XXX
Expense Accounts
Debit for Credit for
increases decreases
(+) (–)
Balance
Unadjusted Trial Balance

158 350
To t al Deb it Bala n c es = To t a l Cr ed it Bala n c es
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
iv Preface
▪▪ The schema for the managerial chapters illustrates

how the chapter content lays the foundation
15
with managerial concepts and principles. Then it
Introduction to
Chapter
moves students through developing the informa-
Managerial Accounting
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 Cost-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 Standard Costing and Variances Chapter 28 The Balanced Scorecard
Chapter 24 Decentralized Operations Chapter 28 Corporate Social Responsibility
Chapter 25 Differential 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 damage
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
A ssume that in September you purchased a Sony HDTV from

Best Buy (BBY). At the same time, you purchased a Denon
surround sound system for $599.99. You liked your surround sound
Businesses such as Best Buy make similar assumptions when
identical merchandise is purchased at different costs. For example,
Best Buy may have purchased thousands of Denon surround sound
▪▪ Using two-way mirrors, cameras, security tags, and guards
so well that in November you purchased an identical Denon sys- systems over the past year at different costs. At the end of a period, Best Buy uses scanners to screen customers as they leave the store for merchandise that has not been pur- Link to
tem on sale for $549.99 for your bedroom TV. Over the holidays, you
moved to a new apartment and in the process of unpacking discov-
some of the Denon systems will still be in inventory, and some will
have been sold. But which costs relate to the sold systems, and
chased. In addition, Best Buy stations greeters at the store’s entrance to keep customers from bringing in bags
that can be used to shoplift merchandise.
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
theft; but the insurance company needs to know the cost of the amounts and, thus, can have a significant impact on the financial Reporting Inventory
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
▪▪ Link to the “opening company” of each chapter

the insurance company, you will need to identify which system was This chapter discusses such issues as how to determine the of inventory on hand is determined, the cost of the inventory is assigned for reporting in the
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
ond system, which cost $549.99? Whichever assumption you make ever, this chapter begins by discussing the importance of control cost flow assumptions. If a physical count is not possible or inventory records are not available,
over inventory.
calls out examples of how the concepts introduced
© Photo credit here
may determine the amount that you receive from the insurance the inventory cost may be estimated as described in the appendix at the end of this chapter.
company.
in the chapter are connected to the openingLinkcom-

Best Buy conducts ongoing physical counts of inventory throughout the year as a basis for monitoring and to
pany. This shows how accounting is usedBest
predicting loss adjustments for theft.
in Buy
the
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
they impact the income
cost flow assumption and related inventory costing method. Three common cost flow assumptions
statement and balance
and related inventory costing methods are shown in Exhibit 1. sheet.
©richard Levine/aLamy Stock Photo
Exhibit 1 Cost Flow Assumptions
1. Cost flow is in the order 2. Cost flow is in the reverse 3. Cost flow is an average of
in which the costs were order in which the costs the costs.
incurred. were incurred.
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
Goods Goods Goods Goods
Analysis for Decision Making Pages 320–321
FIFO LIFO WEI

AVEGRHTED Sold
COSAGE Goods
T
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
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 Excess of purchase price of None Impairment loss if fair
a business over the fair value less than carrying 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?
What is the useful life of a wireless license?
As shown in Exhibit 1, classifying a cost involves
Should Verizon expense (amortize) the cost of its wireless licenses?
the following steps:
▪ Step 1. Is the purchased item long-lived? Suggested answer at end of chapter.
Chapter 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
Pathways
or an investment. Proceed to Step 2. Challenge
If no, the item is classified and recorded as an expense.
This is Accounting!
▪ Step 2. Is the asset used in normal operations?
Information/Consequences
If yes, the asset is classified and recorded as a fixed asset.
Because a wireless license does not exist physically, Verizon’s (VZ) wireless licenses are intangible assets.
If no, the asset is classified and recorded
All of as ana wireless
the costs of acquiring investment.
license should 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 than a year
inite useful and
life. This aretheused
is because insubject
license is theto normal operations
renewal at a low of the FCC has
cost and, historically,
renewed Verizon’s licenses.
the business. However, standby equipment for use during peak periods or when other equip-
Verizon does not expense (amortize) the cost of its wireless licenses. Instead, the licenses are reviewed for
ment breaks down is still classified as a fixed asset, even though it is not used very often. In
any impaired value.
contrast, fixed assets that have been abandoned or are no longer used in operations are not
Suggested Answer
classified as fixed assets.
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
▪▪ Located
which
inconsists
eachofchapter,
land, buildings,
Why and equipment.
It M McDonald’s
atters shows students how accounting is important
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
F
ixed 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%
98169_ch09_ptg01_442-493.indd 493 25/09/17 5:39 PM
Microsoft Corporation (MSFT) Software 9%
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.
vi Preface
238 238 Chapter
Chapter
5 Accounting
5 Accounting
for Retail
forBusinesses
Retail Businesses
▪▪ To aid comprehension and to demonstrate the impact of transactions, journal entries
UnderUnder
includethethe
perpetual
the
netperpetual
inventory
effect inventory
of system,
the system,
cash purchases
transactioncashon
purchases
theof accounting
merchandise
of merchandise
are recorded
are recorded
equation. as follows:
as follows:
20Y8 20Y8
A 5 A L 51 L E 1 E Jan. 3Jan. Inventory
3 Inventory 2,510 2,510
12 12 Cash Cash 2,510 2,510
Purchased
Purchased
inventory
inventory
from Bowen
from Bowen
Co. Co.
Purchases
Purchases
of inventory
of inventory
on account
on account
are recorded
are recorded
as follows:
as follows:
A 5 A L 51 LE 1 E Jan. 4Jan. Inventory

4 Inventory 9,250 9,250
1 11 1 Accounts
Accounts
Payable—Thomas
Payable—Thomas
Corporation
Corporation 9,250 9,250
Purchased
Purchased
inventory
inventory
on account.
on account.
The terms
The terms
of purchases
of purchases
on account
on account
are normally
are normally
indicated
indicated invoice
on theon the invoice
or billor
that
billthe
that
seller
the seller
▪sends
▪ The link
sends
the between
buyer.
the buyer. Anthe
An example journal
example
of an of entry
invoice
an and
invoice
sent the
tosent to accounting
NetSolutions
NetSolutions equation
by Alpha
by Alpha is also
Technologies included
Technologies
is shown in in
is shown in
the
Exhibit accompanying
Exhibit
3. 3. CengageNOWv2 course in the accounting cycle chapters, reminding
students of the link—but not requiring them to actively make the link.
Exhibit
Exhibit
3 3
AlphaAlpha
Technologies
Technologies InvoiceInvoice
Invoice
Invoice 1000 Matrix
1000 Matrix
Blvd. Blvd. 106-8 106-8
San Jose,
SanCA
Jose,
95116-1000
CA 95116-1000
Made inMade
U.S.A.in U.S.A.
Sold ToSold To CUSToMER

CUSToMER oRdERoRdER
NetSolutions
NetSolutions oRdERoRdER
No. No. dATE dATE
5101 Washington
5101 Washington
Ave. Ave. 412 412 Jan. 3, 20Y8
Jan. 3, 20Y8
Cincinnati,
Cincinnati,
OH 45227-5101
OH 45227-5101
dATE ShIppEd
dATE ShIppEd how ShIppEd
how ShIppEd
ANd RoUTE
ANd RoUTE TERMSTERMS INvoICE INvoICE
dATE dATE
Jan. 5, 20Y8
Jan. 5, 20Y8 US Express
US Express
Trucking
Trucking
Co. Co. 2/10, n/30
2/10, n/30 Jan. 5, 20Y8
Jan. 5, 20Y8
FRoM FRoM F.o.B. F.o.B.

San Jose
San Jose Cincinnati
Cincinnati
▪▪ To aid learning and problem solving, throughout each chapter Check Up Corners provide
QUANTITy
QUANTITy dESCRIpTIoN
dESCRIpTIoN UNIT pRICE
UNIT pRICE AMoUNT AMoUNT
students
20
with step-by-step
20
guidance
HC9 Printer/Fax/Copiers
on how to solve
HC9 Printer/Fax/Copiers
problems. Problem-solving
150.00 150.00 3,000.00
3,000.00
tips help
462students avoid
Chapter common
9 Long-Term errors.
Assets: Fixed and Intangible
Check Up Corner 9-2 Selling Fixed Assets

The terms The terms for when for when
payments payments
for merchandise
for merchandise are toarebe tomadebe made
are called the credit
are called the credit
terms.terms.
If If
payment
Onpayment
the is
firstrequired
dayis
of required
on delivery,
the year, onCompany
Firefall delivery,
the purchased
terms
the terms
are cash
areor
equipment cash
at anet
costor
cash.
of net Otherwise,
cash.
$340,000. TheOtherwise,
the buyer
equipment the buyer
is allowed
is allowed
an an
was expected to have a useful life of four years, a residual value of $20,000, and is depreciated at a straight-
amount amount
line of oftime,
rate of Firefall
25%. known
time,sold
known
as
thethe credit
as theatcredit
equipment period, period,
in of
the beginning which
theinfourth
which
to year
pay.to The
pay.
when credit
the The credit
period
balance in the period
usually usually
beginsbegins
with with
the datetheofdate
accumulated thedepreciation
of
sale
theassale
shownas shown
account on$240,000.
was theoninvoice.
the invoice.
Journalize the entry to record the sale if the equipment
Ifwaspayment
sold for:
If payment is dueiswithin
due within
a stateda stated
number number
of days of after
days theafterinvoice
the invoice
date, such
date, as
such30 as
days,
30 days,
the the
termsa. terms
$95,000
are net are30net
days.
30 These
days. Theseterms terms
may be maywritten as n/30.
be written as 2n/30.
If payment
2
If payment
is dueisbyduethebyendtheofend
theof the
monthb. month
$105,000
in which in which
the sale thewassalemade,
was made,
the termsthe terms
are written as n/eom.
are written as n/eom.
2 Solution:
The word
2
The
netword
as used
nethere
as used
does
here
notdoes
havenot
thehave
usualthe
meaning
usual meaning
of a number
of a number
after deductions
after deductions
have been
have
subtracted,
been subtracted,
as in net as in net income.
income.
a. Equipment sold for $95,000:
WhyWhy
It It
Matters
Matters Cash terms, terms,
then the
then
Accumulated Depreciation—Equipment
eratingerating
company
the company
95,000
240,000
cycle. For
cycle.
example,
is ableistoable
For example, Apple
use to
Apple
suppliers
(AAPL)
use suppliers
(AAPL)
to finance
to finance
is ableistoable
the op-the op-
collect
to collect
on on
Loss on Sale of Equipment 5,000
sales within
sales within
an average
an average
of approximately
of approximately
30 days.
30 However,
days. However,
Apple Apple
Apple’s
Apple’s
CreditCredit
Terms Terms Equipment
uses anuses
average
an average
340,000
of approximately
of approximately 100 days100todays
paytoitspaysuppliers.
its suppliers.
WW
orkingorking
capitalcapital
efficiency
efficiency
is influenced
is influenced
by theby relationship
the relationship Thus, Apple
Thus, AppleSelling
collects Price
collects
faster – Book Value
faster
than =
itthan
pays,it allowing
pays,Accumulated
allowing
Apple Apple
to use tothe
use the
$95,000 – $100,000 Depreciation at
between
between
the suppliers’
the suppliers’
and customers’
and customers’
credit credit
terms. terms. suppliers’
If the If the suppliers’
moneymoney
as an interest-free
as an interest-free
loan forloan
the for
70-day
the 70-day
(100 days(100–days –
b. Equipment sold for $105,000: the End of Year 3
suppliers’
suppliers’
credit terms
credit are
termslonger
are longer
than the
thancustomers’
the customers’
credit credit30 days)
30difference.
days) difference.
Source: Apple®
Source: 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_ch05_rev03_232-297.indd
98169_ch05_rev03_232-297.indd
238 238 16/08/17 16/08/17
5:10 pm 5:10 pm
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
The
make cost and related accumulated
decisions depletion
and evaluate of mineral
their rights are
business. normally
This shown asstudents
provides part of the with context of why
“Fixed assets” section of the balance sheet. The mineral rights may be shown net of depletion on
accounting
the face is sheet.
of the balance important to companies.
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
Sales its fixed assets.
Fixed Asset Turnover Ratio =
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
REAL WORLD
media. Amazon also designs and sells electronic products, such as e-readers. Netflix, Inc.
(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
REAL WORLD
regarding
Copyright 2020 Cengage Learning. All Rights Reserved. fixed
May notassets:
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).
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.
Preface ix
Motivation: Prepare Them for Class

With all the outside obligations accounting students have, finding time to read the textbook
before class can be a struggle. Point students to the key concepts they need to know before
they attend class.
▪▪ Video: Tell Me More. Short Tell Me More lecture activities explain the core concepts of the
chapter through an engaging auditory and visual presentation. Available either on a stand-
alone basis or as an assignment, they are ideal for all class formats—flipped model, online,
hybrid, or face-to-face.
Provide Help Right When Students Need It

The best way to learn accounting is through practice, but students often get stuck when
attempting homework assignments on their own.
▪▪ Video: Show Me How. Created for the most frequently assigned end-of-chapter items,
Show Me How problem demonstration videos provide a step-by-step model of a similar
problem. Embedded tips help students avoid common mistakes and pitfalls.
SHOW ME HOW
x Preface
Help Students Go Beyond Memorization to True

Understanding
Students often struggle to understand how concepts relate to one another. For most students, an
introductory accounting course is their first exposure to both business transactions and the account-
ing system. While these concepts are already difficult to master individually, their combination
and interdependency in the introductory accounting course often pose a challenge for students.
▪▪ Mastery Problems. Mastery Problems enable you to assign problems and activities de-
signed to test students’ comprehension and mastery of difficult concepts.
MindTap eReader
The MindTap eReader for Warren/Jones/Tayler’s Financial and Managerial Accounting is
the most robust digital reading experience available. Hallmark features include:
▪▪ Fully optimized for the iPad.
▪▪ Note taking, highlighting, and more.
▪▪ Embedded digital media.
▪▪ The MindTap eReader also features ReadSpeaker®, an online text-to-speech application that
vocalizes, or “speech-enables,” online educational content. This feature is ideally suited
for both instructors and learners who would like to listen to content instead of (or in
addition to) reading it.
Cengage Unlimited
Cengage Unlimited is a first of-its-kind digital subscription designed specifically to lower costs.
Students get total access to everything Cengage has to offer on demand—in one place. That’s
20,000 eBooks, 2,300 digital learning products, and dozens of study tools across 70 disciplines and
over 675 courses. Currently available in select markets. Details at www.cengage.com/unlimited.
New to This Edition

In all chapters, the following improvements have been made: ▪▪ New items have been added to the Take It Further
▪▪ Chapter schemas have been revised throughout. section of the chapter.
▪▪ Link to, Analysis for Decision Making, and Make a Deci- ▪▪ New Certified Management Accountant (CMA®) Exam-
sion page references added at the beginning of the ination Questions help students prepare for the CMA
chapter, as appropriate, allow students to easily locate exam so they can earn CMA certification.
the ties to the opening company throughout the chapter.
▪▪ New learning objective for Analysis for Decision M
aking. Chapter 1
▪▪ Stock ticker symbol has been inserted for all real- ▪▪ Enhancing characteristics added to discussion of
world (publicly listed) companies. This helps students GAAP.
to use financial websites to locate real company data. ▪▪ Discussion of fiscal year added to time period discussion
▪▪ Years are now identified as 20Y1, 20Y2, …., 20Y9. of GAAP (moved from Chapter 6). This is consistent with
▪▪ New Pathways Challenge feature added, consistent with use of fiscal years throughout Chapters 1–4 and with the
the work of the Pathways Commission. This feature fact that many publicly traded companies use fiscal years
emphasizes the critical thinking aspect of accounting. not ending in December 31.
A Suggested Answer to the Pathways Challenge is pro- ▪▪ The statement of stockholders’ equity replaces the
vided at the end of the chapter. retained earnings statement. This is consistent with
▪▪ New Make a Decision section at the end of the the financial reporting of publicly held companies
Analysis for Decision Making directs students and that report a statement of stockholders’ equity rather
instructors to the real-world company end-of-chapter than a retained earnings statement.
materials related to Analysis for Decision Making. ▪▪ Exhibit 8 revised to show the interrelationships of
Also, the continuing company analysis is identified the statement of stockholders’ equity with the income
and referenced in this Make a Decision section. statement and balance sheet.
▪▪ New exercise based on Analysis for Decision Making has
been added to the Let’s Review section of the chapter.
Preface xi
Chapter 2 the financial reporting of publicly held companies

that report a statement of stockholders’ equity rather
▪▪ Revised the discussion of correcting entries and inserted
than a retained earnings statement.
new exhibit to better enhance student understanding.
Chapter 3 Chapter 6
▪▪ New Check Up Corner on weighted average inventory
▪▪ Exhibit 1 (Accruals) has been revised to make it con-
method has been added.
sistent with Exhibit 2 (Deferrals).
▪▪ New exhibit on weighted average flow of costs has
▪▪ The chapter has been changed so that accruals are
been added.
discussed and illustrated first, followed by deferrals.
▪▪ Weighted average illustration has been added to
Accruals are the simplest adjustment (no entry has
Check Up Corner 6-3.
been made). Thus, the chapter discussion now goes
▪▪ Added an illustration of the lower of cost or net real-
from simple to complex, which facilitates student
izable for inventory applied by different classes of
understanding of this complex topic.
inventory (Exhibit 10).
Chapter 4
Chapter 7
▪▪ New learning objectives for Appendices 1 and 2.
▪▪ Presentation of bank reconciliation has been refor-
▪▪ The statement of stockholders’ equity replaces the
matted.
retained earnings statement. This is consistent with
the financial reporting of publicly held companies
Chapter 9
that report a statement of stockholders’ equity rather
than a retained earnings statement. ▪▪ New Check Up Corner on selling fixed assets was
▪▪ Exhibit 1 revised to show the interrelationships of added.
the statement of stockholders’ equity with the income ▪▪ Lease discussion was modified to reflect the latest
statement and balance sheet. accounting standard.
▪▪ Simplified and updated the closing process so that two
Chapter 10
rather than four closing entries are required. Doing so
eliminates the temporary (clearing) account Income ▪▪ Simplified Exhibit 1 by removing cash/sales discounts.
Summary, which students have difficulty understanding.
▪▪ Exhibit 8 (Accounting Cycle) revised and made more Chapter 11
readable. ▪▪ Present value formulas have been added to Appendix
1, “Present Value Concepts and Pricing Bonds Pay-
Chapter 5 able.”
▪▪ Chapter has been retitled as “Accounting for Retail
Businesses.” Using Retail in the title rather than Mer- Chapter 12
chandising is more current terminology that students ▪▪ Added brief discussion of different classes of common
can identify with. stock (Classes A, B, and C).
▪▪ Schema revised to only focus on the financial state-
ments and the key accounts that will be discussed Chapter 15
within the chapter. ▪▪ “Managerial Accounting in the Organization” section
▪▪ New learning objective and separate discussion for significantly revised to discuss horizonal and vertical
the adjusting process of a retail business. business units; McAfee, Inc., is used as an illustration.
▪▪ New learning objective and Appendix “Gross Method ▪▪ New Why It Matters features the IMA and CMA.
of Recording Sales Discounts.” This gives instructors ▪▪ New Why It Matters features vertical and horizontal
flexibility as to whether to cover the net or gross functions for service companies.
methods of accounting for sales discounts. ▪▪ Discussion of sustainability and accounting moved to
▪▪ Chart of Accounts for NetSolutions as a Retail Busi- new Chapter 28.
ness (Exhibit 2) has been moved earlier in the chapter
so that students can focus on the new accounts spe- Chapter 16
cific to retail businesses.
▪▪ Discussion of sustainability and accounting moved to
▪▪ Customer refunds, allowances, and returns discussion
new Chapter 28.
has been simplified to progress from simple to com-
▪▪ Added one new Analysis for Decision Making item.
plex, as summarized in Exhibit 7.
▪▪ Closing process for a retail business has been revised
to use a two-entry closing process. Chapter 17
▪▪ The statement of stockholders’ equity replaces the ▪▪ Why It Matters feature (Sustainable Papermaking)
retained earnings statement. This is consistent with moved to Chapter 28.
xii Preface
▪▪ Lean manufacturing discussion with related home- Chapter 24

work items moved to Chapter 27.
▪▪ Balanced scorecard discussion moved to Chapter 28.
Chapter 18 Chapter 25
▪▪ Added Learning Objective 7: Describe and illustrate
▪▪ Total cost and variable cost concepts for product pric-
the use of activity-based costing information in deci-
ing were moved to an end-of-chapter appendix.
sion making.
▪▪ Added one new Make a Decision item.
Chapter 19—NEW Chapter Chapter 26
▪▪ Learning Objectives:
▪▪ Analysis for Decision Making on capital investment
•• Describe support departments and support depart- for sustainability has been moved to Chapter 28.
ment costs. ▪▪ Added new Analysis for Decision Making entitled
•• Describe the allocation of support department costs “Uncertainty: Sensitivity and Expected Value Analyses.”
using a single plantwide rate, multiple department ▪▪ Added six new Make a Decision items.
rates, and activity-based costing.
•• Allocate support department costs to production Chapter 27
departments using the direct method, sequential
▪▪ Added Objective 4: Describe and illustrate the use of
method, and reciprocal services method.
lean principles and activity analysis in a service or
•• Describe joint products and joint costs.
administrative setting.
•• Allocate joint costs using the physical units,
weighted average, market value at split-off, and
Chapter 28—NEW Chapter
net realizable value methods.
•• Describe and illustrate the use of support depart- ▪▪ Learning Objectives:
ment and joint cost allocations to evaluate the •• Describe the concept of a performance measure-
performance of production managers. ment system.
•• Describe and illustrate the basic elements of a bal-
Chapter 20 anced scorecard.
▪▪ Added one new Analysis for Decision Making item. •• Describe and illustrate the balance scorecard,
including the use and impact of strategy maps,
Chapter 21 measure maps, strategic learning, scorecard cas-
cading, and cognitive biases.
▪▪ Contribution margin analysis deleted from chapter.
•• Describe corporate social responsibility (CSR),
▪▪ Revenue variance portion added as an appendix to
including methods of measuring and encouraging
Chapter 23.
social responsibility using the balanced scorecard.
•• Use capital investment analysis to evaluate CSR
Chapter 22 projects.
Appendix D Investments
Chapter 23 ▪▪ The investments appendix has been updated to be con-
▪▪ Added new appendix on revenue variances. sistent with Financial Instruments, Subtopic 825-10,
▪▪ Nonfinancial performance measures (previously FASB Accounting Standards Update, Financial Account-
Learning Objective 6) moved to Chapter 28. ing Standards Board, Norwalk, CT, January 2016.
▪▪ Added four new revenue variance exercises.
Acknowledgements
The many enhancements to this edition of Financial and Managerial Accounting are the direct result of reviews,
surveys, and focus groups with instructors at institutions across the country. We would like to take this opportunity
to thank those who have helped us better understand the challenge of the financial accounting course and provided
valuable feedback on our content and digital assets.
John Alpers, Tennessee Wesleyan Dave Fitzgerald, Jackson College Dr. April Poe, University of the
Anne Marie Anderson, Raritan Valley Kenneth Flug, St. Thomas Aquinas Incarnate Word
Community College College Francisco Rangel, Riverside City
Rick Andrews, Sinclair Community John Giles, North Carolina State College
College University Jeffery Reinking, University of
Maureen Baker, Long Beach City Marcye Hampton, University of Central Florida – Orlando
College Central Florida Jenny Resnick, Santa Monica College
Surasakdi Bhamornsiri, University of Christopher Harper, Grand Valley Benjamin Reyes, Long Beach City
North Carolina at Charlotte State University College
Alan Blankley, University of North Thomas Heikkinen, Jackson College Vernon Richardson, University of
Carolina at Charlotte Melanie Hicks, Liberty University Arkansas
Cindy Bolt, The Citadel Susanne Holloway, Salisbury University Patrick Rogan, Cosumnes River
Julie Bonner, Central Washington Jose Hortensi, Miami Dade College College
University Md Safayat Hossain, Florida Lauran B. Schmid, The University of
Charles Boster, Salisbury University International University Texas Rio Grande Valley
Salma Boumediene, Montana State Su-Jane Hsieh, San Francisco State Jennifer Schneider, University of
University – Billings University North Georgia
Jerold K. Braun, Daytona State College Aileen Huang, Santa Monica College Mary Sheil, Kennesaw State University
Louise Burney, University of Mississippi Julie Ying Huang, University of Meghna Singhvi, Loyola Marymount
Shauna Butler, St. Thomas Aquinas Louisville University
College Ann Kelley, Providence College Margie Snow, Norco College
James N. Cannon, Iowa State University Daniel Kim, Midlands Technical College Mona Stephens, Southern New
Kirk Canzano, Long Beach City College Angela Kirkendall, South Puget Hampshire University
Jack Cathey, University of North Sound Community College Linda Stoller, Bentley University
Carolina at Charlotte Satoshi Kojima, East Los Angeles Michael Stoots, UCLA extension
Donna Chadwick, Sinclair College Nirmalee Summers, University of
Community College Charles Leflar, University of Arkansas Wisconsin – La Crosse
Ming Lu Chun, Santa Monica College Tara Maciel, San Diego Mesa College Dominique Svarc, Harper College
Anne Clem, Iowa State University Annette Maddox, Georgia Highlands Patricia Tupaj, Quinsigamond
Dixon Cooper, Ouachita Baptist College Community College
University LuAnn Bean Mangold, Florida Bill Urquhart, Florida Atlantic
Bryan Corsnitz, Long Beach City Institute of Technology University
College Eric Martin, University of Tennessee Rodney Vogt, Kansas State University
Pat Creech, Northeastern Oklahoma Robert A. Martin, Kennesaw State Rick Warne, University of Cincinnati
A&M University Randi Watts, Baker College
Stephan Davenport, University of Michelle McFeaters, Grove City College Cammy Wayne, Harper College
Tennessee – Chattanooga Dawn McKinley, Harper College Vivian Winston, Indiana University
David Deboskey, San Diego State Allison McLeod, University of North Jan Workman, East Carolina University
Daniel De La Rosa, Fullerton College Texas Glen Young, Texas A&M University –
Heather Demshock, Lycoming College Rodney Michael College Station
Scott Dotson, Tennessee Wesleyan Shawn Miller, Lone Star College Mellissa Youngman, National Technical
University Jill Mitchell, Northern Virginia Institute for the Deaf, RIT
Hong Duong, Salisbury University Community College – Alexandria Mustafa Younis, Tulane University
Desiree Elias, Florida International DeeAnne Lynn Peterson-Meyer, Fang Zhao, Florida International
University University of Wisconsin – Eau University
James Emig, Villanova University Claire Terri Ziegler, Ohio State University
Valerie Evans, Kansas State University
xiii
xiv Acknowledgements
Special thanks to our Financial Accounting Advisory Board Members:
Reb Beatty, Anne Arundel Steven Hegemann, University of Don Minyard, University of Alabama
Community College Nebraska – Lincoln Micki Nickla, Ivy Tech Community
Amy Bourne, Oregon State University Todd Jensen, Sierra College College – Gary
Rachel Brassine, East Carolina Sergey Komissarov, University of John Robertson, Arkansas State
University Wisconsin – La Crosse University
Gregory Brookins, Santa Monica Anthony Kurek, Eastern Michigan Philip Slater, Forsyth Technical
College University Community College
Marci Butterfield, University of Utah Joseph Larkin, Saint Joseph’s University Bob Urell, Irvine Valley College
Lawrence Chui, University of St. Gary Laycock, Ivy Tech Community Alycia Marie Winegardner, University
Thomas College – Terre Haute of Tennessee – Knoxville
Jerrilyn Eisenhauer, Tulsa Kristy McAuliffe, San Jacinto College
Community College – Southeast Melanie McCoskey, University of Akron
Shari Fowler, Indiana University – East Allison McLeod, University of North
Micah Frankel, California State Texas
University – East Bay
About the Authors
Carl S. Warren
Dr. Carl S. Warren is Professor Emeritus of Accounting at the University of Georgia, Athens.
©TERRY R. SPRAY INHISIMAGE STUDIOS

Dr. Warren has taught classes at the University of Georgia, University of Iowa, Michigan
State University, and University of Chicago. He has focused his teaching efforts on prin-
ciples of accounting and auditing. Dr. Warren received his Ph.D. from Michigan State
University and his BBA and MA from the University of Iowa. During his career, Dr. Warren
published numerous articles in professional journals, including The Accounting Review,
Journal of Accounting Research, Journal of Accountancy, The CPA Journal, and Auditing:
A Journal of Practice and Theory. Dr. Warren has served on numerous committees of the
American Accounting Association, the American Institute of Certified Public Accountants,
and the Institute of Internal Auditors. He has consulted with numerous companies and
public accounting firms. His outside interests include handball, golfing, skiing, backpack-
ing, motorcycling, and fly-fishing. He also enjoys interacting with his five grandchildren,
Bella and Mila (twins), Jeremy, and Brooke and Robbie (twins).
Jefferson P. Jones
Dr. Jefferson P. Jones is an Associate Professor of Accounting in the School of Accountancy
at Auburn University where he teaches financial accounting and applied financial research
courses. He received his Bachelor’s in Accounting and Master of Accountancy degrees
© THOMAS BOUTWELL, T2PHOTOGRAPHY

from Auburn University and his Ph.D. from Florida State University. Dr. Jones has received
numerous teaching awards, including the Auburn University Beta Alpha Psi Outstanding
Teaching Award (ten times); the Auburn University Outstanding Master of Accountancy Pro-
fessor Teaching Award (five times); the Auburn University Outstanding Distance Master of
Accountancy Teaching Award (three times); and the Auburn University College of Business
McCartney Teaching Award. In addition, he has made numerous presentations around the
country on research and pedagogical issues. Dr. Jones has public accounting experience
as an auditor with Deloitte and Touche, holds a CPA certificate in the state of Alabama
(inactive), and is a member of the American Accounting Association, the American Institute
of Certified Public Accountants (AICPA), and the Alabama Society of CPAs (ASCPA). His
research interests focus on financial accounting, specifically investigating the quality of
reported accounting information, and accounting education. He has published articles in
numerous journals, including Advances in Accounting, Review of Quantitative Finance and
Accounting, Issues in Accounting Education, International Journal of Forecasting, and The
CPA Journal. When not at work, Dr. Jones enjoys playing golf and watching college football.
William B. Tayler
Dr. William B. Tayler is the Robert J. Smith Professor of Accountancy in the Marriott
School of Business at Brigham Young University (BYU). Dr. Tayler is an internationally
renowned, award-winning accounting researcher and instructor. He has presented his
research as an invited speaker at universities and conferences across the globe. Dr. Tayler
earned his Ph.D. and master’s degree at Cornell University. He teaches in BYU’s Executive
MBA Program and in BYU’s School of Accountancy, one of the top ranked accounting
programs in the world. Dr. Tayler has also taught at Cornell University and Emory Uni-
versity and has received multiple teaching awards. Dr. Tayler is a Certified Management
© EMORY UNIVERSITY
Accountant and consultant specializing in cost accounting, performance measurement,

the assignment of decision rights, and incentive compensation. His work has been pub-
lished in top journals, including Accounting Horizons, Accounting, Organizations and
Society, The Accounting Review, Contemporary Accounting Research, IMA Educational
Case Journal, Journal of Accounting Research, Journal of Behavioral Finance, Journal
of Finance, Review of Financial Studies, and Strategic Finance. Dr. Tayler serves on
the editorial boards of The Accounting Review, Management Accounting Research, and
Accounting, Organizations and Society. He is also director of the Institute of Manage-
ment Accountants Research Foundation.
xv
Brief Contents
1 Introduction to Accounting and Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

2 Analyzing Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
3 The Adjusting Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
4 The Accounting Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
5 Accounting for Retail Businesses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232
6 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298
7 Internal Control and Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350
8 Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396
9 Long-Term Assets: Fixed and Intangible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 442
10 Liabilities: Current, Installment Notes, and Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 494
11 Liabilities: Bonds Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 542
12 Corporations: Organization, Stock Transactions, and Dividends . . . . . . . . . . . . . . . . . . . . . . . . 580
13 Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 626
14 Financial Statement Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 686
15 Introduction to Managerial Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 748
16 Job Order Costing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 792
17 Process Cost Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 840
18 Activity-Based Costing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 896
19 Support Department and Joint Cost Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 950
20 Cost-Volume-Profit Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 994
21 Variable Costing for M anagement Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1048
22 Budgeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1098
23 Evaluating Variances from Standard Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1156
24 Evaluating Decentralized Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1206
25 Differential Analysis and Product Pricing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1256
26 Capital Investment Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1310
27 Lean Manufacturing and Activity Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1358
28 The Balanced Scorecard and Corporate Social Responsibility. . . . . . . . . . . . . . . . . . . . . . . . . . 1400
Appendix A Interest Tables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-2

Appendix B Revenue Recognition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Appendix C International Financial Reporting Standards (IFRS). . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
Appendix D Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
Appendix E Nike Inc., Form 10-K for the Fiscal Year Ended May 31, 2017 Selected Excerpts. . . . E-1
Appendix F Special Journals and Subsidiary Ledgers (online). . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1
Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
xvi
Contents
1 Introduction to Accounting
and Business 2
Analysis for Decision Making 80
Horizontal Analysis 80
Make a Decision 104

Nature of Business and Accounting 4 Take It Further 106
Types of Businesses 4 Pathways Challenge 75, 107
Role of Accounting in Business 5
Role of Ethics in Accounting and Business 6
3
Opportunities for Accountants 7
Generally Accepted Accounting

Principles (GAAP) 9 The Adjusting Process 108
Characteristics of Financial Information 9
Assumptions 10 Nature of the Adjusting Process 111
Principles 12 Accrual and Cash Basis of Accounting 111
The Accounting Equation 12 Revenue and Expense Recognition 112
The Adjusting Process 112
Business Transactions and the Accounting Equation 13 Types of Accounts Requiring Adjustment 113
Summary 17
Classifications of Stockholders’ Equity 18 Adjusting Entries for Accruals 114
Accrued Revenues 114
Financial Statements 19 Accrued Expenses 115
Income Statement 21
Statement of Stockholders’ Equity 21 Adjusting Entries for Deferrals 118
Balance Sheet 22 Unearned Revenues 118
Statement of Cash Flows 23 Prepaid Expenses 119
Interrelationships Among Financial Statements 24 Adjusting Entries for Depreciation 122
Analysis for Decision Making 26 Summary of Adjusting Process 124
Ratio of Liabilities to Stockholders’ Equity 26
Adjusted Trial Balance 128
Make a Decision 52
Take It Further 53 Vertical Analysis 129
Pathways Challenge 11, 55 Make a Decision 153
2
Take It Further 155
Pathways Challenge 128, 157
Analyzing Transactions 56
Using Accounts to Record Transactions 59
Chart of Accounts 60
Double-Entry Accounting System 62

4 The Accounting Cycle 158
Balance Sheet Accounts 62 Flow of Accounting Information 161
Income Statement Accounts 62
Statement of Stockholders’ Equity Accounts (Dividends) 63 Financial Statements 163
Normal Balances 63 Income Statement 163
Journalizing 64 Statement of Stockholders’ Equity 163
Balance Sheet 165
Posting Journal Entries to Accounts 68
Closing Entries 168
Trial Balance 77 Journalizing and Posting Closing Entries 169
Errors Affecting the Trial Balance 78 Post-Closing Trial Balance 174
Errors Not Affecting the Trial Balance 79
Accounting Cycle 175
xvii
xviii Contents
Illustration of the Accounting Cycle 178 Financial Statements and Closing Entries for a Retail
Step 1. Analyzing and Recording Transactions Business 254
in the Journal 178 Multiple-Step Income Statement 254
Step 2. Posting Transactions to the Ledger 179 Single-Step Income Statement 256
Step 3. Preparing an Unadjusted Trial Balance 179 Statement of Stockholders’ Equity 256
Step 4. Assembling and Analyzing Adjustment Data 179 Balance Sheet 257
Step 5. Preparing an Optional End-of-Period Spreadsheet 181 The Closing Process 258
Step 6. Journalizing and Posting Adjusting Entries 182
Step 7. Preparing an Adjusted Trial Balance 182 Analysis for Decision Making 259
Step 8. Preparing the Financial Statements 182 Asset Turnover Ratio 259
Step 9. Journalizing and Posting Closing Entries 185 Appendix 1 Gross Method of
Step 10. Preparing a Post-Closing Trial Balance 185
Recording Sales Discounts 260
Analysis for Decision Making 188 Transactions 260
Working Capital and Current Ratio 188 Adjusting Entry 261
Subsequent Period 262
Appendix 1 End-of-Period Spreadsheet 190 Comparison with the Net Method 262
Step 1. Enter the Title 190
Step 2. Enter the Unadjusted Appendix 2 The Periodic Inventory System 263
Trial Balance 190 Chart of Accounts Under the Periodic Inventory System 263
Step 3. Enter the Adjustments 191 Recording Merchandise Transactions Under the
Step 4. Enter the Adjusted Trial Balance 192 Periodic Inventory System 264
Step 5. Extend the Accounts to the Income Statement and Adjusting Process Under the Periodic Inventory System 265
Balance Sheet Columns 193 Financial Statements Under the Periodic Inventory System 266
Step 6. Total the Income Statement and Balance Sheet Closing Entries Under the Periodic Inventory System 266
Columns, Compute the Net Income or Net Loss, and
Complete the Spreadsheet 194 Comprehensive Problem 2 291
Preparing the Financial Statements Make a Decision 293
from the Spreadsheet 195
Take It Further 294
Appendix 2 Reversing Entries 195
Comprehensive Problem 1 226
Make a Decision 227
Take It Further 229
Pathways Challenge 175, 231 6 Inventories 298
5
Control of Inventory 300
Accounting for Retail Safeguarding Inventory 300
Businesses 232 Reporting Inventory 301
Inventory Cost Flow Assumptions 301

Nature of Retail Businesses 234 Inventory Costing Methods Under
Operating Cycle 234 a Perpetual Inventory System 303
Financial Statements 235 First-In, First-Out Method 303
Last-In, First-Out Method 305
Merchandise Transactions 236
Weighted Average Cost Method 307
Chart of Accounts for Retail Business 236
Subsidiary Ledgers 237 Inventory Costing Methods Under
Purchases Transactions 237 a Periodic Inventory System 309
Sales Transactions 242 First-In, First-Out Method 309
Freight 246 Last-In, First-Out Method 309
Summary: Recording Inventory Transactions 249 Weighted Average Cost Method 311
Dual Nature of Merchandise Transactions 249
Sales Taxes and Trade Discounts 249 Comparing Inventory Costing Methods 313
The Adjusting Process 251 Reporting Inventory in the
Adjusting Entry for Inventory Shrinkage 251 Financial Statements 314
Adjusting Entries for Customer Refunds, Valuation at Lower of Cost or Market 314
Allowances, and Returns 252 Inventory on the Balance Sheet 316
Adjusted Trial Balance 253 Effect of Inventory Errors on the
Financial Statements 317
Contents xix
Analysis for Decision Making 320 Allowance Method for Uncollectible Accounts 400
Inventory Turnover and Number of Days’ Sales in Inventory 320 Write-Offs to the Allowance Account 401
Estimating Uncollectibles 403
Appendix Estimating Inventory Cost 322
Retail Method of Inventory Costing 322 Comparing Direct Write-Off and Allowance
Gross Profit Method of Inventory Costing 323 Methods 409
Make a Decision 345 Notes Receivable 410
Characteristics of Notes Receivable 410
Take It Further 346 Accounting for Notes Receivable 412
Pathways Challenge 317, 348 Reporting Receivables on the Balance Sheet 414
7
Accounts Receivable Turnover and Number of Days’ Sales in
Receivables 415
Internal Control and Cash 350 Make a Decision 437
Take It Further 439
Sarbanes-Oxley Act 352
Internal Control 354
9
Objectives of Internal Control 354
Elements of Internal Control 354 Long-Term Assets: Fixed and
Control Environment 355
Risk Assessment 356 Intangible 442
Control Procedures 356
Monitoring 358 Nature of Fixed Assets 444
Information and Communication 358 Classifying Costs 444
Limitations of Internal Control 359 The Cost of Fixed Assets 446
Cash Controls over Receipts and Payments 360 Leasing Fixed Assets 447
Control of Cash Receipts 360 Accounting for Depreciation 448
Control of Cash Payments 362 Factors in Computing Depreciation Expense 448
Bank Accounts 363 Straight-Line Method 449
Bank Statement 363 Units-of-Activity Method 451
Using the Bank Statement as a Control over Cash 365 Double-Declining-Balance Method 453
Comparing Depreciation Methods 454
Bank Reconciliation 366 Partial-Year Depreciation 457
Special-Purpose Cash Funds 370 Revising Depreciation Estimates 457
Repair and Improvements 458
Financial Statement Reporting of Cash 371
Disposal of Fixed Assets 460
Analysis for Decision Making 372 Discarding Fixed Assets 460
Days’ Cash on Hand 372 Selling Fixed Assets 461
Make a Decision 392 Natural Resources 462
Take It Further 394 Intangible Assets 464
Patents 464
Copyrights and Trademarks 465
Goodwill 465
8
Financial Reporting for Long-Term Assets:
Fixed and Intangible 468
Receivables 396
Fixed Asset Turnover Ratio 469
Classification of Receivables 398
Accounts Receivable 398 Appendix Exchanging Similar Fixed Assets 471
Notes Receivable 398 Gain on Exchange 471
Other Receivables 399 Loss on Exchange 472
Uncollectible Receivables 399 Make a Decision 490

Direct Write-Off Method for Uncollectible Take It Further 491
Accounts 400 Pathways Challenge 467, 493
xx Contents
10 Liabilities: Current,
Installment Notes, and
Contingencies 494
Appendix 1 Present Value Concepts and
Pricing Bonds Payable 556
Present Value Concepts 556
Pricing Bonds 559
Computing Present Values 560
Current Liabilities 496 Appendix 2 Effective Interest Rate Method
Accounts Payable and Accruals 496 of Amortization 561
Short-Term Notes Payable 497 Amortization of Discount by the Interest Method 561
Current Portion of Long-Term Debt 498 Amortization of Premium by the Interest Method 562
Payroll Liabilities 499 Make a Decision 577
Liability for Employee Earnings 499
Deductions from Employee Earnings 500 Take It Further 578
Computing Employee Net Pay 501 Pathways Challenge 553, 579
Employer’s Payroll Taxes 501
Recording Payroll 502
12
Paying Payroll 504
Internal Controls for Payroll 504 Corporations: Organization,
Employees’ Fringe Benefits 504 Stock Transactions, and
Vacation Pay 504
Pensions 505 Dividends 580
Postretirement Benefits Other than Pensions 506
Installment Notes 507 Nature of a Corporation 582
Issuance 507 Characteristics of a Corporation 582
Periodic Payments 507 Forming a Corporation 583
Contingent Liabilities 510 Paid-In Capital from Stock 585
Probable and Estimable 510 Characteristics of Stock 585
Probable and Not Estimable 510 Types of Stock 586
Reasonably Possible 511 Issuing Stock 588
Remote 511 Premium on Stock 589
No-Par Stock 590
Reporting Liabilities 513
Analysis for Decision Making 513 Accounting for Dividends 591
Cash Dividends 592
Quick Ratio 513
Stock Dividends 593
Stock Splits 594
Make a Decision 536
Treasury Stock Transactions 595
Take It Further 539
Reporting Stockholders’ Equity 597
Pathways Challenge 512, 541 Stockholders’ Equity on the Balance Sheet 597
Reporting Retained Earnings 598
11
Statement of Stockholders’ Equity 600
Reporting Stockholders’ Equity for Alphabet 601
Liabilities: Bonds Payable 542 Earnings per Share 602
Nature of Bonds Payable 544
Bond Characteristics and Terminology 544 Make a Decision 621
Proceeds from Issuing Bonds 545 Take It Further 622
Accounting for Bonds Payable 547 Pathways Challenge 588, 625
Bonds Issued at Face Amount 547
Bonds Issued at a Discount 547
13
Amortizing a Bond Discount 548
Bonds Issued at a Premium 550 Statement of Cash
Amortizing a Bond Premium 551 Flows 626
Bond Redemption 552
Reporting Bonds Payable 554 Reporting Cash Flows 628
Analysis for Decision Making 555 Cash Flows from Operating Activities 629
Times Interest Earned 555 Cash Flows from Investing Activities 631
Contents xxi
Cash Flows from Financing Activities 631 Analyzing Solvency 700

Noncash Investing and Financing Activities 632 Ratio of Fixed Assets to Long-Term Liabilities 700
Format of the Statement of Cash Flows 632 Ratio of Liabilities to Stockholders’ Equity 700
No Cash Flow per Share 633 Times Interest Earned 701
Cash Flows from Operating Activities— Analyzing Profitability 702
The Indirect Method 633 Asset Turnover 703
Net Income 635 Return on Total Assets 703
Adjustments to Net Income 635 Return on Stockholders’ Equity 704
Return on Common Stockholders’ Equity 705
Cash Flows from Investing Activities 638
Earnings per Share on Common Stock 706
Land 638
Price-Earnings Ratio 707
Building and Accumulated Depreciation—Building 639
Dividends per Share 708
Cash Flows from Financing Activities 640 Dividend Yield 708
Bonds Payable 640 Summary of Analytical Measures 710
Common Stock 640
Dividends and Dividends Payable 641
Corporate Annual Reports 711
Management Discussion and Analysis 711
Preparing the Statement of Cash Flows 642
Report on Internal Control 712
Analysis for Decision Making 644 Report on Fairness of the Financial Statements 712
Free Cash Flow 644
Appendix 1 Unusual Items on the Income
Appendix 1 Spreadsheet (Work Sheet) for Statement Statement 713
of Cash Flows—The Indirect Method 645 Unusual Items Affecting the Current Period’s
Analyzing Accounts 646 Income Statement 713
Retained Earnings 647 Unusual Items Affecting the Prior Period’s
Other Accounts 647 Income Statement 714
Preparing the Statement of Cash Flows 648
Appendix 2 Fair Value and Comprehensive
Appendix 2 Preparing the Statement of Cash Income 714
Flows—The Direct Method 648 Fair Value 715
Cash Received from Customers 649 Comprehensive Income 715
Cash Payments for Merchandise 649
Cash Payments for Operating Expenses 650 Make a Decision 743
Gain on Sale of Land 650 Take It Further 744
Interest Expense 651
Cash Payments for Income Taxes 651 Pathways Challenge 707, 746
Reporting Cash Flows from Operating
Activities—Direct Method 651
15
Make a Decision 680
Introduction to Managerial
Take It Further 683
Accounting 748
Managerial Accounting 750
14 Financial Statement Differences Between Managerial and Financial Accounting 751

Managerial Accounting in the Organization 752
Analysis 686 The Management Process 754
Uses of Managerial Accounting Information 755
Analyzing and Interpreting Financial Manufacturing Operations 757

Statements 688 Nature of Manufacturing 757
The Value of Financial Statement Information 688 Direct and Indirect Costs 757
Techniques for Analyzing Financial Statements 689 Manufacturing Costs 758
Analytical Methods 689 Financial Statements for a Manufacturing

Horizontal Analysis 689 Business 763
Vertical Analysis 691 Balance Sheet 763
Common-Sized Statements 693 Income Statement 764
Analyzing Liquidity 694 Analysis for Decision Making 767

Current Position Analysis 695 Utilization Rates 767
Accounts Receivable Analysis 696 Make a Decision 787
Inventory Analysis 697
xxii Contents
Take It Further 789 Appendix Weighted Average Method 864

Determining Costs Using the Weighted Average Method 864
Certified Management Accountant (CMA®) The Cost of Production Report 866
Examination Questions (Adapted) 791
Make a Decision 888
Take It Further 891
Certified Management Accountant (CMA®)
16
Job Order Costing 792
Cost Accounting Systems Overview 794
Job Order Cost Systems 794
Process Cost Systems 794
18 Activity-Based
Costing 896
Job Order Cost Systems for Manufacturing
Product Costing Allocation Methods 898
Businesses 795
Materials 796 Single Plantwide Factory Overhead Rate
Factory Labor 798 Method 899
Factory Overhead 800
Work in Process 806 Multiple Production Department Factory Overhead
Finished Goods 807 Rate Method 901
Sales and Cost of Goods Sold 807 Department Overhead Rates and Allocation 902
Period Costs 808 Distortion of Product Costs 903
Summary of Cost Flows for Legend Guitars 808 Activity-Based Costing Method 906
Job Order Cost Systems for Service Businesses 810 Activity Rates 908
Types of Service Businesses 810 Allocating Costs 909
Flow of Costs in a Service Job Order Cost System 810 Distortion in Product Costs 911
Dangers of Product Cost Distortion 911
Analyzing Job Costs 812 Activity-Based Costing for Selling and Administrative
Expenses 913
Make a Decision 832
Activity-Based Costing in Service Businesses 914
Take It Further 835
Certified Management Accountant (CMA®) Using ABC Product Cost Information to Reduce Costs 919
Examination Questions (Adapted) 838 Make a Decision 945
Pathways Challenge 805, 839 Take It Further 947
17
Process Cost Systems 840
Process Manufacturers 842
Comparing Job Order and Process Cost Systems 843
Cost Flows for a Process Manufacturer 844
19 Support Department and
Joint Cost Allocation 950
Cost of Production Report 847 Support Departments 952
Step 1: Determine the Units to Be Assigned Costs 848
Step 2: Compute Equivalent Units of Production 848 Support Department Cost Allocation 953
Step 3: Determine the Cost per Equivalent Unit 852 Single Plantwide Rate 954
Step 4: Allocate Costs to Units Transferred Multiple Production Department Rates 954
Out and Partially Completed Units 853 Activity-Based Costing 955
Preparing the Cost of Production Report 855
Allocating Support Department Costs to Production
Journal Entries for a Process Cost System 858 Departments 956
Direct Method 957
Using the Cost of Production Report 862
The Sequential Method 959
Analysis for Decision Making 862 The Reciprocal Services Method 963
Analyzing Process Costs 862 Comparison of Support Department Cost Allocation Methods 967
Contents xxiii
Joint Costs 968

Joint Cost Allocation 968
The Physical Units Method 968
The Weighted Average Method 969
21 Variable Costing for
Management Analysis 1048
The Market Value at Split-Off Method 969 Operating Income: Absorption and Variable
The Net Realizable Value Method 970 Costing 1050
Comparison of Joint Cost Allocation Methods 971 Absorption Costing 1050
By-Products 973 Variable Costing 1051
Effects of Inventory 1053
Using Support Department and Joint Cost Allocations for Analyzing Operating Income Using
Performance Evaluation 973 Absorption and Variable Costing 1056
Make a Decision 989 Using Absorption and Variable Costing 1061
Controlling Costs 1061
Take It Further 991 Pricing Products 1061
Certified Management Accountant (CMA®) Planning Production 1062
Examination Questions (Adapted) 992 Analyzing Market Segments 1062
Analyzing Market Segments 1062
Pathways Challenge 967, 993 Sales Territory Profitability Analysis 1064
Product Profitability Analysis 1065
20
Salesperson Profitability Analysis 1065
Cost-Volume-Profit Variable Costing for Service Businesses 1067
Analysis 994 Reporting Income 1067
Analyzing Segments 1068
Cost Behavior 996 Segment Analysis and EBITDA 1070
Variable Costs 997
Fixed Costs 998
Make a Decision 1092
Mixed Costs 1000 Take It Further 1094
Summary of Cost Behavior Concepts 1002 Certified Management Accountant (CMA®)
Cost-Volume-Profit Relationships 1004 Examination Questions (Adapted) 1095
Contribution Margin 1004 Pathways Challenge 1060, 1096
Contribution Margin Ratio 1004
22
Unit Contribution Margin 1005
Mathematical Approach to Cost-Volume-Profit

Analysis 1007 Budgeting 1098
Break-Even Point 1007
Target Profit 1011
Nature and Objectives of Budgeting 1100
Graphic Approach to Objectives of Budgeting 1100
Cost-Volume-Profit Analysis 1012 Human Behavior and Budgeting 1101
Cost-Volume-Profit (Break-Even) Chart 1012 Budgeting Systems 1102
Profit-Volume Chart 1014 Static Budget 1103
Use of Spreadsheets in Cost-Volume-Profit Analysis 1015 Flexible Budget 1104
Assumptions of Cost-Volume-Profit Analysis 1016
Master Budget 1106
Special Cost-Volume-Profit Relationships 1018
Sales Mix Considerations 1018
Operating Budgets 1107
Sales Budget 1107
Operating Leverage 1020
Production Budget 1108
Margin of Safety 1021
Direct Materials Purchases Budget 1109
Analysis for Decision Making 1023 Direct Labor Cost Budget 1110
Cost-Volume-Profit Analysis for Service Companies 1023 Factory Overhead Cost Budget 1112
Cost of Goods Sold Budget 1112
Make a Decision 1043 Selling and Administrative Expenses Budget 1114
Take It Further 1044 Budgeted Income Statement 1115
Certified Management Accountant (CMA®) Financial Budgets 1116

Cash Budget 1116
Capital Expenditures Budget 1121
Pathways Challenge 1002, 1047 Budgeted Balance Sheet 1121
xxiv Contents
Analysis for Decision Making 1122 Responsibility Accounting for Cost Centers 1210
Nonmanufacturing Staffing Budgets 1122
Responsibility Accounting for Profit Centers 1214
Make a Decision 1150 Support Department Allocations 1214
Take It Further 1151 Profit Center Reporting 1216
Certified Management Accountant (CMA®) Responsibility Accounting for Investment

Examination Questions (Adapted) 1153 Centers 1218
Return on Investment 1218
Pathways Challenge 1116, 1154 Residual Income 1222
23
Transfer Pricing 1225
Evaluating Variances Market Price Approach 1226
Negotiated Price Approach 1226
from Standard Cost Price Approach 1229
Costs 1156 Analysis for Decision Making 1229
Franchise Operations 1229
Standards 1158 Make a Decision 1250
Setting Standards 1158
Types of Standards 1159 Take It Further 1252
Reviewing and Revising Standards 1159 Certified Management Accountant (CMA®)
Criticisms of Standard Costs 1159
Budgetary Performance Evaluation 1160
Budget Performance Report 1160
Manufacturing Cost Variances 1161
25
Direct Materials and
Direct Labor Variances 1162 Differential Analysis and
Direct Materials Variances 1162 Product Pricing 1256
Direct Labor Variances 1165
Factory Overhead Variances 1168 Differential Analysis 1258

The Factory Overhead Flexible Budget 1169 Lease or Sell 1260
Variable Factory Overhead Controllable Variance 1170 Discontinue a Segment or Product 1261
Fixed Factory Overhead Volume Variance 1170 Make or Buy 1262
Reporting Factory Overhead Variances 1172 Replace Equipment 1264
Factory Overhead Account 1173 Process or Sell 1265
Accept Business at a Special Price 1265
Recording and Reporting Variances
from Standards 1176 Setting Normal Product Selling Prices 1268
Cost-Plus Methods 1269
Analysis for Decision Making 1178 Product Cost Method 1269
Service Staffing Variances 1178 Illustration 1270
Appendix Revenue Variances 1179 Target Costing Method 1271
Comprehensive Problem 5 1199 Production Bottlenecks 1273

Managing Bottlenecks 1274
Make a Decision 1201 Pricing Bottleneck Products 1274
Take It Further 1202 Analysis for Decision Making 1275
Certified Management Accountant (CMA®) Yield Pricing in Service Businesses 1275
Examination Questions (Adapted) 1204 Appendix Total and Variable Cost Methods to
Pathways Challenge 1164, 1205 Setting Normal Price 1276
Total Cost Method 1276
24
Variable Cost Method 1279
Evaluating Decentralized Make a Decision 1303
Operations 1206 Take It Further 1305
Centralized and Decentralized Operations 1208 Examination Questions (Adapted) 1307
Advantages of Decentralization 1208
Disadvantages of Decentralization 1209 Pathways Challenge 1263, 1308
Responsibility Accounting 1210
Contents xxv
26 Capital Investment
Analysis 1310
Make a Decision 1395
Take It Further 1397
Nature of Capital Investment Analysis 1312 Examination Questions (Adapted) 1398
Methods Not Using Present Values 1313 Pathways Challenge 1365, 1399
Average Rate of Return Method 1313
Cash Payback Method 1314
Methods Using Present Values 1316
Present Value Concepts 1317
Net Present Value Method and Index 1319
Internal Rate of Return Method 1322
28 The Balanced Scorecard
and Corporate Social
Responsibility 1400
Factors That Complicate Capital
Investment Analysis 1325 Performance Measurement Systems 1402
Income Tax 1325
The Balanced Scorecard 1403
Unequal Proposal Lives 1325
Performance Perspectives 1403
Lease Versus Capital Investment 1327
Strategic Objectives 1405
Uncertainty 1327
Performance Metrics 1405
Changes in Price Levels 1328
Strategic Initiatives 1406
Qualitative Considerations 1329
Performance Targets 1407
Capital Rationing 1329
Using the Balanced Scorecard 1407
Analysis for Decision Making 1330 Strategy Maps 1407
Uncertainty: Sensitivity and Expected Value Analyses 1330 Measure Maps 1409
Strategic Learning 1411
Make a Decision 1351 Scorecard Cascading 1413
Take It Further 1353 Cognitive Biases 1413
Certified Management Accountant (CMA®) Corporate Social Responsibility 1416

Examination Questions (Adapted) 1355 CSR Reporting 1417
Corporate Social Responsibility and the Balanced Scorecard 1418
Pathways Challenge 1321, 1356 Encouraging Corporate Social Responsibility 1420
27
Lean Manufacturing and Capital Investment in CSR 1420
Activity Analysis 1358 Make a Decision 1438

Take It Further 1439
Lean Principles 1360 Certified Management Accountant (CMA®)
Reducing Inventory 1361
Reducing Lead Times 1361
Reducing Setup Time 1363 Pathways Challenge 1415, 1442
Emphasizing Product-Oriented Layout 1366
Emphasizing Employee Involvement 1366
Emphasizing Pull Manufacturing 1366 Appendix A: Interest Tables A-2
Emphasizing Zero Defects 1367 Appendix B: Revenue Recognition B-1
Emphasizing Supply Chain Management 1367
Appendix C: International Financial Reporting
Lean Accounting 1369 Standards (IFRS) C-1
Fewer Transactions 1369
Combined Accounts 1369 Appendix D: Investments D-1
Nonfinancial Performance Measures 1371
Direct Tracing of Overhead 1371
Appendix E: Nike Inc., Form 10-K for the Fiscal Year
Ended May 31, 2017 Selected Excerpts E-1
Activity Analysis 1372
Costs of Quality 1372 Appendix F: Special Journals and Subsidiary
Quality Activity Analysis 1373 Ledgers (online) F-1
Value-Added Activity Analysis 1375
Glossary G-1
Process Activity Analysis 1376
Index I-1
Lean Performance for Nonmanufacturing 1378
1 Introduction to
Chapter
Accounting and Business
Chapter 1
Transactions
ACCOUNTING SYSTEM
Accounting Equation
Assets = Liabilities + Equity
Chapter 2
ANALYZING TRANSACTIONS
Chapter 3
THE ADJUSTING PROCESS
Chapter 4
THE ACCOUNTING CYCLE
Twitter, Inc.
W hen two teams pair up for a game of f ootball, there is often

a lot of noise. The band plays, the fans cheer, and fireworks
light up the scoreboard. Obviously, the fans are committed and
Twitter, Inc. (TWTR) is one of the most visible
companies on the Internet. It provides a real-time information
network where members can post messages, called tweets, for
care about the outcome of the game. Just like fans at a football free. Millions post tweets every day throughout the world.
game, the owners of a business want their business to “win” Do you think Twitter is a successful company? Does it
against their competitors in the marketplace. While having your make money? How would you know? A ccounting helps to an-
football team win can be a source of pride, winning in the market- swer these questions.
place goes beyond pride and has many tangible benefits. Compa- This textbook introduces you to accounting, the language
nies that are winners are better able to serve customers, provide of business. Chapter 1 begins by discussing what a business is,
good jobs for employees, and make money for their owners. how it operates, and the role that accounting plays.
©CJG – TECHNOLOGY/ALAMY STOCK PHOTO
Link to Twitter ��Pages 4, 5, 6, 7, 10, 11, 13, 21, 23

Analysis for Decision Making�� Page 26
4 Chapter 1 Introduction to Accounting and Business
What's Covered
Introduction to Accounting and Business
Nature of Business Nature of Accounting Analyzing Business Financial Statements
▪▪ Types of Business (Obj. 1) ▪▪ Managerial and Financial Transactions ▪▪ Income Statement (Obj. 5)
▪▪ Role of Accounting (Obj. 1) Accounting (Obj. 1) ▪▪ Generally Accepted Accounting ▪▪ Statement of Stockholders’
▪▪ Ethics (Obj. 1) ▪▪ Career Opportunities (Obj. 1) Principles (Obj. 2) Equity (Obj. 5)
▪▪ Accounting Equation (Obj. 3) ▪▪ Balance Sheet (Obj. 5)
▪▪ Transactions (Obj. 4) ▪▪ Statement of Cash Flows
(Obj. 5)
Learning Objectives
Obj. 1 Describe the nature of business and the role of Obj. 4 Describe and illustrate how business transactions can
accounting and ethics in business. be recorded in terms of the resulting change in the
Obj. 2 Describe generally accepted accounting principles, elements of the accounting equation.
including the underlying assumptions and principles. Obj. 5 Describe the financial statements of a corporation and
Obj. 3 State the accounting equation and define each explain how they interrelate.
element of the equation.
Analysis for Decision Making

Obj. 6 Describe and illustrate the use of the ratio of liabilities to stockholders’ equity in evaluating a company’s financial condition.
Objective 1 Nature of Business and Accounting

Describe the
nature of business A business1 is an organization in which basic resources (inputs), such as materials and labor,
and the role of are assembled and processed to provide goods or services (outputs) to customers. Businesses
accounting and come in all sizes, from a local coffee house to Starbucks (SBUX), which sells over $15
ethics in business. billion of coffee and related products each year.
The objective of most businesses is to earn a profit. Profit is the difference between the
amounts received from customers for goods or services and the amounts paid for the inputs
used to provide the goods or services. This text focuses on businesses operating to earn a profit.
However, many of the same concepts and principles also apply to not-for-profit organizations
such as hospitals, churches, and government agencies.
Types of Businesses
Three types of businesses operating for profit include service, retail, and manufacturing busi-
nesses. Some examples of each type of business follow:
▪▪ Service businesses provide services rather than products to customers.
Delta Air Lines (DAL) (transportation services)
The Walt Disney Company (DIS) (entertainment services)
▪▪ Retail businesses sell products they purchase from other businesses to customers.
Wal-Mart Stores, Inc. (WMT) (general merchandise)
Amazon.com (AMZN) (Internet books, music, videos, ...)
▪▪ Manufacturing businesses change basic inputs into products that are sold to customers.
Ford Motor Company (F) (cars, trucks, vans)
Merck & Co., Inc. (MRK) (pharmaceutical drugs)
Link to Twitter Twitter is a service company that provides a platform for individuals to send text messages called tweets.
1
A complete glossary of terms appears at the end of the text.
Another random document with
no related content on Scribd:
prohibition against accepting unsolicited donations from donors in
such states who approach us with offers to donate.
International donations are gratefully accepted, but we cannot make

any statements concerning tax treatment of donations received from
outside the United States. U.S. laws alone swamp our small staff.
Please check the Project Gutenberg web pages for current donation
methods and addresses. Donations are accepted in a number of
other ways including checks, online payments and credit card
donations. To donate, please visit: www.gutenberg.org/donate.
Section 5. General Information About Project

Gutenberg™ electronic works
Professor Michael S. Hart was the originator of the Project
Gutenberg™ concept of a library of electronic works that could be
freely shared with anyone. For forty years, he produced and
distributed Project Gutenberg™ eBooks with only a loose network of
volunteer support.
Project Gutenberg™ eBooks are often created from several printed

editions, all of which are confirmed as not protected by copyright in
the U.S. unless a copyright notice is included. Thus, we do not
necessarily keep eBooks in compliance with any particular paper
edition.
Most people start at our website which has the main PG search
facility: www.gutenberg.org.
This website includes information about Project Gutenberg™,

including how to make donations to the Project Gutenberg Literary
Archive Foundation, how to help produce our new eBooks, and how
to subscribe to our email newsletter to hear about new eBooks.

ebook download Financial and Managerial Accounting, 15th Edition Carl S. Warren - eBook PDF all chapter

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

ebook download Financial and Managerial Accounting, 15th Edition Carl S. Warren - eBook PDF all chapter

Uploaded by

Copyright:

Available Formats

Financial and Managerial Accounting,

15th Edition Carl S. Warren - eBook

(eBook PDF) Financial & Managerial Accounting 15th

(eBook PDF) Financial Accounting 15th Edition by Carl

Corporate Financial Accounting 16th Edition Carl S.

(eBook PDF) Corporate Financial Accounting 14th Edition

(eBook PDF) Accounting 27th Edition by Carl S. Warren

(eBook PDF) Financial Accounting 16th Edition by Carl

(eBook PDF) Survey of Accounting 8th Edition by Carl S.

Financial Accounting, 16th Edition Carl Warren &

Australia • Brazil • Canada • Mexico • Singapore • United Kingdom • United States

Executive Marketing Manager: Nathan Anderson

Cover Image: hkeita/Shutterstock.com

Intellectual Property Project Manager: Cengage

Cengage is a leading provider of customized learning solutions with

To learn more about Cengage platforms and services, register or access

Printed in the United States of America

Roadmap for Success

The Accounting Cycle Internal Control and Cash

Statement of Statement of caSh flowS

Unadjusted Trial Balance

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

▪▪ The schema for the managerial chapters ­illustrates

Chapter 16 Job Order Costing Chapter 19 Support Departments

Chapter 20 Cost-Volume-Profit Analysis Chapter 26 Capital Investment Analysis

02663_ch15_ptg01_748-791.indd 748 17/08/18 2:30 PM

Chapter 6 Inventories 301

A ssume that in September you purchased a Sony HDTV from

▪▪ Link to the “opening company” of each chapter

in the chapter are connected to the openingLinkcom-

Exhibit 1 Cost Flow Assumptions

FIFO LIFO WEI

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

▪▪ New! Pathways Challenge encourages students’ interest in accounting and emphasizes

Critical Thinking/Judgment Chapter 9 Long-Term Assets: Fixed and Intangible 445

Percent of Fixed Assets

A 5 A L 51 LE 1 E Jan. 4Jan. Inventory

Sold ToSold To CUSToMER

FRoM FRoM F.o.B. F.o.B.

Check Up Corner 9-2 Selling Fixed Assets

Analysis for Decision Making

Fixed Asset Turnover Ratio Objective 7

MAD 9-1 Analyze and compare Amazon.com to Netflix Obj. 7

Alaska Air Group Delta Air Lines Southwest Airlines

MAD 9-3 Analyze Verizon Obj. 7

NEW! Excel Online

Motivation: Set Expectations and Prepare Students

CengageNOWv2 Start-Up Center

Motivation: Prepare Them for Class

Provide Help Right When Students Need It

Help Students Go Beyond Memorization to True

New to This Edition

Chapter 2 the financial reporting of publicly held companies

▪▪ Lean manufacturing discussion with related home- Chapter 24

Special thanks to our Financial Accounting Advisory Board Members:

©TERRY R. SPRAY INHISIMAGE STUDIOS

© THOMAS BOUTWELL, T2PHOTOGRAPHY

Accountant and consultant specializing in cost accounting, performance measurement,

1 Introduction to Accounting and Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Appendix A Interest Tables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-2

Make a Decision 104

Generally Accepted Accounting

Double-Entry Accounting System 62

▪▪ The schema for the managerial chapters illustrates

14 Financial Statement Differences Between Managerial and Financial Accounting 751

Mathematical Approach to Cost-Volume-Profit

W hen two teams pair up for a game of f ootball, there is often