An Integrated Approach To Beginning Financial Accounting and Finance Courses

ISSUES IN ACCOUNTING EDUCATION
Vol. 27, No. 1

2012
pp. 299336
American Accounting Association

DOI: 10.2308/iace-50090
An Integrated Approach to Beginning

Financial Accounting and Finance Courses
Victoria B. McWilliams and Michael F. Peters
ABSTRACT: In response to external pressures for a business curriculum that
recognizes how business decisions are made, the Villanova School of Business has a
six-credit-hour, team-taught course that integrates the introductory financial accounting
course with principles of finance. The class provides students with a better
understanding of how the two disciplines relate, and students leave the course with a
richer, more robust awareness of both topic areas and how they come together. One
theme throughout the course is the use of financial statements and other financial
information in valuation of financial instruments such as stocks and bonds. This course
better prepares for most business environments, which increasingly requires professionals to complete tasks assuming skills from both disciplines. This manuscript
describes the course, its benefits and drawbacks, the content, as well as examples of
materials created for the course to facilitate student learning.
Keywords: accounting; nance; integration.
INTRODUCTION
n a traditional business curriculum, the core body of knowledge is offered in discrete

components, with each topic area covered in a standalone course. Practitioners and academics
frequently view this model of business education as taking a silo approach to discipline
coverage, which tends to ignore the interrelatedness of business areas. However, over time, there
has been an increasing demand for curriculum change that recognizes and responds to the evolving
business environment in which decisions rarely are made in isolated business silos.
The accrediting body for business colleges, the American Assembly of Collegiate Schools of
Business (AACSB), has been calling for business schools to address the need for curriculum change
(Smith 1995; AACSB 2002) for years. Most recently, the Report of the Management Education
Task Force, Management Education at Risk, to AACSB addresses the need to develop courses that
facilitate boundary-spanning business thinking (AACSB 2002, 20). The thought behind these
courses is to encourage integrating concepts, as appropriate, to break down functional silos and,
subsequently, better educate students to make business decisions in a world where technology is
increasingly lessening the distinction among the traditional business functions.
Victoria B. McWilliams is a Professor and Michael F. Peters is an Associate Professor, both at Villanova
University.
We are grateful to the editor and reviewers for their comments that helped improve the manuscript and the contributions
of Professor James M. Emig. We would also like to thank the research assistance of Roxanna Brandao.
Published Online: December 2011
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McWilliams and Peters
During this period of AACSBs call for curricular change, the Villanova School of Business
was also hearing a call from business constituents who had ideas about integration and the
undergraduate curriculum. From the employers who hire the programs graduates to the
businessmen and women who sit on the schools advisory boards, the message was consistent that
an integrated and cross-functional undergraduate curriculum would benefit students. Therefore,
the business school established a committee to propose updates and innovation to the
undergraduate curriculum. One result of the committees proposal was to integrate the
three-credit-hour Introduction to Financial Accounting course with the three-credit-hour
Principles of Finance course.
The resulting class is a six-credit-hour, team-taught course that integrates accounting and
finance and provides the students with a better understanding of how the two disciplines relate. The
students who take the course leave with a better awareness of both topic areas; they have a better
grasp of material and a deeper appreciation of the application and relevance of accounting and
finance. Students take the course during the sophomore year, with approximately half of the
sophomore class registering for one six-credit-hour class each semester. The class meets twice a
week for 2.75 hours, and both professors are there for every class, interacting with each other as
appropriate to ensure that students understand the interrelatedness of the two topics.
Initially, teams were identified that would ultimately be teaching the course, with each team
consisting of an accounting and a finance professor. A year was spent discussing content and, after
considerable dialogue, all teams agreed on content to be included in the class, with the
understanding that each team would determine their own method of delivery. While there has been
a considerable learning curve as the course was taught, the outcome is a class that provides a far
richer experience for students than the standalone accounting and finance courses. To be certain,
there are costs and complexities associated with the integrated class. Professors are teaching as part
of a team, rather than independently, and must, therefore, be more flexible. By combining the
accounting and finance courses, content overlap was eliminated, allowing for the course to be
streamlined and the focus to be on the integration, at the expense of dropping a very small number
of traditional topics. There is less time to cover all material (because more time is spent on
integration); however, the material covered is seen by the student with better understanding and
greater applicability. In addition, many concepts covered in principles of finance require grounding
in accounting principles. The class is six credits as opposed to three, and requires much more work
on the students part, since the material is taught at a much higher level when accounting and
finance are integrated. The course workload remains a hurdle that some students have trouble
mounting.
Additionally, using two professors to teach one six-credit-hour course initially appeared that it
would increase the delivery cost, since each professor gets full credit (e.g., six teaching credits) for
the course. The reason professors get full credit is that they are required to attend all class sessions,
and it is essential that each professor actively participate when he or she is not the primary instructor
in order to facilitate the course integration. When the classes were separate (i.e., under the old
curriculum), there were approximately 2027 students per section. Under the new curriculum, class
sizes were increased to 4550 students; thus, the larger class size offsets the cost of giving full
credit to the professors. As a result, there is minimal change to the per-student cost. All in all,
though, the course is a good change to the curriculum.
The remainder of the article describes the actual content of this integrated course, followed by
the course deliverables. The next section describes the teaching and learning strategies, along with
our learning objectives for this course, and then discusses the qualities and characteristics that
successful instructors must have in order to succeed teaching in this model. The final section
concludes the article with closing remarks.
Issues in Accounting Education
Volume 27, No. 1, 2012
An Integrated Approach to Beginning Financial Accounting and Finance Courses
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COURSE CONTENT AND LEARNING OBJECTIVES

At first glance, the course content appears to be similar to what is taught in a typical beginning
accounting and/or finance class. And that assumption is partly true because the fundamentals need
to be taught prior to teaching the integration.1 However, what distinguishes the new content, when
compared to when the courses were conducted separately, is the link between accounting
information and valuation. This link impacts how the current combined course is taught throughout
the semester, even though the actual combination of material is not formally taught until after Exam
1. For example, for each topic in financial accounting, the professors discuss how the accounting
information impacts the two primary inputs to the valuation model. Once valuation is formally
taught, students use the accounting information in the finance valuation component. In the finance
piece, using complete financial statements is a staple of practically every valuation problem, which
was not the case when it was a separate course. It was clear early on that valuation was, at best,
mentioned in the accounting class, and the financial statements and associated accounting issues
were either absent or not given their fair treatment in the finance class. The integrated course brings
these concepts together so that students receive a more dynamic application of the link between
financial statements and valuation.2
It is crucial to understand that the students need a fundamental understanding of accounting in
order to begin the finance material in this course, as well as to prepare them for subsequent
accounting courses. Therefore, from day one, the immediate challenge was how to teach the
fundamentals of accounting and principles of finance and, at the same time, set the stage for
integration. So, approximately the first three-and-a-half to four weeks are spent on how to build,
understand, and interpret the financial statements, as that sets the stage for later accounting concepts
and principles of finance. Because the finance professional must know how to understand and
interpret financial statements, the first learning objective is to have students perform the traditional
role of building financial statements and to also understand how to read and interpret the financial
statements.
Before beginning the development of financial statements, however, it is important for students
to have a basic understanding of the corporation. Therefore, we discuss the following immediately
preceding the financial statement discussion:

An overview of the corporation (i.e., the firm);

The firms role in the economy; and
The firms objectives (i.e., to maximize shareholder wealth).
Finance assumes that managers make decisions to create value for the firm, and a lecture that
introduces this context on the first day makes for a smoother transition into accounting. This lecture
is similar to the first lecture in principles of finance. Shareholder wealth is defined as the market
value of the firm (most students are familiar with stock price, the typical measure of firm value), and
that this value is a function of risk and return. The general concept of making decisions to create
value and the notion of risk and return is the first area of integration for the course, which then
allows for a segue into discussing the importance of accounting information in helping to determine
1
Much planning prior to implementation went toward coordinating each topic. Coordination was needed to settle
on timing of presentations, terminology used (often, accounting and finance textbooks use different terms for the
same concept; for example, with bonds, yield to maturity in finance is referred to as effective rate in accounting),
and definitions. Coordination also meant avoiding teaching the same issue that often arose when separate courses
were taught (e.g., financial ratios, present value).
2
One question that often arose is that, if done correctly, the two separate courses should naturally flow together.
While this approach is the ideal, that is not the case in practice. In the authors academic experience across
several institutions, the instructors that taught accounting and finance did not meet to coordinate or integrate the
topics.

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risk and return. The next step is to teach the fundamentals of accounting: building, understanding,
and interpreting the financial statements. Throughout this step, we refer back to the risk and return
concepts from this lecture.
The discussion about building financial statements is done in typical fashion and includes
debits/credits, journal entries, posting, and t-accounts, but excludes trial balances, subsidiary
ledgers, reversing entries, etc. However, with the integrated class, we now provide more theory
behind the financial statements in an attempt to link it to valuation. For example, the professors
introduce the intuition behind book value of the firm, and then compare total stockholders equity
(excluding preferred stock) to market value, and discuss why these numbers differ, and then
introduce a real-life example that compares the two. With the income statement, the professors
present the traditional approach of revenue recognition and matching, but then discuss how net
income changes book wealth and why this information is the starting point in calculating the
returns component that one needs to calculate market value. Details are minimal, but students are
given something to think about until a later segment when the professors discuss this topic in more
detail. This part of the course also includes how to build and understand the direct method of
statement of cash flows.
The final step of the first several weeks of the course is how to interpret the financial
statements. The goal here is to again link the financial statements (in this case, financial ratios) to
risk and return factors that determine the market value of the firm. The coordination between the
professors produces a common set of ratios with a common definition to avoid confusion with
terminology and formulas. The course is designed to purposely limit the number of ratios in order to
focus on general learning concepts. Typical of many textbooks, the ratios are separated into the
following categories:

Growth (ROE, Dividend Payout)

Profitability (ROA, ROS, Asset Turnover)
Solvency (Debt/Assets, Current Ratio, Quick Ratio)
Working Capital (A/R, Inventory, A/P Turnover, plus the net of these three)
Again, the course is designed to present the material in typical fashion and to use these ratios to
assess risk and return. For example, high solvency risk may lead to higher risk assessments in the
valuation model, or higher growth can help size up the future return component of firm value. At
this point in the semester, students know that risk and return are two inputs to determine firm value,
but do not know how to calculate firm value. That is, they are learning how financial statements can
be used to size up these inputs. So, while many beginning accounting classes discuss financial
ratios, in the integrated class students go a step further by using these ratios as inputs to valuation.
In addition to the traditional methods for using ratios for analysis, as described above, the
financial ratios provide an early opportunity for integration with the discussion on working capital
management. The learning that takes place allows students to learn how to link the financial
statements with the firms choice of different levels of current assets to support its sales.
Additionally, a discussion focuses on how the firm decides to finance its asset base by choosing to
use either short-term or long-term financing alternatives. The firms choice influences risk and
return and has implications for the firms financial statements. The financial statements and financial
ratio discussion lead to the second learning objective: students recognize the relationship between
financial information (financial statements and other information, such as ratios) and the inputs to
the valuation model.
After students have digested the financial accounting concepts, they are ready to move on to
concepts that involve determining value; however, before they can do so, they must understand
time value of money, which is taught in traditional fashion. Up to this point, the class is able to
integrate accounting and finance at a fundamental level. However, once the students understand
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financial statements and valuation techniques, they are at the point in their learning in which the
professors can integrate more and begin to take full advantage of the benefits of combining the two
functional areas into a single course. The next topic in the course is bond valuation, and it begins
with a discussion of how the market determines interest rates on bonds. We then take the market
value of bonds calculated in finance and continue with the accounting discussion. We focus on the
effective interest method, and emphasize that the accounting rules are meant to capture the
economic reality of the bonds on the books at the issue date. Since the firms true borrowing cost is
its yield-to-maturity (e.g., effective interest rate), this true cost is reflected as part of interest expense
each period. The class does a redemption and discusses it within the context of its pros and cons
(income statement impact versus interest rate risk impact), which provides a good way to integrate
and close out this topic.
The topic following bonds is stock valuation; it begins with a discussion of the rate of return on
stocks. The discussion focuses on risk and return for common stock; standalone risk, and
diversification and its importance. The final part of this discussion centers around the concepts of
diversification and the importance of market risk and the Capital Asset Pricing Model, including a
discussion of the stocks beta and determinants of beta. For example, students are asked to describe
the financial statement differences between firms with a high and low beta. In all cases, students
describe a high beta firm as one that has more volatile earnings, which suggests that the goal of
linking accounting information to valuation is working. For the stock valuation discussion, the
focus is on valuing dividends using the dividend growth model.3 Different assumptions about
dividend growth are introduced, which leads to versions of the valuation model that are very
challenging to students. However, with practice, the students grasp the concept that stock price
represents an estimate of the present value of future dividends. In a typical finance class, the inputs
to the valuation model are given without much appreciation for how this information can be found
in the financial statements. With the integrated class, these inputs are linked to the financial
statements in a more formal way, using the following:

Dividends declared are backed into via the financial statements.

Growth in cash flows/income is partly influenced by prior years growth as measured by a
metric from the financials (e.g., net income, dividends, etc.).
Risk is influenced by certain ratios, and so on.
Once students understand stock valuation, the discussion then focuses on stockholder
equity-related accounting issues such as dividends, stocks, and treasury stock. This discussion is
similar to what is typical in beginning-level accounting courses. Each lecture topic described so far
includes an in-class assignment that incorporates each of these topics (discussed in a later section).
For example, a question in this assignment has students use the financial statements to examine
details of a treasury stock purchase, compare to the intrinsic value of the firm that they calculated
(again, this calculation relies on the financial statements), and then perform an analysis to determine
whether the purchase was a good use of shareholder monies. As can be gleaned from the above, the
3
This part of the course requires a trade-off between the accounting and finance sides. On the one hand, the
dividend growth model is used in finance textbooks and is a fairly simple calculation. Its simplicity is a great
benefit for a beginning-level course. On the other hand, dividends are just the realized portion of net income, and
may not always be an accurate indicator of firm value. The professors handle this issue by emphasizing that there
are various metrics used to calculate firm value and briefly discuss these metrics (i.e., dividends, free cash flows,
operating cash flows, net income). The professors then emphasize two points: each of these metrics is a derivation
of net income and that, in the long run, net income is perfectly correlated with cash flows. This part of the
discussion is consistent with our message in that net income measures assets/value generated on behalf of
shareholders.

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primary learning objective in the second part of the course is to actually use the financial statements
and other information to value financial instruments.
The final third of the course addresses specific accounting issues: accounts receivables,
inventory, and property, plant, and equipment, with the latter topic taught in conjunction with
capital budgeting. These topics are taught in their traditional accounting format, including bad debt
expense for A/R, inventory methods/write-offs for Inventory, and depreciation methods for PP&E.
In all cases, we link the consequences of accounting decisions to firm value. For example, with
A/R, the discussion emphasizes how estimates could be used to manipulate earnings and, in turn,
firm value. We created an assignment that has students restate financial statements based on a bad
debt manipulation, and then calculate its impact on stock price (assuming investors did not adjust
the manipulated earnings figure). The class also reemphasizes how accrual net income can be used
to predict future cash flows. For example, if the firm experiences a permanent spike in bad debt
expense, a reduction in net income and future cash flows is expected, which again can impact firm
value. With inventory, the discussion focuses on the LIFO-FIFO trade-off between LIFO cash flows
and FIFO financial statements, and its implications for firm value. The LIFO-FIFO debate is never
resolved, but the importance of accounting methods is emphasized, along with their potential
impact on perceived earnings growth, cash flows, and firm value. In addition, the discussion also
includes write-offs, potential earnings management associated with write-offs, and how the
financial statements can be restated to correct for earnings management.
We link to finance by discussing how write-offs (a non-cash income statement item) help
predict future cash flows, to again reiterate the idea that accrual accounting can be used to determine
the inputs to the valuation model. With PP&E, the discussion includes financial statement
differences in depreciation methods, the tax effect of such differences, and how to adjust the
financials for these differences. Much of the PP&E discussion is fairly straightforward, but part of
its purpose is to set the stage for capital budgeting. In particular, we use the discussion of different
depreciation techniques and depreciation tax shields to prepare the students for determining the
after-tax cash flows that they will see in the capital budgeting discussion. In addition to
understanding the specific accounting topics discussed above, the learning objective is also such
that students understand the relationship between accounting choices, net income, cash flows, and
firm value.
Prior to the capital budgeting discussion, students learn how to determine the firms weighted
average cost of capital (WACC), which is needed for the capital budgeting decision. Capital
budgeting is taught in its traditional approach initially, but then we go outside the finance box to
link it to accounting. Capital budgeting allows us to reiterate many themes previously discussed
when linking financial statements to value (in this case, projected financial statements). For
example, students learn how to calculate the cost of capital using the financial statements and
relevant market information, to convert income flows to cash flows, and then how the final metrics
(net present value and IRR) make sense with historical financial ratios.
To summarize, this section on course content also describes our learning objectives, which can
be stated as follows:

An understanding of fundamental accounting and finance concepts, such as building and

interpreting financial statements, ratios, time-value of money, etc.
An understanding of the link between the financial information (i.e., financial statements,
ratios, etc.) and the value of financial instruments (i.e., bonds and stock).4
This objective includes an understanding of how financial information impacts the inputs to value, and how such
information is used to calculate value. It also includes the use of projected financial information to calculate
value, such as with capital budgeting.

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An understanding of how accounting choices impact the financial statements, cash flows, and
the value of financial instruments.
DELIVERABLES AND TEACHING AND LEARNING STRATEGIES
In order to deliver to our students a truly integrated successful learning experience, it was
necessary to provide the tools that would form the basis for teaching and that would facilitate
student learning. The typical starting point in most courses, the basis for student learning, is the
course textbook. However, one challenge in teaching this course is the lack of undergraduate
textbooks that integrate principles of accounting and finance.5 The accounting textbook, for
example, is useful for accounting cycle problems and the finance textbook for present value
problems. But neither could be relied on to bring the integrative component that was part of the
learning outcome of our course. Because textbooks are such a central part of how students approach
studying, it was important to find a way to use them, but not completely rely on them. That is, the
textbook was a first step, but fell short of what was needed to deliver to our students a truly
integrated learning experience. These issues become more pronounced after Exam 1, once the class
focuses on integration topics such as bonds or inventory. We believed that the only way to reach the
learning objectives was to design assignments for the class. To that end, we created separate
assignments (i.e., deliverables) for each topic that allowed us to deliver to the students a truly
integrated perspective of how accounting and finance related. Each assignment is designed to be
very difficult and conducive to group brainstorming/discussion.6 Many problems from the
assignments are done in class as part of the learning process, so that the professors can walk around
and provide immediate help to students. Through each of the assignments, we created a way of
teaching that allowed us to deliver to our students an integrated course that set out for them a
learning strategy that resulted in a truly integrated course.
Each assignment begins with the four financial statements, financial ratios, and other
disclosures (about four pages in total). Because the financial statements are the primary tool to link
accounting and finance, they are the focal point of each assignment (and each exam; exams are
designed using a similar format as the assignments). Questions from the assignments discuss
concepts touched on in lecture, but not in the text, which allows us to discuss and help students
learn the integrated material. The questions are very challenging because students must find the
appropriate information in the financial statements, and the nature of this information is difficult
without having a concrete understanding of these statements. For the most part, the sea of
information and level of difficulty create excellent discussion and trial-and-error mistakes, which
facilitate the learning process. Many groups will need hints from the professors to get some
momentum.
The next few paragraphs summarize a few attempts at integration with these assignments,
recognizing that the list of examples that are used in class is significantly more extensive. For
example, with the financial ratios, the discussion focuses on both sides of leveragethe good and
bad. Therefore, the discussion includes two firms in which the only difference is that one firm is
more levered with funded debt than the other firm. The highly levered firm shows a much higher
ROE and Debt/Assets, but the same ROA, ROS, and Asset Turnover. One question asks students to
determine why one firm appears more profitable than the other firm despite all the similarities on the
5
There are graduate-level textbooks that integrate accounting and finance, but these are at too high of a level for
undergraduates.
6
One future change to this course is to make the assignments case-like. Currently, the assignments have case-like
elements, but need some fine-tuning to become more like a case. Another change that is currently being discussed
is to introduce a true case that brings together different learning objectives from the course. Since a case that
achieves this goal has yet to be found, we plan on creating one.

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financial statements. It is a great lesson in how leverage can increase returns (i.e., higher ROE), but
increase risk at the same time. Through the example, students see how leverage impacts two inputs
to the valuation model, but in different ways. Another assignment pits creditors against owners. For
example, total assets, liabilities, and stockholder equity are identical, even though the assignment
varies the mix of assets. One firm carries significantly more cash than another firm and such
differences lead to lower profitability, but less risk. So, while creditors like this strategy in the short
run, as the firm is more liquid, it comes at the expense of profitability. We created these assignments
for almost every topic throughout the semester. Students work in groups often during class time, so
that professors can walk around and provide guidance. As noted above, the background information
for the exams is similar in nature to the assigned problems.
As the semester progresses and students become more comfortable with the fundamentals of
accounting and finance, the in-class assignments are meant to continue to bring about higher levels
of learning. For example, with the bond assignment, many problems require students to use
financial statements and other information to value bonds or back into market yields at various
points throughout the bonds life. Students use this information in many ways: to prepare the
interest or bond redemption journal entry, to discuss the trade-off between income statement effects
and interest rate risk, etc. A similar example is with stocks. It requires students to calculate the
intrinsic value of the stock after being informed that the firm had better information about its future
prospects. The assignment also includes stock buybacks. One integration question has students
determine whether the stock buyback creates shareholder value. To answer this question, students
have to calculate the intrinsic value of the firm (as discussed above, using financial statements as a
starting point). Students use this information to calculate a return from this buyback and eventual
sale, and then compare this return to financial ratios to see if the firm is better off investing in
internal projects. After this calculation, students are able to discuss whether the stock buyback was
used to improve shareholder wealth, manipulate EPS, apply excess cash, etc. The breadth of this
discussion was not possible when the two courses were taught separately.
One theme in finance that created confusion is its reliance on tax law concepts versus GAAP. For
example, capital budgeting problems in finance textbooks are very rudimentary and rely on the tax
law for depreciation (e.g., MACRS), but did not use the tax law for other expenses and revenues. In
addition, the presence of MACRS raises more questions than are needed (e.g., why is the depreciation
in years greater than the depreciable life, what do we do when the tax law differs from GAAP, etc.).
But most importantly, it creates a wall that made it too complicated to reconcile between future cash
and income flows. We work around this issue by providing depreciation expense without mentioning
how it is calculated. Students then use the financial statements and market information to calculate the
WACC, and then use the projected income statements and balance sheets to convert income to cash
flows. With the WACC and future cash flows, students calculate net present value and IRR for the
project to determine whether to adopt it. Arriving at WACC and future cash flows is a slog, but a very
worthwhile learning experience. The assignment then has students show how the future cash flows
used in capital budgeting are just a reallocation of income flows and that, in aggregate, the two are the
same, a learning experience that arises solely because of the integrated course. The integration makes
capital budgeting a much richer topic than typically presented in finance classes.
Overall, the concepts covered when the two courses were independent were never brought
together in a cohesive manner that allows for the relevance of the topics to be taught to the students.
The nature of the integrated course, by definition, allows us to bring out the significance and joint
importance of both accounting and finance so that the students can apply the concepts in a more
meaningful way. In all cases, the in-class assignments and exams include problem-solving questions
that center on a firms financial statements, ratios, and other information that ultimately lead to effects
on firm valuation. Through the materials developed for the course and the learning strategies used
during the semester, we are able to deliver to our students a truly integrated learning experience.
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INSTRUCTOR QUALITIES AND CHARACTERISTICS

The six-credit-hour integrated course is team-taught with two professors, one from accounting
and one from finance, always present. Both are equally responsible for course content, course
grading, and course delivery. It takes tremendous effort and coordination to make the course run
smoothly, and not everyone will find that she or he is cut out to teach this type of course. The
individual professors are no longer in control of their classroom, but are sharing the
decision-making process for everything that happens in the class. There are distinctive qualities
and characteristics that individuals should have in order to succeed as members of a teaching team.
The authors believe that being humble and accepting that there may be a better way of covering
course material is a good place to begin. Each member of the team may bring a different, and
possibly better, perspective about a concept, and keeping an open mind will allow each team
member to learn and to grow. And having a willingness to learn new things is crucial, since each
team member probably is not as familiar with their partners area as the individual is with their own
area. It takes much hard work to figure out how to integrate each members area with the others
area, and each team member must be willing to do so, buy into the concept of integration, and take
ownership of it; otherwise, the concept is doomed from the start. Each team member will be faced
with the need to compromise and coordinate along the path of figuring out how to blend accounting
with finance in a truly meaningful manner. Each members willingness to coordinate with the other
as the team tries to be creative will go a long way toward achieving the goal of true integration. It is
also crucial to carefully choose partners and to plan to stick with that individual over time.
There is a definite learning curve to meaningfully teach this type of class. It does not happen
after a single semester. It will take several years to get this course to the point where the instructors
are pleased with content and the outcome for students. Therefore, staying with the same team
member for as long as possible is a good idea, so that the team can continue building and improving
the integrated team-taught course over time.
IS THE LEARNING EXPERIENCE FROM THIS COURSE TRULY DIFFERENT?
To answer this question, we provide information on three methods that measure whether
learning took place due to the new curriculum. During this discussion, the old curriculum refers to
when the introduction to financial accounting and principles of finance were two separate courses,
and the new curriculum refers to when the two are combined into an integrated course. In addition,
as noted in an earlier section of the article, there are several learning objectives with this course.
One learning objective that flows from these is the extent to which students use the learning from
this course to improve their performance in other subsequent classes. This issue is discussed in
more detail in Method 2 of evidence of learning.
Method 1: Identification of Questions from Deliverables under the New Curriculum that
Were Not Possible under the Old Curriculum
As noted, two learning objectives of this course are the use of financial statements and other
financial information in valuation of financial instruments, and how accounting choices impact the
financial statements, cash flows, and value of financial instruments. Our goal was to expand
students skill set surrounding financial reporting without compromising their learning of the
fundamentals of accounting and finance.7 Thus, the new curriculum teaches new skills that were not
possible when we offered separate classes.
7
For example, about 35 percent of the possible points on Exam 1 of the new curriculum are based on an
accounting cycle problem. Students scored a 74 percent on this part of the exam under the new curriculum. This
percent approximates or is slightly higher than the average scores on the first exams under the old curriculum,
which had a significant accounting cycle component.

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For Method 1, we compared the in-class assignments and exams under the new curriculum to
test bank questions from accounting and finance textbooks, cases in introductory level accounting
and finance courses, and our prior exams under the old curriculum. We focused on questions that
relate the financial statements to valuation, as such questions separate this course from our previous
approach. While we focus on several themes that capture the relation between financial statements
and firm value, the details that back up these themes are well represented when one examines our
deliverables (i.e., assignments, exams), which are summarized by the following questions:
1. Did the discussion of the balance sheet and income statement address the valuation
component of these statements?
2. Are detailed financial statements the starting point for finance problems, with the exception
of time value of money? Are detailed present value examples used to derive accounting
numbers?
3. Did the discussion of financial ratios address their use as inputs to the valuation model?
4. Are detailed financial statements used to arrive at intrinsic value?
5. Does it include a discussion of how certain accruals play a role in estimating future cash
flows?
6. Does it discuss a link between incorrect accounting estimates/methods and firm value?
7. For capital budgeting, does it calculate cost of capital using detailed financial statements and
a reconciliation that shows income flows to equal cash flows?
We examined whether these themes are found in the accounting and/or finance textbooks,
exam banks, cases, and old exams when the courses were separate. As we approached our analysis,
we thought that the deliverable that would most likely meet the learning objectives for the
integrated part of this course would be the cases. In addition, because the integrated learning
concepts were more likely to be part of the finance course (because, in theory, it is supposed to
build on their accounting knowledge), we thought that some of these deliverables would more
likely include some of the themes listed above.
To identify the accounting and finance textbooks, we asked four publishers to provide us a list
of the bestselling books within each discipline, and we obtained copies of the textbooks. For the
cases, we searched published cases in accounting and finance, in addition to reviewing Harvard
Business Review cases. Table 1 summarizes the results of this comparison. In this table, we separate
the findings into three classifications, which are detailed at the bottom of the table. In general,
however, a classification of 1 indicates no integration in a particular theme. A classification of
2 indicates that, for a specific theme, there is a mention of a link between accounting and finance,
although it is superficial. The 3 classification indicates that, for that particular theme, carefully
constructed financial statements are used to arrive at finance valuation and risk return analysis
achieving integration, similar to the learning objectives.8 Assuming the textbook and cases mirror
the nature of these courses, the results from this analysis suggest that the deliverables in the
integrated class differ significantly from what is being taught in typical beginning accounting and
finance courses.
We then reviewed final exam questions from tests under the old curriculum and compared them
to final exam questions from tests under the new curriculum. The new curriculum was meant to
expand the sphere of learning so that students still understand the fundamentals of accounting and
finance, but also are able to learn concepts that were not possible under the old curriculum. That
said, our goal was to identify questions in the new curriculum final exam that were not possible
8
It is important to note that this analysis in no way gives judgment about the textbooks or the cases. The overall
teaching goal of the market targeted by the textbooks/cases is much different than our class, and so the
differences are due to this factor and not the quality of these teaching materials.

Volume 27, No. 1, 2012
Cases
Accounting
Bruns
(2009a): Delta
Chapman
(2009): Biovail
Bruns (2008):
Talbots
Bruns et al.
(2008):
Merrimack
Bruns
(2009b): Lyons
Cohen and
Fields (2007):
Double Click

Volume 27, No. 1, 2012
1
1
2
1
3
2
Balance Sheet
and Income
Statement
Address
Valuation
Detailed
Financial
Statements are
Starting Point
for Finance
Problems.
Detailed Present
Value Examples
Used to Derive
Accounting
Numbers
Financial Ratios
Used as Inputs
to the Valuation
Model
Detailed
Financial
Statements
Used to Arrive
at Intrinsic
ValueStock
Valuation
Includes
Discussion of
How Accruals
Play a Role in
Estimating
Future Cash
Flows
Integration in Accounting and Finance Textbooks and Cases
TABLE 1
(continued on next page)
NA
NA
NA
NA
NA
NA
For Capital
Budgeting,
Calculates Cost
of Capital Using
Detailed F/S,
Reconciles
between Income
Discusses the
and Cash Flows,
Link between
and Compares
Incorrect
Output to Other
Accounting
Investment
Estimates and/or
Opportunities
Methods and
via F/S
Firm Value

309
Finance
Lipson
(2008): Panera
Luehrman
and Heilprin
(2009b): Blaine
Luehrman
and Heilprin
(2009a):
Midland
Mayfield
(2006): Netflix
McArthur and
Yong (2009):
Ceres
Stafford et al.
(2002): Ocean
Textbooks
Accounting
Reimers
(2011)
1
1
1
1
Balance Sheet
and Income
Statement
Address
Valuation
Detailed
Financial
Statements are
Starting Point
for Finance
Problems.
Detailed Present
Value Examples
Used to Derive
Accounting
Numbers
Financial Ratios
Used as Inputs
to the Valuation
Model
Detailed
Financial
Statements
Used to Arrive
at Intrinsic
ValueStock
Valuation
TABLE 1 (continued)
Includes
Discussion of
How Accruals
Play a Role in
Estimating
Future Cash
Flows

Volume 27, No. 1, 2012
NA
For Capital
Budgeting,
Calculates Cost
of Capital Using
Detailed F/S,
Reconciles
between Income
Discusses the
and Cash Flows,
Link between
and Compares
Incorrect
Output to Other
Accounting
Investment
Estimates and/or
Opportunities
Methods and
via F/S
Firm Value
310
Edmonds et
al. (2011)
Libby et al.
(2011)
Harrison et
al. (2010)
Porter and
Norton (2011)
Kimmel et al.
(2009)
Phillips et al.
(2011)
Finance
Berk et al.
(2009)
Block et al.
(2001)
Brealey et al.
(2009)
Brigham et
al. (2009a)

Volume 27, No. 1, 2012
1
2
1
2
1
1
1
1
1
1
Balance Sheet
and Income
Statement
Address
Valuation
Detailed
Financial
Statements are
Starting Point
for Finance
Problems.
Detailed Present
Value Examples
Used to Derive
Accounting
Numbers
Financial Ratios
Used as Inputs
to the Valuation
Model
Detailed
Financial
Statements
Used to Arrive
at Intrinsic
ValueStock
Valuation
TABLE 1 (continued)
Includes
Discussion of
How Accruals
Play a Role in
Estimating
Future Cash
Flows
NA
NA
NA
NA
NA
NA
For Capital
Budgeting,
Calculates Cost
of Capital Using
Detailed F/S,
Reconciles
between Income
Discusses the
and Cash Flows,
Link between
and Compares
Incorrect
Output to Other
Accounting
Investment
Estimates and/or
Opportunities
Methods and
via F/S
Firm Value

311
1
1
2
2
1
1
Financial Ratios
Used as Inputs
to the Valuation
Model
2
2
Detailed
Financial
Statements
Used to Arrive
at Intrinsic
ValueStock
Valuation
1
1
Includes
Discussion of
How Accruals
Play a Role in
Estimating
Future Cash
Flows
1
1
2
2
For Capital
Budgeting,
Calculates Cost
of Capital Using
Detailed F/S,
Reconciles
between Income
Discusses the
and Cash Flows,
Link between
and Compares
Incorrect
Output to Other
Accounting
Investment
Estimates and/or
Opportunities
Methods and
via F/S
Firm Value
1 No integration.
2 Mentions the link between accounting and finance superficially. For finance, uses skeletal financial statements without actual integration or derivation of numbers in the
financial statements. For accounting, very briefly mentions that accounting numbers may impact investor risk or future returns, but very brieflymore for the sake of exposure
(e.g., in a paragraph or a few sentences). Does not show how risk impacts inputs to the valuation model (similarly with return).
3 Integration of concepts by using data obtained by carefully constructed financial statements to arrive at finance valuation and risk return analysis.
Brigham et
al. (2009b)
Damodaran
(2011)
Gitman
(2009)
Keown et al.
(2008)
Lasher (2008)
Melicher and
Norton (2008)
Parrino and
Kidwell (2009)
Ross et al.
(2008)
Balance Sheet
and Income
Statement
Address
Valuation
Detailed
Financial
Statements are
Starting Point
for Finance
Problems.
Detailed Present
Value Examples
Used to Derive
Accounting
Numbers
TABLE 1 (continued)
312

Volume 27, No. 1, 2012
313
under the old curriculum. For example, in accounting, we now stress the valuation implications of
the financial statement numbers, and in finance, valuation problems often begin with the full
financial statements. Most of the new learning that takes place begins with these changes. When
reviewing the final exam, 46 percent of the possible points are questions that were a result of the
integration, and such questions would have been infeasible when these were separated courses.9
The average score for these questions was 72 percent, which implies that the learning that resulted
from integration had become part of their skill set by semester end. The next two methods are more
quantifiable, as both rely on data before and after the new curriculum.
Method 2: Comparison of Performance in Managerial Accounting between Students under
the Old versus the New Curriculum
The second evidence of learning is based on results from our managerial accounting class. This
evidence is based on the assumption that the student learning that took place in the new curriculum
is carried over and positively impacts other courses. It came to our attention from several professors
who teach managerial accounting that students in this class were performing at a higher level
relative to those under the old curriculum (i.e., when the accounting and finance were separate
courses). The primary difference between the curriculums is that under the new curriculum,
students are learning one system (accounting and finance), and they enter the managerial course
with this uniformity, which makes it much easier to process new, but related, information. Under
the old curriculum, they learned two separate systems, accounting and finance, and the two were
neither coordinated nor integrated and, thus, there was a lack of uniformity. As a result, students
had to process new, but related, information in the context of what appeared to be two systems. In
other words, it is much easier to reconcile the managerial accounting material to previous
knowledge when this knowledge is taught as a cohesive system versus two separate systems.
To see if there is a higher level of learning in managerial accounting, we focused on one
professors sections. We chose this professor because his exam questions in the managerial
accounting course throughout the semester were identical between the old and new curriculum.
Students do not know he uses the same questions and he does not release any exams (he allows
students to look at them during class and then collects them from all students), so the later class did
not have access to the questions.
This professor provided us with the total points that students had earned, and we collected
other information about these students, including the following:

overall GPA;
major (accounting/finance major versus not an accounting/finance major);
class standing (freshman, sophomore, junior, senior); and
timing of when Principles of Finance was taken relative to Managerial Accounting.
The vast majority of students taking managerial accounting were sophomores or juniors. We
then tested the hypothesis of whether student learning occurred under the new curriculum using
an ANCOVA.10 Total points was the dependent variable, and the new curriculum (old versus new)
9
These questions were very difficult exam questions. The questions often require multiple processing steps that
include identifying numbers from the financial statements, backing into numbers or interest rates using
information from the financial statements, and then valuing an instrument, backing into journal entries,
calculating an IRR, etc. Also, the 46 percent figure would be lower for the first exam, as this exam focused on the
building blocks of accounting and finance. For example, about one-third of the first exam included an accounting
cycle problem.
10
The other information was obtained from our administrators. Because of the nature of the transition to the new
curriculum, there were no students in the new curriculum sections that were carryovers from the old curriculum.

Volume 27, No. 1, 2012
314
was the independent variable. Students overall GPA, major, class standing, and timing of finance
class were the covariates. Total GPA is expected to proxy for overall intelligence, major proxies for
general interest in and motivation for the subject material, class standing proxies for years of college
experience in general and with business courses, and timing of finance class proxies for whether the
material from the finance class had an impact on the performance in the managerial accounting
class. The descriptive statistics are summarized in Panel A of Table 2.
As noted from Panel A, total points earned are higher under the new curriculum (84.54 versus
78.74); overall GPAs are similar (3.32 versus 3.37, t 0.76, p 0.45); accounting and finance
majors were more prevalent in his sections under the new curriculum; students taking the courses
under the new curriculum tended to be juniors versus sophomores under the old curriculum; and
students under the new curriculum took managerial accounting after the finance class versus either
before, at the same time, or after the finance class under the old curriculum. These latter two
differences were expected based on the sequencing of the courses under the new curriculum.
The ANCOVA results are summarized in Panel B of Table 2. These results show that the new
curriculum has a positive impact on the total scores (F 8.61, p , 0.01). Total GPA, as expected,
also impacted total scores; major had a moderate impact, while class standing and timing of the
finance class had no total effect.11 Overall, the results suggest that the learning that took place with
the integrated course had a positive impact on student learning in the managerial accounting course.
Method 3: Compare Student Learning between Financial Analysis Questions in a Prior Class
to Financial Analysis Questions in Our Class
This final method attempts to cover the latter two learning objectives, in that we compare
students financial analysis skills relative to those under the old curriculum. Our last accreditation
results showed that our students had very poor financial analysis skills (documented below). One
intended goal of the integrated class was to shore up this weakness, which is in line with our
learning objectives.
Our college has a required capstone course taught by the management department. It is usually
taken in students senior year. In 2005, the results for a particular case were tabulated due to the
business schools upcoming accreditation. The case focused on various topics, including marketing,
management, general business, and financial analysis. The students were provided with background
information, five years of income statements, and summary balance sheet information. There were
four case questions, one for each topic. The last of these questions focused on financial analysis and
was separated into five subparts. Each question asked something specific about the financial
information and, for the most part, was relatively straightforward.12
The professors for the capstone class assigned a numerical number to the answers that ranged
from 0 to 3, as follows:

0: student unable to perform financial calculations.

1: student can perform less than 50 percent of financial calculations.
2: student can perform a majority of financial calculations and provides insight into meaning.
11
Even though class standing did not impact the overall results, we redid the ANCOVA using only sophomores
(and the sole freshman) under the new curriculum cell and made no changes to the old curriculum cell. This
change reduced the sample size from 69 to 19 in the new curriculum cell. The ANCOVA results for curriculum
remained the same ( p , 0.01), while major was no longer significant.
12
The questions were as follows: Why did the firm diversify? Calculate and explain what happened to operating
profit from 1997 to 1999. How has the total debt to total SE position changed from 1997 to 1999? What ratio,
using only income statement line items, reflects the changed debt position of Cannondale from 1997 to 1999?
Calculate and explain this ratio for 1997 and 1999.

Volume 27, No. 1, 2012
315
TABLE 2
Descriptive Statistics and ANCOVA
Panel A: Descriptive Statistics
n
Final Pointsa
Old Curriculum
64
78.74
(8.96)
3.32
72% A/F
(0.408) 28% Non-A/F
Before: 19
Same: 24
After: 21
New Curriculum
69
84.54
(8.83)
3.37
87% A/F
(0.392) 13% Non-A/F
Before: 0
Same: 2
After: 67
133
81.75
Totals
GPA
Majorb
Timing Finance Classc Class Standing

3% Freshman
81% Sophomore
14% Junior
2% Senior
1% Freshman
27% Sophomore
72% Junior
0% Senior
3.35
For all sections, total points were out of 100.

A/F indicates Accounting/Finance major.
Timing of the Introductory Finance class relative to Managerial Accounting. The Finance class was either taken before,
at the same time, or after the Managerial Accounting class.
This table provides descriptive statistics and the ANCOVA associated with the test that compared performance in the
managerial accounting class between the old and new curriculum.
b
c
Panel B: ANCOVA
Intercept
Grades
Major
Year
Curriculum
Finance Class
Error
SS
Degrees of
Freedom
MS
p-value
592.69
5323.26
107.05
15.37
254.76
2.00
3726.81
1
1
1
1
1
1
126
592.69
5323.26
107.05
15.37
254.76
2.00
29.58
20.04
179.97
3.62
0.52
8.61
0.068
,0.01
,0.01
0.06
0.47
,0.01
0.80
Grades represents the overall GPA for the individual students.

Major represents 1 for Accounting/Finance, and 2 for non-Accounting/Finance.
Year represents class standing; 1 for freshman/sophomore, 2 for junior/senior. As shown in Panel A, the vast
majority of students were sophomores and juniors.
3: student can perform a majority of financial calculations, understands meaning, and draws
implications from the financial analysis.
The instructors then combined the results from the financial analysis subpart questions to arrive
at a final performance result. The results showed that 17 percent of students scored a 0, 56
percent a 1, 15 percent a 2, and 12 percent a 3. The combined mean was 1.12. In the
accreditation report, it was noted that financial analysis was the weakest area and the area of greatest
variability across students (when compared to marketing, management, and general business).
The students in the new curriculum will not have completed this capstone course until Fall
2011/Spring 2012. As a result, we have no similar data for those that went through the new
curriculum. However, as a substitute, we identified four questions from our final exam that involved
financial analysis. Comparable to the capstone case, the final exam in the integrated course has, for
a given firm, three years of income statements; it also has three years of detailed balance sheets and
Volume 27, No. 1, 2012
316
cash flow statements, along with background information. Each of these four questions on our final
exam requires students to extract information from financial statements, and involves additional
processing relative to the questions described above in the management course. The additional
processing includes an additional number of times that students need to refer to the statements, and
additional number of processing steps when compared to the case questions (comparison is
summarized in Table 3, Panel A). The goal here is to identify questions that require students to
analyze financial statements, either as a final answer or to obtain information that will help generate
final answers, similar to the case in the capstone course. The primary constraint is finding questions
that are of equal difficulty; instead, the final exam questions that have a financial analysis
component include questions that are at a much higher level than the case questions.13
In order to make comparisons, we then created an algorithm to convert the answers for the final
exam questions into the same categorical format as the case questions. The final step of this process
was to collapse the four categories for each deliverable (final exam under new and case under old)
into two categories. For example, the final column in Panel A of Table 3 shows the raw scores on
the final exam that were classified into the 0/1 category (low financial analysis and minimal level
of understanding); the remainder were assigned into the 2/3 category (high financial analysis and
higher level of understanding). While we do not have this same detailed information regarding the
capstone case questions, we did collapse the four into two categories: categories 0 and 1 as
students performing less than 50 percent of financial calculations and minimal evidence of
understanding, and 2 and 3 as more than 50 percent and higher level of understanding, etc.
Similar to the final exam questions, the data for the case were aggregated by student across each
question so we could separate students into low and high performing. Finally, we performed a Chisquare test to see if the number of low (high) performing students under the old curriculum was
greater (less) than under the new curriculum. The results are summarized in Table 3, Panel B. The
results suggest that students under the new curriculum are able to perform financial analysis at a
much higher level compared to students under the old curriculum (v2 9.48; p 0.0021).14
CONCLUDING COMMENTS
The purpose of this paper is to describe the new undergraduate course at Villanova University
that integrates the Introduction to Financial Accounting and Principles of Finance courses. The goal
in combining the courses into a single team-taught course is to provide a richer and more dynamic
learning experience that corresponds to how these two disciplines exist in practice, and to overcome
the artificial barriers that exist between these classes when taught separately. There are several
learning objectives, with one being how financial statements and other financial information link to
firm value. This article provides descriptive evidence that the learning objectives achieved by the
new course are not being met when the accounting and finance courses are separate, but are met
when combined into one course.
13
One limitation of this analysis is potential differences in the grading scheme between the professors in the
management capstone course and the accounting/finance course (i.e., the authors). While we cannot be certain
that these potential differences impacted the results, we took several steps to account for such differences. The
first was to choose final exam questions that were inherently more difficult than the capstone case questions (See
Panel A, Table 3; specifically, columns # times referred to financial statements and # processing steps). In
addition, we created high thresholds for students to be classified as high financial analysis for the final exam
questions. For example, student needed to score 83 percent on Q1, 80 percent on Q2 and Q3, and 67 percent on
Q4 from our final exam to be classified as high financial analysis (see last column in Panel A, Table 3).
14
As noted above, financial analysis was a primary weakness with the old curriculum. Similar to our arguments
with the managerial accounting course, under the new curriculum, students learn this skill under one system (as
compared to two systems when separate classes). So these results are not surprising only in the sense that the
integrated course was targeted to improve financial analysis skills for all majors, not just accounting and finance.

Volume 27, No. 1, 2012
317
TABLE 3
Capstone Case Financial Analysis Qs versus Comparable Final Exam Q
Panel A: Descriptive Information about the Questions and the Process We Applied to
Conform to the Capstone Case Algorithm.
# Times Refer
to F/S
Possible Points
Number
Scores that
(Average
# Processing Score) on Final were Assigned Assigned 0/1
(2/3)c
a 0/1 (2/3)
Exam
Steps
New Curriculum Final

Exam Questions
Q1: Ratiosa
Q2: Sale of Asseta
Q3: Redeem Bonda
Q4: C/Budgetinga
3.5
0
1
2
2
1
1.2
0
2
2
2
2
1.6
Average
Old Curriculum Case
Questions
Q1: Why Diversityb
Q2: Change in Profitb
Q3: Change in Ratiob
Q4: Change in Debtb
Q5: Explain Ratiob
Average
7.00
(6.00)
5.00
(3.90)
5.00
(3.60)
12.00
(8.00)
05
(67)
03
(45)
03
(45)
07
(812)
NA
NA
NA
NA
Total 20
(27)
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
Total 38
(14)
Q1 requires students explain three ratios, and how such ratios can be used to identify misstatements in a particular
account. It is a relatively easy question and similar in difficulty to a capstone case question. Q2 requires students to
work backward by extracting information from the three financial statements to be used to back into the journal entry
for the sale of a depreciable asset. It is harder than the capstone case questions. Q3 requires students to extract
information from the financial statements to calculate a bonds market value and use this information, plus other
information from the financial statements, to prepare a journal entry for the bond redemption. It is a much harder
question than the capstone case questions. Q4 requires students to calculate cash flows from projected balance sheets
and income statements, and then use as an input to a capital budgeting problem. It is the most difficult of the four
questions.
b
Q1 has students answer the question Why did the firm diversify? Q2 requires students to calculate and explain what
happened to operating profit from 1997 to 1999. Q3 requires students to describe how the total debt to total SE position
changed from 1997 to 1999. Q4 requires students to identify the ratio that reflects the change in debt position from
1997 to 1999 using only income statement line items. Q5 has students calculate and explain this ratio.
c
The results used in the Chi-square analysis in Panel B were based on the combined performance across all questions
(four questions for the final exam and five for the capstone case) in order to evaluate each students overall
performance.

Volume 27, No. 1, 2012
318
TABLE 3 (continued)
Panel B: Descriptive Statistics and Chi-Square Data Inputs
Low-Level Financial Analysis

High-Level Financial Analysis
Average GPA
Average Number Acc/Fin
Number Acc/Finance Majors
Pre-New Curriculum
(Capstone Case Questions)
Post-New Curriculum
(Final Exam Questions)
38 (73.1%)
14 (26.9%)
20 (42.6%)
27 (57.4%)
52
47
3.36
9.00
61%
3.33
2.00
81%
Since its implementation, feedback has been received about this course from all the Big 4 firms
and the schools advisory councils.15 The feedback has been overwhelmingly positive, with the
primary comment being that the integrated course corresponds exactly to the direction of business,
especially with the growth of fair-value accounting. Overall, the accounting department has been
encouraged to investigate integrating with other classes. While much progress has been made with
this class, more work needs to be done. The authors would like to further develop assignments into
cases that expand on the current integration of these two classes. We would also like to have a case
that brings together many of the concepts discussed throughout the class. One of the concerns prior
to implementation was whether this course should be done at the introductory versus the senior
level. While both sides of the argument have merit, great benefits have been achieved by teaching
the integration in the introductory course. Students learn how the concepts fit together from the
ground up and can take these skills into their interviews, internships, and later courses.16 It is
possible that the benefits of integrating accounting and finance are so great that it would also benefit
our accounting and finance majors to have a capstone course, required in their senior year, to bring
together major concepts learned throughout their academic tenure. It is clear that business decisions
are not made in a vacuum. The more we can help prepare our students to understand how
accounting and finance relate, the better prepared they will be to function in the current business
environment. We believe that the benefits of the integrated introductory course are clear.
TEACHING NOTES
Teaching Notes are available only to full-member subscribers to Issues in Accounting
Education through the American Accounting Associations electronic publications system at http://
aaapubs.org/. Full-member subscribers should use their usernames and passwords for entry into the
system where the Teaching Notes can be reviewed and printed. Please do not make the Teaching
Notes available to students or post them on websites.
If you are a full member of AAA with a subscription to Issues in Accounting Education and
have any trouble accessing this material, then please contact the AAA headquarters office at info@
aaahq.org or (941) 921-7747.
15
When we make office visits to the firms, we make presentations to our alums that are in the office (often as high as
60 alums). While the focus of these presentations was not this course, we nevertheless discussed it to highlight
curriculum changes.
16
An analogy would be the common assumption that the best approach to teach a foreign language is to begin
young, because at this stage there are fewer obstacles to learning it in its purest form.

Volume 27, No. 1, 2012
319
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Block, S. B., G. A. Hirt, and B. R. Danielsen. 2001. Foundations of Financial Management. 14th Edition.
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Brealey, R. A., S. C. Myers, and A. J. Marcus. 2009. Fundamentals of Corporate Finance. 6th Edition.
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APPENDIX A
This appendix includes the following three deliverables for the Financial Management and
Reporting class.
1. In-Class Assignment: Stockholders Equity.
2. In-Class Assignment: Capital Budgeting.
3. Exam 2: March 30, 2010.
The first two are in-class assignments completed by students in groups. As noted in the paper,
the authors created these deliverables. If the groups did not finish the assignment during class
(which was not uncommon), then they were required to complete them on their own (sometimes
handed in for grading). There were nine in-class assignments, although one or two assignments
were lengthy and encompassed several topics. The third deliverable included in this appendix is a
sample of Exam 2, which was also created by the authors.
In Class Assignment: Stockholders Equity
Mack Corporation
Comparative Balance Sheets
At December 31
Cash
Accounts Receivable
Inventory
Prepaid Insurance
Total Current Assets
2009
2008
2007
210,000
315,000
436,000
15,000
780,000
265,000
405,000
18,000
1,530,000
240,000
330,000
21,000
976,000
1,468,000
2,121,000

Volume 27, No. 1, 2012
321
Land
Buildings
Less: Accumulated Depreciation
1,650,000
2,300,000
(560,000)
1,630,000
1,760,000
(490,000)
1,400,000
1,400,000
(440,000)
Net Buildings
Total Long-Term Assets
Total Assets
1,740,000
3,390,000
4,366,000
1,270,000
2,900,000
4,368,000
960,000
2,360,000
4,481,000
215,000
63,000
69,702
356,000
134,000
49,000
36,818
205,000
185,000
40,000
0
98,000
703,702
1,393,722
1,000,000
(41,583)
424,818
949,811
1,000,000
(48,317)
323,000
1,017,219
1,000,000
(54,603)
958,417
951,683
945,397
2,352,139
1,901,494
1,962,617
3,055,841
1,500,000
1,449,159
(1,639,000)
2,326,312
1,500,000
1,080,688
(539,000)
2,285,617
1,500,000
730,383
(35,000)
1,310,159
2,041,688
2,195,383
4,366,000
4,368,000
4,481,000
Accounts Payable
Salaries and Wages Payable
Dividends Payable
Notes PayableLine of Credit
Total Current Liabilities
Notes PayableLong-Term
Bonds Payable
Less: Discount on Bonds Payable
Net Bonds Payable
Total LT Liabilities
Total Liabilities
Contributed Capital
Retained Earnings
Treasury Stock
Total Stockholders Equity (SE)
Total Liabilities and SE
Mack Corporation
Income Statement
For the 12 Months Ended December 31
2009
2008
2007
Sales Revenue
Cost of Goods Sold Expense
Salaries and Wages Expense
Depreciation Expense-Building
Insurance Expense
4,010,000
(2,520,000)
(660,000)
(115,000)
(117,000)
3,400,000
(1,910,000)
(840,000)
(88,000)
(102,000)
2,300,000
(940,000)
(750,000)
(70,000)
(95,000)
Total Expenses
Operating Income
Interest ExpenseNotes
Interest ExpenseBonds
Gain (Loss) Sale of Buildings
Gain (Loss) Sale of Land
(3,412,000)
598,000
(76,911)
(66,734)
(2,000)
(3,000)
(2,940,000)
460,000
(69,591)
(66,286)
45,000
43,000
(1,855,000)
445,000
(54,749)
(65,868)
(51,000)
7,000
(148,645)
449,355
(47,877)
412,123
(164,617)
280,383
Total Other
Net Income
Earnings per share

Volume 27, No. 1, 2012
6.71
4.74
2.83
322
Mack Corporation
Statement of Cash Flows
Cash
Cash
Cash
Cash
Cash
Cash
received from customers

paid to suppliers
paid for salaries and wages
paid for insurance
paid for interestBonds
paid for interestNotes Payable
Net Cash from Operating

Investment in Land
Investment in Building
Sale of Building
Sale of Land
Net Cash from Investing
Proceeds (Payment) Notes Payable
(Purchase) Sale Treasury Stock
Dividends Paid
Cash from Financing
Net Change in Cash
Beginning Cash
Ending Cash
2009
2008
3,960,000
(2,470,000)
(646,000)
(114,000)
(60,000)
(76,911)
3,375,000
(2,036,000)
(831,000)
(99,000)
(60,000)
(69,591)
593,089
(300,000)
(930,000)
343,000
277,000
279,409
(1,420,000)
(640,000)
287,000
1,233,000
(610,000)
594,911
(1,100,000)
(48,000)
(540,000)
39,591
(504,000)
(25,000)
(553,089)
(570,000)
780,000
(489,409)
(750,000)
1,530,000
210,000
780,000
Mack and Industry Financial Ratios
Return on Equity
Dividend Payout
Return on Assets
Return on Sales
Asset Turnover
Current Ratio
Quick Ratio
Debt/Assets
Accounts Receivable Days
Inventory Days
Accounts Payable Days
Summary: Cash Conversion Days
2009
2008
2009/2008
Industry
0.27
0.18
0.10
0.11
0.92
1.39
0.75
0.70
26.40
60.91
25.59
61.71
0.19
0.15
0.09
0.12
0.77
3.46
2.46
0.53
27.11
70.23
31.73
65.61
0.14
0.10
0.10
0.11
1.02
2.35
1.75
0.35
19.50
41.50
28.40
32.60
Other Information Regarding Mack Corporation

Common Stock: The firm has 400,000 shares authorized and 100,000 shares issued at year-end
2007, 2008, and 2009.
Volume 27, No. 1, 2012
323
Treasury Stock: The firm purchased 1,000 shares of treasury stock at year-end 2007, 12,000 at
year-end 2008, and 20,000 at year-end 2009.
Market Valuation: The market price of the stock was $31 at year-end 2006, $35 at year-end
2007, $42 at year-end 2008, and $55 at year-end 2009.
For valuation purposes, industry experts use the dividend valuation model to value the
common equity interest of industry firms. Potential investors required rate of return
for this firm is 14 percent; growth rate is 13 percent for 2010 and 2011, and then
declines to 12 percent for all later years.
Market Returns: The stock returns for the market as a whole were as follows: 15.7 percent in
2007, 8.2 percent in 2008, and 12.1 percent in 2009.
Stockholders Equity In-Class Questions
1. a. For Mack, calculate the average stock return from 20072009.
b. Calculate the standard deviation over this same period.
c. Calculate the coefficient of variation over this period.
2. Assume that the CAPM holds, Mack Corporation has a beta of 1.50, and the 30-year U.S.
Treasury bonds sell at an 8 percent yield. Using the CAPM, calculate the firms required
rate of return.
3. Calculate the dollar amount of dividends that were declared during 2009.
4. a. Calculate the (intrinsic) value of the firms stock price at year-end 2009 using the
dividend growth model.
b. Compare the intrinsic value to the market value of the firm. Explain the difference.
c. Compare the intrinsic value and market value to the book value of the firm. Explain the
difference.
5. Prepare the journal entry to record the 2009 purchase of treasury stock.
6. Recalculate 2009 earnings per share, 2009 current ratio, and 2009 debt-to-assets assuming
the firm never purchased treasury stock (i.e., has zero treasury stock at year-end 2009), and
instead left the monies in cash.
7. Assume that management made a bold prediction to investors at year-end 2008 that 2009
EPS would be a minimum of $6.50 and that this would confirm the strong growth rate
experienced by the firm. At the same time, a member of the firms board of directors
complained about the use of capital to purchase Treasury Stock and said that management
should reinvest the monies back into the firm. Clearly, management believes that the
purchase of treasury stock over the past three years increased shareholder value. Who is
correctmanagement or the member of the board? Use numbers to support your answer.
8. There are three parts to this question:
a. Assume that the firm wants to purchase 5,000 more treasury shares in early 2010 and
then sell these same 5,000 shares at year-end 2010 when, at that time, the firm believes
that the market price will approximate $62 per share (below its year-end 2009 intrinsic
value). All else equal, is this purchase a good use of capital?
b. Are creditors happy with the decision to purchase the treasury stock?
c. Suppose that on January 1, 2010, the firm sells the 1,000 shares of TS purchased in 2007;
the firm sold this stock at the market price at year-end 2009. Prepare the journal entry to
record this transaction. Also, how does this transaction impact the three financial
statements?
Volume 27, No. 1, 2012
324
In-Class Assignment: Capital Budgeting

Mack Corporation
At December 31
2009
2008
2007
Cash
Accounts Receivable
Less: Allowance for Doubtful Accounts
210,000
410,000
(4,100)
780,000
360,000
(14,616)
1,530,000
300,000
(1,500)
Net Accounts Receivable

Inventory
Prepaid Insurance
405,900
436,000
15,000
345,384
405,000
18,000
298,500
330,000
21,000

Land
Buildings
1,066,900
1,650,000
2,300,000
(560,000)
1,548,384
1,630,000
1,760,000
(490,000)
2,179,500
1,400,000
1,400,000
(440,000)
Net Buildings
1,740,000
1,270,000
960,000

Total Assets
3,390,000
4,456,900
2,900,000
4,448,384
2,360,000
4,539,500
215,000
63,000
93,216
356,000
134,000
49,000
44,178
205,000
185,000
40,000
0
98,000

Notes PayableLong Term
Bonds Payable
Add: Premium on Bonds Payable
727,216
778,032
1,000,000
89,826
432,178
961,219
1,000,000
105,753
323,000
939,680
1,000,000
121,062
Net Bonds Payable
1,089,826
1,105,753
1,121,062
1,867,857
2,066,973
2,060,743
2,595,073
1,500,000
1,167,827
(806,000)
2,499,151
1,500,000
925,233
(476,000)
2,383,743
1,500,000
691,757
(36,000)
1,861,827
1,949,233
2,155,757
4,456,900
4,448,384
4,539,500
Accounts Payable
Dividends Payable
Total LT Liabilities
Total Liabilities
Contributed Capital
Retained Earnings
Treasury Stock
Mack Corporation
Income Statement
Sales Revenue
2009
4,010,000
(2,520,000)
2008
3,400,000
(1,810,000)
2007
2,300,000
(940,000)

Volume 27, No. 1, 2012

Salaries and Wages Expense
Depreciation ExpenseBuilding
Bad Debt Expense
Insurance Expense
Total Expenses
Operating Income
Loss from Inventory Write-Off
Total Other
Net Income Before Taxes
Income Tax Expense (30 percent rate)
Net Income
Earnings per share
325
(660,000)
(115,000)
(11,000)
(117,000)
(840,000)
(88,000)
(18,000)
(102,000)
(750,000)
(70,000)
(8,000)
(95,000)
(3,423,000)
587,000
(52,740)
(44,072)
0
(2,000)
(3,000)
(2,858,000)
542,000
(66,946)
(44,691)
(86,000)
45,000
43,000
(1,863,000)
437,000
(51,647)
(45,285)
0
(1,700)
7,000
(101,812)
485,188
145,556
(109,637)
432,363
129,709
(91,633)
345,367
103,610
339,631
302,654
241,757
4.04
3.40
2.44
Mack Corporation
2009
2008
3,938,484
(2,470,000)
(646,000)
(114,000)
(145,556)
(60,000)
(52,740)
3,335,116
(2,022,000)
(831,000)
(99,000)
(129,709)
(60,000)
(66,946)

Investment in Land
Sale of Building
Sale of Land
450,188
(300,000)
(930,000)
343,000
277,000
126,461
(1,420,000)
(640,000)
287,000
1,233,000

Proceeds (Payment) Notes Payable
(Purchase) Sale Treasury Stock
Dividends Paid
(610,000)
(32,188)
(330,000)
(48,000)
(540,000)
128,539
(440,000)
(25,000)
Cash from Financing

Net Change in Cash
Beginning Cash
(410,188)
(570,000)
780,000
(336,461)
(750,000)
1,530,000
210,000
780,000
Cash
Cash
Cash
Cash
Cash
Cash
Cash

paid to suppliers
paid for insurance
paid for income taxes
Ending Cash

Volume 27, No. 1, 2012
326
Mack and Industry Financial Ratios
Return on Equity
Dividend Payout
Return on Assets
Return on Sales
Asset Turnover
Current Ratio
Quick Ratio
Debt/Assets
Inventory Days
2009
2008
2009/2008
Industry
0.25
0.20
0.11
0.12
0.90
1.47
0.85
0.58
35.04
60.91
25.59
70.36
0.21
0.16
0.10
0.13
0.76
3.58
2.64
0.56
35.43
74.11
33.55
75.98
0.19
0.10
0.10
0.11
1.02
2.35
1.75
0.35
35.68
41.50
28.40
48.78
Capital Budgeting Problem (In-Class)

Included above are the Mack Corporation financial statements, which are the same financial
statements used for the Inventory In-Class assignment. Use these financial statements, along with
the below information, to answer the questions.
1. Calculate the weighted average cost of capital for Mack as of year-end 2009.
Mack purchased equipment in order to facilitate the processing of its product (with the intent of
expanding its revenue) over the next few years. At the end of this project (end of 2013), a supplier
will begin to take over the processing of this product. A few facts about the purchase are listed
below:

The cost of the equipment, including shipping and installation, is $400,000the entire
amount will be paid in cash. The equipment will be purchased early 2010.
The life of the equipment is four years (end of 2013), at which time it is expected to sell for
$40,000.
The firm will initially purchase $200,000 of inventory; 70 percent of inventory purchases
over the life of this project will be financed via accounts payable.
Recurring cash flows occur at year-end of each year, and termination cash flows occur at
year-end 2013.
All cash flows generated each year are paid to the firm (i.e., owner of the project).
Based on this information, the firm has prepared the projected balance sheet and income
statements for this project.
Projected Balance Sheets

Beginning 2010
End 2010
End 2011
End 2012
End 2013
Cash
Accounts Receivable
Inventory
0
0
200,000
0
40,000
230,000
0
60,000
250,000
0
70,000
260,000
0
0
0
Current Assets
200,000
270,000
310,000
330,000

Volume 27, No. 1, 2012
327
Equipment
Less: Accumulated Depr.
400,000
0
400,000
(132,000)
400,000
(312,000)
400,000
(372,000)
Net Equipment
Other
400,000
0
268,000
0
88,000
0
28,000
0
0
0
400,000
268,000
88,000
28,000
Total Assets
600,000
538,000
398,000
358,000
Accounts Payable
140,000
161,000
175,000
182,000
Total Liabilities
Equity
140,000
460,000
161,000
377,000
175,000
223,000
182,000
176,000
0
0
Total L Equity
600,000
538,000
398,000
358,000
400,000
(400,000)
Projected Income Statements

2010
2011
2012
2013
Sales Revenue
Salaries Expense
Depreciation Expense
Other Expense
440,000
140,000
60,000
132,000
10,000
510,000
160,000
75,000
180,000
10,000
560,000
210,000
90,000
60,000
10,000
630,000
250,000
120,000
28,000
10,000
Total Operating Expenses

Gain (Loss) Sale Asset
Net Income Before Taxes
Income Tax Expense
342,000
0
98,000
29,400
425,000
0
85,000
25,500
370,000
0
190,000
57,000
408,000
40,000
262,000
78,600
68,600
59,500
133,000
183,400
Net Income
Please answer the following questions associated with the above information:
2. Calculate the cash flows associated with this project. Calculate these cash flows by year, and
for 2010, separately calculate the cash flows that occur at the beginning and end of the year.
So you will have five cash flow calculations:
a.
b.
c.
d.
e.
Beginning of 2010.
End of 2010.
End of 2011.
End of 2012.
End of 2013 (includes recurring cash flows and termination cash flows).
3. Compare the aggregate undiscounted cash flows to the aggregate net income flows. Explain
the difference (if any).
4. Calculate the present value of the future cash flows.
5. Calculate the net present value and internal rate of return associated with this project.
6. Should the firm accept or reject this project?
7. Compare the internal rate of return to the weighted average cost of capital. Is the difference
between the IRR and WACC consistent with ROE?

Volume 27, No. 1, 2012
328
Exam 2
March 30, 2010
Name:___________________________________
Read the following before proceeding with the exam:

You must provide support for your responses to all questions.

For all present value problems, supporting calculations must be rounded to four decimal
places and final answers rounded to two decimal places.
Below are the financial statements for Sunshine Corporation (aka The Firm) followed by other,
more general information about the economy, stock market, and Sunshine.
Sunshine Corporation
At December 31
2009
2008
710,000
494,000
526,000
46,000
625,000
450,000
487,000
51,000
560,000
410,000
443,000
43,000

Land
Buildings
1,776,000
1,520,000
2,530,000
(550,000)
1,613,000
1,340,000
2,440,000
(480,000)
1,456,000
1,400,000
2,350,000
(420,000)
Net Buildings
Total Assets
1,980,000
3,500,000
5,276,000
1,960,000
3,300,000
4,913,000
1,930,000
3,330,000
4,786,000
284,000
83,000
47,044
212,000
277,000
74,000
37,995
230,000
240,000
67,000
44,000
210,000
626,044
2,090,587
1,000,000
(249,244)
618,995
1,609,831
1,000,000
(263,260)
561,000
1,105,421
1,000,000
(275,973)
750,756
736,740
724,027
2,841,343
2,346,571
1,829,448
3,467,387
500,000
3,424,613
(2,116,000)
2,965,566
500,000
2,679,434
(1,232,000)
2,390,448
500,000
1,983,552
(88,000)
1,808,613
1,947,434
2,395,552
5,276,000
4,913,000
4,786,000
Cash
Accounts Receivable
Inventory
Prepaid Insurance
Accounts Payable
Dividends Payable
Notes PayableLong Term
Bonds Payable
Less: Discount on Bonds Payable
Net Bonds Payable
Total Long-Term Liabilities
Total Liabilities
Contributed Capital
Retained Earnings
Treasury Stock
2007

Volume 27, No. 1, 2012
329
Income Statement
2009
2008
2007
Sales
Cost of Goods Sold
Salaries and Wages
Depreciation-Building
Insurance
6,150,000
(3,890,000)
(912,000)
(134,000)
(78,000)
5,150,000
(3,215,000)
(875,000)
(123,000)
(92,000)
3,450,000
(1,680,000)
(823,000)
(120,000)
(89,000)
Total Expenses
Operating Income
(5,014,000)
1,136,000
(134,757)
(74,016)
(120,000)
(31,000)
(4,305,000)
845,000
(95,410)
(72,713)
21,000
27,000
(2,712,000)
738,000
(43,917)
(71,531)
38,000
(77,000)
(359,773)
776,227
(120,123)
724,877
(154,448)
583,552
Total Other
Net Income
Earnings Per Share (EPS)
6.16
4.77
2.98
2009
2008
6,106,000
(3,922,000)
(903,000)
(73,000)
(60,000)
(134,757)
5,110,000
(3,222,000)
(868,000)
(100,000)
(60,000)
(95,410)
1,013,243
(790,000)
(770,000)
496,000
579,000
764,590
(980,000)
(720,000)
588,000
1,067,000

Proceeds (Payment) Notes Pay
Purchase of Treasury Stock
Dividends Paid
(485,000)
462,757
(884,000)
(22,000)
(45,000)
524,410
(1,144,000)
(35,000)
Cash from Financing

Net Change in Cash
Beginning Cash
(443,243)
85,000
625,000
(654,590)
65,000
560,000
710,000
625,000
Cash
Cash
Cash
Cash
Cash
Cash

paid to suppliers
paid for insurance

Investment in Land
Sale of Building
Sale of Land
Ending Cash

Volume 27, No. 1, 2012
330
Sunshine and Industry Financial Ratios
Return on Equity
Dividend Payout
Return on Assets
Return on Sales
Asset Turnover
Current Ratio
Quick Ratio
Debt/Assets
Inventory Days
2009
2008
2009/2008 Industry
0.41
0.04
0.15
0.13
1.21
2.84
1.92
0.54
28.01
47.53
26.59
48.95
0.33
0.04
0.15
0.14
1.06
2.61
1.74
0.48
30.48
52.79
29.75
53.51
0.16
0.12
0.09
0.09
0.90
2.75
1.82
0.20
32.01
49.53
24.59
56.95
Other Information
Bonds Payable: On December 31, 1999, the firm issued 1,000 bonds with a 20-year maturity.
The bonds pay interest every six months (June 30 and December 31), and the yield to
maturity/effective interest rate is 10 percent.
Stock Price-Firm: The market price of the stock ( per the stock exchange) was $34 at
year-end 2009, $26 at year-end 2008, $22 at year-end 2007, and $17 at year-end
2006.
Market Information: The average return in the market over 20072009 is 12 percent, and its
standard deviation 6.50 percent.
Treasury Bonds: The average rate on U.S. Treasury bonds was 5 percent.
Stock Shares: The firm has 600,000 authorized shares and 200,000 issued, and 126,000
outstanding at year-end 2009.
Stock Valuation Data: The required rate of return demanded by investors approximates 17
percent. The firms beta is 1.75. The firm estimates that the growth rate in dividends is 20
percent for 2010 and 2011, and 14 for all years thereafter.
Treasury Stock: The firm had zero treasury stock at year-end 2006. The firm purchased 4,000
treasury shares at year-end 2007, 44,000 at year-end 2008, and 26,000 at year-end 2009.
There were no sales of treasury stock during this periodonly purchases of treasury
stock.
Financial Ratio Formulas
Return on Equity: Net Income/Average Stockholders Equity
Dividend Payout: Dividends Declared/Net Income
Return on Assets: Net Income/Average Total Assets
Asset Turnover: Total Sales/Average Assets
Current Ratio: Current Assets/Current Liabilities
Quick Ratio: (Cash Marketable Securities A/R)/Current Liabilities
Debt-Asset Ratio: Total Liabilities/Total Assets
Accounts Receivable Days: 365/A/R Turnover
Inventory Days: 365/Inventory Turnover
Accounts Payable: 365/A/P Turnover
Cash Conversion Days: A/R Days Inventory Days A/P Days
Volume 27, No. 1, 2012
331
Other Financial Ratio Formulas

A/R Turnover: Total Sales/Average Accounts Receivable.
Inventory Turnover: Total Cost of Goods Sold Expense/Average Inventory.
Accounts Payable Turnover: Purchases/Average Accounts Payable.
Finance Formulas
r r IP DRP LP MRP
Bonds Current yieldCY
Annual coupon payment

Capitol gains yield CGY
Current price
Change in price
:
Beginning price
^r R ri Pi :
i1
r
r
CV
R ri ^r 2 Pi :
i1
Std Dev:
r^r :
Mean
s
Rni1 ri r 2
Estimated r
:
N1
SML : ri rRF rM rRFbi:
^ 0 D0 1 g D1 :
P
rs g
rs g
Common Stock: Dividend Yield D1/P0Capital gains yield (P1 P0)/P0.
^ 0 PMT :
Perpetuity: P
r
Questions: Specific to Sunshine Corporation unless Otherwise Indicated
Bond Questions (Questions 17; 52 Points)
1. Prepare the journal entry to record the sale of bonds on December 31, 1999. (five points)
2. Calculate total interest expense that will be recorded on the books from January 2, 2000,
through December 31, 2007 (assume zero interest expense during 1999). (five points)
3. Assume that the yield-to-maturity at December 31, 2008, and December 31, 2009, is still 10
percent. Also assume that an investor decides to purchase these bonds in the open market at
December 31, 2008, for $736,740, and then sell these bonds one year later (e.g., at
December 31, 2009). What is the dollar return (e.g., income/gains) that the investor will
earn during 2009 from this investment? How much of this return is attributed to interest and
how much to change in price of the bond? (five points)

Volume 27, No. 1, 2012
332
4. a. Assume that the firm is contemplating purchasing its bonds in the open market on
December 31, 2012, for $748,485. What is the yield-to-maturity for these bonds on this
date? (five points)
b. Assume that the change in the yield to maturity is due solely to default risk, and this
change in default risk is due to a change in the bonds ratings. As a result, would this
rating have increased (upgrade) or decreased (downgrade). Explain. (four points)
5. This question is a continuation from Question 4.
a. Assume that the firm purchases the bonds on December 31, 2012, for $748,485. Prepare
the journal entry to record this purchase. (six points)
b. Summarize how this purchase impacts total assets, total liabilities, total stockholders
equity, net income, cash flow from operating activities, cash flow from investing
activities, and cash flow from financing activities. (nine points)
6. Assume that on January 1, 2010, the firm sold another bond issue (20 years, semi-annual
interest). The coupon rate was 6 percent, yield-to-maturity is 4 percent, and face value is
$1,000,000 (1,000 bonds were sold that day).
a. Calculate the sales price of these bonds. (four points)
b. Prepare the journal entry to record interest expense for the first six months of 2010
(January 1, 2010, through June 30, 2010). (five points)
7. This problem is a general problem and not specific to Sunshine. The real risk-free rate,
r*, is 2.75 percent. Inflation is expected to average 2.9 percent per year for the next
four years, after which time inflation is expected to average 3.6 percent per year. The
maturity risk premium equals 0.1 (t1) percent, where t the bonds maturity. A
seven-year corporate bond has a yield (r) of 9.2 percent, which includes a liquidity
premium of 0.75 percent. What is this bonds default risk premium (DRP)? (four
points)
Stock Questions (Questions 811; 48 Points)
8. An intern is confused. She is looking at the December 31, 2008, balance sheet and focusing
on the $1,232,000 treasury stock amount. She is trying to provide support that shows how
the firm arrived at this amount. Provide this support. (four points)
9. The firm believes that its stock price at December 31, 2009, does not accurately reflect its
intrinsic value on the same date. Assume that 2009 dividends were $31,049.
a.
b.
c.
d.
Calculate the intrinsic value of stock at year-end 2009. (nine points)

Explain the pros and cons of purchasing the treasury stock at year-end 2009. (five points)
What is the dividend and capital gains yield for 2010? (two points)
What is the dividend and capital gains yield for 2012? (two points)
10. Recalculate 2009 total assets, 2009 total liabilities, and 2009 total stockholders
equity assuming the firm did not purchase any treasury stock during 2009. (five
points)
11. Please refer to the background information for some of these problems. During the period
20072009, the firms closest competitor had stock price activity that resulted in an
average stock return of 25.7 percent with a standard deviation of 19.275 percent. This
competitors beta is 1.20.

Volume 27, No. 1, 2012
333
a. Based on stand-alone risk and using the Coefficient of Variation, which firm is riskier,
our firm or our competitor? Explain your answer. (eight points)
b. Calculate the required rates of return for our firm and for our competitor. Show the detail
to your work. (four points)
c. If the return on the market were to fall from its current level of 12 percent to 9 percent,
what would be the resulting impact on required return for our firm and for our
competitor? What explains the difference between the two firms (be specific in your
answer)? (six points)
d. If an investor held a portfolio consisting of equal percentages of the market portfolio, the
firms stock, and the competitors stock, what would the beta of this portfolio be? (three
points)
APPENDIX B
AN INTEGRATED APPROACH TO BEGINNING FINANCIAL ACCOUNTING AND
FINANCE COURSES
SYLLABUS
Required Texts
Finance: Brigham and Houston: Fundamentals of Financial Management, Concise 7th Edition.
South-Western Cengage Learning.
and
Accounting: Paul D. Kimmel, Jerry J. Weygandt, and Donald E. Kieso: Financial Accounting:
Tools for Business Decision Making, 5th Edition. Wiley (looseleaf edition, but hardbound
is fine, as well).
Recommended Reading
You should read the Wall Street Journal and articles in other financial press outlets (e.g.,
Business Week, Barrons) in order to keep up with current events.
Villanova Universitys Course Catalog Description
Integrative perspective in understanding financial issues in business. Transaction analysis,
valuation, revenue recognition, expense matching, cash flow, time value of money, risk/return,
working capital management, capital budgeting, cost of capital covered. Satisfies Financial
Accounting, Introduction to Finance requirements.
Course Prerequisites
Business Dynamics I, Business Dynamics II, Information Technology, ECO 1001 Intro to
Micro, ECO 1002 Intro to Macro, and Business Statistics (statistics may be taken concurrently).
Objectives/Outcomes
Develop and maintain a course that supports the educational objectives of the Department,
College, and University Strategic Plans. Reflect in the course learning objectives, delivery to
students, and outcome assessments, the requisite technical knowledge, attributes, and skill sets
Volume 27, No. 1, 2012
334
appropriate for an introductory/survey course required of all Villanova students. Prepare students to
solve real-world problems and prepare students for future academic work. Discussions of selected
ethical and international issues encountered in todays economic environment are key elements of
this course.
Enable students to evaluate a firm by understanding underlying business (economic)
transactions and their impact on the firms financial statements. Utilize that understanding to
value the firms stocks and bonds, and provide input into the corporate financial managers decision
on which assets are needed to accomplish the firms mission and how to finance those assets.
Provide students with the tools to do their analysisan understanding of: GAAP versus IFRS,
the accounting cycle, financial statement elements, valuation and allocation of assets, liabilities, and
owners equity, accruals versus deferrals, time value of money concepts, risk measurement and
analysis, working capital management, debt versus equity financing, capital budgeting, and cash
flow versus income measurements.
Grading
Exam 1
Exam 2
Comprehensive Final Exam
Assignments/Attendance/Participation
25%
25%
40%
10%
100%
At semester end, the instructors reserve the option to award points based on improvement or
other relevant criteria (e.g., professionalism during class).
Current Events
The instructors will assign students to groups of two and then assign a presentation date
for each group. Each group is required to find an article in the financial press (e.g., WSJ,
CFO.com, etc.) that relates to issues discussed in class. The group is required to email the
article and two discussion questions to the class (including the professors) at least two days
prior to their presentation date. Thus, the deadline is Sunday at 11:59 PM if you present on
Tuesday, and Tuesday at 11:59 PM if you present on Thursday. On the presentation date, the
group will summarize why the article relates to the issues discussed in class. This summary
should take no more than five minutes, and the group is not allowed to use PowerPoint,
handouts, etc.
Each group presentation will be graded on a scale of 1 (lowest) to 5 (highest). The
instructors reserve the right to assign individual grades to each group member. Students that email
their article past the deadline date will lose one scale point in their presentation grade.
Week 1: Jan 11
Jan 13
Week 2: Jan 18
Day 1:
Introduction to disciplines of accounting and financegoal of the firm, agency
conflicts. Overview of financial markets and institutions.
Finance: Read Chapter 1 and 2
Accounting: Read Chapter 1
Day 2:
Introduction to financial statements, balance sheet, book value versus market value,
debits and credits, balance sheet transactions.
Accounting: Read Kimmel Ch 2; Skim Kimmel Ch 3
Day 1:
Income statement, accrual accounting (revenue recognition and matching) versus
cash basis accounting, income statement transactions.
Accounting: Read Kimmel Ch 3; Skim Kimmel Ch 4

Volume 27, No. 1, 2012

Jan 20
Week 3: Jan 25
Jan 27
Week 4: Feb 1
Feb 3
Week 5: Feb 8
Feb 10
Week 6: Feb 15
Feb 17
Week 7: Feb 22
Feb 24
Week of Feb 28th

Week 8: March 8
March 10
335
Day 2:
Adjusting entries, closing entries, direct method statement of cash flows.
Accounting: Read Kimmel Ch 4
Accounting: Read Kimmel Ch 12 (601609 and 625632; skip 609625).
Day 1:
Contd
IFRS versus GAAP; impact on financial statements.
Accounting: Review Chapter 4.
Accounting Basics In-Class Assignment
Day 2:
Introduction to financial statement analysis
Accounting: Read Ch 2 (5861); Ch 11 (572572); Ch 5 (243244); Ch 9 (448
449).
Day 1:
Contd with Intro to financial statement analysis
Profitability In-Class Assignment
Day 2:
Working capital management and policiescurrent vs. non-current, cash
management.
Finance: Read Chapter 15 (514524, 529532)
Working Capital Management In-Class Assignment
Day 1:
Introduction to Time Value of Money: Basic FV, PV, FVA, PVA calculations;
Solving for N, I/Y, PMT; Frequent compounding of interest; EAR; Applications
of TVM: retirement planning, loan amortization.
Finance: Read Chapter 5
Day 2:
Continue with Time Value of Money
Day 1:
Finish exam material and exam review
Day 2
EXAM 1
Day 1:
Risk analysis, interest rates in the market. Debt financing (Bonds)bond valuation,
accounting for bonds, market value versus book value of bonds.
Finance: Read Chapters 6 (pages 187201, 204end) and 7 (pages 215227,
229234, 239end)
Accounting: Read Chapter 10 (pages 494503) and Read Appendix 10B (pages
515519).
Day 2:
Bond valuation and accounting for bonds continued.
Bond In-Class Assignment
No Class: Spring Break Week
Day 1:
Measuring risk and return in probability distributions, samples using historical data,
portfolio.
Finance: Read Chapter 8
Day 2
Estimating beta; capital asset pricing model

Volume 27, No. 1, 2012
336
Week 9: March 15
March 17
Week 10: March 22
March 24
Week 11: March 29
March 31
Week 12: April 5
April 7
Week 13: April 12
April 14
Week 14: April 19
April 21
Week 15: April 26
April 28
Final Exam April 30
Day 1:
Equity financing (Stock)stock valuation models.
Finance: Read Chapter 9 (pages 298316, 321end)
Day 2:
Accounting for stock transactions (issuance, cash dividends, stock buyback).
Accounting: Read Chapter 11 (pages 555572) and Review Chapter 11 (pages
572576).
Stockholders Equity In-Class Assignment
Day 1:
Accounting for stock transactions cont.
Review for Exam 2.
Day 2:
EXAM 2
Day 1:
Granting credit to customers, accounting for bad debts, analyzing equity financing,
bad debt accounting to assess credit risk.
Accounting: Read Chapter 7 (pages 343348) and Chapter 8 (pages 384396)
Accounts Receivable In-Class Assignment
Day 2:
A/R continued. Inventory purchase policy, accounting for inventory (LIFO, FIFO,
WA; estimating inventory value, write-offs).
Investment policy, fair value accounting, accounting for trading and available for
sale securities.
Accounting: Read Chapter 6 (pages 274289; 290291).
Day 1:
Finish inventory. Accounting for longterm assets (purchase, post-acquisition costs,
cost allocation (depreciation), and disposal and intangibles.
Accounting: Read Chapter 9 (pages 432448 and 451456)
Inventory In-Class Assignment
Day 2:
Valuing long-term assets, impairment losses.
Estimating cost of capital. Begin Capital budgeting: estimating incremental cash
flows, project selection methods, risks in capital budgeting.
Finance: Read Chapters 10 and 11 (367376, 387end of chapter)
PP&E In-Class Assignment
Day 1:
Capital budgeting continued.
Finance: Read Chapter 12 (399409, 423end)
Day 2:
Finish capital budgeting
Capital Budgeting In-Class Assignment
Day 1:
Cash Flow Statement Revisited
Accounting: Read Chapter 12 (609625)
Day 2:
Easter Recess
Day 1:
No Class: Deemed a Friday
Day 2:
Exam Review
As scheduled per the Registrar: Saturday, April 30th Start time 8 AM

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ISSUES IN ACCOUNTING EDUCATION

Vol. 27, No. 1

American Accounting Association

An Integrated Approach to Beginning

n a traditional business curriculum, the core body of knowledge is offered in discrete

Published Online: December 2011

McWilliams and Peters

An Integrated Approach to Beginning Financial Accounting and Finance Courses

COURSE CONTENT AND LEARNING OBJECTIVES

An overview of the corporation (i.e., the firm);

Issues in Accounting Education

McWilliams and Peters

Growth (ROE, Dividend Payout)

An Integrated Approach to Beginning Financial Accounting and Finance Courses

Dividends declared are backed into via the financial statements.

Issues in Accounting Education

McWilliams and Peters

An understanding of fundamental accounting and finance concepts, such as building and

Issues in Accounting Education

An Integrated Approach to Beginning Financial Accounting and Finance Courses

Issues in Accounting Education

McWilliams and Peters

An Integrated Approach to Beginning Financial Accounting and Finance Courses

INSTRUCTOR QUALITIES AND CHARACTERISTICS

Issues in Accounting Education

McWilliams and Peters

Issues in Accounting Education

Issues in Accounting Education

Integration in Accounting and Finance Textbooks and Cases

(continued on next page)

An Integrated Approach to Beginning Financial Accounting and Finance Courses

Issues in Accounting Education

(continued on next page)

Issues in Accounting Education

(continued on next page)

An Integrated Approach to Beginning Financial Accounting and Finance Courses

Issues in Accounting Education

An Integrated Approach to Beginning Financial Accounting and Finance Courses

Issues in Accounting Education

McWilliams and Peters

0: student unable to perform financial calculations.

Issues in Accounting Education

An Integrated Approach to Beginning Financial Accounting and Finance Courses

Timing Finance Classc Class Standing

For all sections, total points were out of 100.

Grades represents the overall GPA for the individual students.

McWilliams and Peters

Issues in Accounting Education

An Integrated Approach to Beginning Financial Accounting and Finance Courses

New Curriculum Final

Q2: Sale of Asseta

Q3: Redeem Bonda

(continued on next page)

Issues in Accounting Education

McWilliams and Peters

Low-Level Financial Analysis

Issues in Accounting Education

An Integrated Approach to Beginning Financial Accounting and Finance Courses

McWilliams and Peters

Issues in Accounting Education

An Integrated Approach to Beginning Financial Accounting and Finance Courses

Issues in Accounting Education

McWilliams and Peters