Managerial Accounting COPYRIGHTED … · Brief Contents Cost Concepts for Decision-Makers 1...

Managerial AccountingTools for Business Decision Making

Global Edition

JERRY J. WEYGANDT PhD, CPAUniversity of Wisconsin—Madison

Madison, Wisconsin

PAUL D. KIMMEL PhD, CPAUniversity of Wisconsin—Milwaukee

Milwaukee, Wisconsin

DONALD E. KIESO PhD, CPANorthern Illinois University

DeKalb, Illinois

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COPYRIG

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ATERIAL

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DIRECTOR Michael McDonald

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10 9 8 7 6 5 4 3 2 1

D E D I C A T E D T O

Our wives,Enid, Merlynn, and Donna, for their love, support,

and encouragement.

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Brief Contents

Cost Concepts for Decision-Makers

1 Managerial Accounting 1-1

2 Job Order Costing 2-1

3 Process Costing 3-1

4 Activity-Based Costing 4-1

Decision-Making Concepts

5 Cost-Volume-Profit 5-1

6 Cost-Volume-Profit Analysis: Additional Issues 6-1

7 Incremental Analysis 7-1

8 Pricing 8-1

Planning and Control Concepts

9 Budgetary Planning 9-1

10 Budgetary Control and Responsibility Accounting 10-1

11 Standard Costs and Balanced Scorecard 11-1

12 Planning for Capital Investments 12-1

Performance Evaluation Concepts

13 Statement of Cash Flows 13-1

14 Financial Statement Analysis 14-1

APPENDIX A Time Value of Money A-1

COMPANY INDEX / SUBJECT INDEX I-1

iii

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From the Authors

Dear Student,

W H Y T H I S COU R SE? Remember your biology

course in high school? Did you have one of those “invisi-

ble man” models (or maybe something more high-tech than

that) that gave you the opportunity to look “inside” the hu-

man body? This accounting course off ers something simi-

lar. To understand a business,

you have to understand the

fi nancial insides of a business

organization. A managerial

accounting course will help

you understand the essential

fi nancial components of busi-

nesses. Whether you are look-

ing at a large multinational

company like Samsung or adidas or a single-owner soft-

ware consulting business or coff ee shop, knowing the funda-

mentals of managerial accounting will help you understand

what is happening. As an employee, a manager, an investor, a

business owner, or a director of your own personal fi nances—

any of which roles you will have at some point in your

life—you will make better decisions for having taken this

course.

WHY THIS BOOK? Your instructor has chosen this text-

book for you because of the authors’ trusted reputation. The

authors have worked hard to write a book that is engaging,

timely, and accurate.

HOW TO SUCCEED? We’ve asked many students and

many instructors whether there is a secret for success in this

course. The nearly unanimous answer

turns out to be not much of a secret:

“Do the homework.” This is one course

where doing is learning. The more time

you spend on the homework assign-

ments—using the various tools that this

textbook provides—the more likely

you are to learn the essential concepts,

techniques, and methods of accounting.

Besides the textbook itself, the book’s companion website also

off ers various support resources.

Good luck in this course. We hope you enjoy the experience

and that you put to good use throughout a lifetime of success

the knowledge you obtain in this course. We are sure you will

not be disappointed.

Jerry J. WeygandtPaul D. KimmelDonald E. Kieso

“Whether you are looking at a large multina-

tional company like Samsung or adidas or a

single-owner software consulting business or

coffee shop, knowing the fundamentals of mana-

gerial accounting will help you understand what

is happening.”

iv

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v

Author Commitment

Jerry WeygandtJERRY J. WEYGANDT, PhD, CPA , is Arthur Andersen Alumni Emeritus

Professor of Accounting at the University of

Wisconsin—Madison. He holds a Ph.D. in

accounting from the University of Illinois.

Articles by Professor Weygandt have appeared

in The Accounting Review, Journal of Account-ing Research, Accounting Horizons, Journal of Accountancy, and other academic and profes-

sional journals. These articles have examined

such fi nancial reporting issues as accounting for

price-level adjustments, pensions, convertible

securities, stock option contracts, and interim

reports. Professor Weygandt is author of other

accounting and fi nancial reporting books and

is a member of the American Accounting

Association, the American Institute of Cer-

tifi ed Public Accountants, and the Wiscon-

sin Society of Certifi ed Public Accountants.

He has served on numerous committees of

the American Accounting Association and

as a member of the editorial board of the

Accounting Review; he also has served as Pres-

ident and Secretary-Treasurer of the American

Accounting Association. In addition, he has

been actively involved with the American

Institute of Certifi ed Public Accountants and

has been a member of the Accounting Standards

Executive Committee (AcSEC) of that organ-

ization. He has served on the FASB task force

that examined the reporting issues related to

accounting for income taxes and served as a trus-

tee of the Financial Accounting Foundation. Pro-

fessor Weygandt has received the Chancellor’s

Award for Excellence in Teaching and the Beta

Gamma Sigma Dean’s Teaching Award. He is on

the board of directors of M & I Bank of Southern

Wisconsin. He is the recipient of the Wisconsin

Institute of CPA’s Outstanding Educator’s Award

and the Lifetime Achievement Award. In 2001

he received the American Accounting Associa-

tion’s Outstanding Educator Award.

Paul KimmelPAUL D. KIMMEL , PhD, CPA,

received his bachelor’s degree from the Uni-

versity of Minnesota and his doctorate in ac-

counting from the University of Wisconsin.

He teaches at the Univer sity of Wisconsin—

Milwaukee, and has public accounting expe-

rience with Deloitte & Touche (Minneapolis).

He was the recipient of the UWM School of

Business Advisory Council Teaching Award,

the Reggie Taite Excellence in Teaching Award

and a three-time winner of the Outstanding

Teaching Assistant Award at the University of

Wisconsin. He is also a recipient of the Elijah

Watts Sells Award for Honorary Distinction for

his results on the CPA exam. He is a member

of the American Accounting Association and

the Institute of Management Accountants and

has published articles in Accounting Review, Accounting Horizons, Advances in Manage-ment Accounting, Managerial Finance, Issues in Accounting Education, Journal of Account-ing Education, as well as other journals. His

research interests include accounting for fi nan-

cial instruments and innovation in accounting

education. He has published papers and given

numerous talks on incorporating critical think-

ing into accounting education, and helped pre-

pare a catalog of critical thinking resources for

the Federated Schools of Accountancy.

Don KiesoDONALD E. KIESO, PhD, CPA,

received his bachelor’s degree from Aurora Uni-

versity and his doctorate in accounting from the

University of Illinois. He has served as chairman

of the Department of Accountancy and is currently

the KPMG Emeritus Professor of Accountancy

at Northern Illinois University. He has public

accounting experience with Price Waterhouse

& Co. (San Francisco and Chicago) and Arthur

Andersen & Co. (Chicago) and research experi-

ence with the Research Division of the American

Institute of Certified Public Accountants (New

York). He has done post doctorate work as a

Visiting Scholar at the University of California

at Berkeley and is a recipient of NIU’s Teach-

ing Excellence Award and four Golden Apple

Teaching Awards. Professor Kieso is the author

of other accounting and business books and is a

member of the American Accounting Associa-

tion, the American Institute of Certified Public

Accountants, and the Illinois CPA Society.

He has served as a member of the Board of

Directors of the Illinois CPA Society, then

AACSB’s Accounting Accreditation Commit-

tees, the State of Illinois Comptroller’s Commis-

sion, as Secretary-Treasurer of the Federation

of Schools of Accountancy, and as Secretary-

Treasurer of the American Accounting Associa-

tion. Professor Kieso is currently serving on the

Board of Trustees and Executive Committee of

Aurora University, as a member of the Board of

Directors of Kishwaukee Community Hospital,

and as Treasurer and Director of Valley West

Community Hospital. From 1989 to 1993 he

served as a charter member of the national Ac-

counting Education Change Commission. He

is the recipient of the Outstanding Accounting

Educator Award from the Illinois CPA Society,

the FSA’s Joseph A. Silvoso Award of Merit,

the NIU Foundation’s Humanitarian Award for

Service to Higher Education, a Distinguished

Service Award from the Illinois CPA Society,

and in 2003 an honorary doctorate from Aurora

University.

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Hallmark Features

Managerial Accounting, Global Edition, provides a simple and practical introduction to man-

agerial accounting. It explains the concepts you need to know, while also emphasizing the

importance of decision-making.

DO IT! ExercisesDO IT! Exercises in the body of the textbook prompt students to stop and review key concepts.

They outline the Action Plan necessary to complete the exercise as well as show a detailed

solution.

DO IT! 4 Break-Even AnalysisYunxuan Group has a unit selling price of HK$400, variable costs per unit of HK$240, and fi xed

costs of HK$180,000. Compute the break-even point in units using (a) a mathematical equation

and (b) unit contribution margin.

ACTION PLAN• Apply the formula: Sales –

Variable costs – Fixed costs = Net income.

• Apply the formula: Fixed costs ÷ Unit contribution margin = Break-even point in units.

Solution

(a) The equation is HK$400Q – HK$240Q – HK$180,000 = HK$0; (HK$400Q – HK$240Q) =

HK$180,000. The break-even point in units is 1,125. (b) The unit contribution margin is HK$160

(HK$400 – HK$240). The formula therefore is HK$180,000 ÷ HK$160, and the break-even point

in units is 1,125.

Related exercise material: BE5.8, BE5.9, DO IT! 5.4, E5.8, E5.9, E5.10, E5.11, E5.12, E5.13, and E5.16.

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vi

(LO 4, 5) Shieh Ltd. makes calculators that sell for NT$600 each. For the coming year, management

expects fi xed costs to total NT$6,600,000 and variable costs to be NT$270 per unit.

Instructions a. Compute break-even point in units using the mathematical equation.

b. Compute break-even point in sales using the contribution margin (CM) ratio.

c. Compute the margin of safety percentage assuming actual sales are NT$15,000,000.

d. Compute the sales required to earn net income of NT$4,950,000.

Compute break-even point, contribution margin ratio, margin of safety, and sales for target net income.

Practice Problem

Solution a. Required sales – Variable costs – Fixed costs = Net income

NT$600Q – NT$270Q – NT$6,600,000 = NT$0

NT$330Q = NT$6,600,000

Q = 20,000 units

b. Unit contribution margin = Unit selling price – Unit variable costs

NT$330 = NT$600 – NT$270

Contribution margin ratio = Unit contribution margin ÷ Unit selling price


Review and PracticeEach textbook chapter concludes with a Review and Practice section which includes a review

of learning objectives, Decision Tools review, key terms glossary, practice multiple-choice

questions with annotated solutions, practice exercises with solutions, and a practice problem

with a solution.

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Infographic LearningOver half of the textbook is visual, providing students alternative ways of learning about

accounting.

ILLUSTRATION 5.10 Components of CVP analysis

SALES

Volume or level

of activity

Variable costs

per unit

Total fixed

costs

Sales mixUnit selling

prices

Units

Cos

t (p

er u

nit) Raw materials,

variable labor,etc.

$

$$

Units

Cos

t

Utilities, taxes,depreciation,

etc.


Hallmark Features vii

Real-World Decision-MakingReal-world examples that illustrate interesting situations in companies and how managers

make decisions using accounting information are integrated throughout the textbook, such as

in the opening Feature Story as well as the Insight boxes.

Management Insight Panasonic

Cost per Unit MattersAs manufacturers face increased

pressure to reduce cost per unit,

many are moving out of China,

where labor rates have been rising,

to southeast and central Asia, most

notably Vietnam and India. For

example, Panasonic Corporation

(JPN) announced in August 2015 that it would close its lithium-ion

battery factory in Beijing, cutting 1,300 jobs. The same month,

Foxconn (TWN), the largest exporter out of China and the primary

handset manufacturer for Apple (USA), also announced that it would

invest $5 billion in India to build assembly plants. This was followed

by Samsung’s (KOR) announcement that it would ramp up existing

facilities in Vietnam with an additional investment of $3 billion.

In the short-term, Vietnam will gain market share in apparel,

footwear, and electronics, since low-end production cost is about

30% lower than in China. However, the long-term view is that

China still has the edge over regional competitors regarding its ro-

bust supply chain, skilled labor base, and well-developed logistics

infrastructure, which will continue to attract high-end manufactur-

ers in the computer and airplane industries.

Source: S. Zhen, “Manufacturers Step Up Search for Low Cost Alterna-

tive to China,” South China Morning Post (May 11, 2016).

Although China is losing some jobs due to increased costs, what advantages does it still have over other countries? (Go to the book’s companion website for this answer and additional questions.)

Patrick T. Fallon/Bloomberg/Getty Images


Decision ToolsAccounting concepts that are useful for management decision-making are highlighted through-

out the book. A summary of Decision Tools is included in each chapter as well as a practice

exercise and solution, Using the Decision Tools.

USING THE DECISION TOOLS Amazon.com

Amazon.com (USA) faces many situations where it needs to apply the decision tools presented

in this chapter, such as calculating the break-even point to determine a product’s profi tability.

Amazon’s dominance of the online retail space, selling other company’s products, is well known.

But not everyone may realize that Amazon also sells its own private-label electronics, including

USB cables, mice, keyboards, and audio cables, under the brand name AmazonBasics. Assume

that Amazon’s management was provided with the following information regarding the production

and sales of Bluetooth keyboards for tablet computers.


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viii HALLMARK FEATURES

Additional GuidanceThroughout the textbook, marginal notes, such as Helpful Hints, Alternative Terminology,

and Ethics Notes, are provided throughout as additional guidance.

Total fi xed costs also do not have a straight-line relationship over the entire range of

activity. Some fi xed costs will not change. But it is possible for management to change other

fi xed costs (see Helpful Hint). For example, in some instances, salaried employees (fi xed) are

replaced with freelance workers (variable). Illustration 5.3, part (b), shows an example of the

behavior of total fi xed costs through all potential levels of activity.

For most companies, operating at almost zero or at 100% capacity is the exception

rather than the rule. Instead, companies often operate over a somewhat narrower range, such

as 40–80% of capacity. The range over which a company expects to operate during a year is

called the relevant range of the activity index (see Alternative Terminology). Within the

relevant range, as both diagrams in Illustration 5.4 show, a straight-line relationship generally

exists for both variable and fi xed costs.

As you can see, although the linear (straight-line) relationship may not be completely

realistic, the linear assumption produces useful data for CVP analysis as long as the level of activity remains within the relevant range.

HELPFUL HINTFixed costs that may be changeable include research, such as new product devel-opment, and management training programs.

ALTERNATIVE TERMINOLOGYThe relevant range is also called the normal or practical range.


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Contents

1 Managerial Accounting 1-1

Just Add Water . . . and Paddle: Current Designs 1-1Managerial Accounting Basics 1-2Comparing Managerial and Financial Accounting 1-3Management Functions 1-4Organizational Structure 1-5Managerial Cost Concepts 1-7Manufacturing Costs 1-7Product Versus Period Costs 1-8Illustration of Cost Concepts 1-9Manufacturer Financial Statements 1-11Income Statement 1-11Cost of Goods Manufactured 1-12Cost of Goods Manufactured Schedule 1-12Statement of Financial Position 1-13Managerial Accounting Trends 1-15Service Industries 1-15Focus on the Value Chain 1-16Balanced Scorecard 1-17Business Ethics 1-17Company Social Responsibility 1-18

2 Job Order Costing 2-1

Profiting from the Silver Screen: Disney 2-1Cost Accounting Systems 2-2Process Cost System 2-3Job Order Cost System 2-3Job Order Cost Flow 2-4Accumulating Manufacturing Costs 2-5Job Cost Sheets and Manufacturing Costs 2-7Raw Materials Costs 2-7Factory Labor Costs 2-9Predetermined Overhead Rates 2-12Completed and Sold Manufacturing and Service Jobs 2-14Assigning Costs to Finished Goods 2-14Assigning Costs to Cost of Goods Sold 2-15Summary of Job Order Cost Flows 2-16Job Order Costing for Service Companies 2-17Advantages and Disadvantages of Job Order Costing 2-18Applied Manufacturing Overhead 2-19Under- or Overapplied Manufacturing Overhead 2-20

3 Process Costing 3-1

Famed Soft Drink in the Outback: Back o’ Bourke Cordials 3-1Overview of Process Cost Systems 3-2Uses of Process Cost Systems 3-2Process Costing for Service Companies 3-3Similarities and Diff erences Between Job Order Cost and Process Cost Systems 3-4Recording Costs 3-5Process Cost Flow 3-5Assigning Manufacturing Costs—Journal Entries 3-6Equivalent Units 3-9Weighted-Average Method 3-9Refinements on the Weighted-Average Method 3-10The Production Cost Report 3-12Compute the Physical Unit Flow (Step 1) 3-13Compute the Equivalent Units of Production (Step 2) 3-13Compute Unit Production Costs (Step 3) 3-14Prepare a Cost Reconciliation Schedule (Step 4) 3-14Preparing the Production Cost Report 3-15Costing Systems—Final Comments 3-15Appendix 3A: FIFO Method for Computing Equivalent Units 3-19Equivalent Units Under FIFO 3-19Comprehensive Example 3-20FIFO and Weighted-Average 3-25

4 Activity-Based Costing 4-1

Wellness for Customers and the Company: Technogym SpA 4-1Traditional vs. Activity-Based Costing 4-3Traditional Costing Systems 4-3Illustration of a Traditional Costing System 4-3The Need for a New Approach 4-4Activity-Based Costing 4-4ABC and Manufacturers 4-7Identify and Classify Activities and Assign Overhead to Cost Pools (Step 1) 4-7Identify Cost Drivers (Step 2) 4-8Compute Activity-Based Overhead Rates (Step 3) 4-8Allocate Overhead Costs to Products (Step 4) 4-8Comparing Unit Costs 4-9

ix

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x CONTENTS

ABC Benefits and Limitations 4-12The Advantage of Multiple Cost Pools 4-12The Advantage of Enhanced Cost Control 4-14The Advantage of Better Management Decisions 4-15Some Limitations and Knowing When to Use ABC 4-16ABC and Service Industries 4-17Traditional Costing Example 4-17Activity-Based Costing Example 4-18Appendix 4A: Just-in-Time Processing 4-21Objective of JIT Processing 4-22Elements of JIT Processing 4-22Benefits of JIT Processing 4-23

5 Cost-Volume-Profit 5-1

Don’t Worry—Just Get Big: Amazon.com 5-1Cost Behavior Analysis 5-2Variable Costs 5-3Fixed Costs 5-4Relevant Range 5-5Mixed Costs 5-5Mixed Costs Analysis 5-7High-Low Method 5-7Importance of Identifying Variable and Fixed Costs 5-9CVP Analysis 5-10Basic Components 5-10CVP Income Statement 5-11Break-Even Analysis 5-14Mathematical Equation 5-14Contribution Margin Technique 5-15Graphic Presentation 5-16Target Net Income and Margin of Safety 5-18Target Net Income 5-18Margin of Safety 5-19

6 Cost-Volume-Profit Analysis: Additional Issues 6-1

The Secret to Supermarket Profitability: Aldi 6-1Basic CVP Concepts 6-2Basic Concepts 6-2Basic Computations 6-3CVP and Changes in the Business Environment 6-5Sales Mix and Break-Even Sales 6-7Break-Even Sales in Units 6-8Break-Even Sales for a Large Number of Products 6-9Sales Mix with Limited Resources 6-11Operating Leverage and Profitability 6-14Eff ect on Contribution Margin Ratio 6-15Eff ect on Break-Even Point 6-15

Eff ect on Margin of Safety Ratio 6-15Operating Leverage 6-16Appendix 6A: Absorption Costing Versus Variable Costing 6-18Example Comparing Absorption Costing with Variable Costing 6-19Net Income Eff ects 6-21Decision-Making Concerns 6-24Potential Advantages of Variable Costing 6-26

7 Incremental Analysis 7-1

The Internet of Clothing: Evrythng 7-1Decision-Making and Incremental Analysis 7-3Incremental Analysis Approach 7-3How Incremental Analysis Works 7-4Qualitative Factors 7-5Relationship of Incremental Analysis and Activity-Based Costing 7-5Types of Incremental Analysis 7-6Special Orders 7-6Make or Buy 7-8Opportunity Cost 7-9Sell or Process Further 7-10Single-Product Case 7-11Multiple-Product Case 7-11Repair, Retain, or Replace Equipment 7-14Eliminate Unprofitable Segment or Product 7-15

8 Pricing 8-1

They’ve Got Your Size—and Color: Zappos.com 8-1Target Costing 8-2Target Costing 8-4Cost-Plus Pricing 8-5Calculating Cost-Plus Pricing 8-5Limitations of Cost-Plus Pricing 8-7Variable-Cost Pricing 8-8Time-and-Material Pricing 8-9Transfer Pricing 8-12Negotiated Transfer Prices 8-13Cost-Based Transfer Prices 8-15Market-Based Transfer Prices 8-17Eff ect of Outsourcing on Transfer Pricing 8-17Transfers Between Divisions in Diff erent Countries 8-17Appendix 8A: Absorption-Cost and Variable-Cost Pricing 8-19Absorption-Cost Pricing 8-20Variable-Cost Pricing 8-21Appendix 8B: Transferring Goods Between Divisions in Diff erent Countries 8-23

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Contents xi

9 Budgetary Planning 9-1

What’s in Your Cupcake?: BabyCakes NYC 9-1Eff ective Budgeting and the Master Budget 9-2Budgeting and Accounting 9-3The Benefits of Budgeting 9-3Essentials of Eff ective Budgeting 9-3The Master Budget 9-6Sales, Production, and Direct Materials Budgets 9-7Sales Budget 9-7Production Budget 9-8Direct Materials Budget 9-9Direct Labor, Manufacturing Overhead, and S&A Expense Budgets 9-12Direct Labor Budget 9-12Manufacturing Overhead Budget 9-13Selling and Administrative Expense Budget 9-14Budgeted Income Statement 9-14Cash Budget and Budgeted Statement of Financial Position 9-16Cash Budget 9-16Budgeted Statement of Financial Position 9-19Budgeting in Non-Manufacturing Companies 9-21Merchandisers 9-21Service Companies 9-22Not-for-Profit Organizations 9-23

10 Budgetary Control and Responsibility Accounting 10-1

Strategies to Help You Relax: Viceroy Hotel Group 10-1Budgetary Control and Static Budget Reports 10-2Budgetary Control 10-2Static Budget Reports 10-3Flexible Budget Reports 10-6Why Flexible Budgets? 10-6Developing the Flexible Budget 10-8Flexible Budget—A Case Study 10-9Flexible Budget Reports 10-10Responsibility Accounting and Responsibility Centers 10-13Controllable versus Non-Controllable Revenues and Costs 10-14Principles of Performance Evaluation 10-15Responsibility Reporting System 10-16Types of Responsibility Centers 10-19Investment Centers and ROI 10-22Return on Investment (ROI) 10-22Responsibility Report 10-23

Judgmental Factors in ROI 10-23Improving ROI 10-24Appendix 10A: ROI vs. Residual Income 10-28Residual Income Compared to ROI 10-29Residual Income Weakness 10-29

11 Standard Costs and Balanced Scorecard 11-1

A Balanced Approach: Anglo Pacific Group plc 11-1Standard Costs 11-2Distinguishing Between Standards and Budgets 11-3Setting Standard Costs 11-4Direct Materials Variances 11-7Analyzing and Reporting Variances 11-7Direct Materials Variances 11-9Direct Labor and Manufacturing Overhead Variances 11-11Direct Labor Variances 11-11Manufacturing Overhead Variances 11-14Variance Reports and Balanced Scorecards 11-16Reporting Variances 11-16Income Statement Presentation of Variances 11-16Balanced Scorecard 11-17Appendix 11A: Standard Cost Accounting System 11-21Journal Entries 11-22Ledger Accounts 11-23Appendix 11B: Overhead Controllable and Volume Variances 11-24Overhead Controllable Variance 11-24Overhead Volume Variance 11-25

12 Planning for Capital Investments 12-1

Floating Hotels: Holland America Line 12-2Capital Budgeting and Cash Payback 12-3Cash Flow Information 12-3Illustrative Data 12-4Cash Payback 12-5Net Present Value Method 12-6Equal Annual Cash Flows 12-7Unequal Annual Cash Flows 12-8Choosing a Discount Rate 12-9Simplifying Assumptions 12-10Comprehensive Example 12-10Capital Budgeting Challenges and Refinements 12-11Intangible Benefits 12-12

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xii CONTENTS

14 Financial Analysis: The Big Picture 14-1

Making Money the Old-Fashioned Way: Li Ka-shing 14-1Basics of Financial Statement Analysis 14-2Need for Comparative Analysis 14-3Tools of Analysis 14-3Horizontal Analysis 14-3Vertical Analysis 14-6Ratio Analysis 14-9Liquidity Ratios 14-9Profitability Ratios 14-13Solvency Ratios 14-16Summary of Ratios 14-18Sustainable Income 14-20Discontinued Operations 14-21Changes in Accounting Principle 14-22Comprehensive Income 14-22

Appendix A Time Value of Money A-1

Interest and Future Values A-1Nature of Interest A-1Simple Interest A-2Compound Interest A-2Future Value of a Single Amount A-3Future Value of an Annuity A-5Present Value Concepts A-7Present Value Variables A-7Present Value of a Single Amount A-7Present Value of an Annuity A-9Time Periods and Discounting A-11Present Value of a Long-Term Note or Bond A-11Using Financial Calculators A-14Present Value of a Single Sum A-14Present Value of an Annuity A-15Useful Applications of the Financial Calculator A-16

Company Index I-1Subject Index I-3

Profitability Index for Mutually Exclusive Projects 12-13Risk Analysis 12-15Post-Audit of Investment Projects 12-15Internal Rate of Return 12-16Comparing Discounted Cash Flow Methods 12-18Annual Rate of Return 12-19

13 Statement of Cash Flows 13-1

What Should We Do with This Cash?: Keyence 13-1Statement of Cash Flows: Usefulness and Format 13-3Usefulness of the Statement of Cash Flows 13-3Classification of Cash Flows 13-3Significant Non-Cash Activities 13-5Format of the Statement of Cash Flows 13-5Preparing the Statement of Cash Flows— Indirect Method 13-7Indirect and Direct Methods 13-8Indirect Method—Computer Services International 13-8Step 1: Operating Activities 13-9Summary of Conversion to Net Cash Provided by Operating Activities—Indirect Method 13-12Step 2: Investing and Financing Activities 13-13Step 3: Net Change in Cash 13-14Using Cash Flows to Evaluate a Company 13-17Free Cash Flow 13-17Appendix 13A: Statement of Cash Flows—Direct Method 13-20Step 1: Operating Activities 13-21 Step 2: Investing and Financing Activities 13-25Step 3: Net Change in Cash 13-26Appendix 13B: Statement of Cash Flows— T-Account Approach 13-27

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Thank You

LuAnn Bean

Florida Institute of Technology

Larry Falcetto

Emporia State University

Heidi Hansel

Kirkwood Community College

Jill Misuraca

University of Tampa

Barb Muller

Arizona State University

Yvonne Phang

Borough of Manhattan Community College

Alice Sineath

Forsyth Technical Community College

Lynn Stallworth

Appalachian State University

Sheila Viel

University of Wisconsin—Milwaukee

Dick Wasson

Southwestern College

Managerial Accounting has benefi ted greatly from those who have sent comments by letter

or e-mail, ancillary authors, and proofers. We greatly appreciate the constructive suggestions

and innovative ideas of reviewers and the creativity and accuracy of the ancillary authors and

checkers.

We thank Benjamin Huegel and Teresa Speck of St. Mary’s

University for their extensive eff orts in the preparation of

the homework materials related to Current Designs. We also

appreciate the considerable support provided to us by the

following people at Current Designs: Mike Cichanowski, Jim

Brown, Diane Buswell, and Jake Greseth. We also benefi ted

from the assistance and suggestions provided to us by Joan Lee

in the preparation of materials related to sustainability.

We appreciate the exemplary support and commitment

given to us by director Michael McDonald, executive editor

Zoe Craig, acquisitions editor Lauren Harrell, development

editor Ed Brislin, editorial associates Terry Ann Tatro and

Margaret Thompson, senior product designer Jenny Welter,

designer Maureen Eide, photo editor Mary Ann Price, and

Denise Showers at Aptara. All of these professionals pro-

vided innumerable services that helped the textbook take

shape.

We will appreciate suggestions and comments from

users—instructors and students alike. You can send your

thoughts and ideas about the textbook to us via email at:

[email protected].

Paul D. Kimmel Jerry J. Weygandt

Milwaukee, Wisconsin Madison, Wisconsin

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