Investment 8th by Bodie

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1565 Chenault St, Dallas, TX 75228

Teaching Asst.
Office Hours
Final EXAM
December 19 (1-3:45) JSOM2.106
Fin. ST. Analysis Protect
Industry name
Company name1 ----- student1
2 2
3 3
4 4

Class1-5 content:
Introduction to Accounting
Business activities and financial statements
Balance sheet valuation rules
Income statement valuation rules
Transaction analysis --- prepare fin statement
Mallard Clothing --- Prepare fin statement
Statement of cash flows (problem5-62)
Articles of statement of cash flows
Exam Format
1. Mallard clothing type problem
2. SOCF operating (Indirect method)
3. True/False ---- Descriptive material (Sample, Elearning, 1-4)

What is Accounting?
Accounting is a system of measuring and reporting results of business activities to interested users.

Uses Decision Accounting reports
1. lenders(bank) lend? Interest? Income statement (profitability) statement of cash flows(sources and users of cash) balance sheet(Assets, liabilities) 3↑financial statements

↑Annual reports(1.notes to financial statement 2. decision of business) 2.managers Cash flows? Cash budget (predictions of cash inflow/outflow) 3.investors buy or sell stocks Financial statements

of a company?
4.Government Income tax? Income statement
Tax returns(tax rules) → IRS( Internal Revenue services) ↑significant different from income statement 5.Suppliers
7.Credit Rating companies
(about paying back loans)

Managerial Financial
Users Internal External
Reports Tailored & Standardized(Financial statements) U.S.GAAP(Rules) Customized(no rules) General accepted accounting rules↑

IFRS ( International Financial Reporting Standards)
European Countries

Why GAAP & IFRS separate?
IFRS : Principle based (allows lot of flexibility to companies in preparing their financial statement) GAAP : Rules based(less flexibility)
Which rule to use depends on Where stocks are traded.
Why differences?
GAAP: Litigation system --- It is easy for share holders to sue a company in U.S. ( If stock price falls, the company are likely to be sued
U.S. suitor do not pay for the fee, while European suitor pay for the fee.)

1.Balance Sheet(12/31/11)
Assets = Liabilities + Owner's Equity Resources Claims of creditors Claims of shareholders (provide future benefits)

Income Statement(1/1/11-12/31/11)
Revenues - expenses = Net Income

2.Statement of cash flows(1/1/11-12/31/11)

Sources: Cash from customers
Users: Cash paid to employees

Sources: Sell old building
Users: Purchase building

Sources: Borrowing from a bank
Users: Repay loan
keep shareholder as user

1. Assets = Liabilities + S/H's Equity →Monetary Accounts --- Accounts receivables
Accounts Payables(operating activity)
Notes payables(financing activity)
→Nonmonetary Accounts --- Inventory
Monetary : Present Value = Future payments - Interest

Nonmonetary: History cost
Acquisition cost
Reason: Current value/fair value reliability?
As long as you really sell it, you won't know its current value. But current value is more relevant/useful.

Exceptions to using historical cost:
1. lower of...
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