Libby - lrc.tnu.edu.vn · PDF file5 8 SBUX ... All end-of-chapter practice questions and problems from Libby, ... Libby/Libby/Short’s Financial Accounting is the proven choice for

Libby | Libby | ShortSixth EditionFinancial Accounting

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Boston Burr Ridge, IL Dubuque, IA New York San Francisco St. LouisBangkok Bogotá Caracas Kuala Lumpur Lisbon London Madrid Mexico CityMilan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto

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FinancialAccounting

Robert LibbyCornell University

Patricia A. LibbyIthaca College

Daniel G. ShortTexas Christian University

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FINANCIAL ACCOUNTING

Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020. Copyright © 2009, 2007, 2004, 2001, 1998, 1996 by The McGraw-Hill Companies, Inc. All rights reserved. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.

Some ancillaries, including electronic and print components, may not be available to customers outside the United States.

This book is printed on acid-free paper.

1 2 3 4 5 6 7 8 9 0 DOW/DOW 0 9 8

ISBN 978-0-07-352688-1MHID 0-07-352688-6

Vice President, Editor-in-Chief: Brent GordonEditorial director: Stewart MattsonSenior sponsoring editor: Alice HarraSenior developmental editor: Kimberly D. HookerExecutive marketing manager: Sankha BasuManager of photo, design & publishing tools: Mary ConzachiSenior production supervisor: Debra R. SylvesterInterior and cover designer: Cara HawthorneSenior photo research coordinator: Jeremy CheshareckPhoto researcher: Editorial Image, LLCLead media project manager: Brian NacikTypeface: 10.5/12 Times RomanCompositor: LaserwordsPrinter: R. R. DonnelleyStarbucks image on cover: © Jürg Carstensen/dpa/CorbisSouthwest image on cover: © Justin Sullivan/Getty Images

Library of Congress Cataloging-in-Publication DataLibby, Robert.

Financial accounting / Robert Libby, Patricia Libby, Daniel Short.—6th ed.p. cm.

Includes index.ISBN-13: 978-0-07-352688-1 (alk. paper)ISBN-10: 0-07-352688-6 (alk. paper)1. Accounting. 2. Corporations—Accounting. 3. Financial statements. I. Libby,

Patricia A. II. Short, Daniel G. III. Title. HF5636.L53 2009657—dc22

2008018247

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To:Jenni, Jon, Emma, and Sophia DragoHerman and Doris HargenraterLaura Libby, Oscar, and Selma LibbyBob and Mary Ann Short, Heather Short, and Maryrose Short

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about the Authors

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Robert LibbyRobert Libby is the David A. Thomas Professor ofAccounting at Cornell University, where he teaches theintroductory financial accounting course. He previouslytaught at the University of Illinois, Pennsylvania StateUniversity, the University of Texas at Austin, the Univer-sity of Chicago, and the University of Michigan. Hereceived his BS from Pennsylvania State University andhis MAS and PhD from the University of Illinois. He isalso a CPA.

Bob is a widely published author and researcher spe-cializing in behavioral accounting. He was selected asthe AAA Outstanding Educator in 2000, received theAAA Outstanding Service Award in 2006 and receivedthe AAA Notable Contributions to the Literature Awardin 1985 and 1996. He is the only person to havereceived all three of the Association’s highest awardsfor teaching, service, and research. He has publishednumerous articles in The Accounting Review; Journal ofAccounting Research; Accounting, Organizations, andSociety; and other accounting journals. He has held avariety of offices including vice president in the Ameri-can Accounting Association and is a member of theAmerican Institute of CPAs and the editorial boards ofThe Accounting Review; Accounting, Organizations andSociety; Journal of Accounting Literature; and Journal ofBehavioral Decision Making.

Patricia A. LibbyPatricia Libby is associate professor of accounting at IthacaCollege, where she teaches the undergraduate financialaccounting course. She previously taught graduate and

undergraduate financial accounting atEastern Michigan University and the Uni-versity of Texas. Before entering academe,she was an auditor with Price Waterhouse(now PricewaterhouseCoopers) and afinancial administrator at the Universityof Chicago. She is also faculty advisor toBeta Alpha Psi, Ithaca College AccountingAssociation, and Ithaca College NationalAssociation of Black Accountants. Shereceived her BS from Pennsylvania StateUniversity, her MBA from DePaul Univer-

sity, and her PhD from the University of Michigan. She isalso a CPA.

Pat conducts research on using cases in the introduc-tory course and other parts of the accounting curriculum.She has published articles in The Accounting Review, Issuesin Accounting Education, and The Michigan CPA.

Daniel G. ShortDaniel Short is professor of accounting and former dean ofthe M.J. Neeley School of Business at Texas Christian Uni-versity in Fort Worth, Texas. Before he joined TCU, he wasdean at the Richard T. Farmer School of Business at MiamiUniversity and the College of Business at Kansas StateUniversity. Prior to that, he was associate dean at theUniversity of Texas at Austin, where he taught the under-graduate and graduate financial accounting courses. Healso taught at the University of Michigan and the Univer-sity of Chicago. He received his undergraduate degreefrom Boston University and his MBA and PhD from theUniversity of Michigan.

Dan has won numerous awards for his outstandingteaching abilities and has published articles in The WallStreet Journal, The Accounting Review, the Journal ofAccounting Research, and other business journals. He hasworked with a number of Fortune 500 companies, com-mercial banks, and investment banks to develop andteach executive education courses on the effective useof accounting information. Dan has also served onboards of directors in several industries, including man-ufacturing, commercial banking, and medical services.He is currently on the economic development committeeof the Fort Worth Chamber of Commerce.

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A trusted leader

Since it wasfirst published,FinancialAccounting hasgrown to be

the market-leadingfinancial accountingtextbook on which bothstudents and instruc-tors rely. The award-winning author team ofBob Libby, Pat Libby,and Dan Short hasmade it a best-sellingtextbook by helpingthe instructor andstudent become part-ners in learning. TheLibby/Libby/Shortauthors use a remark-able learning approachthat keeps studentsengaged and involvedin the material fromthe first day of class.

Financial Accounting’s pioneering “focus company approach” involves students in the busi-ness decisions of real companies, demonstrating how financial accounting makes a differ-ence in the success of a firm. That, combined with pedagogical features and technologyassets that serve a variety of learning styles, makes Financial Accounting the textbook thatboth students and instructors agree is the best of its kind on the market today.

IV

“. . . It systematically guides readers through financial statements with focus companiesand, at the same time, integrates the transaction analysis and journal entries in everychapter.” Haihang He, California State University

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for both students and instructors

Libby/Libby/Short’s Financial Accounting maintains its leadership by focusing on threekey attributes:

RELEVANCY—THE PIONEERING FOCUS COMPANY APPROACH: The Libby/Libby/Short authors first introduced their focuscompany approach as the best method for helping students understand financialstatements and real-world implications of financial accounting for future managers. Thisapproach shows that accounting is relevant and motivates students by explainingaccounting in a real-world context. Throughout each chapter, the material isfocused around a familiar Real company, its decisions, and its financial statements. Thisprovides the perfect setting for discussing the importance of accounting and howbusinesses use accounting information. Furthering its real-world applicability, the end-of-chapter cases tie directly to the American Eagle Outfitters Annual Report in AppendixB and the contrasting report from Urban Outfitters Form 10-K in Appendix C. This givesstudents valuable practice reading and interpreting real financial data. In addition, real-world excerpts expand on important chapter topics with insight into how real firms usefinancial accounting to their competitive advantage.

CLARITY—A BUILDING-BLOCK APPROACH TO TEACHING TRANSACTION ANALYSIS: Most faculty agree thatmastery of the accounting cycle is critical to success in financial accounting. And yet all other financial books introduce and develop transaction analysis in one chapter,bombarding a student early in the course with an overload of new concepts and terms.The authors believe that most faculty take more time with the accounting cycle, butother financial accounting textbooks don’t. By slowing down the introduction oftransactions and giving students time to practice and gain mastery, this building-block approach leads to greater student success in their study of later topics infinancial accounting such as adjusting entries.

TECHNOLOGY—POWERFUL TOOLS FOR TEACHINGAND STUDY: Students have different learning styles and conflicting timecommitments, so they want technology tools that help them study more efficiently andeffectively. McGraw-Hill’s Homework Manager and Homework Manager Plus, iPoddownloadable content, and ALEKS for Financial Accounting provide students withthree powerful tools tied directly to Financial Accounting, 6e, which will help themmaximize their study time and make their learning experience more enjoyable. In addition,the Algorithmic Test Bank allows instructors to create an infinite number of algorithm-generated quizzes and test assignments and gives students an endless number of problemswith which to practice.

Libby/Libby/Short’s Financial Accounting is the proven choice for presenting financialaccounting in a clear, relevant manner that keeps students engaged throughout yourcourse. Read on for more insight into what has made this textbook such a success withfaculty and students.

V

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What’s New in the 6th Edition?One reason Libby/Libby/Short’s Financial Accounting is a best-selling textbook is because instructorscan trust the flexibility in key topical coverage, the simplified explanations of complex topics, and end-of-chapter material that relates directly to the chapter’s text and engages the students with concepts and decision making using details from the chapter. Eighty percent of the end-of-chaptermaterial throughout the sixth edition has been thoroughly revised with new companies and numericaldata. Previous users will find familiar problem structures, making transition into this edition easier.

Chapter 1• Shortened and simplified

“Correcting Maxidrive’sStatements” section.

• Updated material onCorporate Governance and IFRS.

• New demonstration casebased on Apple Computer.

• Simplified cash flow self-study quiz.

• Substantial revision ofend-of-chapter material:new numerical data for 75 percent of mini-exercises, exercises, andproblems; three newalternate problems; andall new annual reportcases.

Chapter 2

• New simplified Exhibit 2.1.• Additional account title

simplification in thebalance sheet.

• Modified InternationalPerspective to introduceIFRS.

• Updated FinancialAnalysis and Ethicsfeatures.

• Modified transactionanalysis illustration to beclearer and moresystematic.

• Revised Exhibits 2.4, 2.5,and 2.6 for improvedclarity.

• Added explanation boxesfor analytical tools(journal entries and T-accounts).

• Modified solutions to self-study quizzes to beconsistent withpresentation of journalentries and equationeffects.

• Substantial revision ofend-of-chapter material:multiple choice sectionnow includes threecomputational questions,new numerical data for 60 percent of mini-exercises, exercises, andproblems and all newannual report cases.

Chapter 3

• Updated InternationalPerspective with anotherfocus on IFRS.

• Continued simplificationof the account titles infinancial statements.

• New exhibit on revenuerecognition with clearerexplanation to followexhibit.

• New exhibit on expensematching with clearerexplanation to followexhibit.

• Updated Question ofEthics feature.

• Clearer exhibit on thetransaction analysis model.

• Clarified discussion onpreparing the financialstatements and theirrelationships.

• Substantial revision ofend-of-chapter material:three computationalquestions added to themultiple choice section;new numerical data for 65 percent of mini-exercises, exercises, andproblems; and all newannual report cases.

Chapter 4

• Reorganized discussion ofthe adjustment process.

• New visuals for adjustingentries.

• Clarified and simplifiedillustration of theadjustment process.

• Modified self-study quizon adjusting entries.

• Substantial revision ofend-of-chapter material:three computationalquestions added to themultiple choice section;new numerical data for 75percent of mini-exercises,exercises, and problems;and all new annual reportcases.

Chapter 5

• Updated focus andcomparison companies.

• New graphic reflectingchanges in accountingregulation.

• Updated coverage of theeffects of accountingrestatements and fraud onaccountants, companymanagement, andinvestors.

• Updated coverage of the importance ofinternational accountingstandards.

• New Financial Analysisfeature on stock marketreaction to earningsannouncements.

• New exhibit illustratinginformation onreuters.com.

• New ROE Self-Study Quizbased on Apple Computerand HP.

• Updated MicrosoftDemonstration Case.

• Updated discussion andillustration ofnonrecurring items.


Chapter 6


• Revised example of agingof accounts receivable.

• Updated coverage ofelectronic cashtransactions.


Chapter 7


• Modified inventorygraphics illustrating costflow assumptions.


VI

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Chapter 8

• New focus company—Southwest Airlinesreplaces Delta Airlines—and comparisoncompanies.

• New InternationalPerspective feature onIFRS.

• Updated financialdisclosure examples.


Chapter 9

• New comparisoncompanies.

• Expanded discussion oflease liabilities.

• Updated focus companyinformation.

• Addition of fractional yearinterest.

• Addition of demonstrationcase.


Chapter 10

• Updated information forfocus company.

• Inclusion of fractionalyear interest.


Chapter 11

• New focus company—Sonic Drive-In Restaurantreplaces OutbackSteakhouse—andcomparison companies.

• Elimination of actualstatement of stockholders’equity due to increasingcomplexity of thestatement.

• Elimination of discussionof restriction on retainedearnings.


Chapter 12

• New focus company—Washington PostCompanies replaces DowJones—and comparisoncompanies.

• New financial analysisfeature on fair value forinvestments.


Chapter 13


• Transfer of coverage ofgains and losses on saleof property, plant andequipment from an end ofchapter supplement tothe chapter itself.

• Transfer of detaileddiscussion of preparationof the direct methodoperating activitiessection to end of chaptersupplement.

• Addition of new exhibit atthe end of the chaptersummarizing thepreparation process(indirect method).

• Substantial revision ofend-of-chapter material:three computationalquestions added to themultiple choice section;new numerical data for 75percent of mini-exercises,exercises, and problems;additional exercise,problem, and alternateproblem involvingpreparation of completecash flow statement; andall new annual reportcases.

Chapter 14

• Revised financial analysisfor Home Depot andLowe’s.

• Updated comparisoncompanies and financialexamples.


VII

What’s New?

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Faculty agree the accounting cycle is the most critical concept to learn and master for students studyingfinancial accounting. The Libby/Libby/Short authors agree the accounting cycle is a critical concept. Theybelieve students struggle with the accounting cycle when transaction analysis is covered in one chapter. Ifstudents are exposed to the accounting equation, journal entries, and T-accounts for both balance sheet andincome statement accounts in a single chapter, many are left behind and are unable to grasp material in thenext chapter which covers adjustments and financial statement preparation.

The market-leading Libby/Libby/Short approach covers transaction analysis over two chapters so that studentshave the time to master the material. In Chapter 2 of Financial Accounting, students are exposed to theaccounting equation and transaction analysis for investing and financing transactions that only affect balancesheet accounts. This provides students with the opportunity to learn the basic structure and tools used inaccounting in a simpler setting. In Chapter 3, students are exposed to more complex operating transactionsthat also affect income statement accounts. As a result of this slower building-block approach to transactionanalysis, students are better prepared and ready to learn adjustments, financial statement preparation, andmore advanced topics. After the students have developed an understanding of the complete accounting cycleand the resulting statements, Chapter 5 takes students through the corporate reporting and analysis process.

The graphic below shows a detailed comparison of the Libby/Libby/Short approach to the accounting cyclechapters compared to the approach taken by other market-leading financial accounting text books.

A proven approach to

VIII

Overview of F/S & Users,B/S and I/S Transactions with

Accounting EquationF/S, Ratios, & Conceptual

Framework

Adjustments, ClosingEntries, F/S Preparation


Overview of F/S & Users


Overview of F/S & Users

Accounting Cycle

B/S and I/S Transactionswith Journal Entries &

T-accounts

B/S Transactionswith Accounting Equation,

Journal Entries & T-accounts

Start Early Compress Coverage Extend Coverage(Libby/Libby/Short approach)

B/S and I/S Transactionswith Accounting Equation,

Journal Entries & T-accounts

B/S and I/S Transactionswith Accounting Equation, Journal Entries & T-accounts

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The Libby/Libby/Short approach is better because it gives students more time to mastertransaction analysis, which is the foundation for the rest of the course.

• Students have more time to practice and feel less overwhelmed.

• Allows students to develop comfort with simpler transactions in Chapter 2 before theymove onto more complex transactions in Chapter 3.

• It’s intuitive and matches the sequence of establishing and then operating a business

• Builds on itself which allows more time and practice where it is needed.

transaction analysis and the accounting cycle

IX

“Solid presentation of t-accounts. Good that you use the sametransactions in general journal format so students can see thetransactions both ways. I like the transactions shown and that theyreflect what is occurring in the Papa John’s case.” Phil Lewis, Eastern Michigan University

“A fairly thorough overview of the adjusting and closingprocesses . . . The book provides a nice linkage between theclosing process and the preparation of the financial statements.” Peter Woodlock Youngstown State University

“The adjusting entry process is clearly presented, which makes iteasier for the students to grasp the concepts.”Rada Brooks, University of California at Berkeley

“The use of parenthesis in each journal entry is an excellentapproach… Very useful for engaging non-accounting majors.”Michael Ulinski, Pace University

“I like the fact that when preparing adjusting entries that studentshave to calculate.... It is important for students to have to thinkthrough this process—which doesn’t occur when the amount isprovided.”Brian Nagel, Duquesne University

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Libby - lrc.tnu.edu.vn · PDF file5 8 SBUX ... All end-of-chapter practice questions and problems from Libby, ... Libby/Libby/Short’s Financial Accounting is the proven choice for