TITLE : FINANCIAL ACCOUNTING.

PREFACE

Financial Accounting is the product of many years of experience in teaching first-year accounting students. We are the coauthors of a successful principles of accounting text and have both won awards for outstanding teaching. We have drawn on years of classroom experience with first-year accounting students and our experience with several editions of Principles of Accounting to produce Financial Accounting. Our teaching experience has led to a textbook that students can read and understand. The text uses simple language, thorough explanations, and extensive illustrations to teach each of the accounting concepts. In addition, real-life examples are incorporated throughout the chapters and problem materials. An appendix, Appendix B. "Understanding Published Annual Financial Reports," ties the 1989 financial statements of The Procter & Gamble Company to the concepts introduced in each chapter.

THE TEXT

As you examine Financial Accounting, you will discover a continuing theme: The student is being provided with keys to unlock the doors of opportunity that the mastery of accounting allows. Each chapter uses the learning and teaching features consistently, understandably, and meaningfully to create in the student an excitement for the study of accounting. The following are integrated learning and teaching features contained in every chapter:

1. Specific, demonstrable, clearly stated learning goals

2. Chapter introduction using relevant real-life examples to create student interest

3. A clear, precise, and understandable writing style

4. Uncluttered text pages that draw attention to important concepts

5. Numerous illustrations integrated into the text material (The work sheet is presented in Chapter 4 using unique acetate overlays to allow the student to actually see the accounting process develop.)

6. Learning goals keyed throughout each chapter in a clear but unobtrusive manner

7. Real-life company examples to apply accounting theory and concepts

8. End-of-chapter summaries keyed to the learning goals

9. Self-tests and answers keyed to learning goals

10. Demonstration problems that illustrate and integrate major chapter concepts using unique "Solution Approaches" to provide keys to setting up each problem

11. A significant number of end-of-chapter exercises and problems (11 to 16 exercises, 7 to 9 A problems, 7 to 9 B problems, and an integrative problem covering major chapter concepts)

12. An extensive number of chapter problems that may be solved with the self-contained software provided with the text and electronic spreadsheet templates

Two other learning and teaching features integrate the entire text: The master chart of accounts, printed on the front and back endsheets, and Appendix B. which requires the student to apply the accounting concepts learned in each chapter of the text to the 1989 Annual Report of The Procter & Gamble Company.

The main focus in the development of Financial Accounting has been the student who will be using the book and the educator who will be teaching from it. Many features were based on suggestions and recommendations made by users of our Principles of Accounting text and a large team of reviewers. This dedicated group from four-year colleges and universities in all parts of the country brought a wealth of teaching experience and a variety of viewpoints to their review of the text. We are especially pleased to offer this text to you for your personal review, consideration, and use.

Highlights of the Text

The following paragraphs describe some of the strengths of the first edition. The accounting cycle chapters, Chapters 1 through 5, present the material in a logical flow and balance the amount of material covered in each of the chapters. The accounting cycle chapters have been written in a writing style that students will be comfortable with. The reading level is easy and the numerous illustrations create more student interest in the topic.

The text makes extensive use of "Learning Goals" pioneered in the first edition of Principles of Accounting. These learning goals have all been written so that they are clear and explicit and describe a demonstrable learning outcome. Each section of the chapter is then "keyed" with the learning goal covered in that section. "Learning Goals Reviews" appear at the end of each chapter to present a concise review of the material required to accomplish each of the learning goals. A "Learning Goals Self-Test" follows the review in each chapter. Each learning goal has at least one multiple choice question keyed to the learning goal being tested.

A comprehensive demonstration problem is included in each chapter. These demonstration problems are designed to illustrate the learning goals in the chapter. The problem requirements are keyed to the learning goals illustrated by that requirement. A unique feature of the demonstration problem solution is the inclusion of a "Solution Approach" for each of the requirements. This is designed to assist the student in following the problem-solving logic and mastering problem-solving techniques.

End-of-chapter exercises and problems have also been keyed to the learning goals. Included in the problems are interpretation questions based on real-life company examples taken from recent annual reports. Also, an "Integrative Problem" is included in each chapter. This problem is designed to integrate the learning goals of the chapter into a single comprehensive problem. These features of the problem material result in a wealth of problem material available in each chapter.

Chapters 2 through 14 contain problems that can be solved with software available for use with IBM, Apple II, and now Macintosh personal computers. The text also includes problems in Chapters 15 through 18 that can be solved with electronic spreadsheet templates designed for Lotus 1-2-3 and low-cost alternatives. The practice sets are designed to be used with the same software package as the end-of-chapter problems in Chapters 2 through 14. By using the same basic software package throughout the text, the learning curve associated with the software itself is significantly reduced, allowing the student to utilize the computer more effectively.

Extensive illustrations supplement the text. Over 500 figures, general journal entries, ledger accounts, and supporting computations show the application of the various accounting techniques. Many of these illustrations are keyed to the corresponding text material to help the student follow the items in the figures being discussed in the text. Coverage of many accounting concepts has been written to include the use of T accounts in much the same manner as an instructor would use T accounts in classroom presentation to help teach the accounting procedure being covered. Formal journals and ledgers are retained to illustrate for the student the actual accounting records.

Chapter introductions relate each chapter's material to contemporary business issues and include up-to-date real-life company examples of one of the chapter's topics. The introductions are designed to capture the student's attention and show the relevance of the chapter's accounting concepts. Real-life company examples are also used both in the text and in many end-of-chapter problems to apply accounting concepts to actual business situations. The end-of-chapter problems include problems based on such companies as Procter & Gamble, Chrysler Corporation, Goodyear Tire and Rubber, Coca-Cola, Home Shopping Network, Sherwin-Williams, IBM, Caterpillar Tractor, Deere and Company, Ameritech, Georgia-Pacific, Phillips Petroleum Company, Anheuser-Busch Companies, Con-Agra, Southwestern Bell, Lockheed Corporation, MGM/UA Communications, and Eastman Kodak. Appendix B. "Understanding Published Annual Financial Reports," applies the accounting concepts discussed throughout the book to the 1989 Annual Report of Procter & Gamble. Questions relating to the Procter & Gamble statements are included in Appendix B for the topics in every chapter.

Each chapter includes a boxed item based on a current business periodical article. This feature is designed to place the accounting concept being studied into the context of something happening in today's business world. Some of these boxed items are intended to show the lighter side of the accountant's management role.

Work sheet coverage in Chapter 4 introduces the work sheet using acetate overlays. These are designed so that the student can actually see the step-by-step development of a work sheet. These steps are thoroughly explained in the accompanying text.

Chapter 17, "Statement of Cash Flows," has been written to conform with FASB Statement No. 95 and includes unique diagrams that show the relationships among all of the financial statements. The chapter has been class tested for three years by users of the authors' Principles of Accounting text.

Appendix B to the text, "Understanding Published Annual Financial Reports," includes the complete financial statements from the 1989 Annual Report of Procter & Gamble along with questions for each chapter in the text. This unique application requires the student to apply the accounting concepts learned in each chapter of the text to the Procter & Gamble Company.

Appendix B also includes a complete set of financial statements as they would appear in an annual report for a fictional company. These statements have been designed to illustrate the concepts taught in the course and are annotated to help the student in studying the statements.

FASB material is quoted throughout wherever appropriate. Generally accepted accounting principles are introduced from the first chapter so students understand that the accounting,principles they are studying are based on actual accepted practice.

Internal control of the accounting system is considered in many chapters. For example, Chapter 6, "Special Journals and Accounting Systems," includes two source document flowcharts to enhance the understanding of this area of internal control, and Chapter 7 uses cash control illustrations.

The new form of the independent audit opinion is introduced and used in Chapters 7 and 12. The 1989 Procter & Gamble financial statements in- cluded in Appendix B also use this new form for the audit opinion.

Organization of the Book

Part One develops the basic accounting model step by step. Each chapter emphasizes the simplest organizational form, the single proprietorship. The first five chapters explain and illustrate the concepts and techniques of the steps in the accounting cycle using a series of firms owned by a single owner, Debbie Starr. A series of diagrams highlighting the portion of the accounting cycle covered is used to summarize each chapter. Financial Accounting includes coverage of inventory changes under the periodic inventory system illustrated as either closing or adjusting entries to allow the instructor to specify which approach to use. The closing approach is illustrated in the chapter, and the adjusting approach is covered in an appendix.

Part Two continues to emphasize single proprietorships in introducing various accounting systems or subsystems. Chapter 7 explains the control of cash and the voucher system as internal control devices.

Part Three deals with income measurement and valuation issues relating to receivables, inventories, and long-term assets. Real-life company illustrations and problems in all of these chapters relate the accounting concepts to actual financial reporting situations.

Part Four opens with a discussion of generally accepted accounting principles, price-level accounting, and other reporting issues. The corporation as a unique business organizational form is discussed in Chapters 13 and 14. The accounting for the issuance of bonds and investments in bonds and stocks (Chapter 15) is discussed using both the straight line and interest methods of amortizing premium and discount elements. Chapter 16 describes and illustrates investment in stocks and consolidated statements; an appendix to this chapter covers international accounting. Chapter 17 teaches the statement of cash flows, using the simple analytical and work sheet methods. Chapter 18 extensively covers financial statement analysis and interpretation.

Four appendices are included at the end of the book. Appendix A considers basic income tax, using flow diagrams to present an overview of income tax computations. The appendix also introduces interperiod income tax allocation. Appendix B contains the consolidated financial statements of Procter & Gamble Company and accompanying notes. It also contains a series of questions for each chapter based on Procter & Gamble's statements and notes. Appendix B also contains a complete set of annotated statements for a hypothetical company. Appendix C contains the coverage of compound interest concepts and tables for four basic compound interest techniques. Appendix D discusses the payroll system.

Special Teaching Features of the Book

Many features of Financial Accounting will enhance the teaching of accounting. Learning goals appear at the beginning of each chapter to clarify the major concepts the student should understand from the chapter. These learning goals are keyed to the sections of the chapter that cover the material and to the end-of-chapter problems. A chapter summary reviews each of the learning goals, and a chapter self-test allows the students to test their understanding of each of the learning goals.

Key terms are printed in bold type as they are introduced and defined in a chapter. A glossary is presented at the end of each chapter for review.

The uniform master chart of general ledger accounts is used throughout the text to reinforce the concepts of classifying accounting data. The master chart of accounts is printed inside the front and back covers of the text for easy reference.

The totality of accounting is emphasized in the early chapters to show the students the scope of the accounting sequence while they learn specific accounting techniques and relationships.

End-of-chapter material includes 10 to 16 questions, 11 to 16 single-concept exercises, 14 to 18 problems, and an integrative problem. The questions may be used as the basis for classroom discussion or as assignment material. The single-concept exercises may be used in the classroom or assigned as homework to illustrate an application of each major chapter concept. Each of the problems integrates several concepts discussed in the chapter. Each A problem and corresponding B problem covers the same concepts. Where appropriate, we have designed the corresponding A and B problems to illustrate different perspectives of the same concept (see P3-6A and P3-6B). Chapter 4, whose appendix introduces accounting for corporations, includes a C set of problems. The C set includes a corporate problem corresponding to each of the A problems, which are proprietorship problems. The integrative problems are designed to integrate the learning goals of the chapter into a single problem. A title describes the topic of each exercise and problem. The exercises and problems are all keyed to the applicable learning goals.

THE TEACHING PACKAGE

In addition to the text, the teaching package includes the Instructor's Manual, Solutions Manual, Test Bank, full-color teaching transparency acetates, solutions transparency acetates (with enlarged type), six practice sets, a Study Guide, a set of working papers (including general ledger software and electronic spreadsheet templates), and a computerized test bank.

For the Instructor

This manual is unlike any other manutal that accompanies a financial accounting textbook. Separate from the Solutions Manual, it contains six sections:

* Guide to the Use of the Instructor's Manual

* List and Description of Elements in the Learning Package

* Suggested Assignments

* Chapter Organizers for Each Chapter

Summary of Learning Goals

Lecture Notes (keyed to the learning goals)

Content Analysis of Exercises and Problems (keyed to the learning goals)

* Suggested Uses for the Teaching Transparencies

* References to Authoritative Sources (including a brief summary of each FASB and NAA pronouncement up to September 1989)

This manual contains solutions to all end-of-chapter questions, exercises, and problems. The solutions indicate the learning goals covered by the problem.

Solutions to all end-of-chapter exercises and problems are available on transparency acetates. For ease in classroom use, each problem begins on a new acetate. The acetates use large type for ease of viewing.

A set of full color transparency acetates highlights selected text exhibits and reinforces accounting concepts through step-by-step illustrations.

The Test Bank contains two parts: (1) a set of 30 true/false and 30 multiple choice questions for each chapter (suitable for computer scoring) and a set of 10-15 short-problem style questions and (2) a set of achievement tests consisting of tests for each two-chapter group. Solutions are included with the test banks. The achievement tests may be reproduced for classroom use. All questions are keyed to the chapter learning goals.

The Test Bank is available in computer form for use on IBM PC, Macintosh, or Apple II. Multiple versions of each exam and answer keys can be generated from the software. The software also allows instructors to edit individual questions and add their own questions.

For the Student

This learning aid differs from the usual workbook of exercises found with most accounting texts. Each chapter contains a review of the chapter keyed to the learning goals. Each chapter also contains a "Guided Study of the Chapter" in programmed learning format. In a question-and-answer format, it leads the student through the more difficult concepts in each chapter. Each chapter also contains a self-test of learning goal achievement with answers.

There is a working paper designed for each exercise and for each pair of A and B problems. Some of the working papers for earlier chapters are partially complete; in later chapters, the working papers contain less help for the student.

The text software package emulates a real-life general ledger package, avoiding the hassles associated with setting up commercial packages. This software is designed to work selected end-of-chapter problems in Chapters 2 through 14. Software with the same "look and feel" is used for the practice sets. Electronic spreadsheet templates are also provided for selected problems in Chapters 15 through 18. These templates can be used with such packages as Lotus 1-2-3, or other low-cost alternatives.

Six practice sets are available in manual and computerized versions. The anticipated solution time for the manual version of each set is 10 to 15 hours. The solution time for the computerized version is 4 to 6 hours.

Complete Computers, a computer wholesaler, is a single proprietorship practice set with documents and special journals. Designed to be used as soon as the student has completed Chapter 6, most of the transaction data are contained in business documents rather than in narrative form.

Sports Source features a sporting goods wholesale business (a single proprietorship) with a narrative of transactions and using special journals, the general journal, the general ledger, and subsidiary ledgers. It is designed to be used after the student has completed Chapter 6, but it would be an excellent review instrument to introduce the second quarter or semester course.

Parts Pantry, Inc., an auto parts wholesaler, is a corporate practice set. It is designed to be used after the student has completed Chapter 14. Although a few operational transactions are included, the main focus is on analyzing and recording transactions that directly affect the capital structure. Thus, the ideas and concepts in Chapters 13 and 14 are reinforced.

Frances and Daughter is a single proprietorship practice set with documents. Designed to be used as soon as the student has completed Chapter 6, most of the transaction data are contained in business documents rather than in narrative form. This set requires only a general journal, a general ledger, and subsidiary ledgers.

MEE-High Furniture Store features a wholesale furniture business (a single proprietorship) using special journals, the general journal, the general ledger, and subsidiary ledgers. It is designed to be used after the student has completed Chapter 6, but it would be an excellent review instrument to introduce the second quarter or semester course.

Catalina Island Corporation is a corporate practice set. It is designed to be used after the student has completed Chapter 14. Although a few operational transactions are included, the main focus is on analyzing and recording transactions that directly affect the capital structure. Thus, the ideas and concepts in Chapters 13 and 14 are reinforced.