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ACCT 3200
Income Measurement and
Asset Valuation
Amy McDonald

Intro

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Getting to know you

Name

Where did you grow up?

Career aspiration?

General Info
Office Hours
– Tue 12:00 – 2:00 pm (Zoom)
– W 304 or Zoom by appointment
Teaching Assistance – Dylan Sambrano
– Mac Candidate
– Leads Discussion session
– Office Hours: Wed 3:00 – 5:00 p.m. (Zoom) or by appointment
Communication
− Class notes and announcements will be posted in ICON
− E-mail is best way to reach me or TA – response in ~24 hours
− Phone calls/emails won’t be answered after ~8 p.m. – leave a message and will
be returned next business day
− Extended office hours and availability on week of mid-terms and final will be
communicated
Class Etiquette
– Use name tents – if name is not preferred name – please correct and hand-in after
class
– Tablets / Laptop / Phones
– Honor Code

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Course Objectives
ACCT 2100 Introduction to Financial Accounting
– Basic “algebra” of the external financial reporting system
– Accounting for common transactions

ACCT 3200 Income Measurement and Asset Valuation

– Rules of financial statement preparation (B/S, I/S, SCF)
• How are items aggregated
• Reports outside the primary financial statements
– Return to assets studied in ACCT 2100
• Review basic accounting
• More complicated transactions, e.g.,
– Securitizations of A/R
– Revenue recognition of multiple element arrangements
• More emphasis on the impact of “events” on the
valuation/measurement of assets (e.g., impairments)

Course Materials
Required Textbook
– KWW: Kieso, Weygandt, and Warfield, Intermediate Accounting,
17th edition (Wiley, 2019), primarily V1
– WileyPLUS
– Same textbook will be used for ACCT 3300

Website – ICON
– Syllabus and schedule (subject to change)
– Announcements and reminders
– Lecture slides and other materials
– WileyPlus
– Case assignments
– Quizzes and solutions
– Sample exams

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Grading Scheme
Component Points
Homework (10, each 6 points) 60
Quizzes (3 out of 5, each 20 points) 60
Case write-ups (2, each 25 points) 50
Midterm Exam 1 100
Midterm Exam 2 100
Final Exam 120
Participation / Professionalism 10
TOTAL 500

Relative performance evaluation based on Tippie’s recommended

grade curve for required undergraduate courses.
https://tippie.uiowa.edu/current-students/undergraduates/academics/advising/grading-adddrops

Quizzes / Exams
On-line in ICON
• Open Book / Open Notes – I recommend you make a note sheet as you
study – you will run out of time if you are searching through your book or
notes
• No internet / Individual work – no collaboration allowed – Tippie Honor
Code applies
• Partial credit – show your work!

5 Quizzes available between 6:00 p.m. and 11:59 p.m. (central time)
Monday’s
• 60 minutes to take it within this time-frame
• Drop 2 lowest

2 Midterm Exams available between from 6:00 – 9:00 p.m. (central

time) Friday’s
• 120 minutes (2 hours) to take it within this timeframe

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WileyPlus / Homework
Free Points!

All homework will be completed in WileyPlus through ICON

3 attempts
− Solution after 3th attempt
− If use all 3 attempts – grade for that problem is reduced by 10%

Turn off Autofill

− Either select answer from drop down or type in full answer
− Don’t partially type and let your system autofill the remainder

#s for Qs different for each participant

− Encourage you to work together – but will need to work your own problem

2 Case Assignments

Writing is an important skill

– There are three written communication tasks (e.g., business memos) on the BEC
section of the CPA exam, representing 15% of the score

Two case assignments with writing component

Resources
– Accounting writing program https://tippie.mywconline.net/
– Course writing consultant: Dr. Joseph Steinitz, PBB W279
– Frank Business Communication Center, PBB S148

Due Dates (subject to change)

− Case 1: Friday March 19th
− Case 2: Monday April 26th

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Expectations

Prepare
− Read texbook in advance
− Attend lecture and discussion - be prepared to
listen/discuss/work examples
− Do homework to check understanding

Professionalism
− Mutual respect
− Interact with classmates as if they were your
colleagues
− Interact with instructors as if they were your
bosses

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Study Tips
Practice Problems!
– Work the homework problems
– Attempt the Discussion problems in advance

Fail and get help early

– Homework and quizzes are low cost failures
– Get help early
– Don’t fall behind

Judgement / Exceptions
– Start with base case and build on
– Understand the “why”
– Does the rule make sense?

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Topic 1: The Financial Reporting

Framework

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Discussion
How / What does a company report?

Do we need standardized rules or not?

How do we know the company is telling the truth?

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Financial Reporting Framework

Financial reports show aggregated picture of underlying

transactions
Aggregation process follows Generally Accepted
Accounting Principles (GAAP)
– U.S. GAAP
– International Financial Reporting Standards (IFRS)
Prepared by managers of the business
Oversight provided by external auditors and regulators (SEC
and stock exchanges)
− Supplemented by internal oversight by the board of directors
• Audit committee

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Standard Setting Process

SEC - public company oversight

– Mission is to protect investors, maintain fair, orderly, and
efficient markets, and facilitate capital formation
– Federal agency
– Regulations require filing of annual (10-K) & quarterly (10-Q)
reports, among others – otherwise MOSTLY defers to FASB
– Enforcement authority

FASB - standard setters (GAAP)

– Mission is to establish and improve standards of financial
accounting and reporting.
– Private, non-profit organization

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Generally Accepted Accounting Principles

Principles that have substantial authoritative support
FASB Codification
• Goal in developing the Codification is to provide in one place all the
authoritative literature related to a particular topic.
• Creates one level of GAAP, which is considered authoritative.
• All other accounting literature is considered non-authoritative.

FASB has developed the Financial Accounting Standards

Board Codification Research System (CRS). CRS is an
online real-time database that provides easy access to the
Codification.

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FASB’s Objective of Financial Reporting

To provide financial information about the reporting

entity that is useful to present and potential equity
investors, lenders, and other creditors in making
decisions about providing resources to the entity.

FASB Conceptual Framework, CON 8 Chapter 1 P OB2

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Conceptual Framework

Focus of this class

But we will consider

these other aspects.

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Measurement Principle

Measurement Principle – The most commonly used

measurements are based on historical cost and fair value.
Issues:
• Historical cost provides a reliable benchmark for measuring
historical trends
• Fair value information may be more useful
• Recently the FASB has taken the step of giving companies the
option to use fair value as the basis for measurement of financial
assets and financial liabilities
• Reporting of fair value information is increasing

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Revenue/Expense Recognition Principles

Revenue Recognition Principle - requires that companies

recognize revenue in the accounting period in which the performance
obligation is satisfied

Expense Recognition Principle - “Let the expense follow the

revenues”
Examples: COGS, Depreciation, Overhead, R&D

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Accrual vs. Cash Income Measurement

Example
1. A magazine publisher sells 3-year subscriptions to 1,000 customers
2. Each customer pays full price of $300 upfront
3. Costs of production and distribution are $60 per customer per year

Cash-basis income determination:

$’000 Year 1 Year 2 Year 3 Total

Cash inflows $300 - - 300
Cash outflows for production and distribution (60) (60) (60) (180)
Net income (loss) – cash basis 240 (60) (60) 120

Accrual-basis income determination:

$’000 Year 1 Year 2 Year 3 Total
Revenues $100 100 100 300
Expenses for production and distribution (60) (60) (60) (180)
Net income (loss) – accrual basis 40 40 40 120

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Full Disclosure Principle

Full Disclosure Principle – providing information that is of

sufficient importance to influence the judgment and decisions of an
informed user.

Provided through:
• Financial Statements

• Notes to the Financial Statements

• Supplementary information

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Three Primary Financial Statements

1. Income Statement
2. Statement of Cash Flows
3. Balance Sheet
Sometimes see a fourth statement:
– “Statement of Shareholders’ Equity” or “Statement of
Changes in Shareholders’ Equity”
– This information may appear in the balance sheet or in a
statement of earnings and retained earnings
Companies can show them in any order
Example: Pfizer Inc’s Annual Report (2016 10K)

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Accounting Standards Codification Example of

Required Financial Statements

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Two Perspectives of Time

1) Date (point in time or snapshot)
• “Static” or “stock” measure
• Typically the last day of a period of time
• Balance Sheet as of December 31

2) Time between two dates (period)

• “Flow” measure
• Typically quarter, year-to-date or annual
• Income Statement for the year ended Dec 31
• Cash Flow Statement for the year ended Dec 31

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Articulation of Financial Statements

Example: Pfizer 2016 ($ millions) Statement of Cash Flows
for year ended 12/31/16
Operating cash flows $15,901
Balance Sheet Investing cash flows (7,811) Balance Sheet
as of 12/31/15 as of 12/31/16
Financing cash flows (8,921)
Assets Assets
Effect of exchange rates (215)
Cash $3,641 Cash $2,595
Net increase (decrease) in cash (1,046)
Short-term investments 19,649 Short-term investments 15,255
Cash, 12/31/15 3,641
Non-cash assets 144,091 Non-cash assets 153,765
Cash, 12/31/16 2,595
Total assets 167,381 Total assets 171,615
Income Statement
for year ended 12/31/16
Liabilities and Equity Liabilities and Equity
Revenues $52,824
Total liabilities $102,384 Total liabilities $111,776
Total costs and expenses (44,473)
Equity Equity
Taxes (1,123)
Contributed capital 81,501 Contributed capital 83,170
Disc. Op. & Others (14)
Treasury stock (79,252) Treasury stock (84,364)
Net income (loss) 7,215
Retained earnings 71,993 Retained earnings 71,774
Other (9,522) Statement of Shareholders’ Equity Other (11,036)
Noncontrolling interests 278 for year ended 12/31/16 (extract) Noncontrolling interests 296
Total shareholders’ equity 64,998 Retained earnings, 12/31/15 $71,993 Total shareholders’ equity 59,840
Total liabilities and equity 167,381 Add: Net income 7,215 Total liabilities and equity 171,615
Less: Dividends (7,448)
Retained earnings, 12/31/16 71,774* *Includes a $13mm cumulative effect of the adoption of a
new accounting standard in the fourth quarter of 2016.

Point in Time (Opening) Period of Time Point in Time (Closing)

(“Stock measure”) (“Flow measure”) (“Stock measure”)

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Questions?

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