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ADM 1340 Lecture Notes - Lecture 2: Financial Statement, Accounts Payable, Promissory Note

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peartortoise481
2 Jun 2015
School
University of Ottawa
Department
Administration
Course
ADM 1340
Professor
Devinder Gandhi

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ADM 1340 Full Course Notes
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Document Summary

Adm1340 - lecture 2 - a future look at financial statements. Assets are resources that a company owns or controls that will provide future economic benefits. Operating cycle of a company is the average time it takes to go from cash to ash in producing revenues. Current assets are assets expected to be converted into cash or will be sold or used up within one year of the company"s operating cycle. Current assets are listed in the order of liquidity. The investments in debt or equity securities are bought in order to earn a return in the short period of time. Notes receivable are amounts owed to the company tha are supported with a written promise to repay. Prepaid expense represent the cost paid in advance of use. Non-current assets are not expected to be converted into cash, sold, or used up by the business within one year of its operating cycle.

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Related Questions

Exercise 5-7

Presented below are selected accounts of Flounder Company at December 31, 2017.

Inventory (finished goods) $ 52,400 Cost of Goods Sold $2,128,300
Unearned Service Revenue 98,100 Notes Receivable 41,200
Equipment 262,900 Accounts Receivable 162,410
Inventory (work in process) 35,700 Inventory (raw materials) 181,040
Cash (not including restricted cash) 37,700 Supplies Expense 65,400
Equity Investments (short-term) 36,000 Allowance for Doubtful Accounts 11,090
Customer Advances 52,100 Licenses 19,330
Restricted Cash for Plant Expansion 51,600 Additional Paid-in Capital 93,920
Treasury Stock 23,910


The following additional information is available.

1. Inventories are valued at lower-of-cost-or-market using LIFO.
2. Equipment is recorded at cost. Accumulated depreciation, computed on a straight-line basis, is $48,003.
3. The short-term investments have a fair value of $29,840. (Assume they are trading securities.)
4. The notes receivable are due April 30, 2019, with interest receivable every April 30. The notes bear interest at 6%. (Hint: Accrued interest due on December 31, 2014.)
5. The allowance for doubtful accounts applies to the accounts receivable. Accounts receivable of $54,700 are pledged as collateral on a bank loan.
6. Licenses are recorded net of accumulated amortization of $13,670.
7. Treasury stock is recorded at cost.


Prepare the current assets section of Flounder Company’s December 31, 2017, balance sheet, with appropriate disclosures. (List Current Assets in order of liquidity. Enter account name only and do not provide the descriptive information provided in the question.)

FLOUNDER COMPANY
Balance Sheet (Partial)

Please analyze the future of IBM with a company that does not have solid financials, such as Tesla. Qualitative measures will be required. What are tthe likelihoods of success and how could that be determined (for Tesla) if current numbers do not provide promise. Tesla is breaking into an emerging market of hybrid vehicle technology, and though the technology has not fully evovled, will it? How do Telsa's finaincial compare to IBM as they compare to success or failre?

Thank you

TESLA INC (TSLA) CashFlowFlag INCOME STATEMENT
Fiscal year ends in December. USD in millions except per share data. 2015-12 2016-12
Revenue 4046 7000
Cost of revenue 3123 5401
Gross profit 924 1599
Operating expenses
Research and development 718 834
Sales, General and administrative 922 1432
Total operating expenses 1640 2267
Operating income -717 -667
Interest Expense 119 199
Other income (expense) -40 120
Income before taxes -876 -746
Provision for income taxes 13 27
Net income from continuing operations -889 -773
Other 98
Net income -889 -675
Net income available to common shareholders -889 -675
Earnings per share
Basic -6.93 -4.68
Diluted -6.93 -4.68
Weighted average shares outstanding
Basic 128 144
Diluted 128 144
EBITDA -334 400
TESLA INC (TSLA) Statement of CASH FLOW
Fiscal year ends in December. USD in millions except per share data. 2015-12 2016-12
Cash Flows From Operating Activities
Net income -889 -773
Depreciation & amortization 423 947
Amortization of debt discount/premium and issuance costs 72 87
Stock based compensation 198 334
Accounts receivable 46 -217
Inventory -1574 -2466
Prepaid expenses -30 57
Accounts payable
Accrued liabilities
Other working capital 1064 1932
Other non-cash items 165 -26
Net cash provided by operating activities -524 -124
Cash Flows From Investing Activities
Investments in property, plant, and equipment -1635 -1440
Acquisitions, net -12 214
Purchases of investments
Sales/Maturities of investments 17
Other investing activities -26 -206
Net cash used for investing activities -1674 -1416
Cash Flows From Financing Activities
Debt issued 319 2853
Debt repayment -204 -1904
Warrant issued
Common stock issued 750 1702
Other financing activities 658 1094
Net cash provided by (used for) financing activities 1524 3744
Effect of exchange rate changes -34 -7
Net change in cash -709 2196
Cash at beginning of period 1906 1197
Cash at end of period 1197 3393
Free Cash Flow
Operating cash flow -524 -124
Capital expenditure -1635 -1440
Free cash flow -2159 -1564
TESLA INC (TSLA) CashFlowFlag BALANCE SHEET
Fiscal year ends in December. USD in millions except per share data. 2015-12 2016-12
Assets
Current assets
Cash
Cash and cash equivalents 1197 3393
Total cash 1197 3393
Receivables 169 499
Inventories 1278 2067
Prepaid expenses 125 194
Other current assets 23 106
Total current assets 2792 6260
Non-current assets
Property, plant and equipment
Gross property, plant and equipment 5766 12920
Accumulated Depreciation -571 -1018
Net property, plant and equipment 5195 15037
Intangible assets 376
Other long-term assets 106 991
Total non-current assets 5301 16404
Total assets 8092 22664
Liabilities and stockholders' equity
Liabilities
Current liabilities
Short-term debt 1150
Capital leases 633
Accounts payable 916 1860
Taxes payable 101 153
Accrued liabilities 322 1005
Deferred revenues 707 1427
Other current liabilities 137 232
Total current liabilities 2816 5827
Non-current liabilities
Long-term debt 2082 118
Capital leases
Deferred taxes liabilities
Accrued liabilities 150
Deferred revenues 446 852
Minority interest 785
Other long-term liabilities 1659 10179
Total non-current liabilities 4187 12084
Total liabilities 7004 17911
Stockholders' equity
Common stock 0 0
Additional paid-in capital 3415 7774
Retained earnings -2322 -2997
Accumulated other comprehensive income -4 -24
Total stockholders' equity 1089 4753
Total liabilities and stockholders' equity 8092 22664
INTERNATIONAL BUSINESS MACHINES CORP (IBM) CashFlowFlag INCOME STATEMENT
Fiscal year ends in December. USD in millions except per share data. 2015-12 2016-12
Revenue 81741 79919
Cost of revenue 41057 41625
Gross profit 40684 38294
Operating expenses
Research and development 4565 4120
Sales, General and administrative 19894 20479
Other operating expenses 535 590
Total operating expenses 24994 25189
Operating income 15690 13105
Interest Expense 468 630
Other income (expense) 723 -145
Income before taxes 15945 12330
Provision for income taxes 2581 449
Net income from continuing operations 13364 11881
Net income from discontinuing ops -174 -9
Net income 13190 11872
Net income available to common shareholders 13190 11872
Earnings per share
Basic 13.48 12.43
Diluted 13.42 12.38
Weighted average shares outstanding
Basic 979 955
Diluted 983 959
EBITDA 20268 17341
INTERNATIONAL BUSINESS MACHINES CORP (IBM) Statement of CASH FLOW
Fiscal year ends in December. USD in millions except per share data. 2015-12 2016-12
Cash Flows From Operating Activities
Net income 13190 11872
Depreciation & amortization 3855 4381
Deferred income taxes 1387 -1132
Stock based compensation 468 544
Inventory 133 -14
Accounts payable 81 197
Accrued liabilities
Other working capital -2658 1048
Other non-cash items 552 62
Net cash provided by operating activities 17008 16958
Cash Flows From Investing Activities
Investments in property, plant, and equipment -3579 -3567
Property, plant, and equipment reductions 370 424
Acquisitions, net -3750 -6133
Purchases of investments -3073 -5917
Sales/Maturities of investments 2842 5692
Purchases of intangibles -572 -583
Other investing activities -397 -892
Net cash used for investing activities -8159 -10976
Cash Flows From Financing Activities
Debt issued 5540 9132
Debt repayment -5622 -6395
Common stock issued 322 204
Common stock repurchased -4609 -3502
Dividend paid -4897 -5256
Other financing activities 100 26
Net cash provided by (used for) financing activities -9166 -5791
Effect of exchange rate changes
Net change in cash -317 191
Cash at beginning of period 8476 7686
Cash at end of period 8159 7877
Free Cash Flow
Operating cash flow 17008 16958
Capital expenditure -4151 -4150
Free cash flow 12857 12808
INTERNATIONAL BUSINESS MACHINES CORP (IBM) CashFlowFlag BALANCE SHEET
Fiscal year ends in December. USD in millions except per share data. 2015-12 2016-12
Assets
Current assets
Cash
Cash and cash equivalents 7686 7826
Short-term investments 508 701
Total cash 8194 8527
Receivables 1201 1057
Inventories 1551 1553
Deferred income taxes
Prepaid expenses 4205 4564
Other current assets 27353 28187
Total current assets 42504 43888
Non-current assets
Property, plant and equipment
Gross property, plant and equipment 29341 60267
Accumulated Depreciation -18616 -38606
Net property, plant and equipment 10725 21661
Equity and other investments 5187 4585
Goodwill 32021 36199
Intangible assets 3486 4689
Deferred income taxes 4822 5224
Prepaid pension benefit
Other long-term assets 11747 12055
Total non-current assets 67988 84413
Total assets 110492 128301
Liabilities and stockholders' equity
Liabilities
Current liabilities
Short-term debt 6461 7513
Accounts payable 6028 6209
Taxes payable 2847 3235
Accrued liabilities 7913 8282
Deferred revenues 11021 11035
Other current liabilities -1 1
Total current liabilities 34269 36275
Non-current liabilities
Long-term debt 33428 34655
Deferred taxes liabilities
Accrued liabilities
Deferred revenues 3771 3600
Pensions and other benefits 16504 17070
Minority interest 162 146
Other long-term liabilities 8099 7478
Total non-current liabilities 61964 62949
Total liabilities 96233 99224
Stockholders' equity
Common stock 53262 53935
Retained earnings 146124 152759
Treasury stock -155518 -159050
Accumulated other comprehensive income -29606 -29398
Total stockholders' equity 14262 18246
Total liabilities and stockholders' equity 110495 117470

Comparative financial statement data for Carmono Company follow:
This Year Last Year
Assets
Cash $ 7.50 $ 14.00
Accounts receivable 50.00 43.00
Inventory 92.50 79.20
Total current assets 150.00 136.20
Property, plant, and equipment 231.00 194.00
Less accumulated depreciation 45.60 34.20
Net property, plant, and equipment 185.40 159.80
Total assets $ 335.40 $ 296.00
Liabilities and Stockholders’ Equity
Accounts payable $ 55.50 $ 46.00
Common stock 118.00 91.00
Retained earnings 161.90 159.00
Total liabilities and stockholders’ equity $ 335.40 $ 296.00
For this year, the company reported net income as follows:
Sales $ 850.00
Cost of goods sold 510.00
Gross margin 340.00
Selling and administrative expenses 320.00
Net income $ 20.00

This year Carmono declared and paid a cash dividend. There were no sales of property, plant, and equipment during this year. The company did not repurchase any of its own stock this year.

Carmono CompanyStatement of Cash Flows - Indirect MethodFor This Year Ended December 31Operating activities:Net income$20.00Adjustments to convert net income to a cash basis:Depreciation$11.40Increase in accounts receivable(7.00)Increase in inventory(13.30)Increase in accounts payable9.500.60Net cash provided by operating activities20.60Investing activities:Increase in plant and equipment(37.00)Net cash used in investing activities(37.00)Financing activities:Increase in common stock27.00Cash dividends(17.10)Net cash provided by financing activities9.90Net decrease in cash(6.50)Beginning cash and cash equivalents14.00Ending cash and cash equivalents$7.50
2.

Compute Carmono’s free cash flow for this year. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to 2 decimal places.)

Free cash flow$

3.

Changes in various accounts and gains and losses on the sale of assets during the year for Argon Company are given below:


Item Amount
Accounts receivable $ 79,000 decrease
Inventory $ 120,000 increase
Prepaid expenses $ 3,500 decrease
Accounts payable $ 41,000 decrease
Accrued liabilities $ 9,600 increase
Income taxes payable $ 15,700 increase
Sale of equipment $ 8,100 gain
Sale of long-term investments $ 12,200 loss


Required:

For each item, indicate whether the dollar amount should be added to or deducted from net income under the indirect method when computing the net cash provided by operating activities for the year.
Item Amount Effect
Accounts receivable
Inventory
Prepaid expenses
Accounts payable
Accrued liabilities
Income taxes payable
Sale of equipment
Sale of long-term investments

4.

Apex Company prepared the statement of cash flows for the current year that is shown below:


Apex Company
Statement of Cash Flows—Indirect Method
Operating activities:
Net income $ 41,500
Adjustments to convert net income to cash basis:
Depreciation $ 20,100
Increase in accounts receivable (61,500)
Increase in inventory (25,100)
Decrease in prepaid expenses 9,400
Increase in accounts payable 54,300
Decrease in accrued liabilities (10,100)
Increase in income taxes payable 3,300 (9,600)
Net cash provided by operating activities 31,900
Investing activities:
Proceeds from the sale of equipment 15,200
Loan to Thomas Company (41,900)
Additions to plant and equipment (121,800)
Net cash used for investing activities (148,500)
Financing activities:
Increase in bonds payable 88,800
Increase in common stock 38,700
Cash dividends (28,400)
Net cash provided by financing activities 99,100
Net decrease in cash (17,500)
Beginning cash balance 27,200
Ending cash balance $ 9,700


Required:

Compute Apex Company’s free cash flow for the current year. (Negative amount should be indicated by a minus sign.)

Free Cash Flow

5.

For the just completed year, Hanna Company had net income of $95,000. Balances in the company’s current asset and current liability accounts at the beginning and end of the year were as follows:


December 31
End of Year Beginning of Year
Current assets:
Cash $ 59,000 $ 80,000
Accounts receivable $ 164,000 $ 184,000
Inventory $ 448,000 $ 346,000
Prepaid expenses $ 11,500 $ 15,000
Current liabilities:
Accounts payable $ 366,000 $ 392,000
Accrued liabilities $ 8,000 $ 13,000
Income taxes payable $ 32,000 $ 25,000

The Accumulated Depreciation account had total credits of $42,000 during the year. Hanna Company did not record any gains or losses during the year.


Required:

Use the indirect method to determine the net cash provided by (or used in) operating activities for the year. (List any deduction in cash and cash outflows as negative amounts.)