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CHARLES E. D A V I S I ELIZABETH D A V I S
WILEY
John Wiley & Sons, Inc.
ContentsPreface
The Development Story
Acknowledgments
Dedication
Author Biographies
Brief Contents
Chapter T:>-iiiourliipillilii>I
V
ix
x i i
x i i
xiii
xiv
mUmUnit 1.1 What Is Managerial Accounting? 3
Definition of Managerial Accounting 3
Comparison of Managerial and Financial
Accounting 4Internal versus External Users 5Lack of Mandated Rules 5Focus on Operating Segments 5Focus on the Future 6Emphasis on Timeliness 6
The Manager's Role / 7Planning 8
Controlling and Evaluating 8Decision Making 9
Management in Action ,- 9
The Managerial Accountant's Role 10
REALITY CHECK Just Because Polly wantsa cracker doesn't mean she'll get it 12
' UNIT 1.1 REVIEW 12Key Terms 12
Practice Questions 12
Unit 1.1 Practice Exercise 13
Selected Unit 1.1 Answers 13
Unit 1.2 Different Strategies, DifferentInformation 14
Matching Accounting Information to anOrganization's Strategy 14
Product Differentiation versus Low-CostProduction 14
REALITY CHECK Strategic planning
sometimes requires nerves of steel 15
Market Share: Build, Hold, Harvest, or Divest 15
Monitoring Strategic Performance 16The Balanced Scorecard 16
Supply Chain Management 17
Just-In-Time (JIT) Inventory 18
REALITY CHECK A supply chain touchdown 19Enterprise Resource Planning (ERP) Systems 20
UNIT 1.2 REVIEW 20Key Terms 20
Practice Questions 20
Unit 1.2 Practice Exercise 21
Selected Unit 1.2 Answers 21
Unit 1.3 Ethical Considerations in
Managerial Accounting 22
REALITY CHECK Blowing the whistle 27
UNIT 1.3 REVIEW 28
Key Terms 28
Practice Questions 28
Unit 1.3 Practice Exercise 28
Selected Unit 1.3 Answers 28
CHAPTER SUMMARY 29
KEY TERMS 29
EXERCISES 30
PROBLEMS 32
CASES 32
ENDNOTES 34
C&C's History
A Brief Look at C&C'sResources
Industry Statistics
FOCUS SUMMARY
ENDNOTES
Unit 2.1 Cost Behavior Patterns
Variable Costs
Fixed Costs
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Discretionary versus Committed Fixed
Costs 51
Step Costs 51
Mixed Costs 52
REALITY CHECK If it looks like a variablecost . . . 53
UNIT 2.1 REVIEW 53Key Terms 53Practice Questions 54Unit 2.1 Practice Exercise 54Selected Unit 2.1 Answers " 54
Unit 2.2 Cost Estimation 55
Scattergraphs 56
High-Low Method 58
Regression Analysis 60
REALITY CHECK Where does the relevantrange end? 61
Cost Estimation and the RelevantRange 61
UNIT 2.2 REVIEW 62Key Terms 62Practice Questions 62Unit 2.2 Practice Exercise 62Selected Unit 2.2 Answers 62
Unit 2.3 Contribution MarginAnalysis 63
Contribution Margin • 64
REALITY CHECK The contribution marginrecipe 65
Contribution Format IncomeStatement 66
UNIT 2.3 REVIEW 69Key Terms 69Practice Questions 69Unit 2.3 Practice Exercise 69Selected Unit 2.3 Answers 69
CHAPTER SUMMARY 70
KEY TERMS 71EXERCISES 72PROBLEMS 75CASES 78ENDNOTES 79
Chapter 3 Cost-Volurne-PfofitAnalysis and Pricing Decisions
Unit 3.1 Breakeven Analysis 82
The Breakeven Point 82
REALITY CHECK Who really uses
breakeven analysis? 84
Breakeven Graphs 8 4
Margin of Safety 86
UNIT 3.1 REVIEW 86Key Terms 86Practice Questions 86Unit 3.1 Practice Exercise 87Selected Unit 3.1 Answers 87
Unit 3.2 Cost-Volume-Profit Analysis 88
Target Operating Income 88
Target Net Income 89
What-lf Analysis 90Limitations of CVP Analysis 91
Cost Structure and OperatingLeverage 92
REALITY CHECK Fixed versus variable costs 94
UNIT 3.2 REVIEW 95Key Terms 95Practice Questions 95Unit 3.2 Practice Exercise 96Selected Unit 3.2 Answers 96 .
Unit 3.3 Multiproduct CVP Analysis 97
REALITY CHECK What's in the mix? 99Limitations of Multiproduct CVP Analysis 101
UNIT 3.3 REVIEW 101Key Terms 101Practice Questions 101Unit 3.3 Practice Exercise 102Selected Unit 3.3 Answers 102
Unit 3.4 Pricing Decisions 103
Influences on Price 103
Cost-Pius Pricing 104
Target Costing 105
REALITY CHECK Filling the tank emptiesthe wallet 106
xvi Contents
UNIT 3.4 REVIEW 107Key Terms 107
Practice Questions 107
Unit 3.4 Practice Exercise 107
Selected Unit 3.4 Answers 108
CHAPTER SUMMARY 109
KEY TERMS 111
EXERCISES 111
PROBLEMS 115
CASES 120
ENDNOTES 123
Chapter 4 Product Costing forManufacturing Companies
Unit 4.1 Product and Period CostsProduct Costs
Direct Materials
Direct Labor
Overhead
Period CostsSelling Costs
General and AdministrativeCosts
REALITY CHECK Showing costclassifications in published financialstatements
UNIT 4.1 REVIEW
Key Terms
Practice Questions
Unit 4.1 Practice Exercise
Selected Unit 4.1 Answers
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129129
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Unit 4.2 Product Cost Flows
Inventory Account Definitions
Recording of Cost Flows
REALITY CHECK A lotta latte
Schedule of Cost of GoodsManufactured
UNIT 4.2 REVIEWKey TermsPractice QuestionsUnit 4.2 Practice ExerciseSelected Unit 4.2 Answers
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140141141141142142
Unit 4.3 Job Order Costing 143
Accumulating Direct Job Costs 144Tracing Direct Materials Costs 145Tracing Direct Labor Costs 146
Allocating Manufacturing OverheadCosts 147
REALITY CHECK Tracking direct laborcosts 148
Calculating the Predetermined OverheadRate 149Applying Manufacturing Overhead toJobs 149
REALITY CHECK Here come therobots 150
UNIT 4.3 REVIEW 151Key Terms 151Practice Questions 151Unit 4.3 Practice Exercise 152Selected Unit 4.3 Answers 152
Unit 4.4 Underapplied andOverapplied Manufacturing Overhead 153
Closing Underapplied and OverappliedOverhead to Cost of Goods Sold 154
Prorating Underapplied and OverappliedOverhead 155
UNIT 4.4 REVIEW 157Key Terms 157Practice Questions 157Unit 4.4 Practice Exercise 157Selected Unit 4.4 Answers 157
CHAPTER SUMMARY 159
KEY TERMS 160
EXERCISES 161
PROBLEMS 166
CASES ~ 173
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Process Costing
Cost Flows
Comparison of ProcessJob Order Costing
Similarities
Differences
Costing and
Contents
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X V
Cost Accumulation and Reporting
Reconciling Activity and Costs
Calculating Equivalent Units
Allocating Product Costs to Units
REALITY CHECK Costs in the oyster
Process Costing Recap
FOCUS REVIEWKEY TERMS
PRACTICE QUESTIONS
FOCUS 2 PRACTICE EXERCISE
SELECTED FOCUS 2 ANSWERS
FOCUS SUMMARY
EXERCISES
PROBLEMS
CASES
ENDNOTES
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Chapter 5 Planning and ForecastingT
Unit 5.1 Planning and the BudgetingProcess
What Is a Budget?
The Budgeting ProcessInformation Flows
Behavioral Issues
Starting Points
REALITY CHECK The changing budgetprocess
Time Frames
UNIT 5.1 REVIEWKey TermsPractice QuestionsUnit 5.1 Practice ExerciseSelected Unit 5.1 Answers
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Variable and Absorption Costing
Absorption Costing versus VariableCosting
Income Effects of Variable CostingWhen Production Volume Equals SalesVolume
When Production Volume Exceeds SalesVolume '
REALITY CHECK Variable costing,German style' When Production Volume is Less than
Sales Volume
Reconciling Income under AbsorptionCosting and Variable Costing
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FOCUS REVIEWKEY TERMS
PRACTICE QUESTIONS
FOCUS 3 PRACTICE EXERCISE
SELECTED FOCUS 3 ANSWERS
FOCUS SUMMARY
EXERCISES
PROBLEMS
CASE
iii Contents
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Unit 5.2 Performance Standards 225
REALITY CHECK The diamond standard 226
Ideal versus Practical Standards 226
Product Standards 227Direct Materials 227Direct Labor 229Manufacturing Overhead 230
UNIT 5.2 REVIEW 230Key Terms 230Practice Questions 231Unit 5.2 Practice Exercise 231Selected Unit 5.2 Answers 231
Unit 5.3 Building the Master Budget:
The Operating Budget 232
The Sales Budget 234
The Selling and AdministrativeExpense Budget 235
The Production Budget 237
The Direct Materials Purchases Budget 238
The Direct Labor Budget 241
The Manufacturing Overhead Budget 242
The Ending Inventory and Cost ofGoods Sold Budget 244
Ending Raw Materials 244Ending Finished Goods 246
REALITY CHECK Budgeting around theworld
Cost of Goods Sold
UNIT 5.3 REVIEWKey Terms
Practice Questions
Unit 5.3 Practice Exercise
Selected Unit 5.3 Answers
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247247247248248
Unit 5.4 Building the Master Budget:The Cash Budget 250
Cash Available to Spend 250The Cash Receipts Budget 252
Cash Disbursements 253
REALITY CHECK Is there a crystal ballfor forecasting sales and collections? 254The Cash Payments for Materials Budget 255Other Cash Disbursements 256
Cash Excess (Cash Needed) 256
Short-Term Financing 257
Ending Cash Balance 257
UNIT 5.4 REVIEW 258Key Terms 258Practice Questions 258Unit 5.4 Practice Exercise , 259Selected Unit 5.4 Answers 259
Unit 5.5 Pro-Forma Financial Statements 260
The Pro-Forma Income Statement 261
The Pro-Forma Balance Sheet 262
REALITY CHECK How the pros use, pro-formas 263
Assets 263
Liabilities and Stockholders' Equity 264
UNIT 5.5 REVIEW 265Key Terms 265
Practice Questions 265
Unit 5.5 Practice Exercise 265
Selected Unit 5.5 Answers 265
CHAPTER SUMMARY 267
KEY TERMS 269
EXERCISES 269
PROBLEMS "274
CASES 277
ENDNOTES 282
Unit 6.1 Flexible Budgets: APerformance Evaluation Tool 286
Static Budgets 286Variances 287Management by Exception 287
Flexible Budgets 288
REALITY CHECK Who's being flexible? 289
Using Flexible Budgets to AnalyzeStatic Budget Variances 290
A Revised Performance Report 291Computing Sales Volume Variances 292Computing Flexible Budget Variances 293
Using Variances to Evaluate theSales Strategy 294
UNIT 6.1 REVIEW 295Key Terms 295Practice Questions 296Unit 6.1 Practice Exercise 296Selected Unit 6.1 Answers 297
Unit 6.2 Variance Analysis: DirectMaterials 298
Analyzing the Direct Materials Variances 299Direct Materials Price Variance 299
REALITY CHECK Big things in smallpackages 301,
Direct Materials Quantity Variance 301
Interpreting Direct Materials Variances 302Explaining Direct Materials Price Variances 303Explaining Direct Materials Quantity
Variances 303
REALITY CHECK A variance to remember 304
UNIT 6.2 REVIEW 305Key Terms 305Practice Questions 305Unit 6.2 Practice Exercise 305Selected Unit 6.2 Answers 306
Unit 6.3 Variance Analysis: DirectLabor 307
Analyzing the Direct Labor Variances 307Direct Labor Rate Variance 307Direct Labor Efficiency Variance 309
Contents x i x
Interpreting Direct Labor VariancesExplaining Direct Labor Rate VariancesExplaining Direct Labor EfficiencyVariances
REALITY CHECK Fast and furious or slowand steady?
UNIT 6.3 REVIEWKey TermsPractice QuestionsUnit 6.3 Practice ExerciseSelected Unit 6.3 Answers
Unit 6.4 Variance Analysis: Overhead
Variable OverheadVariable Overhead Spending VarianceVariable Overhead Efficiency VarianceInterpreting Variable OverheadVariances
Fixed Overhead
UNIT 6.4 REVIEWKey TermsPractice QuestionsUnit 6.4 Practice ExerciseSelected Unit 6.4 Answers
CHAPTER SUMMARY
KEY TERMS
EXERCISES
PROBLEMS
CASES
ENDNOTES
309309
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312312
FOCUS REVIEWKEY TERMS
PRACTICE QUESTIONS
FOCUS 4 PRACTICE EXERCISE
SELECTED FOCUS 4 ANSWERS
FOCUS SUMMARY
EXERCISES
PROBLEMS
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FOCUS ON 4 Standard i€ostmgiSystem£f
Standard Costing Systems 336
Recording Direct Materials 337
Recording Direct Labor 338
Recording Variable Overhead 339
REALITY CHECK Are standard costing
systems headed for extinction? 340
Recording Fixed Overhead 341
Transferring Completed Units to
Finished Goods Inventory 342
Recording Cost of Goods Sold 343
Disposing of Variances 343
Advantages of Standard Costing 344
Chapter 7 ActiviiyrBased Costingand Activity-Based lyianagement
Unit 7.1 Activity-Based Costing 356
Why Activity-Based Costing? 356
Classification of Activities 359
REALITY CHECK At the centerof activity 360
UNIT 7.1 REVIEW 362Key Terms 362Practice Questions 362Unit 7.1 Practice Exercise 363Selected Unit 7.1 Answers 363
Unit 7.2 Developing Activity-Based
Product Costs 364
Step 1: Identify Activities 364
Step 2: Develop Activity Cost Pools 365
Step 3: Calculate Activity Cost PoolRates 366Step 4: Allocate Costs to Products orServices 368
Step 5: Calculate Unit Product Costs 369
REALITY CHECK Can activity-basedcosting solve the FAA's funding crisis? 370
UNIT 7.2 REVIEW — 3 7 2Key Terms 372Practice Questions 372Unit 7.2 Practice Exercise 373Selected Unit 7.2 Answers 374
Unit 7.3 Activity-Based Management 376
Activity Management 377
Process Improvement 378
Reassessment of Product Profitability 379
x x Contents
REALITY CHECK Activity figures tothe rescue
Activity-Based Budgeting
UNIT 7.3 REVIEWKey TermsPractice Questions
Unit 7.3 Practice ExerciseSelected Unit 7.3 Answers
CHAPTER SUMMARY
KEY TERMS
EXERCISES
PROBLEMS
CASE
ENDNOTES
XT\JVSU3;vvJIN 3>vSUSTOmeTiktZliQjixaD11
Customer Profitability
Identifying UnprofitableCustomers
Addressing UnprofitableCustomers
REALITY CHECK Sprint drops morethan a call
FOCUS REVIEWKEY TERMS
PRACTICE QUESTIONS
Focus 5 Practice Exercise
SELECTED FOCUS 5 ANSWERS
FOCUS SUMMARY
EXERCISES
PROBLEMS
ENDNOTE
*
1 nf of riiii ol?|ft|liiSiiiinl|iir ia 1Decisiljn^pfiiiigippijii^Piifiia
Unit 8.1 Identifying RelevantInformation
What Is Relevant Information?
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UNIT 8.1 REVIEWKey TermsPractice QuestionsUnit 8.1 Practice ExerciseSelected Unit 8.1 Answers
Unit 8.2 Special Order Pricing
Characteristics of a SpecialOrder
Relevant Costs of a SpecialOrder
REALITY CHECK I'll give youthis much
Qualitative Issues in SpecialOrder Pricing
Recap of the DecisionPr/-»f face11ULCJJ
UNIT 8.2 REVIEWKey TermsPractice QuestionsUnit 8.2 Practice Exercise
Selected Unit 8.2 Answers
Unit 8.3 Outsourcing
Outsourcing Defined
REALITY CHECK Take it outside
A Basic Outsourcing DecisionModel
Alternative Uses for Facilities
Qualitative Issues in Outsourcing
Recap of the Decision Process
UNIT 8.3 REVIEWKey TermsPractice Questions1 Jnit" ft "3 Practicp Fxprrisp
Selected Unit 8.3 Answers
Unit 8.4 Allocating ConstrainedResources
Contribution Margin per ConstrainedResource
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REALITY CHECK My brain's about toexplode! 421
Relevant Cost Identification:An Example 423
A Relevant Cost Decision Model 424
Allocation of Constrained Resources 442
Theory of Constraints 442
REALITY CHECK Money doesn't growon trees 443
Recap of the Decision Process 444
Contents x x i
UNIT 8.4 REVIEWKey TermsPractice QuestionsUnit 8.4 Practice ExerciseSelected Unit 8.4 Answers
Unit 8.5 Keeping or EliminatingOperations
Identification of Common Costs
Segment Margin Analysis
REALITY CHECK At the drop of a hat
Additional Factors to Consider
Recap of the Decision Process
UNIT 8.5 REVIEWKey TermsPractice QuestionsUnit 8.5 Practice ExerciseSelected Unit 8.5 Answers
CHAPTER SUMMARYKEY TERMS
EXERCISES
PROBLEMS
CASES
ENDNOTES
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Chapter 9 Capital Budgeting
Unit 9.1 Capital Budgeting
Decisions 472
Investing in Capital Assets 472
Making Capital BudgetingDecisions 473. Screening Decisions versus Preference
Decisions 474REALITY CHECK Going on a capitalspending spree 475
Cash Flow Identification 475Post-Implementation Audit 477
UNIT 9.1 REVIEW 477Key Terms 477Practice Questions 477Unit 9.1 Practice Exercise 477Selected Unit 9.1 Answers 478
Unit 9.2 Time Value of Money 479
Present Value of $1 479Calculating Present Value 480
Compound InterestDiscount Rates and Present Value
Present Value of an AnnuityCalculating Present Value of anAnnuityUsing Excel® to Calculate PresentValues
REALITY CHECK The sport of presentvalue
UNIT 9.2 REVIEWKey TermsPractice QuestionsUnit 9.2 Practice ExerciseSelected Unit 9.2 Answers
Unit 9.3 Discounted Cash FlowTechniques
Net Present ValueAmount and Timing of the Cash FlowsAppropriate Discount RatePresent Value of Each Cash Flow
REALITY CHECK Don't discount thechoice of a discount rate
Net Present Value of the ProjectAnother Look at Net Present ValueCalculationsUsing Excel® to Calculate Net PresentValueAssumptions of the Net Present ValueModel
Internal Rate of ReturnProjects with Even Cash FlowsProjects with Uneven Cash FlowsUsing Excel® to Calculate Internal Rateof ReturnAssumptions of the Internal Rate ofReturn Model
Screening and Preference Decisionsusing NPVand IRR
UNIT 9.3 REVIEWKey TermsPractice QuestionsUnit 9.3 Practice ExerciseSelected Unit 9.3 Answers
Unit 9.4 Other Capital BudgetingTechniques
Payback PeriodProjects with Even Cash Flows
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XXII Contents
Projects with Uneven Cash Flows 498
Limitations of the Payback Period 499
Accounting Rate of Return 500
REALITY CHECK So many choices,so little money 501
UNIT 9.4 REVIEW 502
Key Terms 502
Practice Questions 502
Unit 9.4 Practice Exercise 502
Selected Unit 9.4 Answers 502
CHAPTER SUMMARY 503
KEY TERMS 506
EXERCISES 506
PROBLEMS 509
CASES 512
ENDNOTES 515
Chapter 10 Decentralization andPerformance Evaluation
Segment Reporting, Segment Margin,and GAAP 527
Unit 10.1 Centralized versusDecentralized Organizations 518
Why Decentralization? 519Advantages of Decentralization 519Disadvantages of Decentralization 520
REALITY CHECK Can nonprofits profitfrom decentralization? 521
Responsibility Accounting 521Cost Centers 521Profit Centers 522Investment Centers 522
UNIT 10.1 REVIEW 523Key Terms 523Practice Questions 523Unit 10.1 Practice Exercise 523Selected Unit 10.1 Answers 524
Unit 10.2 Segment Evaluation 524
Defining a Segment ' 525
Segment Margin Income Statements 525
REALITY CHECK The whole isn't alwaysgreater than the sum of its parts 526
When Traceable Fixed Costs BecomeCommon Costs 527
UNIT 10.2 REVIEWKey TermsPractice QuestionsUnit 10.2 Practice ExerciseSelected Unit 10.2 Answers
Unit 10.3 Return on Investment
Return on Investment
The DuPont ModelIncrease in Sales RevenueDecrease in ExpensesDecrease in Assets
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530
530
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Shortcomings of Return onInvestment 534
REALITY CHECK What's yourblog's ROI? . 535
UNIT 10.3 REVIEW 536Key Terms 536Practice Questions 536Unit 10.3 Practice Exercise 537Selected Unit 10.3 Answers , 537
Unit 10.4 Residual Income and EVA® 538
Residual Income 538
Shortcomings of Residual Income 539
Economic Value Added (EVA) 539Step 1: Calculating Net Operating Profit 540Step 2: Calculating Invested Capital 540Step 3: Calculating the Weighted-Average Cost of Capital 540Step 4: Calculating EVA 541
EVA Compared to Residual Income 541
REALITY CHECK Putting EVA in thedriver's seat 542
UNIT 10.4 REVIEW 542Key Terms 543Practice Questions 543Unit 10.4 Practice Exercise 543Selected Unit 10.4 Answers 543
Chapter 10 Appendix: Transfer Pricing 544
Key Terms 550
Practice Questions 550
Contents XXlll
Appendix Practice Exercise
Selected Appendix Answers
REALITY CHECK The taxing transfer
CHAPTER SUMMARY
KEY TERMS
EXERCISES
PROBLEMS
CASE
ENDNOTES
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valuationA||a!anged|Apprpach',^f 566
Unit 11.1 Performance Measures 568
Lagging Indicators 568
Leading Indicators 569
Financial versus Nonfinancial Measures 570
REALITY CHECK Batter up 572
Choosing the Right Measures 572
Using Measures to Drive Performance 573
UNIT 11.1 REVIEW 575Key Terms 575Practice Questions 575Unit 11.1 Practice Exercise .• 575Selected Unit 11.1 Answers 575
Unit 11.2 The Balanced Scorecard 576
The Four Balanced ScorecardPerspectives 577
Learning and Growth Perspective 577Internal Business Processes
. Perspective 578Customer Perspective 579Financial Perspective 579
Building a Balanced Scorecard 580
C&C Sports' Strategy Map 581Learning and Growth Perspective 582Internal Business Processes Perspective 582Customer Perspective 582
REALITY CHECK Balancing act 583Financial Perspective 583
C&C Sports' Balanced Scorecard 583Learning and Growth Perspective 583Internal Business ProcessesPerspective 584
Customer PerspectiveFinancial Perspective
UNIT 11.2 REVIEWKey TermsPractice QuestionsUnit 11.2 Practice ExerciseSelected Unit 11.2 Answers
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Unit 11.3 BenchmarkingREALITY CHECK Benchmarking in
health care
UNIT 11.3 REVIEWKey TermsPractice QuestionsUnit 11.3 Practice ExerciseSelected Unit 11.3 Answers
Chapter 11 Appendix: Measures ofMeeting Delivery Expectations
Key Terms
Practice Questions
Appendix Practice Exercise
Selected Appendix Answers
CHAPTER SUMMARY
KEY TERMS
EXERCISES
PROBLEMS
CASE
ENDNOTES
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Chapter 12 Financial StatementAnalysis
Unit 12.1 Horizontal Analysisof Financial Statements
Preparing a Horizontal Analysis
Interpreting a HorizontalAnalysis
Preparing a Trend Analysis
REALITY CHECK An apple a day
UNIT 12.1 REVIEWKey TermsPractice QuestionsUnit 12.1 Practice ExerciseSelected Unit 12.1 Answers
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XXIV Contents
Unit 12.2 Common-Size FinancialStatements 612
Preparing the Common-Size BalanceSheet 613
Preparing the Common-Size IncomeStatement 615
Interpreting the Common-SizeStatements 615
REALITY CHECK Hospitals suffer frombad debts 616
UNIT 12.2 REVIEW 617Key Terms 617Practice Questions 617Unit 12.2 Practice Exercise 618Selected Unit 12.2 Answers 618
Unit 12.3 Ratio Analysis 619
Liquidity Ratios 620Working Capital 622Current Ratio 622Acid-Test or Quick Ratio 622Accounts Receivable Turnover 622Average Collection Period 623Inventory Turnover 623
REALITY CHECK Cash flow in a globalsupply chain .' 624
Average Days to Sell Inventory 624Interpreting Liquidity Ratios 625
Leverage Ratios 626Debt Ratio • 627Debt-to-Equity Ratio 627Times Interest Earned Ratio 627Interpreting Leverage Ratios 627
Profitability Ratios 628Gross Margin Percentage " 628Return on Assets 629Return on Common Stockholders' Equity 629Interpreting Profitability Ratios 630
Market Measure Ratios 630Earnings per Share 630Price/Earnings Ratio 631Dividend Payout Ratio 631Interpreting Market MeasureRatios 632
Limitations of Financial StatementAnalysis 632
UNIT 12.3 REVIEW 633Key Terms 633Practice Questions 633Unit 12.3 Practice Exercise 634Selected Unit 12.3 Answers 634
Unit 12.4 Industry Analysis 635
REALITY CHECK Growing strong
farms 636
Published Industry Ratio Analyses 636
Industry Statistics 638
UNIT 12.4 REVIEW 640Key Terms 640Practice Questions 640Unit 12.4 Practice Exercise 640Selected Unit 12.4 Answers 640
CHAPTER SUMMARY 641
KEY TERMS 642EXERCISES 643PROBLEMS 648CASES 650ENDNOTES 655
Chapter 13 Statement of CashFlows
Unit 13.1 Categorizing Cash Flows 658
Operating Activities 659
REALITY CHECK Cash is king 660
Investing Activities 660
Financing Activities 661
UNIT 13.1 REVIEW 662Key Terms 662Practice Questions 662Unit 13.1 Practice Exercise 662Selected Unit 13.1 Answers 663
Unit 13.2 Cash Flows Provided byOperating Activities: The IndirectMethod 664
REALITY CHECK How does cash register? 668
UNIT 13.2 REVIEW 668Key Terms 668Practice Questions 668Unit 13.2 Practice Exercise 669Selected Unit 13.2 Answers 669
Contents XXV
Unit 13.3 Cash Flows Providedby Investing and FinancingActivities
Cash Flows Provided by InvestingActivities
Property and EquipmentOther Investing Assets
Cash Flows Provided by FinancingActivities
Debt FinancingEquity Financing
UNIT 13.3 REVIEWPractice QuestionsUnit 13.3 Practice ExerciseSelected Unit 13.3 Answers
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UNIT 13.4 REVIEWPractice QuestionsUnit 13.4 Practice ExerciseSelected Unit 13.4 Answers
Chapter 13 Appendix: Cash FlowsProvided by Operating Activities:The Direct Method
Practice QuestionsAppendix Practice ExerciseSelected Appendix Answers
CHAPTER SUMMARYKEY TERMS
EXERCISES
PROBLEMS
CASE
ENDNOTES
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Unit 13.4 Constructing andInterpreting the Statementof Cash Flows
Analyzing the Statementof Cash Flows
A Look to the Future
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GLOSSARY G-1
Photo Credits PC-1
COMPANY INDEX CI-1
SUBJECT INDEX SI-1
XXVI Contents
