ACCT 151 Introduction to Financial Accounting FALL 2014 Professor Brodish

COURSE CONTENT AND OBJECTIVES

It is often said that "Accounting is the language of business" This course provides an introduction to that
language. One must understand accounting to function effectively in today's world and cope with a myriad of
business decisions and situations. To obtain more than a basic understanding of accounting, we stress the use
and inter!retation of accounting infor"ation# especially the !rinci!al financial state"ents issued by
business organizations# along with the preparation of accounting information. We want to motivate you to
understand the importance of companies financial statements and the need to interpret them, and to appreciate
the study of data entrythe mechanics of how economic events find their way into companies financial
statements. !ourse re"uirements are also designed to enhance your critical thin#ing, research, and teamwor#
s#ills.
$lthough most students do not specialize in accounting, even those that do not will find their s#ills strengthened
by being able to wor# with and e%plain the meaning and limitations of accounting information. We believe that
ta#ing a user$oriented a!!roach will ma#e everyone more interested in the sub&ect matter. This course
e%plicitly addresses the following Learning %b&ecti'es adopted by the Lehigh (ni'ersit) Accounting
*e!art"ent+
$s the course progresses, students should achieve the following learning ob&ectives, at the appropriate level for
this course'
(nderstand the roles played by accountants in society providing and ensuring the integrity of financial and
other information for decision)ma#ing.
*evelop an awareness of the ethical and regulatory environment for accountants.
*emonstrate proficiency in recording, analysis, and interpretation of historical and prospective financial
and non)financial information.
*evelop and apply critical thin#ing s#ills.
TEACHING APPROACH
We want you to be actively involved in the learning process, to the ma%imum e%tent possible, in order to enhance
what you learn and to help you develop the life)long s#ill of learning on your own. ,ou -ill be reading# and
anal).ing accounting infor"ation# before the related class discussion This is intentional as we believe in
learning to do by doing+by applying concepts to factual situations+and because of time pressures in this
course. We e%pect you to' be prepared for each class, remain in the classroom until dismissed, read assigned
material, wor# assigned problems as best you can, participate in discussion of the topics interwoven with analysis
of the problem solutions and respond when called on. ,ou "a) find this a!!roach to be challenging But
)ou also -ill find that it leads to a higher le'el of learning# greater abilit) to learn on )our o-n# and -ill
benefit )ou greatl) o'er the long ter"
,ou are res!onsible for all "aterial co'ered in class as -ell as all "aterial in the te/tboo0# including all
Cha!ter 1u!!le"ents# unless s!ecificall) instructed other-ise
,
ACCT 151 Introduction to Financial Accounting FALL 2014 Professor Brodish
REQUIRED TEXT MATERIALS
Financial Accounting# 2
th
3d PAC4A53 containing' -,. the te%tboo#, /ibby, /ibby and 0hort -1c2raw)3ill,
45,5., and -4. the re"uired software, !onnect. The I067 number for the pac#age is 89:,4;8,,,<8;. The
pac#age is available only at the /ehigh (niversity boo#store. =ou may also consult the publishers website
http'>>[Link]>templates>,5:)te%tboo#[Link] for other te%tboo# options, or if you want to
purchase the !onnect software separately from the te%tboo#.
GRADING
The course grade is composed of the following for which points u! to that below may be awarded'
Points
ei!"t
1idterm e%aminations -4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455
<5?
@inal e%amination -appro%.,55 points on new topics, ;5 on prior topics. . . ,;5 A5?
2roup pro&ect and presentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . <5
:?
3omewor# effort and "uality of class participation . . . . . . . . . . . . . . . . . . . <5 :?
BuizzesCCCCCCCCCCCCCCCCCCCCCCCCCC. A; 9?
Online Connect assignments . . . . . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . . A; 9?
;55D ,55?
6 To discourage tardiness and encourage attention# after the 1
st
-ee0 of class a student -ho is 7late8 to
class or did not turn off cell !hones9bee!ers -ill lose 5 !oints fro" the final !oint total for each
occurrence
O##ICE HOURS
Office hours are scheduled in E6 A5F -phone' F,5.9;:.<5,5G e)mail' &[Link]. as follows'
Tuesday>Thursday)8'A5am),5'A5am, Wednesday ,5),4 noon and , to < and also by appointment. =ou do not
need to ma#e an appointment if you come during office hours.
TEXTBOO$ HOMEOR$ ASSIGNMENTS%
$s shown in the grading brea#)down above, your effort in preparing these assignments, together with the "uality
of your in)class participation, comprise :? of your course grade. =ou will need to prepare these homewor#
assignments in &'(&n)e of the class in which the chapter will be covered in detail. These assignments will be
graded mainly for effort and completeness. Eead the related chapter in advance, prepare your own uni"ue
solutions to these homewor# assignments on the computer and sub"it in class for grading on the da)
assigned It is not acce!table to copy from another source. /ate assignments -including those missed during an
occasional illness., e)mailed solutions, and assignments turned in by others will :%T be accepted. 0ubstantially
complete and reasonably correct assignments receive a ;< a ;$ applies to substantially incorrect or partially
incomplete assignments, and assignments mostly incomplete or not submitted on time in class receive a 0 To
succeed in $!!T ,;, you must #eep up with the course and do your own wor#. 1a#e notes and corrections on
4
ACCT 151 Introduction to Financial Accounting FALL 2014 Professor Brodish
your papers during class+we do :%T post official solutions.
6ecause te%tboo# problems assigned for homewor# are not submitted in class for many reasons, including
interviews and an occasional illness, I will drop the lowest assignment grade. *o not as0 for e/ce!tions to this
!olic) on days you did not bring your assignments. Irepare each days wor#G we will begin collecting
assignments for grading on Thursda)# August 2=
ONLINE HOMEOR$ ASSIGNMENTS
=ou will need to complete one online !onnect homewor# assignment after each class. 1c2raw)3ills !onnect is
a web)based assignment and assessment solution re"uired for this course. The online !onnect assignments will
ma#e up 9? of your overall course grade. The !onnect assignment will relate to the material that has already
been covered in class. The !onnect assignments will be graded for accuracy. =ou will have unlimited number of
attempts and opportunities to chec# your wor#, as well hints and access to the related sections of the e)boo#, in
order to help you complete these assignments. Jach !onnect assignment must be submitted by 9am on the day it
is due. I will drop the lowest !onnect assignment from your total !onnect score.
Accessing Connect
2o to the web address provided to you by your instructor. 6e sure to boo#mar# this web address for future visits
to your !onnect courseK !lic# on EJ2I0TJE 7OWC. 0tudent registration tutorials are available if you need
help. 7e%t, enter your email address. If you already have a 1c2raw)3ill account, you will be as#ed for your
password and will not be re"uired to create a new account. =oull see three options' -,. Jnter your access code
and clic# 0ubmit -codes are pac#aged with a new te%tboo# in the boo#store.G -4. !lic# 6uy Online to purchase
access. If youre purchasing access online, choose' L6uy !onnectM OE L6uy !onnectIlusM -includes online
access to an e6oo#G -A. 0tart a @ree Trial -typically limited to three wee#s.. If youre purchasing access online,
choose' L6uy !onnectM OE L6uy !onnectIlusM -includes online access to an e6oo#.. 7e%t, you will need to fill
out the registration form. Ilease ma#e sure to clic# on L2o To !onnect 7owM to complete your registration and
continue to your instructors course. =ou are now at your instructors course. This is where you can access your
assignments and study resources.
7OTJ' Once signed out of !onnect, you can "uic#ly return to continue wor#ing. 0imply, go to the web address
provided to you by your instructor. $gain, youll want to boo#mar# it to save time. Once on the !onnect
homepage, enter your email address and password.
Connect 1u!!ort > Ti!s+ If you need help or have any "uestions about !onnect, you can visit the 4<)hour
!ustomer J%perience support center' ---"cgra-hillconnectco"9su!!ort or call at :55)AA,);58<
0unday ) FI1 to ,,I1 -!entral Time. 1)T3 ) :$1 to ,,I1 -!entral Time. @riday ) :$1 to FI1 -!entral
Time..
TEAM LEARNING SESSIONS
We will often have team learning activities during class. In those activities, students will form groups of < and
will wor# on a problem assigned by me during class. I will then select a group to come to the board and present
their solution, with supporting arguments. I will also as# other groups to discuss their agreement>disagreement
with the solution and arguments of the presenting group. This will be considered in the participation grade.
EXAMINATIONS
A
ACCT 151 Introduction to Financial Accounting FALL 2014 Professor Brodish
J%aminations will be individual closed)boo# efforts. J%ams include a mi% of problems, short)answer and
multiple)choice "uestions. Typically, one cannot Ncram for $!!T ,;, e%ams and be successful. :o "a0eu!s
will be given for missed e%ams, unless the *ean of 1tudents %ffice sends "e a letter to inform me that
ma#eup privileges are appropriate for a particular student, for a specific e%am. If a student misses an e%am and I
do not receive documentation from the *ean of 0tudents in a timely manner -typically before the e%am., the
missed e%am will receive a .ero
QUI**ES
Buizzes are individual closed boo# efforts 0i% "uizzes will be given and the lowest "uiz grade will be dropped. I
will most li#ely &nno+n)e t"e '&te of every "uiz in the class immediately preceding the class in which the "uiz is
given. 7o ma#eups will be given for "uizzes
GROUP PROJECT
?e -ill ai" to for" eight e@ual$[Link] grou!s per section for the group pro&ect. Jach group will research and
analyze a companys financial information, ma#e an in)class presentation and prepare a professional report
discussing the groups findings. 1ee details on !ages A and 10 The group pro&ect is not o!tional and must be
handed in by the indicated deadline.
STATEMENT O# CASH #LOS &n' #INANCIAL STATEMENT ANAL,SIS
The importance of these sub&ects led us to place !hapters ,A and ,< immediately after !hapter :.
IMPORTANT SUGGESTION
Eeinforce your understanding and prepare for the assignments by studying the special chapter sections such as
L!hapter Ta#e)$waysM, L@inding @inancial InformationM, LOey EatiosM, LOey Eatio $nalysisM, LOey TermsM,
L@inancial $nalysisM, L$ Buestion of JthicsM, L@ocus on !ash @lowsM, and by wor#ing the LIause for @eedbac#M
and L0elf)0tudy BuizzesM and L*emonstration !asesM in each chapter. Iractice, practice, practice.
TUTORING
Tutoring by 6eta $lpha Isi members may be available for $!!T ,;, students. Ilease chec# !ourse0ite for
details -hen the) beco"e a'ailable
LEHIGH UNIVERSIT, STUDENT SENATE% STATEMENT O# ACADEMIC INTEGRIT,
<
ACCT 151 Introduction to Financial Accounting FALL 2014 Professor Brodish
We, the /ehigh (niversity 0tudent 0enate, as the standing representative body of all undergraduates, reaffirm the
duty and obligation of the students to meet and uphold the highest principles and values of personal, moral and
ethical conduct. $s partners in our educational community, both students and faculty share the responsibility for
promoting and helping to ensure an environment of academic integrity. $s such, each student is e%pected to
complete all academic wor# in accordance with the standards set forth by the faculty and in compliance with the
(niversitys Code of Conduct.
In addition, in doing homewor# assignments it is not acceptable to copy from another source, including another
persons homewor#, files from previous semesters and the internet. 3omewor# assignments should not appear
too similar to that of another student or another source. The latter constitutes plagiarism.
STATEMENT ON DISABILITIES
If you have a documented learning disability and will be re"uesting academic accommodation for this class,
please contact *ean !heryl $shcroft in the Office of the *ean of 0tudents, (niversity !enter !4,4 -F,5)9;:)
<,;4. or email her at caa<[Link]. @or more information on support services for students with disabilities,
please visit the web site at http'>>[Link]>?9Jinacsup>disabilities>
STATEMENT ON DIVERSIT,- INCLUSION AND ENGAGEMENT
/ehigh (niversity is committed to diversity, inclusion and engagement. That commitment is captured in The
Princi!les of %ur 3@uitable Co""unit) The principles have been endorsed across /ehigh and by the 6oard
of Trustees. @or more information, please visit' http'>>www<.[Link]>diversity>principles

;
ACCT 151 Introduction to Financial Accounting FALL 2014 Professor Brodish
SCHEDULE O# ASSIGNMENTS
*ate To!ic Cha!ter Assign"ents *ue
:>4F
@inancial
0tatements
and 6usiness
*ecisions
,
I,),,
in)class
activity
:>4: Investing and @inancing *ecisions
and the 6alance 4 J4),A,
J4),< due in class
0heet
!onnect), due before class

8>4 Investing and @inancing *ecisions
and the 6alance 4 I4);
due in class
0heet
!onnect)4$ due before class
8>< Operating *ecisions and the Income
0tatement A JA),5 due in
class
!onnect)46 due before class
8>8 P P P P P P A IA)F,
!onnect)A$ due before class
Initial
Company choices due
F
ACCT 151 Introduction to Financial Accounting FALL 2014 Professor Brodish
8>,, $d&ustments, @inancial 0tatements,
and the Buality < I<)4,
J<),4
of Jarnings
!onnect)A6 due before class
8>,F P P P P P < J<),<, I<)9
!onnect)<$ due before class
8>,: !ommunicating and Interpreting @inancial Information ; $I ;)A and I@E0 article
!onnect)<6 due before class
Final company choices due

8>4A Eevenue, Eeceivables, and !ash F JF)8, JF),4
!onnect); due before class
8>4; Eevenue, Eeceivables, and !ash
F JF),9, JF)4A,
!onnect)F$ due before class

8>A5 4 %BCloc0 3/a"ination CCha!ters 1# 2# D# 4# 5# and EF
,5>4 IIJ, 7atural Eesources, and Intangibles : I:)A, I:)F
!onnect)F6 due
before class
SCHEDULE O# ASSIGNMENTS
*ate To!ic Cha!ter Assign"ents *ue

,5>9 :o Class$Pacing Brea0
,5>8 IIJ, 7atural Eesources, and
Intangibles : 1:)9,
I:),5
9
ACCT 151 Introduction to Financial Accounting FALL 2014 Professor Brodish
!onnect):$
due before class

Annual report
due.

,5>,< 0tatement of !ash @lows
,A I ,A)<
!onnect):6 due before class
,5>,F 0tatement of !ash @lows
,A I,A);
!onnect),A$ due before class
,5>4, $nalyzing @inancial 0tatements
,< $I ,<)9
!onnect),A6 due before class
,5>4A $nalyzing @inancial 0tatements
,< J,<)A, J,<):
!onnect),<$ due
before class
,5>4: !ost of 2oods 0old and Inventory 9 I9),, J9)8
!onnect),<6 due before class
,5>A5 !ost of 2oods 0old and Inventory 9 I9)A, J9),8
!onnect)9$ due before class
,,>A 4 %BCloc0 3/a"ination CCha!ters E# 2# =# 1D > 14# F
,,>< :o Class
,,>F /iabilities
:
ACCT 151 Introduction to Financial Accounting FALL 2014 Professor Brodish
8
$I8),
!onnect)96 due
before class
,,>,, /iabilities. H&n'o+t
'istrib+te' in ).&ss/
8 I8)9,
I8),4, I8),A
!onnect)8$ due
before class
1CG3*(L3 %F A11I5:H3:T1
*ate To!ic Cha!ter Assign"ents *ue
,,>,A 6onds. Q@ocus on Jffective)Interest $mortization. ,5 $I,5)<,$I,5)F
Ignore 0traight)/ine $mortizationR !onnect 8)6 due before
class
,,>,: 6onds Q@ocus on Jffective)Interest $mortization. ,5 I,5),4, $I,5)9
Ignore 0traight)/ine $mortization.R H&n'o+t !onnect),5$ due before class
'istrib+te' in ).&ss/
,,>45
Owners
J"uity.
H&n'o+t
'istrib+te' in
).&ss/ ,,
I,,);,
I,,)8,
in).+'in!
8
ACCT 151 Introduction to Financial Accounting FALL 2014 Professor Brodish

Re0+ire1ent 2
be.o3 DD
!onnect),56
due before
class
,,>4;
Investments in
Other
!orporations
-pp. ;89)F58.
,4
I,4)4,
I,4)A
,5
ACCT 151 Introduction to Financial Accounting FALL 2014 Professor Brodish
!onnect),,
due before
class
,,>49 :o ClassIThan0sgi'ing Jacation
,4>4 2roup Iresentations -each member participates e"ually. !onnect),4 due before class
,4>< P P
P P P
P
Written group
projects due in class,
12051D
66 For P11$A# assu"e the follo-ing Ke@uire"ent D+ L7ow assume that the company issued a ; percent
common stoc# dividend on the outstanding shares when the mar#et price per share was S4<. 0how the effects on
$ssets, /iabilities, and 0toc#holders J"uity of this transaction as well.M
5K%(P PK%L3CT 5(I*3LI:31 F%K A::(AL K3P%KT A:AL,1I1
,,
ACCT 151 Introduction to Financial Accounting FALL 2014 Professor Brodish
Pur!ose To read, analyze and evaluate information in an annual report and utilize comparative industry financial ratios.
=ou will be evaluated on the general re"uirements spelled out below, as well as your CKITICAL TGI:4I:5 displayed in
your analysis.
5eneral Ke@uire"ent 0elect a corporation with publicly)available financial statements, obtain the two most recent annual
reports from the companys investor relations department or web site, and ma#e a recommendation to buy or not buy the
company's stoc# based on your assessment of its recent performance and future prospects. ,ou cannot select+
7i#e or &n4 )o15&n4 st+'ie' in B+siness 6
3ome *epot, $merican Jagle, and (rban Outfitters
Fir"s in s![Link] industries# such as ban0s# insurance co"!anies and utilities
Foreign cor!orations# fir"s re!orting a net loss in the "ost recent t-o )ears# or -ith negati'e stoc0holdersB
e@uit)
1electing ,our Co"!an) $ll students will be assigned to and must wor# in a group. 2roups will be formed during the
second wee# of class. Once your group is formed you can select a company to analyze. To avoid duplication we will follow
this procedure to select companies'
,. Irepare an email with the names of your group members, your sectionT and instructor, and the name of the company you
wish to analyze. Beginning at 2AH on 1e!te"ber 1=# 2014 send that email to 7to be 'eter1ine' '+rin! t"e se1ester-
&n' &nno+n)e' in ).&ss8/ 3"ails sent earlier -ill be ignored =ou will receive a return email that' -a. confirms your
selection or -b. says that the company was previously selected. If -b., go to -4. below.
4. 6ecause onl) one grou! in all the ACCT 151 classes "a) anal).e a !articular co"!an)# if multiple groups select the
same company, the first email received gets the company. If you are told that your company was already chosen, you must
select another company and send another email. H) ad'ice+ In your first email, send a list of 4 or 5 co"!anies in order of
your preference.
1!ecific Ke@uire"ents Write your paper in )our o-n -ords< a'oid !ara!hrasing other sources, place e%act "uotes
within "uotation mar#s -L M. and give sources thereof. =our paper shall contain the following four main parts, each clearly
labeled'
E9e)+ti(e S+11&r4% This concise overview of your paper uses U ,4; words to identify and present specific positive and
negative aspects of the company, the general research results, and your conclusion. Type the J%ecutive 0ummary on a
separate page at the front of the paperG center the heading PJ%ecutive 0ummaryP at the top of the page.
Intro'+)tion% (se this section to provide bac#ground about the companys business. %ne !age
Rese&r)" res+.ts% This section should contain the following two parts'
*iscuss the company's present and pro&ected activities. Eeview the letters from e%ecutives -!JO, Iresident, etc..
and 1anagement *iscussion and $nalysis -1*V$. and offer your opinions. %ne !age
Ierform a basic financial analysis+common size>trend analysis and ratio calculations to assess li"uidity, solvency,
and profitability+and comment on the results for the most recent two years. !ompare with industry averages. This
section is the most important part of the pro&ect and should be 2$D !ages
In completing the above activities, chec# for current developments not reflected in the latest financial statements,
close to the time when you are submitting your report.
Con).+sion% 1a#e a decisive recommendation whether to buy stoc# in the company that is compatible with your analysis.
If you re"uire more information, list the desired information and indicate how it could impact your recommendation. (! to
one !age
,4
ACCT 151 Introduction to Financial Accounting FALL 2014 Professor Brodish
For"atting and %ther Ke@uire"ents+
Eeports must be typed' ,4)point font, double)spaced, ,M margins, and page numbers.
Write your report in your own wordsG do not copy or paraphrase other sourcesG give e%act sources of direct "uotes.
1a#e reports ;)F pages plus up to 4 pages of e%hibits>graphs>ratio calculations. I will grade no more than : pages
total plus the J%ecutive 0ummary.
This report is a piece of business writing and the style should be straightforward, written in active voice, and the
report sections shall be labeled as above. *esign the report so that a busy e%ecutive can read the J%ecutive
0ummary and then easily find the section of the report that s>he would li#e to read in more detail. (se no co'ers or
binders of an) 0ind and secure -ith one sta!le in the u!!er left$hand corner
*ue *ates Jach of the following is to be handed in during class on the following dates'
!ompany selection -NB% !a) attention to co"!anies )ou cannot select# as described in the
5eneral Ke@uire"ent section abo'e# to a'oid losing !ointsMM. . . . . . . . . . . . . . . . . .. . . . prior to class on
8.,:.,<D
*eliver copy of annual report to instructor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
,5.58.,<D
2roup presentations in class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,4.54.,<,
,4.5<.,<
@inal report due in class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
,4.5<.,<DD
6 5 !oints u! to a "a/i"u" of 15 !oints are deducted for each class !eriod these are late
66 Late -ritten re!orts lose 25 !oints and earn no credit if not recei'ed b) 4 PH on 120414< e"ailed re!orts are not
acce!ted
5K%(P 3JAL(ATI%: A:* G%:%K PL3*53 K3LAT3* T% 5K%(P PK%L3CT
0tudents in the past sought the opportunity to provide me with their evaluations of the effort and contributions of
,A
ACCT 151 Introduction to Financial Accounting FALL 2014 Professor Brodish
members of their groups. This is to prevent the so)called Lfree)rider problem.M 1oreover, to protect the
integrity of these pro&ects, we re"uire each group to pledge that they did their pro&ect on their own. $ccordingly,
please give this sheet to me in a sealed envelope on *ece"ber 4# 2014# when you submit your written group
pro&ect.
!ompany studied
WWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWW
$ppro%imate ? of Total Jffort
7ame of 2roup 1ember !ontributed to 2roup Iro&ectW
WWWWWWWWWWWWWWWWWWWWWWWWWWWWWW WWWWWWWWWWWWW
WWWWWWWWWWWWWWWWWWWWWWWWWWWWWW WWWWWWWWWWWWW
WWWWWWWWWWWWWWWWWWWWWWWWWWWWWW WWWWWWWWWWWWW
WWWWWWWWWWWWWWWWWWWWWWWWWWWWWW WWWWWWWWWWWWW
WWWWWWWWWWWWWWWWWWWWWWWWWWWWWW WWWWWWWWWWWWW
Total ,55 ?
Gonor Pledge+ I pledge that in completing my wor# on this pro&ect I neither gave nor received help
from
individuals outside my group.
=our nameWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWW *ate
WWWWWWWWWWWWWWWWWWWWWWW
!lass 0ectionWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWW
,<
ACCT 151 Introduction to Financial Accounting FALL 2014 Professor Brodish
L3FT BLA:4 I:T3:TI%:ALL,
,;
ACCT 151 Introduction to Financial Accounting FALL 2014 Professor Brodish
1(PPL3H3:T T% CGAPT3K A+ C%:TI:53:T LIABILITI31 CPages 4E5$4E2F
$ contingent liability is an obligation involving an e%isting condition for which the ultimate outcome is un#nown, and depends on some future event.
@or instance, the company is being sued, or the company has sold warranty on its products. The outcome of the lawsuit is un#nown, and will be
determined in the future. The outcome of how many people will claim their warranties is also un#nown, and must be estimated.
If the liability is probable &n' estimable, it must be recorded by crediting a contingent liability and debiting an e%pense>loss. Therefore, the
liability is reported in the financial statements.
If the liability is -a. either probable but cannot be estimated, or -b. can be estimated but is not probable, the liability is not reported in the
financial statements, but must be disclosed in the Notes to the financial statements. If the occurrence of the liability is reasonably possible, the
liability must be disclosed in the Notes .
3NAHPL3 of a liabilit) that is re!orted in the financial state"ents+ PK%*(CT ?AKKA:TI31
,. In the period in which the company sells the product and provides the warranty, the company records its estimate of the liability by debiting
Warranty e%pense and crediting Jstimated Warranty /iability. The estimate is based on past history and industry information.
4. In the period in which the company incurs the actual costs, the company debits -i.e., reduces. the Jstimated Warranty /iability, and credits
!ash.
PK%BL3H+ $6! !o. sells computers for S;,555, and provides a two)year warranty on its products, in case the products must be repaired. *uring
*ecember 45,4, $6! sold 455 computers and recorded sales revenue of S,,555,555. $t the end of 45,4, $6! recorded the estimated warranty costs
related to these sales. 6ased on past e%perience and warranty records, $6! estimates that the repair costs it will incur are A? of sales. *uring
*ecember, 45,4, $6! also incurred actual warranty costs on previously sold computers, of S<;,555.
K3O(IK3*+ CAF Irovide the entry to record the estimated warranty liability. CBF Irovide the entry to record the costs incurred.
CCF If $6!s Jstimated Warranty /iability had a balance of S455,555 at ,4>,>45,4, what was the balance in the account at ,4>A,>45,4X
1%L(TI%:' CAF To record the estimated warranty liability' CBF To record the actual warranty costs incurred'
*r. Warranty J%pense -S,,555,555DA?. SA5,555 *r. Jstimated Warranty /iability S<;,555
!r. Jstimated Warranty /iability SA5,555 !r. !ash S<;,555
CCF 6eginning balance of S455,555 Y SA5,555 S<;,555 Z S,:;,555 ending balance in the Jstimated Warranty /iability account.
,F
ACCT 151 Introduction to Financial Accounting FALL 2014 Professor Brodish
1(PPL3H3:T T% CGAPT3K 10+ 3AKL, K3TIK3H3:T %F B%:*1 ILL(1TKAT3* CPage 52DF
PK%BL3H+ @ive)year, ;? bonds with a face value of S;5,555 are issued on [an ,, 455:. Interest is paid annually on *ecember A,. The mar#et rate of interest
on that date is <?, and the proceeds of the bonds issued e"ual S;4,4A5.
K3O(IK3*+ CAF $ssume the company retires the bonds on *ecember A,, 455:, at ,5, -i.e., ,5,? of par.. 1a#e the retirement &ournal entry.
CBF $ssume the company retires the bonds on *ecember A,, 455:, at ,59 -i.e., ,59? of par.. 1a#e the retirement &ournal entry.
1%L(TI%:+
CAF @irst, we calculate the !&in or .oss on retirement of the debt, as follows.
i. The carrying value of bonds &t t"e ti1e of retire1ent is e"ual to'
!arrying value at the beginning of this period -e"uals the bonds payable at par or face of S;5,555 plus the unamortized premium which in this
situation is the entire original bond premium of S4,4A5. less the amount of premium amortized during this period. The premium amortized for
this first period is the e%cess of the cash interest actually paid for this first period -i.e., face value of S;5,555 D ;? coupon rate Z S4,;55. over
the actual interest e%pense incurred for the first period which is based on the mar#et rate of interest at the time of issuance times the beginning
of period carrying amount -i.e., beginning of period carrying amount of S;4,4A5 D <? mar#et rate of interest at time of issuance Z S4,5:8., or
S4,;55 interest paid ) S4,5:8 interest incurred Z S<,, of bond premium amortized.
the carrying value of the bonds at the end of the period is therefore S;4,4A5 S<,, Z S;,,:,8
OE, e"uivalently, the carrying value of the bonds can also be computed as'
@ace value plus the balance in the +namortized premium at the end of this period'
S;5,555 Y S,,:,8 Z S;,,:,8.
ii. The cash paid to redeem that bond is e"ual to' ,.5, \ S;5,555 Z S;5,;55
iii. 0o, the e%cess of carrying value at the end of the period over cash paid to redeem it Z GAIN of P1#D1A. Note% the company records a gain,
because it got to retire debt with high carrying value in e%change for less cash. This is the opposite case of asset disposals, since it is debt.
Lournal entr) to record the bond retire"ent+
*r. 6onds Iayable -at face value. S;5,555
*r. Iremium on 6onds Iayable S,,:,8
!r. !ash -,.5, D face value of ;5,555. S;5,;55
!r. 2ain on Eetirement of 6onds Iayable S,,A,8
-7ote that there is still a separate entry re"uired to record the interest e%pense incurred vs paid for the first period as follows' *r. to interest e%pense for
S45:8, a *r. to Iremium of 6onds Iayable for S<,,, and a !r. to !ash for the actual interest paid in the first period of S4,;55..
CBF @irst, we perform steps i through iii above. We end up with a LOSS of P1#E=1, because the company pays more cash than the amount for which it carries
the debt on its boo#s.
Lournal entr) Cto record the bond retire"entF+
*r. 6onds Iayable -at face value. S;5,555
*r. Iremium on 6onds Iayable S,,:,8
*r. /oss on Eetirement of 6>Iayable S,,F:,
!r. !ash -,.59 D face value of ;5,555. S;A,;55
-7ote that there is still a separate entry re"uired to record the interest e%pense incurred vs. paid for the first period as follows' *r. to interest e%pense for
S45:8, a *r. to Iremium of 6onds Iayable for S<,,, and a !r. to !ash for the actual interest paid in the first period of S4,;55..
,9
ACCT 151 Introduction to Financial Accounting FALL 2014 Professor Brodish
1(PPL3H3:T T% CGAPT3K A+ 1HALL A:* LAK53 1T%C4 *IJI*3:*1 ILL(1TKAT3* CPages 5ED$5E4F
1HALL 1T%C4 *IJI*3:* I less than 20$25Q of currentl)
outstanding shares
LAK53 1T%C4 *IJI*3:* I "ore than 20$25Q of
currentl) outstanding shares
Eecorded at the 1&r:et value of the stoc# as of the dividend
declaration date
Therefore, bot" !ommon 0toc# -!>0. and $dditional Iaid)in
!apital -$II!. are credited' !>0 at par and the e%cess to
$II!
$nd the corresponding debit is recorded to Eetained Jarnings
Eecorded at the 5&r value of the stoc# as of the dividend
declaration date
Therefore, on.4 !ommon 0toc# is credited
$nd the corresponding debit is recorded to Eetained
Jarnings
3NAHPL3+
$6! !o. ,5,555 shares of S; par value issued and outstanding. It also has S45,555 in $dditional Iaid)in !apital, and SF5,555 in Eetained Jarnings.
$6! declares and distributes a stoc# dividend on a date when its stoc# sells for S;5 per share. 3ow should the stoc# dividend be recorded if'
-a. The stoc# dividend is ,5? of $6!s sharesX
-b. The stoc# dividend is <5? of $6!s sharesX
1%L(TI%:' -a. To record a SMALL stoc# dividend ;1&r:et' -b. To record a LARGE stoc# dividend ;5&r'
*r. E>J -,5?D,5,555 sharesDS;5. S;5,555 *r. E>J -<5?D,5,555 sharesDS; par. S45,555
!r. !>0 -,5?D,5,555 sharesDS; par. S;,555 !r. !>0 -<5?D,5,555 sharesDS; par. S45,555
!r. $II! -remainder. S<;,555
1T%C4G%L*3K1B
3O(IT, B3F%K3 1T%C4
*IJI*3:*
1T%C4G%L*3K1B 3O(IT,
AFT3K SMALL 1T%C4 *IJI*3:*
1T%C4G%L*3K1B 3O(IT,
AFT3K LARGE 1T%C4 *IJI*3:*
!ommon 0toc#, S; par,
,5,555 shares issued and O>0 S ;5,555
!ommon 0toc#, S; par,
,,,555 shares issued and O>0 S ;;,555
!ommon 0toc#, S; par,
,<,555 shares issued and O>0 S 95,555
$dditional Iaid)in !apital
!ommon 0toc# S 45,555
$dditional Iaid)in !apital
!ommon 0toc# S F;,555
$dditional Iaid)in !apital )
!ommon S 45,555
Eetained Jarnings S F5,555 Eetained Jarnings S ,5,555 Eetained Jarnings S <5,555
Total 1toc0holdersR 3@uit) P 1D0#000 Total 1toc0holdersR 3@uit) P1D0#000 Total 1toc0holdersR 3@uit) P1D0#000
,: