Chapter 16 Corporate Reports

Introduction to Management Accounting
©2005Hall
2008 Prentice Prentice HallPublishing,
Business Business Introduction
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Introduction
ManagementtoAccounting
Management 14/e,Accounting 13/e, Horngren/Sundem/Stratton
Horngren/Sundem/Stratton/Schatzberg/Burgstahler 16--11
16
Introduction to Management Accounting
Chapter 16
Understanding Corporate
Annual Reports: Basic Financial
Statements
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Introduction
16
The Balance Sheet
Assets Liabilities
Equity
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Operating Cycle
Cash Buy Merchandise Sell Accounts

inventory receivable
$100,000
$100,000 $160,000
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Learning
Objective 1 Assets Example
May 31
Balance sheet (in millions) 2006 2005
Current assets:
Cash and equivalents $ 954.2 $1,388.1
Short-term investments 1,348.8 4,36.6
Accounts receivable, net 2,395.9 2,262.1
Inventories 2,076.7 1,811.1
Deferred Income Taxes 203.3 110.2
Prepaid expenses and other current assets 380.1 343.0
Total current assets $7,359.0 $6,351.1
Noncurrent assets:
Property, plant, and equipment, net 1,657.7 1,605.8
Identifiable intangible assets 405.5 406.1
Goodwill 130.8 135.4
Deferred Income Taxes and Other assets 316.6 295.2
Total noncurrent assets $2,510.6 $2,442.5
Total assets $9,869. 6 $8,793.6
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Cash Equivalents
Cash equivalents are short-term

investments that can easily be
converted into cash with little delay.
What are some examples?
Treasury bills
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Depreciation
Cost
Expense
Acquisition cost – Estimated residual value

= Amount to be charged as expense
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Depreciation
Straight-line method
Accelerated methods
Units-of-production method
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Intangible Assets
Intangible assets are a class of

long-lived assets that are not
physical in nature.
What are some examples?
Patents Copyrights Goodwill
Trademarks
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Learning
Objective 2 Liabilities Example
May 31
Current liabilities:
Current portion of long-term debt $ 255.3 $ 6.2
Notes payable 43.4 69.8
Accounts payable 952.2 775.0
Accrued liabilities 1,286.9 1,053.2
Income taxes payable 85.5 95.0
Total current liabilities $2,623.3 $1,999.2
Noncurrent liabilities:
Long-term debt 410.7 687.3
Deferred income taxes and other liabilities 550.1 462.6
Total noncurrent liabilities $ 960.8 $ 1,149.9
Total liabilities $3,584.1 $3,149.1
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Liabilities
Current Liabilities are an organization’s debts

that fall due within the coming year or within
the normal operating cycle whichever is longer.
Notes
Accrued
Payable
Liabilities
Current portion
Of long-term Accounts
debt Payable
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Liabilities
Noncurrent Liabilities (long-term) are an

organization’s debts that fall due beyond one
year.
Notes Deferred
Payable Income Taxes
Long-Term
Debt
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Learning
Objective 3 Stockholders’ Equity Example
May 31
Shareholders’ equity:
Redeemable preferred stock $ 0.3 $ 0.3
Common stock at stated value:
Class A convertible-63.9 and 71.9 shares outstanding .1 .1
Class B-192.1 and 189.2 shares outstanding 2.7 2.7
Capital in excess of stated value 1,451.4 1,182.9
Retained earnings 4,713.4 4,396.5
Other 117.6 62.0
Total shareholders’ equity $6,285.5 $5,644.5
Total liabilities and shareholders’ equity $9,869.6 $8,793.6
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Stockholders’ Equity
The main elements of stockholders’

equity arise from two sources:
Contributed or paid-in capital
Retained earnings
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Common Stock
Common stock has no predetermined

rate of dividends and is the last to
obtain a share in the assets when
the corporation is dissolved.
Common shares usually have

voting power to elect the board
of directors of the corporation.
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Preferred Stock
Preferred stock has some priority over

other shares regarding dividends or the
distribution of assets upon liquidation.
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Treasury Stock
This is a corporation’s own stock

that was issued and subsequently
repurchased by the company and
is being held for a specific purpose.
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Learning
Objective 4 Operating Performance
An income statement can take

one of two major forms:
Single step Multiple step
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Learning Statement of
Objective 5
Retained Earnings
An analysis of the changes in retained

earnings is frequently placed in a
separate financial statement, the
statement of retained earnings.
The major reasons for changes in retained

earnings are dividends and net income.
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Statement of Cash Flows
This reports the cash receipts and

cash payments of an organization
during a particular period.
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Learning
Objective 6 Activities Affecting Cash
List the activities that increased

or decreased cash.
Place each cash inflow and outflow

into one of three categories.
Operating activities
Investing activities
Financing activities
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Learning
Objective 10 Appendix 16 A: Accounting for Inventories
Specific identification
FIFO LIFO
Weighted average
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Appendix 16 A: Accounting for Inventories
Specific identification: recognizes

the actual cost paid for the
specific physical item.
FIFO: First-In-First-Out
assumes that a company sells or uses
up first the stock acquired earliest. It uses
the latest costs to measure the ending inventory.
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Appendix 16 A: Accounting for Inventories
LIFO: Last-In-First-Out
Assumes that a company sells or uses up
first the stock acquired most recently. It
treats the most recent costs as cost of goods sold.
Weighted-Average-Cost:
Assigns the same unit cost to each unit available
for sale. Unit cost is the cost of all units available
for sale divided by the number of units available.
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The End
End of Chapter 16
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Introduction to Management Accounting

Cash Buy Merchandise Sell Accounts

Cash equivalents are short-term

What are some examples?

Acquisition cost – Estimated residual value

Intangible assets are a class of

What are some examples?

Patents Copyrights Goodwill

Current Liabilities are an organization’s debts

Noncurrent Liabilities (long-term) are an

The main elements of stockholders’

Contributed or paid-in capital

Common stock has no predetermined

Common shares usually have

Preferred stock has some priority over

This is a corporation’s own stock

An income statement can take

Single step Multiple step

An analysis of the changes in retained

The major reasons for changes in retained

This reports the cash receipts and

List the activities that increased

Place each cash inflow and outflow

Specific identification: recognizes

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