Presented by: Lynn Shuster, Central Penn College
These are some of the ways I present topics in chapters 1, 2, 3, 4, 6, 7, 8 and 10 from Accounting 24th edition.
Submitted by: Debbie Luna
Use the Blueprint assignments as class quizzes which promote discussion and critical thinking.
Submitted by: Marcye Hampton, University of Central Florida
Visual view of how different costing methods effect on Inventory costs using 2 purchases of apples at two different purchase prices.
Submitted by: Wanda Wong, Chabot College
I use Lego to teach inventory flow systems (FIFO, LIFO, and Average Cost). Different color represents different cost. Purchase (adding) legos at the bottom, then FIFO will remove from the top; LIFO will remove from the bottom.
Submitted by Linda Summey, Central Carolina Community College
When analyzing the changes in current assets and current liabilities in the operating activity section of the Cash Flow Statement (Indirect Method), use this mnemonic: add CLI CAD. Thus add to Net Income the Current Liability Increases and Current Asset Decreases. Then subtract from Net Income the Current Liability Decreases and Current Asset Increases. This is not an original thought and I am not sure who came up with "add CLI CAD".
Submitted by Tim Michael, University of Houston Clear Lake
I assign a firm, and have the students identify its industry and competitor. They then use the spreadsheet template from their financial analysis text to input 5 years of financial data and conduct a full analysis in 3 parts. Part 1 is the set of spreadsheets, which I critique and give back early. Part 2 is a company and industry analysis, including key parameters for that type of industry. Part 3 is a full ratio analysis and critique of the firm's performance in context with their competitor and industry. It helps if your library has access to Key Business Ratios (hard copy or online) and also I rely on RMA eStatement Studies (and hardcopy) to give students some industry numbers for comparison (in addition to the ones the students generate themselves).
Submitted by Michael Ulinski, Pace University- Pleasantville
Students have a parallel writing requirement including short assignments and longer semester projects based on Accounting research topics. Students are required to meet with writing tutors in our writing center and use a writing rubric to improve skills.
Submitted by Brad Van Kalsbeek, University of Sioux Falls
For my Principles of Accounting I course (financial accounting), we incorporate the game of Monopoly and have students create journal entries and financial statements based upon their game of play. Two students usually make up a team, but each is required to journalize all the transactions and create an income statement and balance sheet. We usually play the game 3 times in a semester, that way the balance sheet grows from each day of play.
Submitted by Sheila Lapp, Northwest Technical College
Usually two days of the semester the students play Monopoly. After each roll I have them write down what the journal entry would be for the transaction. I have also used this to give an exam. I would roll the dice and they would journalize the entry. Students find this fun while still learning.
Submitted by Anna Boulware, St. Charles Community College
Separate your class into enough teams where there are 6 teams total. Give each Team a table tent with their team # on it. Team 1, Team #2, etc. Give each team 10 Hershey kisses or similar wrapped candy to start with. Provide a list of merchandising transactions where the teams have to "do the transactions as well as journalize them on their own paper. Each team will buy, sell, pay for their purchases and receive payment from their customer(s) (The other teams). When each team has recorded their transactions as well as given up their candy for each transaction, then each team must also create an income statement for their Team. The instructor will write each team's net income on the board and then have them talk about which team showed a profit that was better than the rest...this usually gets a lot of people talking about gross profit, selling prices, etc. Lastly, we talk about the team that still has a lot of candy in their inventory that didn't sell and what are the ramifications of that.
Submitted by June Hanson, UIU-online
I post a link to a current federal budget issue. Then I post the link to the federal budget and ask students to go to their state and find out what the ramifications are to their state. I use the ADOT link to illustrate how the American recovery act benefited the AZ federal and state road system through the federal grants. I then post a journal entry to illustrate how record this money and the actual object codes. I ask the students to follow the same format. I can tailor this to either a tax class or a government accounting class. This is the additional link I use: http://money.cnn.com/2011/01/21/news/economy/spending_taxes_debt/index.htm.
Submitted by Rich Mandau, Piedmont Technical College
I use a large old coin (or picture of an old coin) to illustrate the par value concept. I say the state value on this Silver dollar coin is one dollar. This is similar to the par value of stock. If I took the coin to a coin shop they would pay me $10.00 for it because of its age and condition. Its stated value is still one dollar, but its traded value over par is more.
Submitted by Myrtle Clark, University of Kentucky
The problem is a multi-period mini-case. Students will see how the dollar-value layers are added from one year to the next. They will also see what happens when layers are liquidated.
Follow the directions listed in the Dollar Value LIFO Exercise handout.
Many students have trouble understanding dollar-value LIFO. This exercise is designed to lead students through a simple dollar-value LIFO problem so that they can clearly see what the dollar-value layers mean. The exercise is set up so that students can see the logic of the steps involved. It is then useful as a guide when they do homework problems and as a study aid when getting ready for their exam.
Dollar Value LIFO Exercise handout
Submitted by Myrtle Clark, University of Kentucky
An introduction to the topic of inventories should include the following:
Presenting this information in the above order is logical, and students find that the development of concepts and applications falls into place and is easily grasped.
I use a series of exercises designed to help students think about certain topics in such a way that they are able to participate in the development of ideas, concepts, and applications. These exercises stress concept development, particularly measurement and reporting issues (not journal entries), as the focus of accounting. Journal entries are made, but the material is presented in a way that the journal entries flow logically from ideas rather than being goals in and of themselves. I also stress the output from the journal entry process, that is, the impact on financial reporting.
When teaching the concept of LCM, the following outline is helpful:
The procedure is explained as follows—first in outline form and then as a flowchart:
When teaching the concept of LCM, providing students with an outline gives them a road map so that they know where they are going and why.
The following exercise emphasizes the concepts and application of LCM to value inventory. Students work through a simple case designed to accomplish the teaching goals (student learning objectives) that follow.
This exercise is a logical follow-up to the discussion of LCM. I outline the LCM procedure and show the students a flowchart of the LCM procedure.
The exercise stresses the following:
Pass out copies of the exercise to the students. Sufficient space is provided in the exercise for students to write their answers. The students work on the exercise in small groups. Go over the exercise with the class using PowerPoint (overheads can also be used effectively).
Follow the information outlined in the handout: LCM Exercise.
Student Learning Objectives
LCM Exercise handout
The following exercise helps students understand when and how to apply the completed-contract method of accounting for long-term construction-type contracts. Students work through a simple case designed to accomplish the teaching goals (student learning objectives) that follow.
Understand that uncertainty with regard to the amount and timing of future cash flows implies that accountants should use the completed-contract method of accounting for long-term construction-type contracts.
This exercise is a logical follow-up to the discussion of concepts related to accounting for long-term construction-type contracts. I use it following the concepts exercise on when to use the percentage-of-completion method.
Pass out copies of the exercise (Completed-Contract Method) to the students. Sufficient space is provided in the exercise for students to write their answers. Students work on the exercise in small groups. The exercise is formatted so that the students should be able to easily determine how to calculate the values to be reported in financial statements.
Students work on valuation and financial statement amounts first. These amounts are discussed in class. Students then understand the concepts and can make an easy transition to the journal entry phase. Journal entries can be done in class or as a homework exercise.
The reasons this exercise is used and is not an exercise on how to apply the percentage-of-completion method are threefold:
Completed-Contract Method Exercise handout
Submitted by Myrtle Clark, University of Kentucky
An economist would say that revenue is earned as the product is being produced. Production adds value, value added increases wealth, and wealth increases from non-owner sources increases profits.
This idea is consistent with the way people view their wages. A working person considers that wages are earned while he or she works. For example, it may take three days to make a widget. After the first day, the widget maker has earned a full day's wages. However, the widget company has not realized anything from the sale of the widget because the widget isn't ready to sell.
Nevertheless, the economist would argue that the eventual receipt of assets is being earned while the product is being made ready for sale. For long-term construction-type contracts, the production process may span a number of years. Each year, part of the total profit is earned as progress is made toward completion of the project.
The accountant views the revenue recognition process from a realization perspective. Certainty plays a big role in when revenue is recognized. The more certain the accountant is regarding the eventual realization of revenue from the sale of the product, the more likely the accountant is to recognize revenue and profits early.
Because long-term construction-type contracts span a long period of time, there may be too much uncertainty to recognize profit until the job is completed and realization is assured. On the other hand, if there is enough certainty regarding realization, the accountant will recognize profit as it is earned, that is, during production (the economist's view). Hence, accountants employ two approaches to account for long-term construction-type contracts:
Selection of which method to use requires an analysis of certainty with regard to the amount and timing of future cash flows.
It is helpful to teach the topic of accounting for long-term construction-type contracts in five phases:
The following exercise helps students understand how to apply the basic accounting concepts associated with accounting for long-term construction-type contracts when the percentage-of-completion method is used.
Students work through a simple case designed to accomplish the teaching goals (student learning objectives) that follow.
This exercise is a logical follow-up to the Completed-Contract Method Exercise. The student has just been exposed to the rationale and cost accumulation approach used to implement the completed-contract approach. Because this exercise uses a variation of the same case used to learn the completed-contract method, the student is able to make an easy transition to the percentage-of-completion method.
Pass out copies of the exercise (see Percentage-of-Completion Exercise handout) to the students. Sufficient space is provided in the exercise for students to write their answers. Students work on the exercise in small groups. The exercise is formatted so that the students should be able to easily determine how to calculate the values to be reported in financial statements. First, the students work on valuation and financial reporting. These valuation and reporting issues are discussed in class. Students then understand the measurement and reporting concepts and can make an easy transition to the journal entry phase of the exercise. Journal entries can be done in class or as a homework exercise.
Percentage-of-Completion Exercise handout
The percentage-of-completion method recognizes profit during production. Percentage of completion is appropriate when:
The following exercise helps students understand the accounting concepts associated with the use of the percentage-of-completion method.
How to Use the Exercise
Understand when it is appropriate to use the percentage-of-completion method of accounting for long-term construction-type contracts.
By thinking about a number of different, independent cases, students will see for themselves when and why it is appropriate to use the percentage-of-completion method.
Percentage-of-Completion Concepts Exercise handout
The following exercise helps students understand the accounting concepts associated with sales for which the right to return exists. It also provides students with material that is useful when they begin to study for their exam.
By thinking through the examples in the exercise, students will see for themselves that uncertainty regarding realization of revenue is the key to understanding when and why revenue is deferred when accounting for sales with return privileges.
Return Privileges Concepts Exercise handout
The following exercise helps students understand how to apply the generally accepted accounting principles, or GAAP (SFAS No. 48), for sales when the right to return exists. It also provides students with material that is useful when they begin to study for their exam.
This exercise is a logical follow-up to the discussion of concepts related to the issue of accounting for sales when the right to return exists. It naturally follows the Return Privileges Concepts Exercise and uses a case with differing assumptions similar to those that were used to develop and understand the concepts. This provides consistency to the two discussions and thereby better assists the learning process.
Return Privileges Application Example handout
The following exercise helps students understand the accounting concepts associated with accounting for bad debts. It also provides students with material that is useful when they begin to study for their exam.
By thinking through the examples given, the students will see for themselves when and why each approach makes a difference in terms of income statement and/or balance sheet measurement and reporting. They will also be challenged to think in terms of which approach provides for better recognition and measurement of uncollectible accounts.
Uncollectible Accounts Concepts Exercise handout
Uncollectible Accounts Application Exercise handout
The following exercise helps students understand how to report anticipated losses on long-term construction-type contracts under both the completed- contract method and the percentage-of-completion method.
Understand how to account for anticipated losses when:
Pass out copies of the exercise (Long-Term Construction-Type Projects Anticipated Losses Exercise handout) to the students. Sufficient space is provided in the exercise for students to write their answers. Students work on the exercise in small groups. The exercise is formatted so that the students may easily determine how to calculate the values to be reported in financial statements.
This exercise is a logical extension to the discussion of accounting for long-term construction-type contracts in general. It uses a variation of the same case in the Completed-Contract Application Exercise and the Percentage-of-Completion Application Exercise. As a result, the student finds the exercise easy to follow and makes a natural transition from the simpler "anticipated profit" situation to the more complex topic of loss anticipation.
Long-Term Construction-Type Projects Anticipated Losses Exercise handout
Submitted by Florence McGovern, Bergen Community College
Ask the students to describe a stock mutual fund to provide for the possibility that some may not be familiar with what it is. It is important that mention be made of the fact that the market value of the shares vary according to the date purchased. I also bring up dollar cost averaging so that the students can understand how that approach may benefit them and it piques their interest when they can relate accounting to their personal financial situation. Then present a simple example of holding shares of a stock mutual fund acquired at various prices, as per below:
ASK: Assume that you sold 100 shares of the stock in December 2007 at the market price of $35/share? What is the gain you need to report on your tax return?
Usually students respond first that you need to take an average, $3,450/150 = $23/share x 100 shares = $2,300. The gain would be $1,200 ($3,500 - $2,300); an option under IRS rules.
ASK: To minimize your taxable gain, which shares would you like to consider as sold?
You may need to remind students that a higher cost is needed to obtain a lower gain. We would have to specifically identify the shares we want to sell as the ones with the higher costs; 40 shares @ $30, 10 shares at $25 and then the remaining 50 @ $20 = $1,200+$250+$1,000=$2,450. The gain using specific identification would be $1,050 ($3,500-$2,450) if you specifically identify in advance of the sale which shares are to be sold.
Discuss how the specific ID method reflects LIFO in this case; emphasize the lowest gross profit result in times of inflation.
ASK: Assume you have a substantial loss this year and want to maximize your gain on this transaction. Which shares would you want to include as the cost of the 100 shares sold?
The 100 shares purchased at $20 apiece, a cost of $2,000 would result in a gain of $1,500 ($3,500-$2,000). You can select this method also under IRS guidelines; the FIFO method.
SUMMARIZE: Return to each method and verify the ending inventory cost by extending each quantity by the specific cost level and then summing the amounts. Summarize the four inventory costing methods showing the impact on the student as an individual taxpayer and the advantages and disadvantages of each.
Relate the inventory costing methods to a personal financial situation the students may encounter. Reinforce the methods of inventory costing. Compare the impact on net income of the various methods of inventory costing and the advantages and disadvantages of each.
TASK: To compute the amount of money the student spent over the weekend.
QUESTION: If you are a PERPETUAL type of person, how could you compute the amount of money you spent over the weekend?
ANSWER: You would want to constantly monitor your spending and know the amount spent at any point during the weekend. Every time you took money out of your wallet you might want to record it using pencil and paper.
At the end of the weekend the paper might show the following:
QUESTION: What is the advantage and disadvantage of this?ADVANTAGE: Know how much is spent at any point in time.DISADVANTAGE: Constant record keeping must be performed.
ASSUME: You are a PERIODIC type of person, how could you compute the amount of money you spent over the weekend?
What information would you need to know to calculate the amount spent (used up) at the end of the weekend?
ANSWER: The beginning and ending amounts of cash would have to be known. In addition, if there were any additions to the cash during the weekend, this would also have to be known. Illustrate as per below:
Students can relate to this situation personally. It's a simple way to illustrate the difference between the two systems using the calculation of how much money they spent over the weekend.
Submitted by John Mills, University of Nevada - Reno
I have developed a project that students seem to find enjoyable and can sink their teeth into. The project requires that a student(s) pick up a copy of The Wall Street Journal, find a car lease ad, and determine how much cash will ultimately be paid if the car is purchased at the end of the lease. Included in this exercise is the determination of the actual interest rate the customer is paying. The ad only gives the monthly payments, not the actual interest rate the company charges. While one student(s) does this, another student(s) goes to an auto dealer of the same car as the leased car, obtains the price of the car, and the monthly payment (auto dealers also do not reveal the interest rate). Then the class can discuss which is the better deal: the leased car or the purchase of a new car. Actual interest rates usually shock some students.
Many texts provide a brief discussion of the benefits of leasing versus the purchasing of assets, but I have never seen a good illustration of the cost differentials of each method. In addition to providing an understanding of leases, this exercise also gives students a better understanding of the time value money concept.
The class should realize that the income statement reflects changes in the operating section of the balance sheet, that is, the current assets and current liabilities. Thus, the operating section of the SCF represents both the income statement and the current asset section of the balance sheet. How do you keep the company going on a long-term basis? You buy and sell assets; therefore, the remaining assets on the balance sheet reflect an investing activity. Where do you get the funds for the operating and investing activities? These funds come from issuing either long-term debt or equity, that results in a financing activity. At this point, a simple example will illustrate this concept.
Ask the students to classify the following items as (a) operating activities added to net income, (b) operating activities deducted from net income, (c) investing activities, (d) financing activities, and (e) significant noncash investing and financing activities.
Pension expense goes in the income statement making it an operating activity. Since pension expense exceeds the actual cash, it is subtracted.
When students study the statement of cash flows (SCF), they realize that all yearly transactions must be classified into the three categories of operating, investing, and financing cash flows. Unfortunately, most students memorize the specific transactions and do not think in conceptual terms. The key to a better understanding of the SCF is to make students realize the relationship between the balance sheet and the SCF and the income statement. Just as the SCF has three sections, the balance sheet can also be divided into three equivalent sections.
Submitted by Robbie Sheffy, Tarrant County College District Fort Worth, TX
For FIFO, you demonstrate that each purchase invoice is filed in order as it comes in (using the file folder), then when an item is sold, the invoice removed from the file folder is the first one in the folder (queue based). For LIFO, you demonstrate that each invoice is placed on the spindle as it comes in so when an item is sold, the last invoice is removed from the spindle to the sold file (stack based).
Many students are visual learners; this is a concrete example of the difference between queue based and stack based inventory methods and it emphasizes that we are allocating costs based on purchase invoices not on what is happening with the actual physical product.
Submitted by Lauren Smith, Front Range Community College
I have used several different approaches with this depending on class size; however the concept is the same. Students analyze the financial statements of a company using financial ratios in their accounting textbook. The first year I did this, I had students send for annual reports and 10-Ks. Now with that information easily available on the internet, students obtain the information directly from company websites and/or Edgar, etc. I also have the students do a class presentation on their analysis findings.
In addition, I have them do five years of analysis to give them a clear picture of trends. I also have them compare the ratios to a major competitor of that particular company. Last fall, I had a very small class, so I broke students into groups and all students analyzed the same company.
I provide students with an excel template for their analysis; this helps them see more clearly what they need to accomplish and eliminates the hazard of them worrying too much about cranking out the numbers so that they can spend their time analyzing the outcomes and still complete the project on time!
We start introducing ratios in Accounting I, however I don't think students understand how they are really used until they do this project in Accounting II -- they are able to analyze all of the ratios together.
Submitted by Leslie S. Thysell, John Tyler Community College
This method consists of two steps. The first step isolates unsold units from those that are sold. The second step applies cost to the unsold units to determine the answer. Students are provided a grid at first to arrange the data and compute the answer. Most quickly abandon the grid as the technique is simple and they can do it without it. The advantage of this method is that all the units in the appropriate group are identified before any dollar amounts are introduced. The following are examples based on exercises from the Ninth Edition of Wild and Reeve's Financial & Managerial Accounting.
Beginning students often make arithmetic errors when computing the cost assigned to ending merchandise inventory using the perpetual LIFO cost assumption. This alternate method can be used to verify an answer computed by more traditional methods. Or, it can be used for the only calculation when all that is required is the calculation of the cost assigned to ending units using perpetual LIFO. (Many students find this method less complicated and less time consuming then the method provided in the current text material that I am using.)
Examples 1 and 2
Submitted by Linda Whitten, San Francisco State University
I added a few lines to the spreadsheet and found that it seems to clarify student's thinking on this topic. This is so easy that maybe you already use this procedure. My schedule includes the following lines:
+ Prior periods’ costs to date
+ Current period’s costs
= Costs to date
+ Est. costs to complete
= Est. total costs
= Est. gross profit
x Percentage completed to date
= Gross profit to recognize to date
− Total gross profit recognized in prior periods
= Gross profit to be recognized this period
Students often find preparing a schedule for the percentage-of-completion method difficult. I added a few lines to the spreadsheet and found that virtually all the students could do the schedule successfully on the exam; since it seems to clarify their thinking (we do these steps anyway).