What Is The Purpose of a Final Examination?

Why do you give a final exam to your classes? What do you hope to accomplish? I have talked with lots of professors over the years and their strategies for giving final examinations seem to vary significantly from one to the next:
--It is a comprehensive examination on the material from the entire semester with a major grade component.
--It is a one-hour test on just the material since the last hourly exam with no added weight in comparison to other tests.
--It is basically ignored; it is the work for the entire semester that is more important than what a person can do on one day at the end of the semester.
--It is a little harder than a one-hour test but students can only improve their grades and cannot hurt them.

I do know that as I walk through our building during final exams that most students seem to leave well before the three-hour time limit is reached. I am not sure that many final exams are still three hours in length.

I have always been interested in the final exams that are given by some law school professors. The entire grade for the whole semester is based on what the student can do on the final exam questions. Nothing else counts. The rationale is that, if you are going to be a lawyer, you need to be at your very best every day that you walk into court no matter what is thrown at you. There can be no down days.

However, I am teaching 19-20 year old sophomores and juniors in college and not 25-30 year old law students. I am afraid that I would have students facing nervous breakdowns if I put the whole grade on the final exam.

So, what are my goals for the final exam? Psychologically, what am I trying to accomplish?
---I want students to stay emotionally involved with my class all the way through the last day. I am not interested in them quitting early. Thus, the final exam has to count enough to make it worth their time to keep working. In my 201 class, the final exam is 35 percent of the overall grade. I have found that this is enough to keep them emotionally involved.
---I want to give students who do poorly on the first (and, even, second) test of the semester a chance to improve their grades. If a student makes a C or a D (or an F) on the first test, it can be very disheartening. It is easy to give up. I do everything I can to keep them from giving up. I like to be able to say “if you can show me that you can learn this material, you still have a lot of your grade left to earn including a comprehensive final examination.” Nothing pleases me more than for a student to make a low C or a D on the first test and then come roaring back to make an A for the course. That is hard to do unless the final examination has a pretty serious weight attached to it.
---Likewise, I don’t like students who do well on the first test to get complacent and think they have an A in the bag. “Good job on this first test but realize that there is a lot of semester left and I want you to keep up this level of work from beginning to end.”
---I want students to understand the material well enough that they can still answer questions from throughout the semester at the end. If we cover inventory in February, I think they should still be able to answer questions on that topic in early May. Since I want to stress understanding more than memorization, I don’t think that is too much to ask.

As a result, I do give a comprehensive final examination and I do grade it and that grade (for better or worse) counts 35 percent of the overall course grade. In my introductory course financial accounting course, I want the first student to leave after 2 hours and the last student to finish at 3 hours. I like it when about half stay virtually the whole time. For intermediate accounting, I want the first person to finish in three hours but everyone else is relatively close to being finished. The material in that course is so complicated that I don’t see how a final exam can take less than three hours.

So, I line up all the topics for the entire semester on a sheet of paper and pick one pretty much at random (nonmonetary exchanges, for example). I then ask myself – if one of my students is at a job in six-months and this topic is raised, what should I expect an A student to be able to remember after five minutes of review? In all honesty, I would love to say “what should I expect an A student to be able to remember immediately” but I don’t think that is realistic. People forget everything quickly (even financial accounting). 39 years of teaching has shown me that students never remember quite as much as you might hope.

Based on the answer to that question, I write a problem to see if they still hold that level of knowledge now. For example, a company buys a truck on January 1, Year One for $80,000 with a $6,000 residual value. It has an estimated life of 10 years and the company is using double-declining balance depreciation without the half-year convention. On April 1, Year Three, when this truck is worth $53,200, it is traded for another truck which is worth $53,600. What gain or loss (if any) does the company record on the exchange?

The rule is straight-forward here. Not an easy question but not an impossibly hard question.
If students truly understand GAAP in this area, even after six months, with five-minutes of solid review, they should be able to answer this question.
Thus, I would use it as an appropriate final examination question.

Setting up the final exam in this way keeps the students (I hope) thinking about financial accounting all the way until the end of the semester. And, it gives them one last chance to make up for any poor grades they have earned during the semester.

What’s your philosophy? Why do you give a final exam?

Request for Assistance

If you teach financial accounting, I have a request for you. A friend of mine recently gave me a list of articles (from newspapers, journals, and the like) that he uses in teaching financial accounting. I thought it might be interesting to create a more complete reading list of articles about financial accounting or the topics within financial accounting that I could post for teachers in connection with the new Financial Accounting textbook that I recently wrote with CJ Skender. I am always looking for creative/innovative things to add to "the package" to make the learning process better for teachers and students both. Consequently, if any of you who read this blog have articles that you use in teaching financial accounting or know of articles that might apply, could you send them to me? Just a list of the publication and date would be fine - I can dig them up from there. Just send me a note at Jhoyle@richmond.edu.

Likewise, if you've ever thought "I wish a textbook had the following," let me know. FlatWorldKnowledge (the book’s publisher) has let me do whatever I thought might be helpful for student learning but I'm always limited to my own ideas. If you have suggestions, I would love to hear them.

I always believe that a textbook should be more of a community project. I would love for you to be part of that community in connection with this textbook.

Making Summer Count

In his book Outliers, Malcolm Gladwell talks about how much knowledge students lose over the summer time. Although he is looking at younger students, the amount is incredible. For some reason, we seem to hold the philosophy that summer time is a “no brain” time where students should do as little as possible that might stimulate their thinking. I’m not sure that is a very good idea.

Consequently, last week, I sent an email message to the 37 students who will be in my Financial Accounting courses next fall. (I will also be teaching one section of Intermediate Accounting II.)

I wanted to get the students’ attention.
I wanted to start convincing them that Financial Accounting was going to be challenging but very much worth that challenge.

Most importantly, I wanted them to have the opportunity to make use of their summer vacation to get ready for next fall. Why not? What is wrong with wanting to learn more? I don’t accept the premise that my students want to learn as little as possible. Some students certainly have little ambition but most, from my experience, don’t mind spending the time if they think the effort is worthwhile.

So, I sent them the following email. Please note that I have assigned my own Financial Accounting textbook here. However, since the textbook is a FREE online textbook, you can still use this “summer assignment” even if you have chosen to use some other book in the fall. There are some real advantages to “FREE online.”

(Interestingly, I got several emails in return from my future students talking about how much they were looking forward to the class.)

Email sent to the students who signed up for my Financial Accounting course in the fall:

“Hi, I’m on the faculty here at the University of Richmond and I am sending this note to the 37 students who have signed up for my two Accounting 201 sections for the fall semester. Okay, I realize that some of you will have to switch sections before the fall semester begins but I imagine that 80-90 percent of you will be in my class next fall.

“I want this to be a great experience for you. I don’t want this to be “just another class.” I want you to work hard; I want you to learn a ton; I want you to enjoy the process. On the last day of the class, I want you to walk away and say “Wow, I didn’t know learning could be that great.”

“To help make this happen, I want to convey a bit of information to you today before you leave campus for the summer. Please take time to read all of this note so that we are on the same page.

“First--My 201 classes in the fall semester will use the Financial Accounting textbook that I wrote with C. J. Skender (of UNC). This is a free online textbook. So, if you get bored over the summer, you can start reading now. That would give you a huge head start for the fall. Instead of rushing to finish assignments, you could read the book leisurely over the summer. Go to www.flatworldknowledge.com. Click on “catalogue.” Then, under “Business and Economics,” click on “Accounting and Tax” and then on “Financial Accounting.” At that point, you should see a list of chapters. Click on Chapter 1 and start reading. If you read 5 minutes per day, you could read the entire book over the summer.

“When I designed this book, I was trying to “revolutionize” textbooks so you’ll find that it is different. It is written entirely in a question and answer format (the Socratic Method) and has videos and embedded multiple-choice questions. I used it in my class this semester and, although they might not be too honest with me, the students seemed to find the reading interesting and informative.

“When you come back in the fall, the book store will have color copies available for roughly $60.00 and black and white copies for roughly $30.00. However, as far as I’m concerned, use the online version and save your money.

“Second--The world of business is absolutely fascinating. Whether it is marketing, production, finance, human resources, or accounting, it is like a giant puzzle with an infinite amount to figure out. Most college students walk into a 201 class on the first day with little serious knowledge about business. As teen-agers, most students just miss out on the fun of business. What is it like to start a business? What is it like to talk customers into buying your products? What is it like to find the money needed for expansion? The more you learn, the more the business world will open to you. One strong suggestion that I would have is to spend an hour or two in the library each week and read (just randomly read) the Wall Street Journal, Forbes magazine, Business Week, or Fortune. Don’t try to learn anything – just read. You will be amazed by what you start to discover. And, it will make class in the fall go so much better. Instead of starting off at absolute zero, you will walk into class with important terms fresh in your mind. Things will just make more sense.

“Third--Around August 1, I will start sending you a few preliminary emails to get you ready for the fall semester. There is just some stuff that you need to know in advance. But, you don’t really need any of that until August. I am just trying to alert you to watch out for my emails (I’m not spam). And, to tell you the truth, if you are not going to be where you can get to your email, your life won’t be ruined if you don’t get this stuff. I simply want to make the semester as smooth for you as absolutely possible.

“Fourth--Have a great summer. Get out and enjoy life. At your age (well, at any age), that ought to be a requirement. If you need to get in touch with me, I’m always available at Jhoyle@richmond.edu.

“Fifth--I’ve had a great 201 class this semester. It has been a lot of fun. The students have been active, engaged, curious, questioning, and thoughtful. When you have students like that, it is unbelievable the amount that can be accomplished. My wish for you and Accounting 201 is that you’ll wind up demonstrating those same five characteristics.”

A Dream

I dreamed about teaching last night. Normally, I do not remember my dreams and, if I do, they are weird snippets that make no sense. Last night was different.

I dreamed that I flew to Arizona (not sure why it was Arizona) for a teaching conference with about 25 other college professors. At the end, one of the participants challenged the group to write down on a sheet of paper what we each believed was the secret to good teaching. In my dream, I wrote down “you have to care enough about your students that you are willing to force them to prepare for every class.” And, I woke up.

I am not sure what I would have written down in real life but it could not have been better than what I wrote down in that dream. I do not think you need to love your students but I do believe you should care about them – even the ones who occasionally drive you crazy. For a short period of time, about 14 weeks twice a year, a small piece of each student’s future is in your hands. Where they go and what they do for the rest of their lives will be influenced ever so slightly by the way you teach that class. To ignore that reality is to abdicate the responsibility you accepted when you chose to become a teacher. I think it is hard to be an excellent teacher if you are not willing to acknowledge that you have the capacity to change lives. I have 81 students this semester. I have had over 6,000 students in my career. At times, it is easy to think of each one as just another brick in the wall. But they are not. They are unique individuals who will go on to have lives and careers. Each one is affected differently by you. The last one is as deserving as the first one. I want to make those lives and those careers a little bit better. If you do not care about your students and how you will change them, why would you do all of the work that it takes to become a good teacher?

And, of course, if you have read this blog or my other writings, you know that I am obsessed about student preparation. If students walk into class having properly prepared themselves, great things can (and probably will) happen every day. Conversely, if students walk into class with no real preparation, Socrates himself would have very limited options. Students are humans. They rarely do work without proper motivation. From kindergarten until the moment before they walk into your class, they may never have had to prepare for any class on a daily basis. They are well trained in not preparing. I think our school systems do a pretty good job but class preparation is not always a priority. So, you have to address the real questions: Am I going to insist on my students being prepared each day and, if so, how will I do that? Will I do it with carrots or will I do it with sticks?

I would bet those two questions are rarely ever considered by most teachers. However, even in my dreams, I have come to believe that these questions form an essential juncture in what a teacher is able to accomplish. James Thurber was a wonderful humorist who wrote short stories and cartoons about 60-70 years ago. In 1939, he concluded: “It is better to ask some of the questions than to know all the answers.” Maybe, in teaching, we worry too much about getting specific answers and not enough about asking the right questions.

Here is my question for you today and, believe it or not, it is based on the dream I had last night: Do you care enough about your students that you are willing to force them to prepare for every class?

Third Test Available

I gave my third (and last test before the final exam) last week. Many of you have asked for copies of my previous tests. Anyone who would like a copy of this one can send me a note at Jhoyle@richmond.edu.

I thought the test was pretty good -- it was a quirky type of multiple-choice test that I like to give when I have a lot of computations that I want the students to make. However, it was clearly a challenge for them. They had to push hard to finish in 75 minutes. In the end, I had 44 percent who earned an A or B. I thought that was a bit low. I believe the class has gone well this semester (they are the most engaged group that I have had in years -- I'm biased but I credit my new textbook for that) and I always prefer to have over 50 percent grades of A or B. It is an intro class in late spring with only a very few potential accounting majors so maybe 44 percent is about right.

Obviously, this is one of the never ending internal debates for a professor: how much do I push my students to challenge them without discouraging them? I want my students to be challenged to think and work but I don't want to set the bar so high that they feel defeated before they start.

Chinese Proverb

A CPA friend of mine sent me the following and told me that it was an ancient Chinese proverb (Google agrees). I thought it was worth passing along.

“When planning for a year, plant corn. When planning for a decade, plant trees. When planning for life, train and educate people.”

14 Questions to Introduce Present Value

When I talk with financial accounting teachers, the topic of present value will eventually come up. Teachers are often puzzled by how much they should cover. Some teachers tell me they skip present value entirely whereas others let me know that they believe extensive coverage is necessary. What does a sophomore in an introductory financial accounting class need to know about present value? What can they really understand? I find that if I throw terms like “discounted cash flows” and “the time value of money” at my sophomores, they quickly become lost. What seems crystal clear to me as the teacher can be puzzling to a young student.

However, if students are going to take other business courses or other accounting courses, they need to have some basic understanding of present value concepts. So, yesterday, in my classes here at the University of Richmond, we began to examine present value.

I did this by looking asking them the following series of questions:

1 – What is interest? (Interest is the charge for using money over time – students seem comfortable with that definition.)
2 – If I buy a piece of land and make a single payment of $200,000 today, how much do I pay and why am I paying that amount? (The students seem puzzled by that question because it is self-evident—you pay $200,000 and you pay it to acquire the land.)
3 – I buy a piece of land and agree to pay $200,000 in exactly two years. In the interim, I will pay an additional 10 percent (or $20,000) each year. How much do I pay and why am I paying that amount? (Students realize that $240,000 is paid--$200,000 for land and $40,000 as interest over the two years. The interest is necessary because of the introduction of time to the cash payment.)
4 – I buy a piece of land and agree to make a single payment of $200,000 in exactly two years. Nothing else is paid. If interest is the charge for using money over time, is it reasonable to believe that some part of that $200,000 will actually be paid as interest with the rest being the amount paid for the land? (This is obviously an essential question. I find that students are open to the possibility that part of the payment is for interest since there is a two-year wait for the cash.)
5 – I buy a piece of land and agree to make a single payment of $200,000 in exactly two years. GAAP requires that we view part of the $200,000 as payment for the land with the remainder as payment for interest since I am delaying my payment. What is our next problem? (Students understand that they do not know how to allocate the $200,000 between the land and the interest. They don’t mind the split but don’t know where to draw the line between the land and the interest.)
6 – Mathematically, we can determine the amount of interest. If we determine the interest and then remove it from the $200,000, what is left? (The remaining amount is what we are paying for the land. Again, that seems self-evident to most students. There are only two possibilities: land and interest.)
7 – Why do we determine the amount of interest and then remove it? (Interest is the charge for using money over time. Since no time has yet passed, there can be no interest at this time.)
8 – What do we mean by present value? (It is a future flow of cash with the interest removed because no time has yet passed.)
9 – When we are making a present value calculation, what are we doing? (Present value is the removal of the interest that we assume is included in the cash flows. The present value calculation removes interest because no time has yet passed.)
10 – If we buy land by agreeing to pay $200,000 in two years, how do we record the acquisition? (Both the land and the liability are recorded at present value. Accountants assume there is a charge for using money over time. Part of the $200,000 is assumed to be for interest. No time has yet passed. Thus, that interest is removed and the rest is the amount of the debt incurred today to buy the land.)
11 – Whether we use a formula, tables, or a spreadsheet, what is the purpose of the present value computation? (It mathematically removes the interest from future cash flows. We don’t have to guess at what part is interest and what part is for the land. The present value computation automatically removes the interest mathematically.)
12 – The land and the liability are both recorded at the present value of the cash flows. What happens at the end of Year One? (Time has now passed. The assumed interest rate is multiplied by the liability [principal] balance and that shows the interest expense to be recorded for that first period. It is not paid right then so it is compounded—the interest is added to the liability [principal] balance. The land account is not changed. Its cost was established when it was first acquired. The liability balance grows.)
13 – What happens at the end of Year Two? (More time has now passed. The assumed interest rate is multiplied by the new liability [principal] balance. That provides the interest expense for the second period. It is recognized and the liability is again increased because of compounding.)
14 – After two years, what is the reported liability balance? (The liability balance will be the $200,000 total that is now due to be paid. Present value removes the interest because no time has passed. The accountant then puts that interest back in over time. Mathematically, the amount has to come back to the total amount of the cash flows. Interest is taken out; then, the interest is put back in.)

Okay, you have to ask the questions carefully and guide your students as they work to get their answers. But I was pleased yesterday. After we had walked through these 14 questions, all of my students seemed to have a basic understanding of the concept of present value. We will practice this until they get smooth. However, that “mathematically remove the interest because time has not yet passed” line is one that they seem to grasp just fine. They are obviously not present value wizards yet but they know enough now that we can build on that knowledge and, eventually, they will be able to go into a finance class and not start out totally lost. And, to me, that is the purpose of an introductory course.