Final Paper Accounting 206

Principles of Accounting: Volume II

Bridgepoint Education, Inc.

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Principles of Accounting: Volume II

Bridgepoint Education, Inc.

VP of Learning Resources: Beth Aguiar

Editor-in-Chief: Steve Wainwright

Sponsoring Editor: Christina Ganim

Director of Editorial Technology: Peter Galuardi

Development Editor: Denis Ralling, Dan Moneypenny

Assistant Editor: Laura Wilson

Editorial Assistant: Shaelyn Berg

Production Editor: Kimberly Purcell

Composition: Lachina Publishing Services

Cover Image: © J. L. Anderson/ClassicStock/Corbis

ISBN 10: 1621780287

ISBN 13: 978-1-62178-028-1

Published by Bridgepoint Education, Inc., 13500 Evening Creek Drive North, Suite 600, San Diego, CA 92128

Copyright © 2012, Bridgepoint Education, Inc.

All rights reserved.

GRANT OF PERMISSION TO PRINT: Bridgepoint Education, Inc., the copyright owner of this material, hereby grants the holder

of this publication the right to print these materials for personal use. The holder of this material may print the materials

herein for personal use only. Any print, reprint, reproduction, or distribution of these materials for commercial use without

the express written consent of Bridgepoint Education, Inc. constitutes a violation of the Copyright Law of the United States

of 1976 (P.L. 94-553).

www.bridgepointeducation.com I content.ashford.edu

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Brief Contents

Chapter 1: The Statement of Cash flows . . . . . . . . . . . . . . . . . . . . . . . . . 1

Chapter 2: Issues in Accounting for Corporate Debt and Equity . . . 35

Chapter 3: Introduction to Managerial Accounting . . . . . . . . . . . . . . . 57

Chapter 4: Costing Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Chapter 5: Cost–Volume–Profit Analysis . . . . . . . . . . . . . . . . . . . . . . 113

Chapter 6: Budgeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

Chapter 7: Standard Costs and Variances . . . . . . . . . . . . . . . . . . . . . . 169

Chapter 8: Responsibility Concepts and Sound Decision-Making Analytics . . . . . . . . . . . . . . . . . . . . . . . . 189

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213

Concept Check Answer Key . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219

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Contents

Acknowledgments xi Preface xiii

chapter 1 The Statement of Cash Flows 1

1.1 How Is Cash Flow to Be Monitored? 3 Operating Activities 3 Investing Activities 3 Financing Activities 4 Noncash Investing and Financing Activities 6 Example Statement 6

1.2 A Deeper Focus on Operating Cash Flows 7 Cash Received From Customers 8 Cash Paid for Inventory 8 Cash Paid for Operating Expenses 9 Noncash Expenses and Gains/Losses 9

1.3 Alternative View of Operating Activities 10 Investing Activities 15 Financing Activities 15 Net Change in Cash 16 Noncash Investing/Financing Activities 16

1.4 Using a Worksheet to Prepare the Statement 16

1.5 Comprehensive Example 20 Concept Check 25 Key Terms 26 Critical Thinking Questions 26 Exercises 26 Problems 31

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CONTENTS

chapter 2 Issues in Accounting for Corporate Debt and Equity 35

2.1 Alternative Types of Capital Stock 36 Accounting for Preferred Stock 37

2.2 Long-Term Notes Payable 39 Level Payment Notes 40 Calculating the Amount of a Level Payment 41

2.3 Bonds Payable 43 Bond Pricing 43 Bond Features 44 Accounting for Bonds Payable Issued at Par 45 Accounting for Bonds Payable Issued at a Premium 46 Accounting for Bonds Payable Issued at a Discount 47 Alternative Approach to Amortization 48 Bonds Issued Between Interest Dates 49 Year-End Interest Accruals 50 Frequency of Interest Accruals 50 Debt Retirements 50 Concept Check 51 Key Terms 52 Critical Thinking Questions 53 Exercises 53 Problems 55

chapter 3 Introduction to Managerial Accounting 57

3.1 The Professional Managerial Accountant 59

3.2 Role of Management Accounting 59 Planning Duties 59 Directing/Controlling Duties 60

3.3 Cost Components 63 Distinguishing Between Variable and Fixed Variable Costs 64 Why Cost Behavior Matters 66 Types of Fixed Costs and Relevant Range 67 Thinking Deeper About Product and Period Costs 68 Financial Statements for a Manufacturer 69

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CONTENTS

3.4 A Closer Look at Cost Accumulation 70 Combining Schedules 72 Tax and Accounting Rules 73 Concept Check 73 Key Terms 74 Critical Thinking Questions 75 Exercises 75 Problems 78

chapter 4 Costing Methods 83

4.1 Job Costing 85 Job Costing and the Ledger 87 Actual Overhead 88 Differences Between Actual and Applied Overhead 89 Mandatory Reporting of Overhead 89 Job Costing Is Not Only for Manufacturing 89

4.2 Process Costing Environments 90 Cost of Production Report 91 Case Study in Process Costing 93

4.3 Activity-Based Costing 97 ABC Modeling 98 ABC Example 99 Concept Check 101 Key Terms 102 Critical Thinking Questions 102 Exercises 103 Problems 107

chapter 5 Cost–Volume–Profit Analysis 113

5.1 Mixed Costs 114

5.2 Cost–Volume–Profit Analysis 118 The Algebra of Break-Even and Targeted Income Analysis 121 Influence of Taxes 122 Changing Costs 123 Changing Revenues 124 Multiple Products 125

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CONTENTS

5.3 CVP Assumptions 125 Direct Costing 126 Co mprehensive Income Statements Under Variable and Absorption

Costing 128 Fluctuating Inventory 129

5.4 Evaluating Residual Income 130 Concept Check 132 Key Terms 133 Critical Thinking Questions 133 Exercises 134 Problems 136

chapter 6 Budgeting 141

6.1 Purpose of Budgeting 142

6.2 Benefits of Budgeting 143 Responsibility Accounting 143 Budgets Drive Efficiency 143 Human Behavior 144

6.3 Budgeting Drawbacks 145 Quality Estimates 145 The Comprehensive Budget 146 Sales and Cash Collections Budgets 147

6.4 Production Budget 148 Purchases and Payments for Materials 149 Direct Labor Budget 150 Factory Overhead Budget 151 SG&A Budget 152 Budgeted Income Statement 153 Cash Budget 154 Distribution of Budgets 155 Budget Cycles 156

6.5 Flexible Budgets 156 Using Flexible Budgets in Business Management 158 Considering Per-Unit Costs and Profit Impacts 158 Extending Flexible Budgeting 159

6.6 Benefits of Technology in Budgeting 160

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CONTENTS

Concept Check 161 Key Terms 162 Critical Thinking Questions 162 Exercises 163 Problems 165

chapter 7 Standard Costs and Variances 169

7.1 What Are Standards? 170 Controlling Via Standards 171 Establishing Standards 171 Comparing Actual to Standard 172

7.2 General Variance Model 172 Variances Relating to Direct Material 173 Impact on the Ledger 174 Variances Relating to Direct Labor 175 Impact on the Ledger 177 Variances Related to Factory Overhead 177 Impact on the Ledger 179

7.3 Concluding Discussion on Variances 179 Concept Check 180 Key Terms 181 Critical Thinking Questions 181 Exercises 182 Problems 183

chapter 8 Responsibility Concepts and Sound Decision-Making Analytics 189

8.1 Responsibility Accounting Concepts 190 Accumulation of Information to Match Centers 192 Management by Exception 193 Rational Decision Making 194 Sunk Costs 194

8.2 A General Framework for Making Sound Business Decisions 195 Applying the General Framework to an Example: Bulk Orders 195 Applying the General Framework to an Example: Offshoring 196

8.3 Capital Expenditures 197

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CONTENTS

Future Value 198 Annuity 199 Present Value 200

8.4 Making Decisions About Long-Term Investments 202 Net Present Value 202 Internal Rate of Return 204 Simpler Capital Budgeting Methods 205 Recap of Using Capital Budgeting Tools for Decision Making 205 Concept Check 206 Key Terms 207 Critical Thinking Questions 208 Exercises 208 Problems 210

Glossary 213

Concept Check Answer Key 219

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Acknowledgments

The publisher thanks all the manuscript reviewers for their feedback . They include: Wendy Achilles, Ashford University; Brent Beyer, Ashford University; Kenneth Edwards, Lincoln University; Laura Lopez, Ashford University; Lisa Parker, Ashford University; Ronald Pearson, Bay College; and Jess Stern, Ashford University . The publisher especially thanks Gregory Goussak of Ashford University for his valuable assistance .

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Preface

Students will study a variety of accounting subjects that are uniquely applicable to man- aging business operations . These include a closer look at cash flow measurement and the accounting for business financing provided through borrowing and equity-based capital . Students will be exposed to deep coverage of techniques used to determine the cost of products and services . Organized budgeting processes are essential to successful busi- ness operations, and students will examine a comprehensive budgeting model as well as techniques for evaluating long-term capital budgeting decisions . Other decision-making tools are covered, including cost–volume–profit analysis and standard costs/variances .

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