Faculty
Professors Leslie A. Robinson, Phillip C. Stocken
Objectives
The objectives of this course are to help you (1) understand the concepts and measurements that underlie corporate financial statements, (2) develop the skills needed to analyze financial statements effectively, and (3) gain an understanding of the choices firms make in reporting the results of business activities. The first portion of the course emphasizes the measurement concepts and the mechanics of moving from business transactions to the principal financial statements: balance sheet, income statement, and statement of cash flows. The second portion introduces tools for analyzing financial statements, with an emphasis on integrating industry economic and business strategic factors into the analysis and interpretations. The third portion focuses on generally accepted accounting practices (GAAP) for particular topics, such as the timing of revenue recognition, inventory valuation, and measuring the amount and cost of debt financing, with an emphasis on how management's choices among alternative GAAP affect the quality of earnings and reported financial position.
Requirements
Class Preparation and Participation
Class preparation consists of (1) text readings, (2) assigned problems, and/or (3) cases from the text or course packet. You should be prepared to present your analysis of all aspects of an assignment in class.
Optional problems are suggested if you find that you need either guidance before preparing the assigned problems and cases or additional practice to reinforce the concepts covered in class. Solutions to the optional problems are in the course packet.
The most important requirements for this course are thorough preparation and analysis of the assigned problems, cases and reading materials, and active participation in class. Our expectation is that you will come to class having already thought through and analyzed the assigned problems and cases. We wish to devote the bulk of the class time to thinking about and responding to each other’s analyses and keeping to a minimum the time spent getting the facts out. We urge you to participate actively in class by both asking and responding to questions.
You are asked to turn in solutions to assigned problems or cases for most classes. These problems and cases are denoted by an asterisk in the attached assignments. These assignments are meant to be a learning tool and a way to gauge your level of understanding. While you should feel free to seek assistance with these assignments, you are individually responsible for turning in each assignment.
Assistance with the Course
There are three sources of additional help with the course. First, we will hold regular office hours from 2:00 until 4:00 pm on class days. Prof. Robinson, 303 Tuck Hall, Prof. Stocken, 204A Tuck Hall. We are also happy to make appointments outside of office hours.
Second, the team of second-year student teaching assistants will hold regular office hours the evening before each class from 7:00 to 8:00 pm in the Stoneman classroom. The purpose of these office hours is to answer specific questions you may have about the next day’s assignment on a one-on-one basis. There will not be a formal presentation by the TAs as such. The schedule for these office hours is below.
Office Hours with Teaching Assistants from 7:00 to 8:00 PM in Stoneman classroom
Week One:
Monday, 10/12
Week Two:
Sunday, 10/18; Monday, 10/19
Week Three:
Sunday, 10/25; Wednesday, 10/28
Week Four:
Sunday, 11/1; Monday, 11/2
Week Five:
Sunday, 11/8; Monday, 11/9
Week Six:
Sunday, 11/15; Monday, 11/16
Week Seven:
Monday, 11/23
Week Eight:
Sunday, 11/29; Wednesday, 12/2
Week Nine:
Sunday, 12/6; Monday 12/7
The teaching assistants for the course are:
Catherine.W.Barber@tuck.dartmouth.edu
Dana.M.Carne@dartmouth.edu
Matthew.A.DeLellis@tuck.dartmouth.edu
Eaun.H.Gray@tuck.dartmouth.edu
John.D.Hegge@tuck.dartmouth.edu
Kyle.T.Khasigian@tuck.dartmouth.edu
Jessica.A.Morgan@dartmouth.edu
Matthew.A.Obenhaus@tuck.dartmouth.edu
Marshall.W.Owens@tuck.dartmouth.edu
Hans.F.Reichstetter@tuck.dartmouth.edu
Ryan.D.Degrass@tuck.dartmouth.edu
Arathi.Seshagiri@tuck.dartmouth.edu
Matthew.J.Thomas@tuck.dartmouth.edu
Third, we will conduct several optional 1 1/2-hour problem-solving labs on Friday afternoons as indicated below. The purpose of these labs is to assist students having difficulty with the course by working through an additional problem or two to cement understanding of material covered each week in class. You should bring your textbooks and course packets to these sessions.
Problem Solving Lab Sessions with Instructors:
Friday, 10/16 -No session
Friday, 10/23 -Shapiro classroom from 1:30-3:00 PM
Friday,10/30 - Shapiro classroom from 1:30-3:00 PM
Friday,11/06 - No session, Accounting Mid-term Examination
Friday, 11/13 - No session: Capital Markets mid-term Examination
Friday, 11/20 - Georgiopolous classroom from 1:30 to 3:00 PM
Friday, 11/27 - No session: Thanksgiving Break
Friday, 12/04 - Georgiopolous classroom 1:30-3:00 PM
Friday, 12/11 - No session: Accounting Exam Review
Materials
The textbook for the course is Financial Accounting: An Introduction to Concepts, Methods, and Uses, Stickney, Weil, Schipper and Francis, South-Western Cengage Learning, 13th edition. An online study guide is available on the student “Companion Site” at www.cengage.com/accounting/stickney. You should also obtain a course packet (CP) of cases and other materials from the Tuck copy center.
Several copies of Intermediate Accounting, by Kieso, Weygant and Warfield, John Wiley & Sons Inc., 13th edition are on reserve at the Feldberg library. This is a useful resource for an introductory explanation of the more advanced topics that we cover in class.
Attendance Policy
You are expected to attend all classes in the section to which you are assigned unless an emergency prevents you from doing so. You are also expected to notify your professor in advance of any absences. Failure to attend and participate in classes will adversely affect your course grade.
The class participation grade is affected by general classroom behavior. Students will lose points in this category for: being absent without informing your professor ahead of time, not bringing name cards to class, coming late to class or leaving class early, or exhibiting behavior considered to obstructive to the learning of other students in class (such as leaving and returning to class while it is in session, surfing the web and checking e-mail, and voicing inappropriate comments).
Tuck Honor Code
We believe that the Academic Honor Code is a critical aspect of the learning environment at Tuck. The prevalence of group work is consistent with the School’s philosophy that much of your education here will come from each other, and we encourage you to discuss all problems and cases with your group prior to coverage in class. At the same time, it is essential for you to work through the material on your own to master it and to solidify your understanding. (One common mistake is to overly rely on group members in the learning process.) Thus, the final write-up of problems and cases -- either to hand in or to present in class -- should be your own individual work (i.e., do not simply copy your group’s solution to a problem or case). The desirable sequence is for you to read and prepare the assigned materials on your own before getting together with your study group. As a result of discussions within your study group, you can make changes to your initial analysis. You should then go back and do final editing of your solution on your own without additional help from study group members. There should never be a unique solution that is essentially identical by all members of the study group. You may make corrections to problem sets as we discuss them in class, but please use a different color of ink or pencil.
Grading
Your course grade will be based on a mid-term examination, a final examination, submitted assignments, and class participation. The midterm will emphasize material covered in sessions 1 to 9. The final examination will emphasize material covered in sessions 10 to 18. There is, however, a cumulative nature to the material in this course, so that some testing of earlier material is inevitable. The examinations will be closed book and notes. However, each student will be permitted to prepare and bring to the exams one page (8.5 x 11) of memory notes; both sides of the page can be used. Students usually find that the best way to prepare for the exams is to prepare carefully and promptly for each of the classes that precede them. Copies of the exams and related solutions from a previous offering of the course are in the course packet. You may use hand-held calculators on the exams for mathematical calculations only.
In evaluating your overall performance, we will use the following guidelines:
Mid-term Exam 30%
Final Exam 40%
Class Participation 15%
Homework 15%
If a student's mean adjusted score for the Final Exam improves relative to the mean adjusted score for the Midterm Exam, then the Midterm Exam will receive a weight of 20% and the Final Exam a weight of 50%.
Schedule
October 11, 2009
Notations Defined
* 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
Monday
October 12, 2009
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 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
Tuesday
October 13, 2009
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 Chapter 3, Chapter 2 (pages 43-58).
Prepare: Small Beginnings Corporation (CP)*.
Optional Problems: 3-22, 3-24, 3-26, 2-34, 2-41.
Week 1: Homework due Thursday, October 15, by 5:00 pm. Small Beginnings Corporation (CP)*.
Session 3
Monday
October 19, 2009
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 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
Tuesday
October 20, 2009
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.
Prepare: The Tertia Company (CP)*, WorldCom CASE (CP).
Optional Problem 2-39.
Week 2: Homework due Thursday, October 22 by 5:00pm. Up-and-running, Inc. (CP)*, Mary Lou's Educational Services (CP)*, Tertia Company (CP)*.
Session 5
Monday
October 26, 2009
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: Chapter 5.
Prepare: Seasoned Company (CP)*, and Psilos (CP)
Optional Problems: 5-33, 5-34, 5-36.
Session 6
Thursday
October 29, 2009
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) (continued), Aston Corporation (CP)*, The Stretch Company (CP)*
Optional Problems: Snow Hut (CP), 5-42, 5-43.
Week 3 Homework due Friday, October 30 by 5:00 PM: Seasoned Company (CP)*; Aston Corporation (CP)*; The Stretch Company (CP)*
Session 7
Monday (AM)
November 2, 2009
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 Chapter 6 (pages 241-274).
Prepare: Wal-Mart Stores: Profitability and Risk Analysis CASE (CP)*.
Optional Problems: 6-14, 6-21, 6-23, 6-25.
Session 8
Monday (PM)
November 2, 2009
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.
Note: No formal class; rather assistance will be provided with preparation of pro forma financial statements for Wal-Mart in the Georgiopolous Classroom from 1:00 pm to 5:00 pm.
Read Chapter 6 (pages 274-285).
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.
Week 4 Homework due Monday, November 2 by 6:00 PM: Wal-Mart Stores: Profitability and Risk Analysis CASE (CP)*, Wal-Mart Pro Forma Financial Statements CASE (CP)* - print and hand in the complete template.
Session 9
Tuesday
November 3, 2009
Pro Forma Financial Statements (continued)
Learning Objectives
1. Discuss the preparation of pro forma financial statements.
2. Assess the sensitivity of the financial statements to variations in pro forma assumptions.
3. Discuss which assumptions drive the various ratios in the Du Pont formula.
Review: Chapter 6, completed template in course folder.
Prepare: Wal-Mart: Pro Forma Financial Statements CASE (CP)*.
Week 4: Homework due at the end of class Tuesday, November 3. Wal-Mart: Pro-Forma Financial Statements CASE (CP)* - print and hand in your written response to the questions in part (b) of the case.
Wednesday
November 4, 2009
Optional Review Session 3:20 pm-4:50 pm in Cook (Sections 1 & 3) and Georgiopolous (Sections 2 & 4)
Learning Objectives
1. Review material covered session 1-9.
Prepare: 2008 Mid-term Examination (CP).
Mid-Term Examination
Friday
November 6, 2009
Mid-term Examination: Friday, November 6, 9:00 am to 12:00 noon covering material in session 1-9.
Session 10
Monday
November 9, 2009
Quality of Earnings/Income and Revenue Recognition
Learning Objectives
1. Develop an understanding of the concepts of quality of earnings and identify incentives faced by a firm's managers in choosing methods of measuring and reporting business activities.
2. Discuss the recognition of revenue for firms in different industries.
3. Identify matching issues confronted in recognizing income at the time of sale of goods and services.
4. Understand the allowance method for uncollectible accounts and observe the effect of uncollectible accounts.
Read Chapter 7.
Prepare: Top Line, Inc. CASE (CP), Adam's Golf CASE (CP)*, Apple Inc. (CP)*.
Optional Problems 7-13, 7-30, 7-32, 7-41 (a).
Session 11
Tuesday
November 10, 2009
Inventories and Cost of Goods Sold
Learning Objectives
1. Calculate inventories and cost of goods sold under FIFO and LIFO cost flow assumptions and the specific identification method.
2. Understand how differences in inflation rates, growth rates, inventory turnover rates and other factors cause inventories and cost of goods sold to differ under FIFO and LIFO.
Read Chapter 8.
Prepare: General Electric CASE (CP)*.
Optional Problems 8-29, 8-43, 8-44, 8-46, 8-47
Week 5 Homework due Friday, November 13 by 5:00 PM: Adam's Golf CASE (CP)*; Apple inc. (CP)*; General Electric CASE (CP)*.
Session 12
Monday
November 16, 2009
Non-current Assets
Note: Section 3 and 4 classes will meet from 8:15am-9:45am today
Learning Objectives
1. Observe the difficulties applying GAAP to property, plant and equipment and to intangible assets and the effects on assessments of the quality of earnings.
2. Observe the effects of a firm's capitalization policy on balance sheet and income statement amounts.
Read Chapter 9.
Prepare: Problem 9-33, America Online CASE (CP)*, Southwest Airlines (CP)*.
Optional Problem 9-14, 9-30.
Session 13
Tuesday
November 17, 2009
Income Taxes
Learning Objectives
1. Understand the reasons for providing for deferred taxes.
2. Understand the difference between temporary and permanent timing differences.
3. Understand how to account for deferred tax liabilities and assets. Know when it is appropriate to raise a valuation allowance for deferred tax assets.
4. Understand the income statement, balance sheet and cash flow statement treatment of income taxes and deferred taxes.
Read Chapter 11 (pages 536-545)
Optional reading: Chapter 19-Accounting for Income Taxes, Intermediate Accounting, Kieso, Weygandt, and Warfield (on reserve in Feldberg Library).
Prepare 11-28*
Optional Problems 11-25, 11-26, 11-27, Taxing Situation, Software Ventures.
Week 6 Homework due Friday, November 20 by 5:00 PM: America Online CASE (CP)*, Southwest Airlines (CP)*, 11-28*.
Session 14
Tuesday
November 24, 2009
Income Taxes, cont.
Prepare: Dell Inc. CASE (CP)*.
NOTE: You are expected to be familiar with present value concepts and calculations prior to Session 15. The textbook's appendix titled Time Value of Cash Flows provides the necessary background.
Week 7 Homework due Tuesday, November 24 by 5:00 PM: Dell Inc. CASE (CP)*
Session 15
Monday
November 30, 2009
Recognition and Valuation of Liabilities/Bonds
Learning Objectives:
1. Understand the impact of the recognition and valuation of liabilities on assessments of profitability and risk.
2. Calculate the issue price and subsequent market value of bonds with various cash flow patterns using present value techniques.
4. Apply GAAP for long-term bonds at the date of issue, during each subsequent period prior to maturity, and at maturity.
5. Understand the reasons why the book value of bonds under GAAP at any date may differ from the market value of the bonds.
Read Chapter 10 (pages 461-481) and Appendix Time Value of Cash Flows (pages 805-818).
Prepare: Problems 10-22*
Optional Problems 8-33, 8-34, 10-17, 10-19, 10-20.
Session 16
Thursday
December 3, 2009
Recognition and Valuation of Long-term Debt (continued)/Accounting for Leases
Learning Objectives:
1. Understand the issues involved in structuring leases as operating leases versus capital leases and the financial statement effects of each accounting method.
2. Apply the operating and capital lease methods.
Read Chapter 10 (pages 482-491).
Optional reading: Chapter 21 - Accounting for Leases, Intermediate Accounting, Kieso, Weygandt, and Warfield (on reserve in Feldberg Library).
Prepare: FMC Corporation (CP)*, Sysco Corporation (CP)*, Adair Corporation (CP)*.
Optional Problems 10-21, 10-23, 10-28.
Week 8 Homework due Friday, December 4 by 5:00 PM: 10-22*, FMC Corporation CASE (CP)*, Sysco Corporation (CP)*.
Session 17
Monday
December 7, 2009
Accounting for Leases (continued)
Learning Objectives:
1. Capitalization of operating Leases.
2. Understand the most common components of shareholders' equity.
Read Chapter 14.
Prepare: Walgreens CASE (CP)*
Optional Problems 10-35, 10-36.
Session 18
Tuesday
December 8, 2009
Shareholders' Equity and Accounting for Employee Stock Options
Learning Objectives:
1. Understand the economics events that alter stockholders’ (or owners’) equity, and how to account for them.
2. Understand the various elements that affect the value of a stock option.
3. Analyze the impact of stock option accounting on reported earnings.
Read Chapter 14(cont.)
Prepare: Problems 14-16*, PepsiCo Inc. CASE (CP)*.
Optional Problems 14-29, 14-17, 14-23, 14-25, 14-31, 14-33, IBM Corporation (CP).
Week 9: Homework due Wednesday, December 9 by 5:00 pm. Adair Corporation (CP)*; Walgreens CASE (CP)*; Problem 14-16*; PepsiCo Inc. CASE (CP)*.
Friday
December 11, 2009
Optional Review Session in Georgiopolous from 8:30 am-10:00 am (Section 1 & 3) and 10:20 am-11:50 am (Sections 2 & 4)
Learning Objective: Review material covered in the course.
Prepare: 2008 Final Examination (CP).
Tuesday
December 15, 2009
Final Examination, 9:00 am to 12:00 noon
