Yale College

Foundations of Accounting & Valuation

ACCT 270 Spring 2016
MW: 8:45 AM to 10:00 AM
Evans Hall 4420

Instructor:

Rick Antle
Evans Hall, 3546
rick.antle@yale.edu
cell 203-314-5197, office 203-432-6048
Office hours by appointment

Admin. Assistant:

SOM Faculty Support

TFs:

Victoria Ng
Victoria.ng@yale.edu
Another TBA

TF office hours: TBA

Course Description
Distinguishing value creation from redistribution is a key problem faced by any economy.
Modern accounting practices are focused on this problem, and knowledge of them is extremely
useful. Further, value creation activities in a modern society can become complex and abstract,
and accounting practices have developed accordingly. The purpose of this course is to enable the
student to gain a foundation upon which a deep understanding of accounting can be built.
One cannot have a sensible discussion of accounting as assessing value creation without having
some idea of what value means and how to think about it. Therefore, this course begins by
exploring the basic determinants of value and the techniques used to assess it: discounting cash
flow and risk/return analysis. These techniques are based on the timing and statistical properties
of cash flow.
With this introduction, the course then turns to the more fundamental processes of generating
cash flow by creating value through the production and delivery of goods or services and then
converting that value into cash flows. The basic financial statements, balance sheets, income
statements and cash flow statements, and the accounting mechanics with which they are built are
introduced in this context. These mechanics are built on the accounting processes of recognition,
classification and valuation enhances a manager's ability to read, comprehend and use financial

statements in making better decisions. Understanding the techniques of valuation enhances a

manager's ability to make important financial decisions involving both liquidity and risks.
The course has been specifically designed to provide the requisite fundamentals of accounting
and valuation for students that do not currently have access to SOMs core courses.
Grading
Attendance
Attending class is essential to learning the material in this course at a level appropriate for Yale.
Attendance will be taken, and excessive absences (i.e., more than 2) will adversely impact your
course grade.
Come to every class.
Assignments
There are a variety of types of assignments in this course, and different rules apply to different
assignment types. The rules include differences in the timing of due dates of assignments relative
to the class session in which the material is covered and differences in allowed collaboration.
The different assignment types also count in different ways in determining course grades. Most
notably, course grades are not determined through a simple aggregation of the scores on
various types of assignments.
Assignments Used to Earn Grades B and Lower
Course grades of B and lower, will depend only class participation (judgmental, incremental
impact), three problem sets (20%, 10%, 10%, respectively), homework (graded only on effort,
not on being correct, 10%), and a mandatory take-home final exam (50%). The mandatory takehome final is a comprehensive accounting exercise, requiring recording transactions, making
adjustments, and creating a complete set of financial statements. Consistent with the
requirements of financial statements in practice, an extremely high level of accuracy will be
expected on the mandatory take-home final. This will manifest itself in the grading, which will
be very harsh.
The following table shows the type of assignment, the rules for each type, and the percentage of
the course grade determined by each type of assignment:

Type of
assignment
Class
participation
Homework for
Section 1

Homework for
Section 2

Homework for
Section 3

Time Due

Collaboration

Basis of
Grading

Each class

N/A

Judgmental

10 PM the day
after the class
session which
introduces the
topic
8:30 AM the day
of the class
session on the
topic
10 PM the day
after the class
session which
introduces the
topic

Each student should

submit a personal
answer on
Classes*v2, but help
from any source and
any type of
collaboration is
allowed

Correct
answers
Correct
answers
Correct
answers

Problem Set 1
Problem Set 2
Problem Set 3
Final Exam
Take home part

Timely
submission
and effort

None, but I will

answer questions and
conduct a review
session

Correct
answers

Effect on
Grading
Potential upside
incremental
impact

10%

20%
10%
10%
50%

Assignments Used to Earn Grades B+ and Higher

A course grade of B+ and higher can only be earned by:
1. Obtaining an extremely high level of performance on the assignments required to earn a
B or lower; and
2. On a comprehensive in-class exam administered in finals week, your performance must
be excellent. Excellent performance is assessed as either:
a. An outstanding absolute level of performance if overall performance is high; or,
b. A outstanding performance relative to others taking the in-class exam if overall
performance on the in-class exam is not high.
The in-class exam is graded on the basis of correct answers.

Important notes:
1. You cannot get a course grade higher than B without performing well on the in-class
exam.
2. You can take the in-class final and do well on all Problem Sets and other assignments
and still get a B. Your performance on the in-class final must be excellent to get a grade
higher than B.
Prior Grade Distribution
In prior semesters, these criteria have yielded about 20% As, a few B+s, 70% Bs and the rest
below B.
Books
Some readings and assignment material will be taken from the following books:
Antle, R. and S. Garstka, Second Edition, Financial Accounting, South-Western, 2004.
Antle, R. and S. Garstka, Second Edition, Financial Accounting: Masters Edition Questions
Exercises, Problems and Cases, South-Western, 2004.
Ross, S., R. Westerfield, and J. Jaffe, Tenth Edition, Corporate Finance, McGraw-Hill Irwin,
2013. (The material we rely on is not time sensitive, therefore there is no need to buy the
Eleventh Edition. Even though the page numbers for the readings are for the 10th edition, earlier
editions will also work fine if you translate the page numbers.)
The Antle-Garstka (AG) material is available through Classes*v2.
Classes*v2
Problems and cases not in any book, answers to assigned problems, review material, the course
schedule, and class notes can be obtained through Classes*v2.
Daily Assignments
The course schedule on the next pages contains detailed plans for our progress through the
material which provides a baseline for your expectations. Our exact path through the materials
will depend on the day-to-day progress of the class.

GENERAL
PROBLEMS AND
SPECIFICS
READINGS
TOPIC
CASES
Jan 20
Intro
Cash v Value, Risk & Return
NOTE: All homework in the following section is due at 10pm the day after the class in which it appears. E.g., PVs 1 should be
completed on Classes*v2 before 10pm on Jan 23.
AG Ch 6 pp. 115Jan 22
Compounding & Discounting
120; RWJ Ch 4 to
PVs 1
p. 101
Time Value
Jan 25
Excel Techniques
AG Ch 6 pp. 126-7 PVs 2
of Money
Jan 27
Compounding Period, Perpetuities, Growth
RWJ pp 315-7
PVs 3
Feb 1
Term Structure of Interest Rates, Changes in Interest Rates RWJ Ch 8 pp 261-5 PVs 4
RWJ Ch 1 to page
Intro to
165 Whitney Associates LLC (165WA)
8; Class Note:
Feb 3
Business:
Establishing LLC, initial funding, need for accounting
Business from the
165 WA
when control is delegated
Ground Up
Investing in U.S. Govt bond; coupon v yield; face value
165WA
Feb 8
purchased for $50,000; balance sheets after first few
Problem Set #1due
(continued)
transactions
Economics of the bond investment; effects of buying bond
165WA
Feb 10
at a premium (yield < coupon); income vs. cash flow;
(continued)
evolution of value over time.
Accounting identity: A = L + E. Accounting for receipt of
165WA
coupons and interest revenue over the first year. Balance
Feb 15
165WA 1
(continued) sheets at beginning and ending of year. Income and cash
flow statements for first year of operation.
Second year of 165WA existence. Accounting for receipt of
coupons and interest revenue over second year. Effects of
165WA
Feb 17
changes in interest rates on economic value of 165WAs
165WA 2
(continued)
U.S. Govt bonds. If held to maturity, total income on
bonds must equal total cash flow.
165WA
More on value effects of changes in interest rates.
Feb 22
(continued) Accounting issue: Mark-to-market v historical cost.
NOTE: All homework in the following section is due before the start of the class in which it appears. E.g., Questions 2-5, 2-6, ,
through Problem 2-3 below should be completed and submitted to Classes*v2 before the start of class on Feb 24.
DATE

2
3
4
5
6

7
8

1
0
11

Balance Sheet Identity: Assets, Liabilities & Equities

AG Ch 2

Q2-5, Q2-6, Q2-11,

Q2-13, Q2-14, Q2-16,
Q2-17, P2-2, P2-3

Feb 29

Working with the Identity

Problem 3-8 (We

will work it in
class.)

P2-10; Problem Set #2

due

Mar 2

Revenues & Expenses

AG Ch 3

Q3-1, Q3-3, Q3-4, Q35, Q3-6, Q3-9, Q3-10,

E3-2, Q23, Q26, E3-7

1
2

Feb 24

1
3
1
4
1
5
1
6
1
7
1
8
1
9

2
0
2
1
2
2

Balance
Sheets

Income
Statements

Mar 7

Using Temporary Accounts

P3-7*

Mar 9

Recording, adjusting, closing & financial statement

preparation

P3-5, P3-6

Mar 28

Mechanics
& Practice

Mar 30

Apr 4

Apr 6

P3-9*
Operating, Investing & Financing Cash Flows

AG Ch 4

P3-9 (prepare a direct

method and an indirect
method cash flow
statement for Grow for
the year ended
12/31/05)
NOTE: All homework in the following section is due at 10pm the day after the class in which it appears.
Risk &
RWJ Ch 10; AG pp.
One Asset: Expected Return and Standard Deviation
ERSD 1
Return
120-5
Cash Flow
Statements

Apr 11

Portfolios: Standard Deviation and Covariance

Apr 13

Expected Return and Standard Deviation of Portfolios

RWJ Ch 11

PERSD 1
PERSD 2

Final Exam Preparation: Accounting Practice Problem

2
3
2
4
2
5

Q4-24, Q4-25, E4-3*

FEPrep1 due @5pm

Apr 18

Diversification and Efficiency with a Riskless Asset

Apr 20

Beta and Risk Factors

RWJ Ch 12

BETA 1

Apr 25

Debt, Equity and WACC

RWJ Ch 13

WACC 1

2
6

Apr 27
TBA

Review of Valuation of Risky Cash Flow Streams and

Review
Final Exam Part 2 in class

NOTES:
Px-y refers to Problem number y in Chapter number x.
* indicates a problem that will take a good deal of time.

AG Ch 16

C16-5 Perrigo;
Problem Set #3 Due