Ebook Download Using Financial Accounting Information: The Alternative To Debits and Credits 10th Edition Gary A. Porter - Ebook PDF All Chapter
Ebook Download Using Financial Accounting Information: The Alternative To Debits and Credits 10th Edition Gary A. Porter - Ebook PDF All Chapter
Ebook Download Using Financial Accounting Information: The Alternative To Debits and Credits 10th Edition Gary A. Porter - Ebook PDF All Chapter
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10e
Using Financial
Accounting Information
THE ALTERNATIVE TO
DEBITS AND CREDITS
Gary A. Porter
DRAKE UNIVERSITY
Curtis L. Norton
ARIZONA STATE UNIVERSITY
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Using Financial Accounting Information: ª 2018, 2015 Cengage Learning¤
The Alternative to Debits and Credits,
10th edition ALL RIGHTS RESERVED. No part of this work covered by the copyright herein
Gary A. Porter, Curtis L. Norton may be reproduced or distributed in any form or by any means, except as
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To those who really ‘‘count’’
Melissa
Kathy, Amy, Andrew
In memory of
Sophie
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Brief Contents
Contents v
Preface xi
CHAPTER 1 Accounting as a Form of Communication 2
CHAPTER 8 Operating Assets: Property, Plant, and Equipment, and Intangibles 356
CHAPTER 9 Current Liabilities, Contingencies, and the Time Value of Money 402
CHAPTER 10 Long-Term Liabilities 454
Glossary G-1
Index I-1
iv
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Contents
MODULE 4 Reading and Using the MODULE 1 Accrual Accounting Principles 150
Annual Report 70 Recognition 150
Panera Bread’s Balance Sheet 70 Measurement 150
Panera Bread’s Income Statement 72 Choice 1: The Attribute to Be Measured 150
Choice 2: The Unit of Measure 151
Making Business Decisions: Panera Bread 73 Summary of Recognition and Measurement in
Other Elements of an Annual Report 76 Financial Statements 151
Report of Independent Accountants (Auditors’ Report) 76
The Accrual Basis of Accounting 152
The Ethical Responsibility of Management and the Auditors 76
Management Discussion and Analysis 77 Comparing the Cash and Accrual Bases of Accounting 152
What the Income Statement and the Statement of
Notes to Consolidated Financial Statements 78
Cash Flows Reveal 154
Accrual Accounting and Time Periods 155
CHAPTER 3
The Revenue Recognition Principle 155
Processing Accounting Information 100
Expense Recognition and the Matching
Vail Resorts, Inc.: Making Business Decisions 101 Principle 155
MODULE 1 Transactions and the Accounting MODULE 2 Adjustments 158
Equation 102 Types of Adjustments 158
External and Internal Events 102 (1) Cash Paid Before Expense Is Incurred
(Deferred Expense) 159
The Role of Source Documents in Recording (2) Cash Received Before Revenue Is Recognized
Transactions 102 (Deferred Revenue) 161
Analyzing the Effects of Transactions on the (3) Expense Incurred Before Cash Is Paid (Accrued
Accounting Equation 103 Liability) 162
The Cost Principle 105 (4) Revenue Recognized Before Cash Is Received
Balance Sheet and Income Statement for Glengarry (Accrued Asset) 165
Health Club 105 Accruals and Deferrals 166
What Is an Account? 107 Summary of Adjustments 166
Comprehensive Example of Adjustments 167
Chart of Accounts 107 Income Statement and Balance Sheet for
The General Ledger 107 Duffy Transit 170
Identify and Analyze 108 Ethical Considerations for a Company on the
MODULE 2 Debits and Credits 111 Accrual Basis 171
Accounting Tools: The Double-Entry System 111 MODULE 3 The Accounting Cycle 172
The T Account 111 The Use of a Work Sheet 173
Debits and Credits 112 The Closing Process 174
Interim Financial Statements 174
Debits Aren’t Bad, and Credits Aren’t Good 113
Debits and Credits for Revenues, Expenses, and
Dividends 113
Revenues 113
CHAPTER 5
Expenses 113
Dividends 113 Inventories and Cost of Goods Sold 208
Summary of the Rules for Increasing and Decreasing
Accounts 113 Gap Inc.: Making Business Decisions 209
Normal Account Balances 113
Debits and Credits Applied to Transactions 114 MODULE 1 Sales, Cost of Goods Sold,
Transactions for Glengarry Health Club 114 and Gross Profit 210
MODULE 3 Journal Entries and Trial Balances 117 Three Types of Inventory Costs and Three Forms of
The Journal: The Firm’s Chronological Record of Inventory 210
Transactions 117 Three Types of Manufacturing Costs 210
Three Forms of Inventory 210
The Trial Balance 119
Net Sales of Merchandise 211
CHAPTER 4 Sales Returns and Allowances 212
Credit Terms and Sales Discounts 212
Income Measurement and Accrual
Cost of Goods Sold 213
Accounting 148
The Cost of Goods Sold Model 213
Inventory Systems: Perpetual and Periodic 214
Nordstrom, Inc.: Making Business Decisions 149
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Contents vii
Beginning and Ending Inventories in a Periodic System 215 Control Over Cash 278
Cost of Goods Purchased 216 Cash Management 279
Purchases 216 Reading a Bank Statement 279
Purchase Discounts 216 The Bank Reconciliation 281
Purchase Returns and Allowances 217 The Need for Adjustments to the Records 282
Shipping Terms and Transportation Costs 217 Establishing a Petty Cash Fund 283
Shipping Terms and Transfer of Title to Inventory 218
MODULE 2 Internal Control 284
The Gross Profit Ratio 218 The Sarbanes-Oxley Act of 2002 284
Making Business Decisions: Gap Inc. 219 The Control Environment 287
The Accounting System 287
MODULE 2 Inventory Costing Methods 222
Internal Control Procedures 287
Inventory Costs: What Should Be Included? 222
Proper Authorizations 287
Inventory Costing Methods with a Periodic Segregation of Duties 287
System 223 Independent Verification 288
Specific Identification Method 224 Safeguarding of Assets and Records 288
Weighted Average Cost Method 225 Independent Review and Appraisal 288
First-In, First-Out Method (FIFO) 226 Design and Use of Business Documents 288
Last-In, First-Out Method (LIFO) 227 Limitations on Internal Control 289
Selecting an Inventory Costing Method 227 Computerized Business Documents and Internal
Costing Methods and Cash Flow 227 Control 289
LIFO Liquidation 228 Control Over Cash Receipts 289
The LIFO Conformity Rule 229 Cash Received Over the Counter 289
The LIFO Reserve: Estimating LIFO’s Effect on Cash Received in the Mail 290
Income and on Taxes Paid for Winnebago Industries 229 Cash Discrepancies 290
Costing Methods and Inventory Profits 230 The Role of Computerized Business Documents in
Changing Inventory Methods 231 Controlling Cash Disbursements 290
Inventory Valuation in Other Countries 231 Purchase Requisition 290
MODULE 3 Other Inventory Issues 232 Purchase Order 292
Invoice 292
Inventory Errors 232 Receiving Report 293
Valuing Inventory at Lower of Cost or Market 235 Invoice Approval Form 294
Why Replacement Cost Is Used as a Measure of Market 235 Check with Remittance Advice 294
Application of the LCM Rule 236
Lower-of-Cost-or-Market under International Standards 237
CHAPTER 7
MODULE 4 Inventory Management and Receivables and Investments 310
Cash Flow Issues 237
Making Business Decisions: Gap Inc. 238 Apple Inc.: Making Business Decisions 311
How Inventories Affect the Cash Flows Statement 240 MODULE 1 Accounting for Accounts Receivable 312
Appendix: MODULE 5 Inventory Costing The Use of a Subsidiary Ledger 312
Methods with a Perpetual System 242 The Valuation of Accounts Receivable 313
Two Methods to Account for Bad Debts 313
FIFO Costing with a Perpetual System 242 Two Approaches to the Allowance Method of
LIFO Costing with a Perpetual System 243 Accounting for Bad Debts 315
Percentage of Net Credit Sales Approach 315
Moving Average with a Perpetual System 244
Percentage of Accounts Receivable Approach 316
Aging of Accounts Receivable 317
CHAPTER 6 The Accounts Receivable Turnover Ratio 319
Cash and Internal Control 276 Making Business Decisions: Apple 319
Regal Entertainment Group: Making Business MODULE 2 Accounting for Notes Receivable 322
Decisions 277 Important Terms Connected with Promissory Notes 323
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viii Contents
Capital versus Revenue Expenditures 366 Present Value and Future Value: Single Amounts 417
Future Value of a Single Amount 417
Environmental Aspects of Operating Assets 368
Present Value of a Single Amount 419
Disposal of Property, Plant, and Equipment 368
Present Value and Future Value of an Annuity 420
Gain on Sale of Assets 369
Future Value of an Annuity 420
Loss on Sale of Assets 370
Present Value of an Annuity 421
IFRS and Property, Plant, and Equipment 370
Solving for Unknowns 421
MODULE 3 Intangible Assets 372
Appendix: Accounting Tools: Using
Balance Sheet Presentation 372 Excel¤ for Problems Involving Interest
Acquisition Cost of Intangible Assets 372
Research and Development Costs 372
Calculations 427
Amortization of Intangibles 373
Intangibles with Finite Life 373
Intangibles with Indefinite Life 374 CHAPTER 10
Goodwill and Impairments 374 Long-Term Liabilities 454
IFRS and Intangible Assets 375
MODULE 4 Cash Flow and Analysis Issues 376 Coca-Cola: Making Business Decisions 455
Analyzing Long-Term Assets for Average MODULE 1 Long-Term Liabilities Including
Life and Asset Turnover 378 Bonds Payable 456
Making Business Decisions: Nike 378
Bonds Payable: Characteristics 457
Collateral 458
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Contents ix
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x Contents
Salaries and Wages Expense and Salaries and Wages Take Care When Making Comparisons 624
Payable 572 Understand the Possible Effects of Inflation 624
Depreciation Expense 572
Analysis of Comparative Statements: Horizontal
Insurance Expense and Prepaid Insurance 572
Analysis 625
Interest Expense 573
Income Taxes Expense and Income Taxes Payable 573 Analysis of Common-Size Statements: Vertical
Loss on Retirement of Bonds 573 Analysis 629
Compare Net Income with Net Cash Flow from MODULE 2 Liquidity Analysis 632
Operating Activities 573
Step 3: Determine the Cash Flows from Investing Working Capital 632
Activities 575 Current Ratio 633
Long-Term Investments 575 Acid-Test Ratio 633
Land 575 Cash Flow from Operations to Current Liabilities 634
Property and Equipment 575 Accounts Receivable Analysis 635
Step 4: Determine the Cash Flows from Financing Inventory Analysis 636
Activities 576 Cash Operating Cycle 636
Notes Payable 576 MODULE 3 Solvency Analysis 638
Bonds Payable 576
Debt-to-Equity Ratio 638
Capital Stock 576
Times Interest Earned 638
Retained Earnings 577 Debt Service Coverage 639
Using the Three Schedules to Prepare a Statement of Cash Flow from Operations to Capital
Cash Flows 577 Expenditures Ratio 640
MODULE 3 Preparing the Statement of MODULE 4 Profitability Analysis 641
Cash Flows Using the Indirect Method 579
Rate of Return on Assets 641
Net Income 579 Components of Return on Assets 642
Accounts Receivable 579 Return on Common Stockholders’ Equity 643
Gain on Sale of Machine 579 Return on Assets, Return on Equity, and Leverage 643
Inventory 580 Earnings per Share 644
Accounts Payable 580 Price/Earnings Ratio 645
Salaries and Wages Payable 580 Dividend Ratios 646
Depreciation Expense 580 Summary of Selected Financial Ratios 646
Prepaid Insurance 580
Income Taxes Payable 580
Loss on Retirement of Bonds 580 APPENDIX A
Summary of Adjustments to Net Income under the International Financial Reporting
Indirect Method 580 Standards A-1
Comparison of the Indirect and Direct Methods 581
MODULE 4 Cash Flow Analysis 582
APPENDIX B
Creditors and Cash Flow Adequacy 582
Excerpts from Chipotle Mexican Grill, Inc.
Making Business Decisions: Nordstrom 583 Form 10-K for the Fiscal Year Ended
Stockholders and Cash Flow per Share 585 December 31, 2015 B-1
Appendix: MODULE 5 A Work Sheet Approach
to Preparing the Statement of Cash Flows 586 APPENDIX C
Excerpts from Panera Bread Company Form
CHAPTER 13 10-K for the Fiscal Year Ended December 29,
Financial Statement Analysis 622 2015 C-1
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Preface
This integrated form of notation has benefits for both students and instructors:
• It provides a clear view of how transactions affect the balance sheet.
• Its separation of balance sheet and income statement sides differentiates these two
equations and shows how the income statement elements are affected.
xi
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xii Preface
• Its arrow format better communicates the relationship between net income and
stockholders’ equity.
• When a transaction includes a contra account, this form explains clearly the effect of
this account on the equation.
This model is extended into the end-of-chapter material and CengageNOWv2. In
CengageNOWv2, students are also expected to demonstrate that they understand the
link between transactions and financial statements—consistent with the text.
Other features throughout the book help students make the connection and see the
big picture:
• Focus on highly recognizable companies such as Chipotle, Panera Bread, Nike, and
many others draws students into the chapter.
• Financial statements and notes from Chipotle and Panera Bread allow students to
apply the accounting models they’re learning to real financial data from two compa-
nies in the same industry.
The real-world flavor that demonstrates how accounting can be used to make
decisions continues in the end-of-chapter activities. Decision Cases ask students to
read and interpret financial statements:
• Each chapter highlights a focus company and real company information is used
throughout the narrative and end-of-chapter activities to help students develop their
analytical skills.
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Preface xiii
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
xiv Preface
The Business Decision Model moves a step beyond ratios by formulating a question
as a user of financial information, gathering and analyzing the necessary information,
making a decision, and then monitoring that decision. This framework, integrated
throughout the text, provides students with models for honing their analysis and deci-
sion-making skills using real company information in a relevant, applicable context.
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Preface xv
• New to this edition, the unique modular organization breaks the chapter into
logical groupings of concepts, allowing students to absorb the chapter content in
smaller sections for better retention.
• Test Yourself reviews, at the end of each module, provide students with an oppor-
tunity to check their understanding, answer questions, and work brief exercises to
build confidence. Solutions to Test Yourself, located at the end of the chapter, allow
students to check their answers.
• Study Tips in the margins alert students to be on the lookout for certain things.
This could be the similarities between two different concepts or a warning to
watch out for a common pitfall.
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Preface xvii
Students don’t want to waste time going over concepts that they have already mastered.
With the NEW Adaptive Study Plan, they can focus on learning new topics and fully
understanding difficult concepts.
NEW Adaptive Study Plan in CengageNOWv2 is an assignable/gradable study
center that adapts to each student’s unique needs and provides a remediation path-
way to keep students progressing. With the NEW Adaptive Study Plan, they can
focus on learning new topics and fully understanding difficult concepts.
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
xviii Preface
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Preface xix
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
xx Preface
Chapter-by-Chapter Changes
Chapter 1
• Introduced modular approach to chapter topics, including Test Yourself with
Review, Question, and Apply at the end of each module.
• Introduced one of two new flagship companies, Chipotle Mexican Grill, Inc., as the
focus company for Chapter 1.
• Revised Exhibits 1-1, 1-3, 1-7, and 1-8 to reflect new flagship company, Chipotle
Mexican Grill, Inc.
• Introduced new feature: How Will I Use Accounting?
• Revised ‘‘Connect to the Real World’’ feature (Real World Practice in prior edition)
to reflect new flagship company.
• Updated end-of-chapter material: E1-9, E1-16, P1-8, P1-9, P1-8A, and P1-9A.
• Revised DC1-1 and DC1-2 to reflect new flagship company, Chipotle Mexican
Grill, Inc.
• Revised DC1-3 to reflect new flagship companies, Chipotle Mexican Grill, Inc., and
Panera Bread Company.
• Added Answers to ‘‘Questions’’ and ‘‘Apply’’ at the end of the chapter for all modules.
• Added Answers to ‘‘Connect to the Real World’’ at the end of the chapter.
Chapter 2
• Introduced modular approach to chapter topics, including Test Yourself with
Review, Question, and Apply at the end of each module.
• Introduced one of two new flagship companies, Panera Bread Company, as the
focus company for Chapter 2.
• Introduced new feature: How Will I Use Accounting?
• Revised Exhibits 2-1, 2-2, and 2-3 to reflect new flagship company, Panera Bread
Company.
• Revised ‘‘Connect to the Real World’’ feature (Real World Practice in prior edition)
to reflect new flagship company.
• Revised Ratio Decision and Business Decision Models for the Current Ratio to
reflect new flagship company.
• Revised Ratio Decision Model for the Profit Margin Ratio to reflect new flagship
company.
• Revised Exercise 2-3 to reflect Regal Entertainment Group.
• Updated end-of-chapter material: P2-10 and P2-10A.
• Revised DC2-1 to reflect new flagship companies, Chipotle Mexican Grill, Inc., and
Panera Bread Company.
• Revised DC2-2 to reflect new flagship company, Panera Bread Company.
• Added Answers to ‘‘Questions’’ and ‘‘Apply’’ at the end of the chapter for all modules.
• Added Answers to ‘‘Connect to the Real World’’ at the end of the chapter.
Chapter 3
• Introduced modular approach to chapter topics, including Test Yourself with
Review, Question, and Apply at the end of each module.
• Introduced Vail Resorts, Inc., as the new focus company for Chapter 3.
• Revised ‘‘Connect to the Real World’’ feature (Real World Practice in prior edition)
to reflect new focus company, Vail Resorts, Inc.
• Revised E3-8 and E3-17 to reflect new focus company, Vail Resorts, Inc.
• Revised DC3-1 to reflect new flagship companies, Chipotle Mexican Grill and
Panera Bread Company.
• Revised DC3-2 to reflect new flagship company, Panera Bread Company.
• Updated end-of-chapter material: DC3-3.
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Preface xxi
• Added Answers to ‘‘Questions’’ and ‘‘Apply’’ at the end of the chapter for all modules.
• Added Answers to ‘‘Connect to the Real World’’ at the end of the chapter.
Chapter 4
• Introduced modular approach to chapter topics, including Test Yourself with
Review, Question, and Apply at the end of each module.
• Updated the chapter opener with the most current information available and replaced
the financial statements from Nordstrom as the focus company for Chapter 4.
• Introduced new feature: How Will I Use Accounting?
• Revised section on the revenue recognition principle to conform to new accounting
standard.
• Updated ‘‘Connect to the Real World’’ (Real World Practice in prior edition) for
new information for Nordstrom, Inc.
• Updated end-of-chapter material: DC4-2 and DC4-3.
• Revised DC4-1 to reflect new flagship companies, Chipotle Mexican Grill and
Panera Bread Company.
• Added Answers to ‘‘Questions’’ and ‘‘Apply’’ at the end of the chapter for all modules.
• Added Answers to ‘‘Connect to the Real World’’ at the end of the chapter.
Chapter 5
• Introduced modular approach to chapter topics, including Test Yourself with
Review, Question, and Apply at the end of each module.
• Updated the chapter opener with the most current information available and replaced
the financial statements from Gap Inc. as the focus company for Chapter 5.
• Introduced new feature: How Will I Use Accounting?
• Revised Net Sales of Merchandise section to conform to new FASB standard on rev-
enue recognition, ‘‘Revenue from Contracts with Customers.’’
• Revised coverage of purchase returns and allowances to conform to coverage of sales
returns and allowances.
• Revised coverage of purchase discounts to illustrate the net method of recording.
• Updated Example 5-14 for Winnebago Industries’ LIFO reserve.
• Revised Exhibit 5-9, substituting a partial statement of cash flows for Chipotle Mex-
ican Grill, Inc.
• Updated ‘‘Connect to the Real World’’ (Real World Practice in prior edition) for
new information for Gap Inc.
• Updated Ratio Model for the Gross Profit Ratio for new information available.
• Updated Ratio Model for the Inventory Turnover Ratio for new information available.
• Deleted Exercise requiring detailed analysis for purchase discounts, returns, and
allowances.
• Updated end-of-chapter material: E5-15, P5-2, P5-5, P5-8, P5-14, P5-2A, P5-5A,
P5-8A, P5-14A, DC5-2, and DC5-3.
• Revised DC5-1 to reflect new flagship companies, Chipotle Mexican Grill, Inc. and
Panera Bread Company.
• Deleted Decision Case on sales returns and allowances.
• Revised DC5-9 to integrate the concept of ethics in accounting with the practice of
modeling ethical decision making.
• Added Answers to ‘‘Questions’’ and ‘‘Apply’’ at the end of the chapter for all modules.
• Added Answers to ‘‘Connect to the Real World’’ at the end of the chapter.
Chapter 6
• Introduced modular approach to chapter topics, including Test Yourself with
Review, Question, and Apply at the end of each module.
• Introduced Regal Entertainment Group as the new focus company for Chapter 6.
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
xxii Preface
• Updated ‘‘Connect to the Real World’’ (Real World Practice in prior edition) for
new flagship company, Panera Bread Company.
• Revised Exhibits 6-1, 6-3, and 6-4 to illustrate statements and reports for new focus
company, Regal Entertainment Group.
• Revised DC6-1 to reflect new flagship companies, Chipotle Mexican Grill, Inc., and
Panera Bread Company.
• Updated end-of-chapter material: DC6-2.
• Added Answers to ‘‘Questions’’ and ‘‘Apply’’ at the end of the chapter for all
modules.
• Added Answers to ‘‘Connect to the Real World’’ at the end of the chapter.
Chapter 7
• Introduced modular approach to chapter topics, including Test Yourself with
Review, Question, and Apply at the end of each module.
• Updated the chapter opener with the most current information available and replaced
the financial statements from Apple Inc. as the focus company for Chapter 7.
• Introduced new feature: How Will I Use Accounting?
• Updated ‘‘Connect to the Real World’’ (Real World Practice in prior edition) for
new information for Apple Inc.
• Updated Ratio Decision Model for the Accounts Receivable Turnover Ratio with
new information available.
• Revised E7-5 to reflect Nike.
• Updated end-of-chapter material: P7-3, P7-3A, DC7-1, DC7-2, and DC7-3.
• Added Answers to ‘‘Questions’’ and ‘‘Apply’’ at the end of the chapter for all
modules.
• Added Answers to ‘‘Connect to the Real World’’ at the end of the chapter.
Chapter 8
• Introduced modular approach to chapter topics, including Test Yourself with
Review, Question, and Apply at the end of each module.
• Updated the chapter opener with the most current information available and
replaced the financial statements from Nike as the focus company for Chapter 8.
• Introduced new feature: How Will I Use Accounting?
• Updated Ratio Decision Model with new information for Nike and Foot Locker.
• Updated end-of-chapter material: DC8-1 features Panera Bread Company, and
DC8-2 reflects Panera Bread Company and Chipotle.
• Added Answers to ‘‘Questions’’ and ‘‘Apply’’ at the end of the chapter for all
modules.
• Added Answers to ‘‘Connect to the Real World’’ at the end of the chapter.
Chapter 9
• Introduced modular approach to chapter topics, including Test Yourself with
Review, Question, and Apply at the end of each module.
• Updated the chapter opener with the most current information available and replaced
the financial statements from Starbucks as the focus company for Chapter 9.
• Introduced new feature: How Will I Use Accounting?
• Changed Exhibit 9-4 concerning contingent liabilities.
• Updated P9-2 for Burger King, P9-3 for Brinker, P9-2A for McDonald’s, and
P9-3A for Darden Restaurants.
• Changed DC9-1 to Panera Bread Company and Chipotle.
• Updated DC9-2 for Caribou Coffee, DC9-3 for Walmart, and DC9-4 for
Hewlett-Packard.
• Added Answers to ‘‘Questions’’ and ‘‘Apply’’ at the end of the chapter for all modules.
• Added Answers to ‘‘Connect to the Real World’’ at the end of the chapter.
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Preface xxiii
Chapter 10
• Introduced modular approach to chapter topics, including Test Yourself with
Review, Question, and Apply at the end of each module.
• Updated the chapter opener with the most current information available and replaced the
financial statements from Coca-Cola and Pepsi as the focus companies for Chapter 10.
• Updated Ratio Decision Model with new information for Coca-Cola and Pepsi.
• Eliminated references to extraordinary items because of FASB pronouncement.
• Updated P10-9 on Walgreens and P10-9A on Boeing.
• Retained the section on leasing but noted pending FASB pronouncement. This module
can be skipped by instructors and it will not affect other portions of the chapter.
• DC10-1 features Panera Bread Company, and DC10-2 reflects Panera Bread Com-
pany and Chipotle. DC10-3 has been updated for Pepsi.
• Added Answers to ‘‘Questions’’ and ‘‘Apply’’ at the end of the chapter for all modules.
• Added Answers to ‘‘Connect to the Real World’’ at the end of the chapter.
Chapter 11
• Introduced modular approach to chapter topics, including Test Yourself with
Review, Question, and Apply at the end of each module.
• Updated the chapter opener with the most current information available and replaced
the financial statements from Southwest Airlines as the focus company for Chapter 11.
• Introduced new feature: How Will I Use Accounting?
• Updated end-of-chapter material: P11-7 for Southwest Airlines and P11-7A for Costco.
• DC11-1 features Panera Bread Company and Chipotle, and DC11-2 highlights
Panera Bread Company.
• Made substantial changes to Interactive Problem to eliminate leasing as one of the
alternatives. Problem is now more straigtforward.
• Added Answers to ‘‘Questions’’ and ‘‘Apply’’ at the end of the chapter for all modules.
• Added Answers to ‘‘Connect to the Real World’’ at the end of the chapter.
Chapter 12
• Introduced modular approach to chapter topics, including Test Yourself with
Review, Question, and Apply at the end of each module.
• Updated the chapter opener with the most current information available and replaced
the financial statements of the focus company for Chapter 12.
• Deleted exhibit detailing cash flow and net income differences for four companies.
• Updated ‘‘Connect to the Real World’’ (Real World Practice in prior edition) for
new flagship company Chipotle Mexican Grill, Inc., and for new information for
Walgreens Boots Alliance.
• Updated Ratio Decision Model for the Cash Flow Adequacy Ratio with new
information available.
• Updated end-of-chapter material: E12-4, DC12-2, and DC12-3.
• Revised DC12-1 to reflect new flagship companies, Chipotle Mexican Grill, Inc.,
and Panera Bread Company.
• Added Answers to ‘‘Questions’’ and ‘‘Apply’’ at the end of the chapter for all modules.
• Added Answers to ‘‘Connect to the Real World’’ at the end of the chapter.
Chapter 13
• Introduced modular approach to chapter topics, including Test Yourself with
Review, Question, and Apply at the end of each module.
• Updated the chapter opener with the most current information available and
replaced the financial statements from lululemon athletica inc. as the focus
company for Chapter 13.
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
xxiv Preface
• Updated Exhibit 13-1, with the most current information available for lululemon
athletica inc.
• Updated ‘‘Connect to the Real World’’ (Real World Practice in prior edition) for
new information for lululemon athletica inc. and for new flagship company Chipotle
Mexican Grill, Inc.
• Deleted Appendix on Reporting and Analyzing Other Income Statement Items and
end-of-chapter material to conform to new accounting standard to no longer allow
recognition of extraordinary items on the income statement.
• Updated Review Problem for the most current information available for lululemon
athletica inc.
• Updated end-of-chapter material: E13-5, E13-6, E13-7, E13-8, and E13-11.
• Revised DC13-1 and DC13-2 to reflect new flagship company, Chipotle Mexican
Grill, Inc.
• Revised DC13-3 to reflect new flagship companies, Chipotle Mexican Grill, Inc.,
and Panera Bread Company.
• Revised DC13-4 to reflect new flagship company, Panera Bread Company.
• Added Answers to ‘‘Questions’’ and ‘‘Apply’’ at the end of the chapter for all modules.
• Added Answers to ‘‘Connect to the Real World’’ at the end of the chapter.
Solutions Manual
The Solutions Manual, by the text authors, consists of solutions to all the end-of-chapter
material keyed to learning objectives and using the transaction effects equation found in
the text. (Available on the Instructor Companion website.)
Test Bank
The Test Bank contains a comprehensive set of test items to meet every assessment need
from brief exercises to problems and decision cases. The Test Bank is offered in Cognero.
Cengage Learning Testing Powered by Cognero is a flexible, online system that
allows instructors to:
• author, edit, and manage test bank content from multiple Cengage Learning solutions
• create multiple test versions in an instant
• deliver tests from your LMS, your classroom, or wherever you want
Excel¤ Templates
Selected problems in each chapter may be solved on a Microsoft Excel spreadsheet to
increase awareness of basic software applications. Just download the Excel spreadsheets
for homework items that are identified by icons in the text. (Excel templates are available
on the Student Resources page of the product website. Password-protected Instructor
solutions are available on the Instructor Companion website.)
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Preface xxv
PowerPoint¤ Slides
Student PowerPoint Slides, a smaller version of the Instructor PowerPoint Lectures,
allow students to get ready for upcoming lectures, quizzes, homework, and exams with
core material needed for chapter study. (Student PowerPoint Slides are available on the
Student Resources page of the product website. More detailed, password-protected
Instructor PowerPoint Slides are available on the Instructor Companion website.)
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
xxvi Preface
Acknowledgments
Among those who have served as reviewers for this text are the following, to whom we are grateful for their insights:
Throughout previous editions, many other individuals have contributed helpful suggestions that have resulted in many
positive changes. Although they are not cited here, we remain grateful for their assistance.
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Preface xxvii
We also wish to thank Domenic Tavella, Carlow University. His help with supplements and verification aided us greatly.
We are grateful to Cenveo Publisher Services for their invaluable production assistance. Finally, we are grateful to the editorial,
marketing, media, and production staffs at Cengage Learning, primarily Matt Filimonov, Danny Celenza, Jonathan Gross,
Andrea Meyer, Robin LeFevre, Sally Nieman, and Tim Bailey for their extensive help with the tenth edition and its
supplements.
Gary A. Porter
Curtis L. Norton
September 2016
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About the Authors
xxviii
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
10e
Using Financial
Accounting Information
THE ALTERNATIVE TO
DEBITS AND CREDITS
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those who rank their merits high in this respect. We have already
seen, that their minds were completely devoured by the worst habits
of the stationary period,—Mysticism and Commentation. They
followed their Greek leaders, for the most part, with abject servility,
and with only that kind of acuteness and independent speculation
which the Commentator’s vocation implies. And in their choice of the
standard subjects of their studies, they fixed upon those works, the
Physical Books of Aristotle, which have never promoted the progress
of science, except in so far as they incited men to refute them; an
effect which they never produced on the Arabians. That the Arabian
astronomers made some advances beyond the Greeks, we have
already stated: the two great instances are, the discovery of the
Motion of the Sun’s Apogee by Albategnius, and the discovery
(recently brought to light) of the existence of the Moon’s Second
Inequality, by Aboul Wefa. But we cannot but observe in how
different a manner they treated these discoveries, from that with
which Hipparchus or Ptolemy would have done. The Variation of the
Moon, in particular, instead of being incorporated into the system by
means of an Epicycle, as Ptolemy had done with the Evection, was
allowed, almost immediately, so far as we can judge, to fall into
neglect and oblivion: so little were the learned Arabians prepared to
take their lessons from observation as well as from books. That in
many subjects they made experiments, may easily be allowed: there
never was a period of the earth’s history, and least of all a period of
commerce 245 and manufactures, luxury and art, medicine and
engineering, in which there were not going on innumerable
processes, which may be termed Experiments; and, in addition to
these, the Arabians adopted the pursuit of alchemy, and the love of
exotic plants and animals. But so far from their being, as has been
maintained, 90 a people whose “experimental intellect” fitted them to
form sciences which the “abstract intellect” of the Greeks failed in
producing, it rather appears, that several of the sciences which the
Greeks had founded, were never even comprehended by the
Arabians. I do not know any evidence that these pupils ever attained
to understand the real principles of Mechanics, Hydrostatics, and
Harmonics, which their masters had established. At any rate, when
these sciences again became progressive, Europe had to start
where Europe had stopped. There is no Arabian name which any
one has thought of interposing between Archimedes the ancient, and
Stevinus and Galileo the moderns.
90 Mahometanism Unveiled, ii. 271.
A good deal has been said of late of the coincidences between his
views, and those of his great namesake in later times, Francis
Bacon. 91 The resemblances consist mainly in such points as I have
just noticed; and we cannot but acknowledge, that many of the
expressions of the Franciscan Friar remind us of the large thoughts
and lofty phrases of the Philosophical Chancellor. How far the one
can be considered as having anticipated the method of the other, we
shall examine more advantageously, when we come to consider
what the character and effect of Francis Bacon’s works really are. 92
91 Hallam’s Middle Ages, iii. 549. Forster’s Mahom. U. ii. 313.
The leading principle of the style of the Gothic edifices was, not
merely that the weights were supported, but that they were seen to
be so; and that not only the mechanical relations of the larger
masses, but of the smaller members also, were displayed. Hence we
cannot admit, as an origin or anticipation of the Gothic, a style in
which this principle is not manifested. I do not see, in any of the
representations of the early Arabic buildings, that distribution of
weights to supports, and that mechanical consistency of parts, which
would elevate them above the character of barbarous architecture.
Their masses are broken into innumerable members, without
subordination or meaning, in a manner suggested apparently by
caprice and the love of the marvellous. “In the construction of their
mosques, it was a favorite artifice of the Arabs to sustain immense
and ponderous masses of stone by the support of pillars so slender,
that the incumbent weight seemed, as it were, suspended in the air
by an invisible hand.” 95 This pleasure in the contemplation of
apparent impossibilities is a very general disposition among
mankind; but it appears to belong to the infancy, rather than the
maturity of intellect. On the other hand, the pleasure in the
contemplation of what is clear, the craving for a thorough insight into
the reasons of things, which marks the European mind, is the temper
which leads to science.
95 Mahometanism Unveiled, ii. 255.
Having thus explained both the obstacles and the prospects which
the middle ages offered to the progress of science, I now proceed to
the history of the progress, when that progress was once again
resumed. ~Additional material in the 3rd edition.~
B O O K V.
HISTORY
OF
FORMAL ASTRONOMY
AFTER THE STATIONARY PERIOD.
. . . Cyclopum educta caminis
Mœnia conspicio, atque adverso fornice portas.
. . . . .
His demum exactis, perfecto munere Divæ,
Devenere locos lætos et amœna vireta
Fortunatorum nemorum sedesque beatas.
Largior hic campos æther et lumine vestit
Purpureo: solemque suum, sua sidera norunt.
Virgil, Æn. vi. 630.