The University of Texas at Dallas

Financial Accounting: AIM 6201

Fall 2006
Instructors

Ashiq Ali, Ph. D. Office: SOM 4.434 Phone: (972) 883 6360 Email: See WebCT

Albert Tsang Office: SOM 4.425 Phone (972) 883 4452 Email: See WebCT
(Teaching Assistant)

Course Pre-requisites

No pre-requisites.

Course Description

This course provides an introduction to the concepts of financial accounting with an emphasis on the
interpretation of financial statements. Specifically it covers how to prepare financial statements (income
statement, balance sheet, and statement of cash flows) and how to utilize the information contained in
financial statements. The course also covers in detail how financial statements report the financial effects
of certain transactions that firms commonly undertake.

Student Learning Objectives / Outcomes

• summarize the information provided by the balance sheet, income statement and statement of
cash flows and interpret individual amounts
• compute financial ratios and use financial ratios and other information to compare companies
competing in an industry in terms of profitability and liquidity
• recognize ethical issues in reporting financial results and assess the impact of those issues on
shareholders and external users of the information

Required Textbooks and Materials

Text: Introduction to Financial Accounting, 9th ed.

C. Horngren, G. Sundem, J. Elliott and D. Philbrick, Prentice Hall

Cases: Cases in Financial Reporting, Revised Edition, 5th ed.

D. Hirst, Prentice Hall

Suggested Course Materials

Class readings, solutions manual for the text, sample true/false exam questions, sample reports for the
financial statement analysis project, and team member evaluation form for the project (these items are
posted on WebCT).

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The Wall Street Journal (optional, but highly recommended)

The Cases in Financial Reporting text provides you with exposure to financial disclosures of actual
companies. Class readings (posted on WebCT) consist of articles from business publications such as
The Wall Street Journal and Fortune. The purpose of these readings is to relate the concepts we discuss to
the real world. I strongly encourage you to do additional reading of this nature. It will not only improve
your understanding of the role of financial accounting but will also broaden your knowledge of business.

Evaluation and Grading Policy

• Individual Preparatory Homework Submissions 20%

• Team Financial Statement Analysis Project 20%
• Examinations 60%
Midterm 20%
Final 40%

Individual Preparatory Homework Assignments 20%

I've adopted an active learning approach. For most class sessions, you are expected to read some
background material and do the required preparatory homework assignment. For most students, this will
be the first time you've covered the area and so you may not be able to do the assignments correctly.
However, I would like you to give it a good try and make note of your difficulties. These are preparatory
assignments, so they address the material covered in the following week. The idea is to make a good
effort on the assignment in order to prepare you for the discussion of the material in the next session. I
expect that my discussion of the assignment in the next session should address most of your difficulties. I
find that this approach is very effective in understanding and retaining new concepts. I will grade your
homework based largely on effort and not accuracy.

Homework assignments are due by the date and time indicated. NO EXTENSIONS WILL BE GIVEN
FOR ANY REASON. Late work will not be accepted. Late assignments are not accepted because the
assignments will be discussed in class after the due date. Your work will be graded as follows:

• 1.0 –There is evidence that you made a serious attempt on all parts of the assignment.
• 0.5 – The work is incomplete.
• 0 – No work (or less than a quarter of the work) is turned in.

Homework assignments are to be turned in individually. Although I would encourage that you work on
these assignments in groups, you should write-up your submissions individually. That is, you should not
have one group member type the solution and share the document, electronic or otherwise, with the other
members. Doing so is not only an act of academic dishonesty, but significantly reduces the learning
experience. If such cases come to my attention, all parties involved will receive grades of zero for that
assignment. Repeat offenses will be dealt with more harshly.

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Individually Written Examinations 60%
Midterm (20%) and Final (40%)

There are two exams for this course. Anyone missing an exam will automatically receive a grade of zero
for that test. Exceptions for documented medical or family reasons may be permitted. Where possible, I
should be contacted prior to the time of the exam. At my discretion, either a make-up exam will be
scheduled or a reallocation of the weight to remaining examinations will be made. Exams will be close
book and will be based on the assigned material in the textbook, casebook and class readings.

Strategy for Studying for the Course

Listen to the Class Discussions carefully and try to understand the material covered in class. To check
whether you have understood the material, try to do the lecture problems once again on your own. Use
the Readings in the Horngren text to clarify any difficulty that you have with the material covered in
class. Otherwise, just glance through the Readings material, time permitting; you will not be tested on the
material beyond that covered in the lectures. The Practice problems may be used if you need additional
practice in doing problems. Once again, if you are very comfortable with the material covered in class,
practice problems may not be necessary. However, if this is the first time you are taking an accounting
course, I strongly recommend that you try out the practice problems. The solutions to these problems are
available in Horngren’s solutions manual (on WebCT). When doing an Assignment, give it a good try
but do not spend too much time on it. I have indicated the amount of time that is reasonable to spend for
each of the assignments. Note that I will grade your homework based largely on effort and not accuracy.
When preparing for the Exams make sure that you understand well the material in the lectures and
assignments. About 85% of the exam will be made up of problems and about 15% will be True/False
type questions covering some of the descriptive material in lectures, assignments, and Articles. I will not
test you on the details in the articles but rather on the major points, which for each article you should be
able to summarize in two to three sentences. Sample True/False questions are available on WebCT.

Student Conduct & Discipline

The University of Texas System and The University of Texas at Dallas have rules and regulations
for the orderly and efficient conduct of their business. It is the responsibility of each student and
each student organization to be knowledgeable about the rules and regulations which govern
student conduct and activities. General information on student conduct and discipline is
contained in the UTD publication, A to Z Guide, which is provided to all registered students each
academic year.

The University of Texas at Dallas administers student discipline within the procedures of
recognized and established due process. Procedures are defined and described in the Rules and
Regulations, Board of Regents, The University of Texas System, Part 1, Chapter VI, Section 3,
and in Title V, Rules on Student Services and Activities of the university’s Handbook of
Operating Procedures. Copies of these rules and regulations are available to students in the
Office of the Dean of Students, where staff members are available to assist students in
interpreting the rules and regulations (SU 1.602, 972/883-6391).

A student at the university neither loses the rights nor escapes the responsibilities of citizenship.
He or she is expected to obey federal, state, and local laws as well as the Regents’ Rules,
university regulations, and administrative rules. Students are subject to discipline for violating

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 the standards of conduct whether such conduct takes place on or off campus, or whether civil or
criminal penalties are also imposed for such conduct.

Academic Integrity

The faculty expects from its students a high level of responsibility and academic honesty.
Because the value of an academic degree depends upon the absolute integrity of the work done by
the student for that degree, it is imperative that a student demonstrate a high standard of
individual honor in his or her scholastic work.

Scholastic dishonesty includes, but is not limited to, statements, acts or omissions related to
applications for enrollment or the award of a degree, and/or the submission as one’s own work or
material that is not one’s own. As a general rule, scholastic dishonesty involves one of the
following acts: cheating, plagiarism, collusion and/or falsifying academic records. Students
suspected of academic dishonesty are subject to disciplinary proceedings.

Plagiarism, especially from the web, from portions of papers for other classes, and from any other
source is unacceptable and will be dealt with under the university’s policy on plagiarism (see
general catalog for details). This course will use the resources of turnitin.com, which searches the
web for possible plagiarism and is over 90% effective.

Email Use

The University of Texas at Dallas recognizes the value and efficiency of communication between
faculty/staff and students through electronic mail. At the same time, email raises some issues
concerning security and the identity of each individual in an email exchange. The university
encourages all official student email correspondence be sent only to a student’s U.T. Dallas email
address and that faculty and staff consider email from students official only if it originates from a
UTD student account. This allows the university to maintain a high degree of confidence in the
identity of all individual corresponding and the security of the transmitted information. UTD
furnishes each student with a free email account that is to be used in all communication with
university personnel. The Department of Information Resources at U.T. Dallas provides a method
for students to have their U.T. Dallas mail forwarded to other accounts.

Withdrawal from Class

The administration of this institution has set deadlines for withdrawal of any college-level
courses. These dates and times are published in that semester's course catalog. Administration
procedures must be followed. It is the student's responsibility to handle withdrawal requirements
from any class. In other words, I cannot drop or withdraw any student. You must do the proper
paperwork to ensure that you will not receive a final grade of "F" in a course if you choose not to
attend the class once you are enrolled.

Student Grievance Procedures

Procedures for student grievances are found in Title V, Rules on Student Services and Activities,
of the university’s Handbook of Operating Procedures.

In attempting to resolve any student grievance regarding grades, evaluations, or other fulfillments
of academic responsibility, it is the obligation of the student first to make a serious effort to
resolve the matter with the instructor, supervisor, administrator, or committee with whom the

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 grievance originates (hereafter called “the respondent”). Individual faculty members retain
primary responsibility for assigning grades and evaluations. If the matter cannot be resolved at
that level, the grievance must be submitted in writing to the respondent with a copy of the
respondent’s School Dean. If the matter is not resolved by the written response provided by the
respondent, the student may submit a written appeal to the School Dean. If the grievance is not
resolved by the School Dean’s decision, the student may make a written appeal to the Dean of
Graduate or Undergraduate Education, and the deal will appoint and convene an Academic
Appeals Panel. The decision of the Academic Appeals Panel is final. The results of the academic
appeals process will be distributed to all involved parties.

Copies of these rules and regulations are available to students in the Office of the Dean of
Students, where staff members are available to assist students in interpreting the rules and
regulations.

Incomplete Grade Policy

As per university policy, incomplete grades will be granted only for work unavoidably missed at
the semester’s end and only if 70% of the course work has been completed. An incomplete grade
must be resolved within eight (8) weeks from the first day of the subsequent long semester. If the
required work to complete the course and to remove the incomplete grade is not submitted by the
specified deadline, the incomplete grade is changed automatically to a grade of F.

Disability Services

The goal of Disability Services is to provide students with disabilities educational opportunities
equal to those of their non-disabled peers. Disability Services is located in room 1.610 in the
Student Union. Office hours are Monday and Thursday, 8:30 a.m. to 6:30 p.m.; Tuesday and
Wednesday, 8:30 a.m. to 7:30 p.m.; and Friday, 8:30 a.m. to 5:30 p.m.

The contact information for the Office of Disability Services is:

The University of Texas at Dallas, SU 22
PO Box 830688
Richardson, Texas 75083-0688
(972) 883-2098 (voice or TTY)

Essentially, the law requires that colleges and universities make those reasonable adjustments
necessary to eliminate discrimination on the basis of disability. For example, it may be necessary
to remove classroom prohibitions against tape recorders or animals (in the case of dog guides) for
students who are blind. Occasionally an assignment requirement may be substituted (for
example, a research paper versus an oral presentation for a student who is hearing impaired).
Classes enrolled students with mobility impairments may have to be rescheduled in accessible
facilities. The college or university may need to provide special services such as registration,
note-taking, or mobility assistance.

It is the student’s responsibility to notify his or her professors of the need for such an
accommodation. Disability Services provides students with letters to present to faculty members
to verify that the student has a disability and needs accommodations. Individuals requiring
special accommodation should contact the professor after class or during office hours.

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Religious Holy Days

The University of Texas at Dallas will excuse a student from class or other required activities for
the travel to and observance of a religious holy day for a religion whose places of worship are
exempt from property tax under Section 11.20, Tax Code, Texas Code Annotated.

The student is encouraged to notify the instructor or activity sponsor as soon as possible
regarding the absence, preferably in advance of the assignment. The student, so excused, will be
allowed to take the exam or complete the assignment within a reasonable time after the absence: a
period equal to the length of the absence, up to a maximum of one week. A student who notifies
the instructor and completes any missed exam or assignment may not be penalized for the
absence. A student who fails to complete the exam or assignment within the prescribed period
may receive a failing grade for that exam or assignment.

If a student or an instructor disagrees about the nature of the absence [i.e., for the purpose of
observing a religious holy day] or if there is similar disagreement about whether the student has
been given a reasonable time to complete any missed assignments or examinations, either the
student or the instructor may request a ruling from the chief executive officer of the institution, or
his or her designee. The chief executive officer or designee must take into account the legislative
intent of TEC 51.911(b), and the student and instructor will abide by the decision of the chief
executive officer or designee.

Off-Campus Instruction and Course Activities

Off-campus, out-of-state, and foreign instruction and activities are subject to state law and
University policies and procedures regarding travel and risk-related activities. Information
regarding these rules and regulations may be found at the website address given below.
Additional information is available from the office of the school dean.
(http://www.utdallas.edu/Business Affairs/Travel_Risk_Activities.htm)

These descriptions and timelines are subject to change at the discretion of the Professor.

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Assignments & Academic Calendar

BkRdg: background reading, to be read before the class.

Prob: suggested practice problems (solutions are on WebCT).
Class: class discussion material; be prepared to discuss in the class.
W: on WebCT
* homework assignment, to be turned in at the beginning of the class.

Session Day Topic and Assignments

Wk 1 (1) 23 Aug Business Activities and Financial Statements Overview

BkRdg: Ch 1
Prob: Ch 1: 36, 43

Wk 1 (2) Financial Accounting Basics I (Balance Sheet & Income Statement

Concepts)
BkRdg: Ch 2, 3 & 4
Prob: Ch 2: 46, 47; Ch 3: 38; Ch 4: 39

Wk 1 (3) Financial Accounting Basics II

BkRdg: Ch 4
Class: Comprehensive Review Problem (W)

Wk 2 (1) 30 Aug Financial Accounting Basics II

BkRdg: Ch 4
Class: Comprehensive Review Problem (W)

Wk 2 (2) Measurement Fundamentals and Valuation

BkRdg: p. 68-70, 75-76 (Horngren)
Class: Maple Leaf Garden (Hirst)* (parts a, c (i to ix), d, e, f, g, h)
(Maximum time: 2 hours)
(Note: Net book value=total assets-total liabilities)
Numbers Game (W)

Wk 3 (1) 6 Sep MIDTERM EXAM

(about one hour, comprehensive, closed book)

Wk 3 (2) Statement of Cash Flows (Indirect Method Only)

BkRdg: Ch 5
Prob: Ch 5: 57, 58
Class: Problem 10-59 (Horngren)
Burning Up (W)
Once Hot Now Toast (W)
Linking the Elements of Cash Flow (Horngren p. 206)

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Wk 3 (3) Financial Statement Analysis I
BkRdg: Ch 12, The Portfolio (between p. 76-7 of Horngren)
Prob: Ch 12: 47, 48, 50-54
Class: Managing Working Capital (Horngren, p. 157)
Return on Equity Example (W)
Warren Buffett: Nothing to Hide (Hongren, p. 555)

Wk 4 (1) 13 Sep Financial Statement Analysis II

BkRdg: Ch 12
Class: Reebok and LA Gear - Financial Statement Analysis (W)*
(Answer my questions and not the ones in the case;
stock price charts of Reebok & L.A. Gear are on WebCT)
(Maximum time: 3 hours)

Wk 4 (2) Inventory Valuation

BkRdg: Ch 7
Prob: Ch 7: 56, 67, 70
Class: Inventory Chicanery Tempts More Firms, Fools More
Auditors (W)

Wk 4 (3) Property Plant and Equipment

BkRdg: Ch 8 p. 335-357
Prob: Ch 8: 31, 39, 61, 71
Class: Frederick's of Hollywood Inc. - Property Plant and Equipment
(Hirst) (parts c, d, e, f, g)
Earnings Helper (W)
The Use of Estimates and The Impact on Earnings (Hongren
p. 342)

Wk 5 (1) 20 Sep Inventory Valuation II

BkRdg: Ch 7 and p. 390-393 (Horngren)
Class: Keysor Roth Corp. Senior Debenture (W)*
(Answer the questions accompanying the above article)
(Maximum time: 45 minutes)
Chrysler Corp. (Problem 7-71 of Horngren, p.326)*
Paying FIFO Taxes: Your Favorite Charity (W)
(Maximum time: 45 minutes)

Wk 5 (2) Investors’ Reliance on Financial Statements

BkRdg: p. 24-34 and p. 251-256 (Horngren)
Class: Miniscribe (W)*
(Answer the questions accompanying the articles)
(Maximum time: 2 hours)
The Crackdown is Here (W)
In Corporate America it is Cleanup Time (W)

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Wk 5 (3) Intangible Assets
BkRdg: Ch 8 p. 357-362
Prob: Ch 8: 54
Class: Merck and Company (parts a, b) (Hirst)
Real Assets, Unreal Reporting (W)

Wk 6 (1) 27 Sep Noncurrent Liabilities - Bonds

BkRdg: Ch 9 (p.390 - 404 and p. 418 - 425)
Prob: Ch 9: 52, 57
Class: Problem 9-53 (Horngren)
Chrysler Bonds (W)
Accounting Analysis (W)

Financial Statement Analysis Project Part I Due*

Wk 6 (2) Noncurrent Liabilities - Leases

BkRdg: Ch 9 (p. 404-409)
Prob: Ch 9: 63
Class: AMR Corp. - Leases (parts d, e, f, g) (Hirst)*
(Maximum time: 45 minutes)
How leases Play A Shadowy Role In Accounting (W)

Wk 6 (3) Stockholders’ Equity -- Repurchase and Stock Options

BkRdg: Ch 10 (p. 441-448, 452 – 454, 462-465)
Prob: Ch 10: 30, 44
Class: Dow Chemical Company - Treasury Stock (Hirst)*
(parts a, b, c, d) (Maximum time: 45 minutes)
Problem 10-61 (Horngren)
Share and Share Unalike (W)

Wk 7 (1) 4 Oct Intercorporate Investments

BkRdg: Ch 11: p. 489-496, 500-520
Class: Problems 11-31, 11-43 (parts 1 and 2), 11-45 (Horngren)
Murky Waters: A Primer on Enron Partnership (W)

Wk 7 (2) Non-US Accounting Standards

Class: U.S. GAAP versus Swedish GAAP (W)
FASB’s Impact on Cost of Capital (W)

Wk 8 11 Oct FINAL EXAM

(comprehensive, closed book)

Wk 9 16 Oct Project Final Report & Evaluation of Group Members*

(5:30 p.m., Room SOM 4.434)

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 Group Financial Statement Analysis Project for AIM 6201, Fall 2006

The following project description is intended to be self-explanatory, so read it carefully. If you have any
questions, contact me. The objectives of the project are to increase your financial statement analysis
skills. You will assume the role of a financial analyst and prepare a research report for a client (e.g., an
individual investor or a portfolio manager).

Formation of Teams and Selection of Industry and Firms

First, the class must be divided into teams. Each team will consist of up to three team members. You
should voluntarily form the teams before the 2nd week of classes. Any student not in teams by then
should let me know, and I will assign him/her to a team. I encourage you to attempt to form teams based
on some common interest regarding eventual employment opportunities.

Second, each team must select an industry, and each team member must select one firm from their
industry. A list of industries, firms comprising each industry and their financial statements (10-Ks) are
available on the internet. Follow these steps to get there: (i) go to
http://edgarscan.pwcglobal.com/servlets/edgarscan , (ii) click on “Standard Industrial Classifications,”
(iii) click on a industry name, and (iv) click on a company name. You may want to select firms for which
two most recent 10-Ks are available. This will make it easy for you to obtain financial information for
your company. Moreover, you will not have to turn in hard copies of financial reports of your company
to me. Your team’s selection of an industry and your selection of a firm is to be done by September 6th.
Each team should send an e-mail to my WebCT email address with information on team composition and
industry/firms selection. Indicate “Project 6201” as the subject of the e-mail.

Obtaining Financial Information

Information needed: Three consecutive years of Income Statements and four years of Balance Sheets with
accompanying notes from two most recent 10-Ks or annual reports.

To obtain articles about your company in the popular press, a good source is Find Articles (DataBases)
(http://www.utdallas.edu/library/collections/dbases.htm) which can be accessed by logging into the UTD
library system.

Analysis
Your analysis should include preparing tables of ratios and common-size financial statements, and
performing time-series and cross-sectional analyses of profitability and liquidity (short-term and long-
term). You must discuss concisely the subject firms’ profitability (including quality and persistence of
earning), cash flows, asset utilization, debt servicing (liquidity and solvency), risk assessment, quality of
accounting disclosures and overall assessment from an investor-creditor perspective. Also include a
discussion of the business opportunities and threats faced by your firm and the industry. Finally, suggest
which of the three firms in your industry is likely to be most successful in the future and discuss the
reasons for it.

Format
The final report should be six pages maximum, typed, double-spaced, with one-inch margins all around,
and standard type-size (e.g., 12 point Times New Roman). I will not grade work beyond the sixth page.
This will likely prove to be a significant constraint. The reason is that we want to impose discipline in
your writing. There's nothing worse than having to read a long report that doesn't say anything. Your
report should include supporting analyses as appendices to the six pages. However, the six pages should
stand on their own.

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Milestones
1. Prepare common-size Income Statements (3 years) and Balance Sheets (4 years) and a table of ratios
(3 years) for each company. Compute these numbers yourself; do not just download them from the
internet, they may have used somewhat different definition. No interpretation of the data is required at
this stage. Part I is due before class in Week 6 (3 points -- 10% penalty for each day late). Submit a
hardcopy.
2. Completed analysis is due before 5:30 pm on October 16th (12 points -- 10 % penalty for each day
late). Submit a hardcopy.

Grading
Work will be evaluated for content and format. Content criteria include relevance and depth of analyses,
and the degree to which the assigned task was accomplished. Format criteria include clarity, accuracy,
neatness, organization, structure of appendices, spelling and grammar.

At the end of the semester, each team member will evaluate the contribution of the other team members.
Your personal score for the project will be the sum of your team’s scores on the various parts, less points
deducted for adverse evaluations (if any) of your contribution by your team members. The number of
points deducted depends upon the degree of adverse evaluations.

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