Financial and Managerial Accounting

Winter 2010

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

The textbook for the course is Financial & Managerial Accounting Dartmouth College by Stickney, Maher, Weil, Schipper and Francis (Cengage Learning). 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 5: 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; Financial & Managerial Accounting - Chapter 1.

Prepare: Become familiar with extracts from the financial statements of Southwest Airlines, Starbucks, and McDonald's Corporation in the course packet (CP). Bring these financial statements to class together with Wal-Mart's financial Statements.

Optional Problems: 1-34, 1-35, 1-38, 1-39.

Session 2
Thursday, January 7: 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. Discuss the key components of owners' equity.
  4. Apply the dual-entry recording framework to a series of transactions that results in a balance sheet.

Read: Class notes - Chapter 2; Financial & Managerial Accounting - Chapter 3, Chapter 2 (page 43-58).

Prepare: Small Beginnings Corporation (CP)*.

Optional Problems: 3-22, 3-24, 3-26, 2-34, 2-41.

Week 1 Homework due Friday, January 8 by 5:00 PM

Small Beginnings Corporation (CP)*

Session 3
Tuesday, January 12: 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.
  3. Discuss the relation between the income statement and balance sheet.

Read: Class notes - Chapter 3; Financial & Managerial Accounting - Chapter 4, Chapter 2 (pages 58-73).

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

Optional Problems: 4-11, 4-13, 4-28, 2-31, 2-35.

Session 4
Thursday, January 14: 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: Class notes - Chapter 3; Financial & Managerial Accounting - Chapter 4, Chapter 2 (pages 58-73).

Prepare: Tertia Company (CP)*, WorldCom CASE (CP).

Optional Problems: 2-39.

Week 2 Homework due Friday, January 15 by 5:00 PM

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

Session 5
Tuesday, January 19: 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. Discuss the relation between the statement of cash flow, income statement, and balance sheet.
  3. Develop skills in transforming income statement data to cash flow data and vice versa.

Read: Class notes - Chapter 4; Financial & Managerial Accounting - Chapter 5.

Prepare: Seasoned Company (CP)*, Psilos (CP).

Optional Problems: 5-33, 5-34, 5-36.

Session 6
Thursday, January 21: 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: Snow Hut (CP), 5-42, 5-43.

Week 3 Homework due Friday, January 22 by 5:00 PM

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

Session 7
Tuesday, January 26: 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; Financial & Managerial Accounting - Chapter 6 (pages 241 - 74).

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: 6-14, 6-21, 6-23, 6-25.

Session 8
Thursday, January 28: 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; Financial & Managerial Accounting - Chapter 6 (pages 274 - 85).

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 29

Wal-Mart Stores: Profitability and Risk Analysis CASE (CP)*; Wal-Mart: Pro Forma Financial Statements CASE (CP)* Part (a) — print and hand in the completed template.

Session 9 - Part A
Tuesday, February 2: 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: Download the completed Wal-Mart Pro Forma template and bring laptop to class.

Session 9 - Part B & Session 10
Tuesday, February 2 and Thursday, February 4: 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.

Prepare: Synthesis CASE (CP) for in-class discussion

Week 5 Homework due at the end of class on Thursday, February 4

Wal-Mart: Pro Forma Financial Statements CASE (CP)* part (b) — hand in 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 4 and is due on Monday, February 8, by 6:00 pm. The closed-book, three-hour exam covers material in sessions 1 - 10.

 

Managerial Accounting

Session 11: Tuesday, February 9

FINANCIAL VS. MANAGERIAL ACCOUNTING: Product costs and period expenses.
Reading: Chapters 1 & 2.
Assignment: Sauron Ring Maker and Murfreesboro Sour Mash.

Session 12: Thursday, February 11

COST ANALYSIS FOR DECISION-MAKING: Opportunity costs.
Reading: None.
Assignments: Escher Architecture and Tashtego.

Session 13: Tuesday, February 16

COST-VOLUME-PROFIT ANALYSIS: Break-even point.
Reading: Chapter 6.
Assignments: Phantom's Opera Company and Baldwin Bicycles.

NOTE: NO CLASS ON THURSDAY, FEBRUARY 18
Session 14: Tuesday, February 23

DECISION-MAKING WITH COMMON COSTS: Common cost allocation and joint products.
Reading: Chapter 7.
Assignments: Maguire Enterprises and Wyatt Oil.

Session 15: Thursday, February 25

PRODUCT MIX DECISIONS: Product line profitability; optimizing product mix using linear programming.
Reading: Appendix 7.1.
Assignments: Sudoku Manufacturing and Stokke Golf.

Session 16: Tuesday, March 2

BUDGETING: Flexible budgeting.
Reading: Chapters 9 and 10.
Assignments: Ralph's Consulting Firm and Boston Creamery.

Session 17: Thursday, March 4

VARIANCE ANALYSIS: Cost variances.
Reading: None.
Assignments: Derf Industries and Diego Cigars.

Session 18: Tuesday, March 9

DIVISIONAL REPORTING: Transfer pricing; investment center measures.
Reading: Chapter 11.
Assignments: Gettysburg Farm and Upper Valley Dyes.

 

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.