You are on page 1of 30

Intelligent Response Technology (IRT) is

Connect Accountings new student


interface for end-of-chapter assessment
content. Intelligent Response Technology
provides a general journal application
that looks and feels more like what you
would nd in a general ledger software
package, improves answer acceptance to
reduce student frustration with formatting
issues (such as rounding), and, for
select questions, provides an expanded
table that guides students through
the process of solving the problem.
Connect Accountings Interactive
Presentations teach each chapters
core learning objectives and
concepts through an engaging,
hands-on presentation, bringing the
text content to life. Interactive
Presentations harness the full
power of technology to truly
engage and appeal to all learning
styles. Interactive Presentations are
ideal in all class formatsonline,
face-to-face, or hybrid.
Get Connected.
Intelligent Response Technology
Interactive
Presentations
wiL25591_fm_i-xxx_1.indd Page i 26/10/12 8:56 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
Get Engaged.
Lecture
Capture
eBooks
Connect Plus includes a
media-rich eBook that allows you
to share your notes with your
students. Your students can insert
and review their own notes,
highlight the text, search for
specic information, and interact
with media resources. Using an
eBook with Connect Plus gives your
students a complete digital solution
that allows them to access their
materials from any computer.
Make your classes available anytime,
anywhere. With simple, one-click
recording, students can search for a
word or phrase and be taken to the
exact place in your lecture that they
need to review.
wiL25591_fm_i-xxx_1.indd Page ii 26/10/12 8:56 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
Financial Accounting
Fundamentals
John J. Wild
University of Wisconsin at Madison
4
th
edition
wiL25591_fm_i-xxx_1.indd Page iii 26/10/12 8:56 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
FINANCIAL ACCOUNTING FUNDAMENTALS, FOURTH EDITION
Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New
York, NY, 10020. Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Printed in the United States
of America. Previous editions 2011, 2009, and 2007. No part of this publication may be reproduced or distributed in any
form or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill
Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for
distance learning.
Some ancillaries, including electronic and print components, may not be available to customers outside the United States.
This book is printed on acid-free paper.
1 2 3 4 5 6 7 8 9 0 DOW/DOW 1 0 9 8 7 6 5 4 3 2
ISBN 978-0-07-802559-4
MHID 0-07-802559-1
Senior Vice President, Products & Markets: Kurt L. Strand
Vice President, General Manager, Products
& Markets: Brent Gordon
Vice President, Content Production &
Technology Services: Kimberly Meriwether David
Director: Tim Vertovec
Executive Brand Manager: Steve Schuetz
Executive Director of Development: Ann Torbert
Managing Development Editor: Christina A. Sanders
Director of Digital Content: Patricia Plumb
Digital Development Editor: Julie Hankins
Senior Marketing Manager: Michelle Heaster
To my students and family, especially Kimberly, Jonathan, Stephanie, and Trevor.
Lead Project Manager: Lori Koetters
Senior Buyer: Carol A. Bielski
Lead Designer: Matthew Baldwin
Cover Designer: Laurie Entringer
Cover Image: Getty Images
Senior Content Licensing Specialist: Jeremy Cheshareck
Photo Researcher: Sarah Evertson
Lead Media Project Manager: Brian Nacik
Media Project Manager: Ron Nelms
Typeface: 10.5/12 Times Roman
Compositor: Aptara

, Inc.
Printer: R. R. Donnelley
CIP to come







All credits appearing on page or at the end of the book are considered to be an extension of the copyright page.
The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an
endorsement by the authors or McGraw-Hill, and McGraw-Hill does not guarantee the accuracy of the information presented at
these sites.
www.mhhe.com
wiL25591_fm_i-xxx_1.indd Page iv 26/10/12 8:56 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
v
Adapting to the Needs of Today's Students
Enhancements in technology have changed the spectrum of
how we live and learn in the world today. Being able to
download and work with learning tools on smart phones,
tablets, or laptop computers empowers students to drive their
own learning by putting increasingly intelligent technology
into their hands.
No two students are alike, and whether the goal is to
become an accountant or a businessperson or simply to be
an informed consumer of accounting information, Financial
Accounting Fundamentals (FAF) has helped generations of
students succeed by giving them support in the form of
leading-edge accounting content that engages students,
paired with state-of-the-art technology that elevates their
understanding of key accounting principles.
With FAF on your side, youll be provided with engaging
content in a motivating style to help students see the relevance
of accounting. Students are motivated when reading materials
that are clear and pertinent. FAF excels at engaging students.
Its chapter-opening vignettes showcase dynamic, successful
entrepreneurial individuals and companies guaranteed to
interest and excite students, and highlights the usefulness of
accounting to those business owners. This editions featured
companiesPolaris, Arctic Cat, KTM, and Piaggiocaptivate
students with their products and annual reports, which are a
pathway for learning financial statements. Further, this books
coverage of the accounting cycle fundamentals is widely
praised for its clarity and effectiveness.
FAF also delivers innovative technology to help student
performance. Connect Accounting provides students
with instant grading and feedback for assignments that
are completed online. With our new Intelligent Response
Technology, we are taking our accounting content to the next
level, delivering assessment material in a more intuitive, less
restrictive format that adapts to the needs of todays students.
Our new content features:
a general journal interface that looks and feels more like
that found in practice.
an auto-calculation feature that allows students to focus on
concepts rather than rote tasks.
a smart (auto-fill) drop-down design.
The end result is content that better prepares students for
the real world. Connect Accounting also includes digitally
based, interactive adaptive learning tools that provide an
opportunity to engage students more effectively by offering
varied instructional methods and more personalized learning
paths that build on different learning styles, interests, and
abilities, allowing students to work at their own pace.
McGraw-Hill LearnSmart is an intelligent learning system
that uses a series of adaptive questions to pinpoint each
students knowledge gaps. LearnSmart then provides an
optimal learning path for each student, so that they spend less
time in areas they already know and more time in areas they
dont. The result is LearnSmarts adaptive learning path that
helps students retain more knowledge, learn faster, and study
more efficiently.
Our Interactive Presentations teach each chapters core
learning objectives in a rich multimedia format, bringing the
content to life. Your students will come to class prepared
when you assign Interactive Presentations. Students can also
review the Interactive Presentations as they study.
Guided Examples provide students with narrated, animated,
step-by-step walkthroughs of algorithmic versions of assigned
exercises. Students appreciate the Guided Examples because
they can help students learn accounting and complete
assignments when outside of class.
Connect Plus Accounting integrates a media-rich online
version of the textbook with Connect Accounting.
"This is an excellent book that is well-written and contains excellent illustrations. It has the
best online supplements of any of the texts that I have reviewed. . . . This is an excellent
book that I would recommend to all of my colleagues."
KAREN CRISONINO, County College of Morris
Financial Accounting Fundamentals, 4e
wiL25591_fm_i-xxx_1.indd Page v 26/10/12 8:56 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
JOHN J. WILD is a distinguished profes-
sor of accounting at the University of Wisconsin
at Madison. He previously held appointments at
Michigan State University and the University of
Manchester in England. He received his BBA, MS,
and PhD from the University of Wisconsin.
Professor Wild teaches accounting courses at
both the undergraduate and graduate levels. He
has received numerous teaching honors, includ-
ing the Mabel W. Chipman Excellence-in-Teaching Award, the depart-
mental Excellence-in-Teaching Award, and the Teaching Excellence
Award from the 2003 and 2005 business graduates at the University of
Wisconsin. He also received the Beta Alpha Psi and Roland F. Salmonson
Excellence-in-Teaching Award from Michigan State University. Professor
Wild has received several research honors and is a past KPMG Peat
Marwick National Fellow and is a recipient of fellowships from the
American Accounting Association and the Ernst and Young Foundation.
Professor Wild is an active member of the American Accounting
Association and its sections. He has served on several committees of
these organizations, including the Outstanding Accounting Educator
Award, Wildman Award, National Program Advisory, Publications, and
Research Committees. Professor Wild is author of Fundamental Accounting
Principles, Financial and Managerial Accounting, Financial Accounting,
Managerial Accounting, and College Accounting, each published by
McGraw-Hill/Irwin. His research articles on accounting and analysis appear
in The Accounting Review, Journal of Accounting Research, Journal of
Accounting and Economics, Contemporary Accounting Research, Journal
of Accounting, Auditing and Finance, Journal of Accounting and Public
Policy, and other journals. He is past associate editor of Contemporary
Accounting Research and has served on several editorial boards including
The Accounting Review.
In his leisure time, Professor Wild enjoys hiking, sports, travel, people,
and spending time with family and friends.
About the Author
vi
wiL25591_fm_i-xxx_1.indd Page vi 26/10/12 8:56 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
Dear Colleagues/Friends,
As we roll out the new edition of Financial Accounting Fundamentals, I thank
each of you who provided suggestions to improve the textbook. As teachers, we
know how important it is to select the right book for our course. This new edition
reflects the advice and wisdom of many dedicated reviewers, symposium and
workshop participants, students, and instructors. This book consistently rates
number one in customer loyalty because of you. Together, we have created
the most readable, concise, current, accurate, and innovative accounting book
available today.
Throughout the writing process, I steered this book in the manner you directed.
Reviewers, instructors, and students say this books enhanced presentation,
graphics, and technology cater to different learning styles and helps students
better understand accounting. Connect Plus Accounting offers new features to
improve student learning and to assist instructor teaching and grading. You and
your students will find all these tools easy to apply.
I owe the success of this book to you and other instructors who graciously took
time to help me focus on the changing demands of todays students and their
learning needs. I feel fortunate to have witnessed our professions extraordinary
devotion to teaching. Your feedback and suggestions are reflected in everything
I write. Please accept my heartfelt thanks for your dedication in helping todays
students learn, understand, and appreciate accounting.
With kindest regards,
John J. Wild
vii
wiL25591_fm_i-xxx_1.indd Page vii 26/10/12 8:57 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
Adapting to the Needs of
McGraw-Hill Connect Plus Accounting is a complete online assignment, learning, and textbook assessment solution
that connects your students with the tools and resources needed to achieve success through faster learning, more
efficient studying, and higher retention of knowledge. Key features found in Connect Plus Accounting include:
Intelligent Response Technology Intelligent Response
Technology is Connect Accounting's new student interface
for end-of-chapter assessment content. Intelligent Response
Technology provides a general journal application that looks and
feels more like what you would find in a general ledger software
package, improves answer acceptance to reduce student frustra-
tion with formatting issues (such as rounding), and, for select
questions, provides an expanded table that guides students
through the process of solving the problem.
"I love how the general journal was set up.
It felt like what I would be filling out if I had
an accounting job."
Student, Chabot Community College
"I like that this system was
formatted like real-world
accounting is."
Student, Rose State College
viii
wiL25591_fm_i-xxx_1.indd Page viii 26/10/12 8:57 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
Today's Students!
Connect Accounting helps students learn
more efficiently by providing feedback
and practice material when they need
it, where they need it. Connect grades
homework automatically and gives imme-
diate feedback on any questions students
may have missed.
"This system has improved the journal entry and T-account set-up processes to more
accurately resemble the way it is done in class."
Student, Tallahassee Community College
ix
wiL25591_fm_i-xxx_1.indd Page ix 26/10/12 8:57 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
Interactive Presentations Connect
Accounting's Interactive Presentations
teach each chapter's core learning objec-
tives and concepts through an
engaging, hands-on presenta-
tion, bringing the text content
to life. Interactive Presentations
harness the full power of tech-
nology to truly engage and
appeal to all learning styles.
Interactive Presentations are
ideal in all class formatsonline,
face-to-face, or hybrid.
Adapting to the Needs of
Integrated eBooks Connect
Plus includes a media-rich eBook.
With it, you can share your notes
with your students, and they can
insert their own notes, highlight
the text, search for specific infor-
mation, and review their materials.
Using an eBook with Connect gives
your students a complete digital
solution that allows them to access
their materials from any computer.
And over time, as more and more
students use mobile devices, our
eBooks will even enable them to
learn on the go.
x
wiL25591_fm_i-xxx_1.indd Page x 26/10/12 8:57 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
Guided Examples Guided Examples
provide narrated, animated, and step-
by-step walkthroughs of algorithmic ver-
sions of assigned exercises in Connect
Accounting, allowing the student to iden-
tify, review, or reinforce the concepts and
activities covered in class. Guided Examples
provide immediate feedback and focus on
the areas where students need the most
guidance.
LearnSmart No two students are alike.
McGraw-Hill LearnSmart is an intelligent
learning system that uses a series of adaptive
questions to pinpoint each student's knowl-
edge gaps. LearnSmart then provides an opti-
mal learning path for each student, so that
they spend less time in areas they already
know and more time in areas they don't. The
result is that LearnSmart's adaptive learning
path helps students retain more knowledge,
learn faster, and study more efficiently.
Student Resource Library
The Connect Accounting Student
Study Center gives access to addi-
tional resources such as recorded lec-
tures, online practice materials, an
eBook, and more.
Today's Students!
xi
wiL25591_fm_i-xxx_1.indd Page xi 26/10/12 8:57 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
Adapting to the Needs of
Simple Assignment Management and Smart Grading
With Connect Plus Accounting, creating assignments is easier than ever, so you can spend more time teaching
and less time managing. Connect Accounting enables you to:
Create and deliver assignments easily with select end-of-chapter questions and test bank items.
Go paperless with the eBook and online submission and grading of student assignments.
Have assignments scored automatically, giving students immediate feedback on their work and side-by-
side comparisons with correct answers.
Reinforce classroom concepts with practice tests and instant quizzes.
McGraw-Hills solutions are proven to improve student performance. With Connect
Accounting, students can access a wealth of engaging resources to help them study
more effectively and perform at a higher level on homework and exams. Connect
Accounting also allows instructors to assign McGraw-Hills world class content and
assess student performance.
The integrated solutions for Financial Accounting Fundamentals have been specifically designed to help you
achieve your course goals of improving student readiness, enhancing student engagement, and increasing
their comprehension of content. McGraw-Hills adaptive learning component, LearnSmart, provides assign-
able modules that help students master chapter core content and come to class more prepared.
In addition, Interactive Presentations deliver learning objectives in an interactive environment, giving stu-
dents access to course-critical content anytime, anywhere. Known for its engaging style, the FAF solution
employs the use of current companies, LearnSmart, and our instant feedback on practice problems to help
students engage with our materials, comprehend the content, and achieve higher outcomes in the course.
"Connect certainly offers so much for the students and at the same time helps the
professors. The professors can offer more learning opportunities to the students
without intensive time investment."
Constance Hylton, George Mason University
xii
wiL25591_fm_i-xxx_1.indd Page xii 26/10/12 8:57 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
Today's Instructors
Instructor Library
The Connect Accounting Instructor Library is your repository for additional resources to improve student
engagement in and out of class. You can select and use any asset that enhances your lecture. The Connect
Accounting Instructor Library includes: access to the eBook version of the text, PowerPoint files, Solutions
Manual, Instructor Resource Manual, and Test Bank.
Student Reporting
Connect Accounting keeps instructors informed about how each stu-
dent, section, and class is performing, allowing for more productive use
of lecture and office hours. The reporting function enables you to:
View scored work immediately and track individual or group per-
formance with assignment and grade reports.
Access an instant view of student or class performance
relative to learning objectives.
Collect data and generate reports required by many accreditation
organizations, such as AACSB and AICPA.
Identify low-performance students with the "At Risk" student
report.
Tegrity: Lectures 24/7
Make your classes available anytime, anywhere. With simple one-click recording, instructors can
record lectures, presentations, and step-by-step problem solutions with Tegrity. Using Tegrity with
Connect Accounting, instructors can post recordings directly to Connect for student viewing. Students can
also search for a word or phrase and be taken to the exact place in your lecture that they need to review.
To learn more about Tegrity watch a two-minute Flash demo at http://tegritycampus.mhhe.com.
McGraw-Hill Customer Experience Group Contact Information
At McGraw-Hill, we understand that getting the most from new technology can be challenging. Thats why
our services dont stop after you purchase our products. You can e-mail our Product Specialists 24 hours a day
to get product training online. Or you can search our knowledge bank of Frequently Asked Questions on
our support Website. For Customer Support, call 800-331-5094 or visit www.mhhe.com/support. One of our
Technical Support Analysts will be able to assist you in a timely fashion.
xiii
wiL25591_fm_i-xxx_1.indd Page xiii 26/10/12 8:57 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
xiv
We offer an Online Learning Center (OLC) that follows Financial Accounting Fundamentals
chapter by chapter. It doesnt require any building or maintenance on your part. Its ready to
go the moment you and your students type in the URL:
www.mhhe.com/wildFAF4e
As students study and learn from Financial Accounting Fundamentals, they can visit
the Student Edition of the OLC Website to work with a multitude of helpful tools:
A secured Instructor Edition stores essential course materials to save you prep time
before class. Everything you need to run a lively classroom and an efficient course is
included. All resources available to students, plus . . .
Instructors Resource Manual
Solutions Manual
Solutions to Excel Template Assignments
Test Bank
Solutions to Sage 50 Complete Accounting and QuickBooks templates
The OLC Website also serves as a doorway to other technology solutions, like course
management systems.
Generic Template Working Papers
Chapter Learning Objectives
Interactive Chapter Quizzes
PowerPoint

Presentations
Excel Template Assignments
How Can Text-Related Web Resources Enrich My Course?
Online Learning Center (OLC)
McGraw-Hill Campus
TM
McGraw-Hill Campus is a new one-stop teaching and learning experience available
to users of any learning management system. This complimentary integration allows
faculty and students to enjoy single sign-on (SSO) access to all McGraw-Hill Higher
Education materials and synchronized grade-book with our award-winning McGraw-Hill
Connect platform. McGraw-Hill Campus provides faculty with instant access to all
McGraw-Hill Higher Education teaching materials (eTextbooks, test banks, PowerPoint
slides, animations and learning objects, and so on), allowing them to browse, search,
and use any instructor ancillary content in our vast library at no additional cost to
instructor or students. Students enjoy SSO access to a variety of free (quizzes, flash
cards, narrated presentations, and so on) and subscription-based products (McGraw-Hill
Connect). With this integration enabled, faculty and students will never need to create
another account to access McGraw-Hill products and services. For more information on
McGraw-Hill Campus please visit our website at www.mhcampus.com.
McGraw-Hill Higher Education and Blackboard have
teamed up. What does this mean for you?
1. Single sign-on. Now you and your students can access McGraw-Hill's
Connect and Create right from within your Blackboard course all with one
single sign-on.
2. Deep integration of content and tools. You get single sign-on
with Connect and Create, you also get integration of McGraw-Hill content
and content engines right in Blackboard. Whether you're choosing a book
for your course or building Connect assignments, all the tools you need are
right where you want theminside Blackboard.
3. One grade book. Keeping several grade books and manually synchronizing grades
in Blackboard is no longer necessary. When a student completes an integrated Connect
assignment, the grade for that assignment automatically (and instantly) feeds your
Blackboard grade center.
4. A solution for everyone. Whether your institution is already using Blackboard
or you just want to try Blackboard on your own, we have a solution for you.
McGraw-Hill and Blackboard can now offer you easy access to industry-leading
technology and content, whether your campus hosts it, or we do. Be sure to
ask your local McGraw-Hill representative for details.
Online Course
Management
wiL25591_fm_i-xxx_1.indd Page xiv 26/10/12 8:57 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
xv
CourseSmart
CourseSmart is a new way to find and buy eTextbooks. CourseSmart has the
largest selection of eTextbooks available anywhere, offering thousands of
the most commonly adopted textbooks from a wide variety of higher educa-
tion publishers. CourseSmart eTextbooks are available in one standard online
reader with full text search, notes, highlighting, and email tools for sharing
between classmates. Visit www.CourseSmart.com for more information on
ordering.
Instructors
Resource CD-ROM
ISBN13: 9780077584108
ISBN10: 0077584104
This is your all-in-one resource. It allows
you to create custom presentations from
your own materials or from the follow-
ing text-specific materials provided in the
CDs asset library:
Instructors Resource Manual
Written by April Mohr, Jefferson
Community and Technical
College, SW.

This manual contains (for each chap-
ter) a Lecture Outline, a chart linking
all assignment materials to Learning
Objectives, and additional visuals with
transparency masters.
Solutions Manual
Written by John J. Wild, and
Anita Kroll, University of
WisconsinMadison.
Test Bank
Revised by Laurie Hays,
Western Michigan University.
PowerPoint

Presentations
Prepared by Anna Boulware,
St. Charles Community College.
Presentations allow for revision of
lecture slides, and includes a viewer,
allowing screens to be shown with or
without the software.
Working Papers
Available through Create. Contact your
publisher representative for details.
Written by John J. Wild.
Connect Accounting with
LearnSmart One Semester
Access Code Card
ISBN13: 9780077584078
ISBN10: 0077584074
Connect Plus Accounting
with LearnSmart One
Semester Access Code Card
ISBN13: 9780077584092
ISBN10: 0077584090
Carol Yacht's Sage 50
Complete Accounting
2013 Student Guide and
Templates
ISBN13: 9780077796860
ISBN10: 0077796861
Prepared by Carol Yacht.
To better prepare students for account-
ing in the real world, selected end-of-
chapter material in the text is tied to
Sage 50 Complete Accounting 2013 soft-
ware (formerly Peachtree). The accompa-
nying student guide provides a step-by-
step walkthrough for students on how to
complete the problem in the software.
QuickBooks Pro 2013
Student Guide and
Templates
ISBN13: 9780077598686
ISBN10: 0077598687
Prepared by Carol Yacht.
To better prepare students for account-
ing in the real world, selected end-of-
chapter material in the text is tied to
QuickBooks software. The accompanying
student guide provides a step-by-step
walkthrough for students on how to
complete the problem in the software.
Instructor Supplements
Student Supplements
wiL25591_fm_i-xxx_1.indd Page xv 10/27/12 1:15 PM user-f502 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
Using Accounting for Decisions
Whether we prepare, analyze, or apply accounting informa-
tion, one skill remains essential: decision-making. To help
develop good decision-making habits and to illustrate the
relevance of accounting, our book uses a unique pedagogical
framework we call the Decision Center. This framework is
comprised of a variety of approaches and subject areas, giving
students insight into every aspect of business decision-making;
see three examples to the right and one below. Answers to
Decision Maker and Ethics boxes are at the end of each chapter.
CAP Model
The Conceptual/Analytical/Procedural (CAP) Model allows
courses to be specially designed to meet your teaching needs
or those of a diverse faculty. This model identifies learning ob-
jectives, textual materials, assignments, and test items by C, A,
or P, allowing different instructors to teach from the same ma-
terials, yet easily customize their courses toward a conceptual,
analytical, or procedural approach (or a combination thereof)
based on personal preferences.
Innovative Textbook Features
"We are very impressed with the text itself. The updated look, colors, illustrations,
. . . the inclusion of IFRS information will help the transition in the future
which is a good thing. We have the flexibility to pick and choose for now with
the way you have laid out the information."
Bob Urell, Irvine Valley College
Global View
This section explains international accounting practices relating to the material covered
in that chapter. This section is purposefully located at the end of each chapter so that
each instructor can decide what emphasis, if at all, is to be assigned to it. The aim of this
Global View section is to describe accounting practices and to identify the similarities and
differences in international accounting practices versus that in the United States. As we
move toward global convergence in accounting practices, and as we witness the likely
conversion of U.S. GAAP to IFRS, the importance of student familiarity with international
accounting grows. This innovative section helps us begin down that path of learning and
teaching global accounting practices.
Learning Objectives
CONCEPTUAL
C1
Explain the steps in processing
transactions and the role of source
documents. (p. 50)
C2
Describe an account and its use in
recording transactions. (p. 51)
C3
Describe a ledger and a chart of
accounts. (p. 54)
C4
Define debits and credits and explain
double-entry accounting. (p. 55)
ANALYTICAL
A1
Analyze the impact of transactions on
accounts and financial statements. (p. 59)
A2
Compute the debt ratio and describe its
use in analyzing financial condition. (p. 69)
PROCEDURAL
P1
Record transactions in a journal and post
entries to a ledger. (p. 56)
P2
Prepare and explain the use of a trial
balance. (p. 65)
We explained that accounting under U.S. GAAP is similar, but n
tion discusses differences in adjusting accounts, preparing finan
liabilities on a balance sheet.
Adjusting Accounts Both U.S. GAAP and IFRS includ
ing accounts. Although some variations exist in revenue and ex
all of the adjustments in this chapter are accounted for identica
ters we describe how certain assets and liabilities can result i
value measurements.
Preparing Financial Statements Both U.S. GAAP an
cial statements following the same process discussed in this cha
GAAP and IFRS require current items to be separated fromnoncu
a classified balance sheet). U.S. GAAP balance sheets report curr
liquid to least liquid, where liquid refers to the ease of converting
nearest to maturity to furthest from maturity, maturity refers to the
balance sheets normally present noncurrent items first (and equity
ment. Other differences with financial statements exist, which we i
the following example of IFRS reporting for its assets, liabilities,
GLOBAL VIEW
PIAGGIO
Balance Sheet (in thousands of
December 31, 2011
Assets
Noncurrent assets Total equity . . . . .
PIAGGIO
xvi
Women Entrepreneurs The Center for Womens Business Research reports
that women-owned businesses, such as Nom Nom Truck, are growing and that
they:
Total approximately 11 million and employ nearly 20 million workers.
Generate $2.5 trillion in annual sales and tend to embrace technology.
Are philanthropic70% of owners volunteer at least once per month.
Are more likely funded by individual investors (73%) than venture firms (15%).
Decision Insight
Payables Manager As a new accounts payable manager, you are being trained by the outgoing man-
ager. She explains that the system prepares checks for amounts net of favorable cash discounts, and the
checks are dated the last day of the discount period. She also tells you that checks are not mailed until five
days later, adding that the company gets free use of cash for an extra five days, and our department looks
better. When a supplier complains, we blame the computer system and the mailroom. Do you continue this
payment policy? [Answerp. 208]
Decision Ethics
Entrepreneur You purchase a batch of products on terms of 3y10, ny90, but your company has limited
cash and you must borrow funds at an 11% annual rate if you are to pay within the discount period. Is it to
your advantage to take the purchase discount? Explain. [Answerp. 208]
Decision Maker
Total Asset Turnover Decision Analysis
A1
Compute total asset
turnover and apply it to
analyze a companys use
of assets.
A companys assets are important in determining its ability to generate sales and earn income. Managers
devote much attention to deciding what assets a company acquires, how much it invests in assets, and how
to use assets most efficiently and effectively. One important measure of a companys ability to use its as-
sets is total asset turnover, defined in Exhibit 8.18.
EXHIBIT 8.18
Total Asset Turnover Total asset turnover 5
Net sales
Average total assets
The numerator reflects the net amounts earned from the sale of products and services. The denominator
reflects the average total resources devoted to operating the company and generating sales.
ill l l k l i hibi 8 19 f i i M l
wiL25591_fm_i-xxx_1.indd Page xvi 26/10/12 8:57 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
I like the layout of the text and the readability. The illustrations and comics in the book
make the text seem less intimidating and boring for students. The PowerPoint slides are
easy to understand and use, the pictorials are great, and the text has great coverage of
accounting material. The addition of IFRS information and the updates to the opening
stories are great. I like that the decision insights are about businesses the students can
relate to (i.e., Facebook, women start-up businesses, etc)."
Jeannie Liu, Chaffey College
Bring Accounting To Life
xvii
Chapter Preview
With Flowchart
This feature provides a handy textual/
visual guide at the start of every chapter.
Students can now begin their reading
with a clear understanding of what they
will learn and when, allowing them to
stay more focused and organized along
the way.
Long-Term Liabilities
Bond Issuances
Issuance at par
Issuance at a discount
Issuance at a premium
Bond pricing
Bond Basics
Bond financing
Bond trading
Issuance procedures
Bond
Retirement
At maturity
Before maturity
By conversion
Long-Term
Notes
Installment notes
Mortgage terms
Quick Check
These short question/answer features
reinforce the material immediately
preceding them. They allow the reader to
pause and reect on the topics described,
then receive immediate feedback before
going on to new topics. Answers are pro-
vided at the end of each chapter.
12. Give an example of a natural resource and of an intangible asset.
13. A company pays $650,000 for an ore deposit. The deposit is estimated to have 325,000 tons
of ore that will be mined over the next 10 years. During the first year, it mined, processed,
and sold 91,000 tons. What is that years depletion expense?
14. On January 6, 2013, a company pays $120,000 for a patent with a remaining 17-year legal
life to produce a toy expected to be marketable for three years. Prepare entries to record its
acquisition and the December 31, 2013, amortization entry.
Quick Check Answers p. 421
Marginal Student
Annotations
These annotations provide students with
additional hints, tips, and examples to help
them more fully understand the concepts
and retain what they have learned. The
annotations also include notes on global
implications of accounting and further
examples.
when an insurance fee, called a premium, is pai
account Prepaid Insurance. Over time, the exp
this asset account and reported in expenses on
in Prepaid Insurance and is reported on the bala
accounts that will expire or be used before the
statements are prepared. In this case, the prepa
Point: Prepaid accounts that apply to
current and future periods are assets.
These assets are adjusted at the end
of each period to reflect only those
amounts that have not yet expired, and
to record as expenses those amounts
that have expired.
wiL25591_fm_i-xxx_1.indd Page xvii 26/10/12 8:57 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
xviii
Demonstration Problems present both a problem
and a complete solution, allowing students to review the
entire problem-solving process and achieve success.
Chapter Summaries provide students with a review organized by learning
objectives. Chapter Summaries are a component of the CAP model (see page xvi),
which recaps each conceptual, analytical, and procedural objective.
Key Terms are bolded in the text and repeated
at the end of the chapter with page numbers indi-
cating their location. The book also includes a com-
plete Glossary of Key Terms.
Quick Study assignments are
short exercises that often focus
on one learning objective. Most
are included in Connect Account-
ing. There are usually 8-10 Quick
Study assignments per chapter.
Problem Sets A & B are proven problems that can be
assigned as homework or for in-class projects. All problems
are coded according to the CAP model (see page xvi), and
Set A is included in Connect Accounting.
Exercises are one of this books many strengths and a
competitive advantage. There are about 10-15 per chapter
and most are included in Connect Accounting.
Multiple Choice Quiz questions
quickly test chapter knowledge before
a student moves on to complete Quick
Studies, Exercises, and Problems.
Once a student has finished reading the chapter, how well he or
she retains the material can depend greatly on the questions, exer-
cises, and problems that reinforce it. This book leads the way in
comprehensive, accurate assignments.
Outstanding Assignment Material
Use the following adjusted trial balance and additional information to complete the requirements.
DEMONSTRATION PROBLEM 1
KC ANTIQUES
Adjusted Trial Balance
December 31, 2013
Debit Credit
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,000
Merchandise inventory . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Store supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,600
Accumulated depreciationEquipment $ 16 600
dditional information to complete the requirements.
KCC AAAAAANNNNTIQUES
usttteeeeddddd T TTrial Balance
ceeemmmmmmmbbber 31, 2013
Debit Credit
. . . . . . . . . . . . . . . . . $ 7,000
. . . . . . . . . . . . . . . . . 13,000
. . . . . . . . . . . . . . . . . 60,000
. . . . . . . . . . . . . . . . . 1,500
. . . . . . . . . . . . . . . . . 45,600
ipment $ 16 600
PLANNING THE SOLUTION
Compute the total cost of merchandise purchases for 2013.
To prepare the multiple-step statement, first compute net sales. Then, to compute cost of goods sold,
add the net cost of merchandise purchases for the year to beginning inventory and subtract the cost of
ending inventory. Subtract cost of goods sold from net sales to get gross profit. Then classify expenses
lli l d d i i i
SOLUTION TO DEMONSTRATION PROBLEM 1
1.
Invoice cost of merchandise purchases . . . . . . . . $150,000
Less: Purchases discounts received . . . . . . . . . . . . 2,500
Purchase returns and allowances . . . . . . . . . 2,700
Add: Cost of transportation-in . . . . . . . . . . . . . . . 5,000
Total cost of merchandise purchases . . . . . . . . . . $149,800
2. Multiple-step income statement
KC ANTIQUES
Income Statement
For Year Ended December 31, 2013
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $343,250
Less: Sales discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,000
Sales returns and allowances . . . . . . . . . . . . . . . . . . . 6,000 11,000
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332,250
Cost of goods sold* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,900
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,350
KK
a
c
p
Appropriated retained earnings (p. 482)
Authorized stock (p. 469)
Basic earnings per share (p. 485)
Book value per common share (p. 486)
Book value per preferred share (p. 486)
Call price (p. 479)
Callable preferred stock (p. 479)
Discount on stock (p. 471)
Dividend in arrears (p. 477)
Dividend yield (p. 486)
Earnings per share (EPS) (p. 485)
Financial leverage (p. 479)
Large stock dividend (p. 474)
Liquidating cash dividend (p. 474)
Preemptive right (p. 468)
Preferred stock (p. 476)
Premium on stock (p. 471)
Price-earnings (PE) ratio (p. 485)
Prior period adjustments (p. 483)
Proxy (p. 467)
Restricted retained earnings (p. 482)
Key Terms
fe ed s a e (p. 486)
st
a c a eve age (p. 479) o pe od adjust e ts (p. 83)
Additional Quiz Questions are available at the books Website.
Multiple Choice Quiz Answers on p. 507 mhhe.com/wildF
2. A company reports net income of $75,000.
average common shares outstanding is 19,0
other stock outstanding. Its earnings per share
a. $4.69
b. $3.95
c. $3.75
d. $2.08
e. $4.41
1. A corporation issues 6,000 shares of $5 par value common
stock for $8 cash per share. The entry to record this transaction
includes:
a. A debit to Paid-In Capital in Excess of Par Value for
$18,000.
b. A credit to Common Stock for $48,000.
c. A credit to Paid-In Capital in Excess of Par Value for
$30,000.
d. A credit to Cash for $48,000.
A di C S k f $30 000
d. $2.08
e. $4.41
. A credit to Paid In Capital in Excess of Par Value for
$30,000.
. A credit to Cash for $48,000.
$
Units Unit Cost
Beginning inventory on January 1 . . . . . . . . . 320 $3.00
Purchase on January 9 . . . . . . . . . . . . . . . . . 80 3.20
Purchase on January 25 . . . . . . . . . . . . . . . . 100 3.34
Information: A company reports the following beginning inventory and purchase
January. On January 26, the company sells 350 units. 150 units remain in ending inven
QUICK STUDY
QS 5-1
Perpetual: Inventory costing with
FIFO
P1
Exercise 5-2
Inventory costs
C2
ers, purchased the contents of an estate for $75,000. Terms of the purchase
he cost of transporting the goods to Walberg Associates warehouse was
ed the shipment at a cost of $300. Prior to putting the goods up for sale, they
cost of $980. Determine the cost of the inventory acquired from the estate.
d $20,000 of goods to Harlow Co., and Harlow Co. has arranged to sell
y the consignor and the consignee. Which company should include any
ventory?
shipped $12,500 of merchandise FOB destination to Harlow Co. Which
$12,500 of merchandise in transit as part of its year-end inventory?
EXERCISES
Exercise 5-1
Inventory ownership C1
PROBLEM SET A
Problem 5-1A
Perpetual: Alternative cost
flows
P1
Information: W
purchases and s
80 units from be
of 40 units from
Date
Mar. 1
a
S
D t Date Date
Mar. 1
into the following purchases
ale consisted of 8 units from
le consisted of 12 units from
pril 25 purchase.)
PROBLEM SET B
Problem 5-1B
Perpetual: Alternative cost flows
P1
Units Sold at Retail
wiL25591_fm_i-xxx_1.indd Page xviii 10/27/12 1:16 PM user-f502 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
xix
The End of the Chapter Is Only the Beginning Our valuable and proven assignments arent just conned to
the book. From problems that require technological solutions to materials found exclusively online, this books end-of-chapter
material is fully integrated with its technology package.
Quick Studies, Exercises, and Problems
available in Connect are marked with an
icon.
Problems supported by the Sage 50
Complete Accounting or Quickbooks are
marked with an icon.
Problems supported with Microsoft
Excel template assignments are marked
with an icon.
Assignments that focus on global
accounting practices and companies are
often identified with an icon.
accounting
Helps Students Master Key Concepts
"The serial problems are excellent. I like the continuation of the same
problem to the next chapters if applicable. I use the Quick Studies as practice
problems. . . . Students have commented that this really works for them if they
work (these questions) before attempting the assigned exercises and problems.
I also like the discussion (questions) and make this an assignment. You have
done an outstanding job presenting accounting to our students."
Jerri Tittle, Rose State College
mhhe.com/wildFAF4e
Beyond the Numbers exercises ask students to use
accounting gures and understand their meaning. Students
also learn how accounting applies to a variety of
business situations. These creative and fun exercises are
all new or updated, and are divided into sections:
Reporting in Action
Comparative Analysis
Ethics Challenge
Communicating in
Practice
Taking It To The Net
Teamwork in Action
Hitting the Road
Entrepreneurial Decision
Global Decision
BTN 12-1 Refer to Polaris financial statements in Appendix A to answer the following.
1. Is Polaris statement of cash flows prepared under the direct method or the indirect method? How
do you know?
2. For each year 2011, 2010, and 2009, is the amount of cash provided by operating activities more or
less than the cash paid for dividends?
3. What is the largest amount in reconciling the difference between net income and cash flow from
operating activities in 2011? In 2010? In 2009?
4. Identify the largest cash inflowand outflowfor investing and for financing activities in 2012 and in 2010.
Fast Forward
5. Obtain Polaris financial statements for a year ending after December 31, 2011, fromeither its Website
(Polaris.com) or the SECs database (www .sec.gov). Since December 31, 2011, what are Polaris
Beyond the Numbers
REPORTING IN
ACTION
A1
Polaris
Serial Problem uses a continuous running case study
to illustrate chapter concepts in a familiar context. The Se-
rial Problem can be followed continuously from the rst
chapter or picked up at any later point in the book; enough
information is provided to ensure students can get right to
work.
SERIAL PROBLEM
Success Systems
A1 P1 P2
(This serial problem started in Chapter 1 and continues through most of the chapters. If the Chapter 1
segment was not completed, the problem can begin at this point. It is helpful, but not necessary, to use the
Working Papers that accompany this book.)
SP 2 On October 1, 2013, Adria Lopez launched a computer services company called Success Systems,
which provides consulting services, computer system installations, and custom program development.
Adria adopts the calendar year for reporting purposes and expects to prepare the companys first set of
financial statements on December 31, 2013. The companys initial chart of accounts follows.
Account No. Account No.
Cash . . . . . . . . . . . . . . . . . . . . . . 101 A. Lopez, Capital . . . . . . . . . . . . . . . . . . . 301
Accounts Receivable . . . . . . . . . 106 A. Lopez, Withdrawals . . . . . . . . . . . . . . 302
Computer Supplies . . . . . . . . . . 126 Computer Services Revenue . . . . . . . . . 403
Prepaid Insurance . . . . . . . . . . . 128 Wages Expense . . . . . . . . . . . . . . . . . . . . 623
Prepaid Rent . . . . . . . . . . . . . . . 131 Advertising Expense . . . . . . . . . . . . . . . . 655
Office Equipment . . . . . . . . . . . 163 Mileage Expense . . . . . . . . . . . . . . . . . . . 676
Computer Equipment . . . . . . . . 167 Miscellaneous Expenses . . . . . . . . . . . . . 677
Accounts Payable . . . . . . . . . . . 201 Repairs Expense Computer. . . . . . . . . 684
wiL25591_fm_i-xxx_1.indd Page xix 26/10/12 8:57 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
xx
Enhancements in This Edition
Chapter 1
Twitter NEW opener with new
entrepreneurial assignment
Streamlined and reorganized discussion
of the users of accounting information
Updated salary information and new
margin notes on the value of education
New presentation on the fraud triangle
and its relevance to accounting and
internal control
New discussion on the joint role of the
FASB and IASB in standard setting
Revised layout for accounting principles
and assumptions
New information on the Dodd-Frank act
and its relevance to accounting
New survey data from executives on
the impact of fraud in the economic
downturn
New world map on the adoption of IFRS
or a variant of IFRS across countries
New company (Dell) for the return on
assets section of Decision Analysis
Chapter 2
Nom Nom Truck NEW opener with new
entrepreneurial assignment
Reorganized discussion and presentation
of assets, liabilities, and equity accounts
Revised description of journalizing and
posting of transactions
New headings on each general journal
for this chapters major illustration
introducing our unique four-step
transaction analysis
Revised global view and new Piaggios
(abbreviated) balance sheet
Updated debt ratio discussion using
recent Skecherss information

Chapter 3
ash&dans NEW opener with new
entrepreneurial assignment
New layout for the types of adjustments
New example of unearned revenues
using USA Today
Enhanced and emphasized the
innovative three-step process for
adjusting accounts
Updated IFRS and FASB revenue
recognition convergence
Added six new Quick Studies to directly
apply the three-step adjustment process
Expanded explanation of temporary and
permanent accounts
Revised visual display of four-step
closing process
Enhanced display of general ledger for
ease in learning
Chapter 4
Faithful Fish NEW opener with new
entrepreneurial assignment
Enhanced exhibit on transportation
costs and FOB terms, with inclusion of
entries
New discussion of online ordering,
tracking numbers, RFID, and FOB
Revised the two-step explanation of
recording merchandise sales
New discussion on the importance and
risks of accounting for sales returns
Revised visual display of a sales invoice
Revised discussion of merchandising
purchases and sales
New Volkswagen example of IFRS
income statement
Chapter 5
Feverish Ice Cream NEW opener with
new entrepreneurial assignment
Enhanced exhibit that visually shows
cost flows from inventory to financial
statements, with superior info-graphics
Added new discussion on inventory
controls
New explanatory boxes added to selected
exhibits as learning aids
Expanded assignments covering
perpetual and periodic inventory
measurement
New material on IFRS and inventory
methods
Chapter 6
CHEESEBOY NEW opener with new
entrepreneurial assignment
New discussion of payroll controls
Expanded presentation of Hackers
Guide
New discussion of the lock box and its
purpose
New data on sources of fraud complaints
New evidence on methods to override
controls
New visual on document to bond
(insure) an employee
New example of MLB controls, or lack
thereof
Chapter 7
Under Armour NEW opener with new
entrepreneurial assignment
Added explanation of credit card sales
New discussion of mobile payment
systems using mini-card-readers and
iPads
New illustration comparing bad debts
recognition under the allowance method
versus the direct write-off method
Revised exhibit on aging of accounts
receivable, including all detailed
accounts
New illustration on why the bankers
rule is commonly applied
Chapter 8
BizChair.com NEW opener with new
entrepreneurial assignment
New learning boxes added to selected
exhibits identifying salvage value
New explanation on how asset purchases
This editions revisions are driven by instructors and students. General revisions to the entire book follow (including chapter-by-chapter revisions):
Revised and updated assignments throughout
Updated ratio/tool analysis and data for each chapter
New material on International Financial Reporting Standards
(IFRS) in most chapters, including global examples
New and revised entrepreneurial examples and elements
Revised serial problem through nearly all chapters
New art program, visual info-graphics, and text layout
New Polaris (maker of ATVs, snowmobiles, motorcycles, and electric
vehicles) annual report with comparisons to competitors, including
Arctic Cat, KTM (IFRS), and Piaggio (IFRS) with new assignments
Updated graphics added to each chapters analysis section
New technology content integrated and referenced in the book
Updated Global View section in each chapter
New innovative assignments sprinkled throughout the book
wiL25591_fm_i-xxx_1.indd Page xx 26/10/12 8:57 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
xxi
For Better Learning
occurring on different days of the month
are commonly processed
New example of extraordinary repairs
applied to the stealth bomber
New notes added to emphasize that
depreciation is cost allocation, and not
valuation
New explanation on how drugmakers
fight patent expirations
New information on the Mickey Mouse
Protection Act for intangibles
New goodwill example using Googles
purchase of YouTube
Chapter 9
SmartIT Staffing NEW opener with
new entrepreneurial assignment
Revised unearned revenues example
based on Rihanna ticket sales
Added explanation on the role of
sellers as tax collection agents for the
government
New information on franchise costs and
how they are accounted for
Added select formulas to enhance the
exhibit on payroll deductions
Updated payroll rates to 2012 with
discussion on likely adjustments for 2013
and 2014
Added discussion on maximum
withholding allowances claimed
New discussion on IRS actions against
companies that fail to pay employment
taxes
New evidence on payroll fraud, its
median loss, and time taken to uncover
such frauds
Chapter 10
barley & birch NEW opener with new
entrepreneurial assignment
New explanation on why debt (credit)
financing is less costly than equity
financing
New margin graphics (four) illustrating
how a debts carrying value is
periodically adjusted until it equals
maturity value at the end of its life
New margin boxes on calculator
functions to compute the price of bonds
New explanation of what is investment
grade debt
New discussion on the role of
unreported liabilities and the 20082009
financial crisis
Reference to changes in lease accounting
New discussion of collateral and its role
in debt financing
New separate appendix learning
objectives on amortizing a discount or a
premium using effective interest
Chapter 11
Groupon NEW opener with new
entrepreneurial assignment
New discussion of Facebooks IPO and
the role of accounting information
New reference to corporate governance
New reference to state laws and where
companies incorporate
New examples using Target for stock
quotes and Google for stock splits
New discussion of fraudulent
information dissemination and stock
prices
Updated the global view on equity
accounting
Chapter 12
TOMS NEW opener with new
entrepreneurial assignment
Revised graphics to better illustrate
cash inflows and outflows for operating,
investing, and financing activities
Revised graphic to better reflect cash
and cash equivalents
Added discussion on the use of
T-accounts for reconstructing
transactions impacting cash
New margin clarification for computing
free cash flow
New discussion on the potential for
IASB and FASB to issue guidance for
the statement of cash flow that would
require the direct method stay tuned
Chapter 13
Motley Fool REVISED opener with new
entrepreneurial assignment
New companiesPolaris, Arctic Cat,
KTM and Piaggiodata throughout the
chapter, exhibits, and illustrations
New boxed discussion on the role of
financial statement analysis to fight and
prevent fraud
Enhanced horizontal, vertical, ratio
analysis using new companies and
industry data
Streamlined global view section
Appendix C
myYearbook (MeetMe Inc.) NEW
opener with new entrepreneurial
assignment
New discussion of the two optional
presentations for comprehensive income
per FASB guidance in 2012
Revised discussion of accounting for
securities
New reference to Greek debt in the
context of international operations
Appendix D
New examples of LLPs and their
prevalence among professional services
New discussion of the potential for
multiple drawing accounts in practice
Revised and streamlined three-step
process to liquidate a partnership
Appendix E
Expanded discussion and examples of
hackers and internal controls
New pneumonic tool for system
principles
Enhanced exhibit on system components
New discussion on voice recognition
controls
New discussion on cloud computing, its
implications to accounting, and its risks
New references to XBRL, Great Plains,
and QuickBooks in accounting
Updated discussion and examples for
ERP
wiL25591_fm_i-xxx_1.indd Page xxi 26/10/12 8:57 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
xxii
Assurance of Learning Ready
Many educational institutions today are focused on the notion of assur-
ance of learning, an important element of some accreditation standards.
Financial Accounting Fundamentals is designed specically to support your
assurance of learning initiatives with a simple, yet powerful solution. Each test bank question for
Financial Accounting Fundamentals maps to a specic chapter learning objective listed in the text.
You can use our test bank software, EZ Test Online or Connect Accounting to easily query for learn-
ing objectives that directly relate to the learning objectives for your course. You can then use the
reporting features of EZ Test to aggregate student results in similar fashion, making the collection
and presentation of assurance of learning data simple and easy.
AACSB Statement
The McGraw-Hill Companies is a proud corporate member of
AACSB International. Understanding the importance and value
of AACSB accreditation, Financial Accounting Fundamentals
recognizes the curricula guidelines detailed in the AACSB stan-
dards for business accreditation by connecting selected questions in the test bank to the six general
knowledge and skill guidelines in the AACSB standards. The statements contained in Financial Ac-
counting Fundamentals are provided only as a guide for the users of this textbook. The AACSB leaves
content coverage and assessment within the purview of individual schools, the mission of the school,
and the faculty. While Financial Accounting Fundamentals and the teaching package make no claim
of any specic AACSB qualication or evaluation, we have within Financial Accounting Fundamentals
labeled select questions according to the six general knowledge and skills areas.
"This textbook does address many learning styles and at the same time
allows for many teaching styles ... our faculty have been very pleased
with the continued revisions and supplements. From paper working
papers ... to continually improved homework sites and e-books.
Im a Wild fan!"
Rita Hays, Southwestern Oklahoma State University
wiL25591_fm_i-xxx_1.indd Page xxii 26/10/12 8:57 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
xxiii
Thomas Arcuri, Florida State University
Sidney Askew, Borough of Manhattan Community College
Richard Barnhart, Grand Rapids Community College
Jaswinder Bhangal, Chabot College
Patrick Borja, Citrus College
Anna Boulware, St. Charles Community College
Billy Brewster, University of Texas at Arlington
Marci Butterfield, University of Utah
Colleen Chung, Miami Dade College- Kendall
Robert Churchman, Harding University
Marilyn Ciolino, Delgado Community College
Ken Couvillion, Delta College
Karen Crisonino, County College of Morris
Stan Davis, University of Tennessee at Chattanooga
Walter DeAguero, Saddleback College
Mike Deschamps, MiraCosta College
Ron Dustin, Fresno City College
Albert Fisher, College of Southern Nevada
Linda Flowers, Houston Community College
Jeannie Folk, College of DuPage
Ernesto Gonzalez, Florida National College
Ann Gregory, South Plains College
Rebecca Hancock, El Paso Community College-Valley Verde
Laurie Hays, Western Michigan University
Rita Hays, Southwestern Oklahoma State University
Constance Hylton, George Mason University
Todd Jensen, Sierra College
Gina M. Jones, Aims Community College
Jeff Jones, College of Southern Nevada
Sandra Jordan, Florida State College at Jacksonville
Dmitriy Kalyagin, Chabot College
Thomas Kam, Hawaii Pacific University
Shirly A. Kleiner, Johnson County Community College
Anita Kroll, University of Wisconsin-Madison
David Krug, Johnson County Community College
Christopher Kwak, DeAnza College
David Laurel, South Texas College
Charles Lewis, Houston Community College
Jeannie Liu, Chaffey College
Thomas S. Marsh, Northern Virginia Community College-
Annandale
Stacie Mayes, Rose State College
Donald McWilliams, Jackson State University
Jeanine Metzler, Northampton Community College
Edna C. Mitchell, Polk State College
Kathleen ODonnell, Onondaga Community College
Yvonne Phang, Borough of Manhattan Community College
James Racic, Lakeland Community College
Ruthie Reynolds, Howard University
Helen Roybark, Radford University
Richard Sarkisian, Camden County College
Tracy Schmeltzer, Wayne Community College
Debbie Schmidt, Cerritos College
Geeta Shankhar, University of Dayton
Regina Shea, Community College of Baltimore
CountyEssex
Jaye Simpson, Tarrant County College
Erik Slayter, California Polytechnic State University
San Luis Obispo
Gerald Smith, University of Northern Iowa
Dominique Svarc, William Rainey Harper College
Acknowledgments
John J. Wild and McGraw-Hill/Irwin would like to recognize the following instructors
for their valuable feedback and involvement in the development of Financial Accounting
Fundamentals, 4e. We are thankful for their suggestions, counsel, and encouragement.
wiL25591_fm_i-xxx_1.indd Page xxiii 26/10/12 8:57 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
xxiv
Ulysses Taylor, Fayetteville State University
Anthony Teng, Saddleback College
Teresa Thompson, Chaffey Community College
Jerri Tittle, Rose State College
Bob Urell, Irvine Valley College
Adam Vitalis, University of Wisconsin-Madison
Patricia Walczak, Lansing Community College
Dave Welch, Franklin University
Jean Wells-Jessup, Howard University
Christopher Widmer, Tidewater Community College
Gayle Williams, Sacramento City College
Kenneth L. Wild, University of London
Jonathan M. Wild, University of Wisconsin
John Woodward, Polk State College
Wanda Wong, Chabot College
Judy Zander, Grossmont College
The author extends a special thank you to our contributing and technology supplement authors:
Contributing Authors: Anita Kroll, University of Wisconsin; Kathleen O'Donnell, Onondaga Community College
Accuracy Checkers: Dave Krug, Johnson County Community College; Albert Fisher, College of Southern Nevada; Judy Zander,
Grossmont College; Ann McCarthy, Eastern Carolina University; Mark McCarthy, East Carolina University; Helen Roybark,
Radford University; and Barbara Schnathorst
LearnSmart Authors: April Mohr, Jefferson Community and Technical College, SW; Anna Boulware, St. Charles Community
College; and Dominique Svarc, William Rainey Harper College
Online Quizzes: Constance Hylton, George Mason University
Interactive Presentations: Jeannie Folk, College of DuPage
PowerPoint: Anna Boulware, St. Charles Community College
Instructor Resource Manual: April Mohr, Jefferson Community and Technical College, SW
Test Bank: Laurie Hays, Western Michigan University
QuickBooks and Sage 50 Complete Accounting: Carol Yacht
Excel Templates: Jack Terry
In addition to the helpful and generous colleagues listed above, I thank the entire McGraw-Hill/Irwin
Financial Accounting Fundamentals, 4e team, including Tim Vertovec, Steve Schuetz, Christina Sanders,
Aaron Downey of Matrix Productions, Lori Koetters, Matthew Baldwin, Carol Bielski, Patricia Plumb, Jeremy
Cheshareck, Ron Nelms, Xin Lin, Julie Hankins, and Brian Nacik. I also thank the great marketing and sales
support staff, including Michelle Heaster and Kathleen Klehr. Many talented educators and professionals
worked hard to create the supplements for this book, and for their efforts Im grateful. Finally, many more
people I either did not meet or whose efforts I did not personally witness nevertheless helped to make this
book everything that it is, and I thank them all.
John J. Wild
wiL25591_fm_i-xxx_1.indd Page xxiv 26/10/12 8:57 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
xxv
Brief Contents
1 Introducing Financial Accounting 2
2 Accounting f or Transactions 50
3 Preparing Financial Statements 96
4 Accounting for Merchandising Operations 160
5 Accounting for Inventories 208
6 Accounting for Cash and Internal Controls 256
7 Accounting for Receivables 300
8 Accounting for Long-Term Assets 334
9 Accounting for Current Liabilities 376
10 Accounting for Long-Term Liabilities 420
11 Accounting for Equity 464
12 Accounting for Cash Flows 508
13 Interpreting Financial Statements 562
Appendix A Financial Statement Information A-1
Appendix B Time Value of Money B
Appendix C Investments and International Operations C
*Appendix D Accounting for Partnerships
*Appendix E Accounting with Special Journals
* Appendices D&E are available on the books Website, mhhe.com/wildFAF4e, and as print copy from a McGraw-Hill representative.
wiL25591_fm_i-xxx_1.indd Page xxv 26/10/12 8:57 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
Contents
xxvi
Preface v
1 Introducing Financial
Accounting 2
Importance of Accounting 4
Users of Accounting Information 5
Opportunities in Accounting 6
Fundamentals of Accounting 7
EthicsA Key Concept 7
Fraud Triangle 8
Generally Accepted Accounting Principles 9
International Standards 9
Conceptual Framework and Convergence 10
SarbanesOxley (SOX) 13
Dodd-Frank 14
Transaction Analysis and the Accounting
Equation 15
Accounting Equation 15
Transaction Analysis 16
Summary of Transactions 19
Financial Statements 20
Income Statement 20
Statement of Retained Earnings 20
Balance Sheet 20
Statement of Cash Flows 22
Global View 22
Decision AnalysisReturn on Assets 23
Appendix 1A Return and Risk Analysis 27
Appendix 1B Business Activities and the Accounting
Equation 27
2 Accounting for
Transactions 50
Analyzing and Recording Process 52
Source Documents 52
The Account and Its Analysis 53
Analyzing and Processing Transactions 56
Ledger and Chart of Accounts 56
Debits and Credits 57
Double-Entry Accounting 57
Journalizing and Posting Transactions 58
Analyzing TransactionsAn Illustration 61
Accounting Equation Analysis 65
Trial Balance 67
Preparing a Trial Balance 67
Using a Trial Balance to Prepare Financial
Statements 68
Global View 70
Decision AnalysisDebt Ratio 71
3 Preparing Financial
Statements 96
Timing and Reporting 98
The Accounting Period 98
Accrual Basis versus Cash Basis 99
Recognizing Revenues and Expenses 100
Adjusting Accounts 100
Frameworks for Adjustments 100
Prepaid (Deferred) Expenses 101
Unearned (Deferred) Revenues 104
Accrued Expenses 105
Accrued Revenues 107
Links to Financial Statements 109
Adjusted Trial Balance 110
Preparing Financial Statements 110
Closing Process 112
Temporary and Permanent Accounts 112
Recording Closing Entries 112
Post-Closing Trial Balance 114
Accounting Cycle 116
Classified Balance Sheet 117
Classification Structure 117
Classification Categories 118
Global View 120
Decision AnalysisProfit Margin and Current
Ratio 121
Appendix 3A Alternative Accounting for
Prepayments 125
Appendix 3B Work Sheet as a Tool 127
Appendix 3C Reversing Entries 129
wiL25591_fm_i-xxx_1.indd Page xxvi 26/10/12 8:57 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
4 Accounting for
Merchandising
Operations 160
Merchandising Activities 162
Reporting Income for a Merchandiser 162
Reporting Inventory for a Merchandiser 163
Operating Cycle for a Merchandiser 163
Inventory Systems 163
Accounting for Merchandise Purchases 164
Purchase Discounts 165
Purchase Returns and Allowances 166
Transportation Costs and Ownership Transfer 167
Accounting for Merchandise Sales 169
Sales of Merchandise 169
Sales Discounts 170
Sales Returns and Allowances 170
Completing the Accounting Cycle 172
Adjusting Entries for Merchandisers 172
Preparing Financial Statements 173
Closing Entries for Merchandisers 173
Summary of Merchandising Entries 173
Financial Statement Formats 174
Multiple-Step Income Statement 175
Single-Step Income Statement 176
Classified Balance Sheet 176
Global View 177
Decision AnalysisAcid-Test and Gross Margin
Ratios 178
Appendix 4A Periodic Inventory System 183
Appendix 4B Work SheetPerpetual System 187
5 Accounting for
Inventories 208
Inventory Basics 210
Determining Inventory Items 210
Determining Inventory Costs 211
Internal Controls and Taking a Physical Count 211
Inventory Costing under a Perpetual System 211
Inventory Cost Flow Assumptions 212
Inventory Costing Illustration 213
Specific Identification 213
First-In, First-Out 215
Last-In, First-Out 215
Weighted Average 216
Financial Statement Effects of Costing Methods 218
Consistency in Using Costing Methods 219
Valuing Inventory at LCM and the Effects of
Inventory Errors 219
Lower of Cost or Market 219
Financial Statement Effects of Inventory Errors 220
Global View 222
Decision AnalysisInventory Turnover and Days
Sales in Inventory 223
Appendix 5A Inventory Costing under a Periodic
System 229
Appendix 5B Inventory Estimation Methods 234
6 Accounting for Cash and
Internal Controls 256
Internal Control 258
Purpose of Internal Control 258
Principles of Internal Control 259
Technology and Internal Control 261
Limitations of Internal Control 262
Control of Cash 263
Cash, Cash Equivalents, and Liquidity 263
Cash Management 264
Control of Cash Receipts 264
Control of Cash Disbursements 266
Banking Activities as Controls 270
Basic Bank Services 270
Bank Statement 272
Bank Reconciliation 273
Global View 276
Decision AnalysisDays Sales Uncollected 277
Appendix 6A Documentation and Verification 280
Appendix 6B Control of Purchase
Discounts 283
7 Accounting for
Receivables 300
Accounts Receivable 302
Recognizing Accounts Receivable 302
Valuing Accounts ReceivableDirect Write-Off
Method 306
Valuing Accounts ReceivableAllowance Method 307
Estimating Bad DebtsPercent of Sales Method 308
Estimating Bad DebtsPercent of Receivables
Method 309
Estimating Bad DebtsAging of Receivables Method 310
Contents xxvii
wiL25591_fm_i-xxx_1.indd Page xxvii 26/10/12 8:58 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
xxviii Contents
Notes Receivable 312
Computing Maturity and Interest 312
Recognizing Notes Receivable 313
Valuing and Settling Notes 314
Disposal of Receivables 315
Selling Receivables 315
Pledging Receivables 315
Global View 316
Decision AnalysisAccounts Receivable Turnover 317
8 Accounting for Long-Term
Assets 334
SECTION 1PLANT ASSETS 336
Cost Determination 337
Land 337
Land Improvements 338
Buildings 338
Machinery and Equipment 338
Lump-Sum Purchase 338
Depreciation 339
Factors in Computing Depreciation 339
Depreciation Methods 340
Partial-Year Depreciation 344
Change in Estimates for Depreciation 345
Reporting Depreciation 345
Additional Expenditures 346
Ordinary Repairs 347
Betterments and Extraordinary Repairs 347
Disposals of Plant Assets 348
Discarding Plant Assets 348
Selling Plant Assets 348
SECTION 2NATURAL RESOURCES 350
Cost Determination and Depletion 350
Plant Assets Used in Extracting 351
SECTION 3INTANGIBLE ASSETS 351
Cost Determination and Amortization 351
Types of Intangibles 352
Global View 354
Decision AnalysisTotal Asset Turnover 355
Appendix 8A Exchanging Plant Assets 358
9 Accounting for Current
Liabilities 376
Characteristics of Liabilities 378
Defining Liabilities 378
Classifying Liabilities 378
Uncertainty in Liabilities 379
Known Liabilities 380
Accounts Payable 380
Sales Taxes Payable 380
Unearned Revenues 381
Short-Term Notes Payable 381
Payroll Liabilities 383
Multi-Period Known Liabilities 386
Estimated Liabilities 387
Health and Pension Benefits 387
Vacation Benefits 388
Bonus Plans 388
Warranty Liabilities 388
Multi-Period Estimated Liabilities 389
Contingent Liabilities 390
Accounting for Contingent Liabilities 390
Reasonably Possible Contingent Liabilities 390
Uncertainties that Are Not Contingencies 391
Global View 391
Decision AnalysisTimes Interest Earned Ratio 392
Appendix 9A Payroll Reports, Records,
and Procedures 395
Appendix 9B Corporate Income Taxes 401
10 Accounting for Long-Term
Liabilities 420
Basics of Bonds 422
Bond Financing 422
Bond Trading 423
Bond-Issuing Procedures 424
Bond Issuances 424
Issuing Bonds at Par 424
Bond Discount or Premium 425
Issuing Bonds at a Discount 425
Issuing Bonds at a Premium 428
Bond Pricing 430
wiL25591_fm_i-xxx_1.indd Page xxviii 26/10/12 8:58 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
Contents xxix
Bond Retirement 431
Bond Retirement at Maturity 431
Bond Retirement before Maturity 431
Bond Retirement by Conversion 432
Long-Term Notes Payable 432
Installment Notes 433
Mortgage Notes and Bonds 434
Global View 435
Decision AnalysisDebt Features and the Debt-to-
Equity Ratio 436
Appendix 10A Present Values of Bonds and Notes 440
Appendix 10B Effective Interest Amortization 442
Appendix 10C Issuing Bonds between Interest
Dates 444
Appendix 10D Leases and Pensions 446
11 Accounting for Equity 464
Corporate Form of Organization 466
Characteristics of Corporations 466
Corporate Organization and Management 467
Stockholders of Corporations 468
Basics of Capital Stock 469
Common Stock 470
Issuing Par Value Stock 470
Issuing No-Par Value Stock 471
Issuing Stated Value Stock 472
Issuing Stock for Noncash Assets 472
Dividends 473
Cash Dividends 473
Stock Dividends 474
Stock Splits 476
Preferred Stock 476
Issuance of Preferred Stock 477
Dividend Preference of Preferred Stock 477
Convertible Preferred Stock 478
Callable Preferred Stock 479
Reasons for Issuing Preferred Stock 479
Treasury Stock 480
Purchasing Treasury Stock 480
Reissuing Treasury Stock 481
Retiring Stock 482
Reporting of Equity 482
Statement of Retained Earnings 482
Statement of Stockholders Equity 483
Reporting Stock Options 483
Global View 484
Decision AnalysisEarnings per Share, Price-
Earnings Ratio, Dividend Yield, and Book
Value per Share 485
12 Accounting for Cash
Flows 508
Basics of Cash Flow Reporting 510
Purpose of the Statement of Cash Flows 510
Importance of Cash Flows 510
Measurement of Cash Flows 511
Classification of Cash Flows 511
Noncash Investing and Financing 513
Format of the Statement of Cash Flows 513
Preparing the Statement of Cash Flows 514
Cash Flows from Operating 516
Indirect and Direct Methods of Reporting 516
Application of the Indirect Method of Reporting 517
Summary of Adjustments for Indirect Method 522
Cash Flows from Investing 523
Three-Stage Process of Analysis 523
Analysis of Noncurrent Assets 523
Analysis of Other Assets 524
Cash Flows from Financing 525
Three-Stage Process of Analysis 525
Analysis of Noncurrent Liabilities 525
Analysis of Equity 526
Proving Cash Balances 527
Global View 527
Decision AnalysisCash Flow Analysis 528
Appendix 12A Spreadsheet Preparation of the Statement
of Cash Flows 532
Appendix 12B Direct Method of Reporting Operating
Cash Flows 535
wiL25591_fm_i-xxx_1.indd Page xxix 26/10/12 8:58 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles
xxx Contents
13 Interpreting Financial
Statements 562
Basics of Analysis 564
Purpose of Analysis 564
Building Blocks of Analysis 564
Information for Analysis 565
Standards for Comparisons 565
Tools of Analysis 566
Horizontal Analysis 566
Comparative Statements 566
Trend Analysis 569
Vertical Analysis 571
Common-Size Statements 571
Common-Size Graphics 573
Ratio Analysis 574
Liquidity and Efficiency 575
Solvency 579
Profitability 580
Market Prospects 581
Summary of Ratios 582
Global View 584
Decision AnalysisAnalysis Reporting 584
Appendix 13A Sustainable Income 588
Appendix A Financial Statement Information A-1
Polaris A-2
Arctic Cat A-10
KTM A-14
Piaggio A-18
Appendix B Time Value of Money B
Appendix C Investments and International Operations C
*Appendix D Accounting for Partnerships
*Appendix E Accounting with Special Journals
Glossary G
Credits CR
Index IND
Chart of Accounts CA
* Appendices D&E are available on the books Website, mhhe.com/wildFAF4e, and as print copy from a McGraw-Hill representative.
wiL25591_fm_i-xxx_1.indd Page xxx 26/10/12 8:58 PM user-f463 /203/MH01861/wiL25591_disk1of1/0078025591/wiL25591_pagefiles

You might also like