Financial and Managerial Accounting

Winter 2009

Objectives

This course provides a graduate level exploration of financial and managerial accounting. The objective for the financial accounting component of this course is to help you understand the concepts and measurements that underlie corporate financial statements, develop the skills needed to analyze financial statements effectively, and gain an understanding of the choices firms make in reporting the results of business activities. The managerial accounting component of the course focuses on the use of accounting data in the management of an organization. This course uses the concept of opportunity cost as a framework for the study of managerial accounting.

Instructors

Textbook

Financial & Managerial Accounting for MBAs, by Easton, Halsey, McAnally, and Hartgraves, Cambridge Business Publishers. You should also obtain a course packet (CP) of cases and other materials from the Thayer Copy Center.

Schedule

Financial Accounting

Legend:
* denotes homework assignment to be handed-in.
CP denotes cases / reading materials in the Course Packet.
CASE denotes cases subject to cold calls during class.

Session 1
Tuesday, January 6: Overview of Business Activities and Principal Financial Statements

Learning Objectives:

  1. Obtain an overview of the principal activities of business firms and how they relate to the three principal financial statements.
  2. Observe the types of information provided by the three principal financial statements and how firms might use this information in managing and evaluating a business.
  3. Develop sensitivity to appropriate relations between the nature and mix of assets and the nature and mix of financing for firms in various industries.
  4. Interpret income statement and balance sheet relations using common-size income statements and balance sheets.

Read: Class notes - Chapter 1.
Read: Financial & Managerial Accounting - Module 1.
Prepare: Become familiar with extracts from the financial statements of Texas Instruments, Starbucks, and Southwest Airlines in the course packet (CP). Bring these financial statements to class together with Wal-Mart's financial Statements.

Session 2
Thursday, January 8: The Balance Sheet: Measuring Financial Position

Learning Objectives:

  1. Understand that the purpose of the balance sheet is to report the results of a firm's investing and financing activities at a moment in time.
  2. Apply the accounting concepts for asset and liability recognition and valuation under generally accepted accounting principles (GAAP).
  3. Apply the dual-entry recording framework to a series of transactions that results in a balance sheet.

Read: Class notes - Chapter 2.
Read: Financial & Managerial Accounting - Module 2-1 - Module 2-12.
Prepare: Small Beginnings Corporation (CP)*.

Week 1 Homework due Friday, January 9 by 5:00 PM

Small Beginnings Corporation (CP)*

Session 3
Tuesday, January 13: The Income Statement: Measuring the Results of Operating Performance

Learning Objectives:

  1. Understand differences between the cash basis and the accrual basis of income recognition.
  2. Understand and apply the accounting concepts for revenue and expense recognition and measurement under the accrual basis.

Read: Class notes - Chapter 3.
Read: Financial & Managerial Accounting - Module 2-12 - Module 2-14.
Prepare: Up-and-Running, Inc. (CP)*, Mary Lou's Educational Services (CP)*.
Optional Problems: Practice problems #3.1, #3.2, #3.4, #3.5, #3.6.

Session 4
Thursday, January 15: The Income Statement (continued)

Learning Objectives:

  1. Apply the dual-entry recording framework to a series of transactions that results in a balance sheet and an income statement.

Read: Financial & Managerial Accounting - Module 3 (excluding Module 3-18 - Module 3-20).
Prepare: Tertia Company (CP)*, WorldCom CASE (CP).
Optional Problems: Practice problems #3.3, # 3.7.

Week 2 Homework due Friday, January 16 by 5:00 PM

Up-and-Running, Inc. (CP)*, Mary Lou's Educational Services (CP)*, Tertia Company (CP)*

Session 5
Tuesday, January 20: The Statement of Cash Flows: Measuring the Cash-Flow Effects of Operating, Investing, and Financing Activities

Learning Objectives:

  1. Understand the rationale for, and the information value of, the statement of cash flows.
  2. Develop skills in transforming income statement data to cash flow data and vice versa.

Read: Class notes - Chapter 4.
Read: Financial & Managerial Accounting - Module 2-15 - Module 2-23 and Module 3-18 - Module 3-20.
Prepare: Seasoned Company (CP)*, Psilos (CP).
Optional Problems: Practice problems #4.1, #4.2, #4.3, #4.4.

Session 6
Thursday, January 22: The Statement of Cash Flows (continued)

Learning Objectives:

  1. Reinforce skills in transforming income statement data to cash flow data and vice versa.
  2. Consider relations between net income and cash flow from operations and between cash flows from operating, investing, and financing activities for various types of businesses.

Prepare: Psilos (CP) (cont.), Aston Corporation (CP)*, The Stretch Company (CP)*.
Optional Problems: Practice problems #4.5, Snow Hut (CP).

Week 3 Homework due Friday, January 23 by 5:00 PM

Seasoned Company (CP)*; Aston Corporation (CP)*; The Stretch Company (CP)*

Session 7
Tuesday, January 27: Introduction to Financial Statement Analysis

Learning Objectives:

  1. Introduce tools for analyzing a firm's overall profitability (rate of return on assets) and examine how profit margin and asset turnover ratios provide information about the economics and strategy of a business.
  2. Introduce the Du Pont formula - a tool for analyzing a firm's return to shareholders.
  3. Understand the effect of financial leverage on a firm's ROE.
  4. Introduce tools for analyzing a firm's short-term liquidity risk (including its working capital management) and its long-term solvency risk.

Read: Class notes - Chapter 5.
Read: Financial & Managerial Accounting - Module 4.
Prepare: Wal-Mart Stores: Profitability and Risk Analysis CASE (CP)*. When calculating ratios in this case, use the ratio definitions in the Class Notes)
Optional Problems: Practice problems #5.1, #5.2.

Session 8
Thursday, January 29: Pro Forma Financial Statements

Learning Objectives:

  1. Reinforce the relations between the three principal financial statements by preparing pro forma financial statements from a given set of assumptions.
  2. Practice designing a spreadsheet program.

Read: Class notes - Chapter 6.
Read: Financial & Managerial Accounting - Module 11.
Prepare: Wal-Mart: Pro Forma Financial Statements CASE (CP)*; an Excel spreadsheet template for Wal-Mart with account titles and amounts is available in the course folder. The assumptions are in the case, which is in the course packet.

No formal class; rather assistance will be provided in class with the preparation of pro forma financial statements for Wal-Mart.

Week 4 Homework due end of class Friday, January 30

Wal-Mart Stores: Profitability and Risk Analysis CASE (CP)*

Session 9 - Part A
Tuesday, February 3: Pro Forma Financial Statements (continued)

Learning Objectives:

  1. Discuss the preparation of pro forma financial statements.
  2. Assess sensitivity of the financial statements to variations in pro forma assumptions.
  3. Discuss which assumptions drive the various ratios in the Du Pont formula.

Read: Class notes - Chapter 6.
Prepare: Wal-Mart: Pro Forma Financial Statements CASE (CP)*.

Session 9 - Part B & Session 10
Tuesday, February 3 and Thursday, February 5: Quality of Financial Reporting

Learning Objectives:

  1. Discuss accounting for transactions reported in the financial statements that are most commonly subject to management strategic manipulation.
  2. Recognize that off-balance sheet financing is prevalent and discuss procedures to adjust for these arrangements when evaluating a firm.

Read: Class notes - Chapter 7.
Optional reading: The topics discussed in the class notes are examined in detail in the following modules of Financial & Managerial Accounting - Modules 5, 6, 8, and Module 10-4 - 10-11. The key issues will be outlined in class.
Prepare: Synthesis CASE (CP) for in-class discussion

Week 5 Homework due at the end of class on Thursday, February 5

Wal-Mart: Pro Forma Financial Statements CASE (CP)* -- print and hand in the completed template and your written response to the questions in part (b) of the case; Synthesis CASE (CP)*.

Mid-Term Examination

The exam will be distributed at the end of class on Thursday, February 5 and is due on Monday, February 9, by 6:00 pm. The closed-book, three-hour exam covers material in sessions 1 - 10.

 

Managerial Accounting

Session 11 Tuesday, February 10

COST BEHAVIOR: Fixed and variable costs; cost estimation.
Reading: Modules 14 and 15.
Assignment: Jolsen International and Wyatt Oil.

Session 12 Thursday, February 12

COST-VOLUME-PROFIT ANALYSIS: Break-even point, profit planning, operating leverage.
Reading: Module 16.
Assignments: Paper Mate and Jones Ironworks.

Session 13 Tuesday, February 17

OPPORTUNITY COST: Opportunity cost of capacity; opportunity cost of capital.
Reading: Module 17.
Assignments: Escher Architects and Tashtego.

NOTE: NO CLASS ON THURSDAY, FEBRUARY 19
Session 14 Tuesday, February 24

PRODUCT COSTING: Product costs and period costs; overhead allocation.
Reading: Module 18.
Assignments: Sauron Ring Maker and Murfreesboro Sour Mash.

Session 15 Thursday, February 26

ASSIGNING INDIRECT COSTS: Volume-based costing; activity-based costing.
Reading: Module 19.
Assignments: DVD Corporation and Baldwin Bicycles.

Session 16 Tuesday, March 3

BUDGETING: Flexible budgeting; standard costing; variance analysis.
Reading: Module 20 (skim) and 21.
Assignments: Big Dog Company and Boston Creamery.

Session 17 Thursday, March 5

DIVISIONAL REPORTING: Transfer pricing; investment center measures.
Reading: Module 22.
Assignments: Gettysburg Farm and Grognard Games.

Session 18 Tuesday, March 10

PRICING AND PRODUCT MIX DECISIONS: Product line profitability; optimizing product mix using linear programming.
Reading: Module 23.
Assignments: Stokke Golf.

 

A take-home exam covering sessions 11-18 will be distributed on the last day of class and is due during the final exam session.

Blackboard

More information about this course can be found at the Blackboard site. You can login to Blackboard using your DND username and password.