ACCT 001 Lecture Notes - Lecture 24: Income Statement, Current Liability, Tax Rate

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skywildebeest596

31 Aug 2020

School

College of The Sequoias

Department

Accounting (ACCT)

Course

ACCT 001

Professor

Cooper

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Document Summary

Amount of taxes paid for the next dollar earned. Use to evaluate the after-tax cash flows of a new investment. Total taxes paid divided by total income. Use for computing a company"s total tax liability. For corporations with taxable income in the range of ,000 to million, the tax rate is flat at 34%. For corporations with taxable income greater than . 33 million, the tax rate is effectively flat at 35%. The most important piece of information that can be derived from financial statements is cash flow. Cash flow is the difference between cash inflows and cash outflows. Most important measure of cash flow, since it reflects a firm"s ability to generate cash. Ending net fixed assets beginning net fixed assets + depreciation a net measure, could be negative if more assets were sold than bought. Ending (current assets current liabilities) beginning (current assets current liabilities) Interest paid net new borrowing. , sometimes called cash flow to bondholders.

Related Questions

Statement of Cash Flows Using a Work SheetâIndirect Method (Appendix)

Peoria Corp. just completed another successful year, as indicated by the following income statement:

	For the Year Ended December 31, 2017

Sales revenue	$1,250,000
Cost of goods sold	700,000
Gross profit	$550,000
Operating expenses	150,000
Income before interest and taxes	$400,000
Interest expense	25,000
Income before taxes	$375,000
Income tax expense	150,000
Net income	$225,000

Presented here are comparative balance sheets:

	December 31
	2017	2016

Cash	$52,000	$90,000
Accounts receivable	180,000	130,000
Inventory	230,000	200,000
Prepayments	15,000	25,000
Total current assets	$477,000	$445,000
Land	$750,000	$600,000
Plant and equipment	700,000	500,000
Accumulated depreciation	(250,000)	(200,000)
Total long-term assets	$1,200,000	$900,000
Total assets	$1,677,000	$1,345,000
Accounts payable	$130,000	$148,000
Other accrued liabilities	68,000	63,000
Income taxes payable	90,000	110,000
Total current liabilities	$288,000	$321,000
Long-term bank loan payable	$350,000	$300,000
Common stock	$550,000	$400,000
Retained earnings	489,000	324,000
Total stockholders' equity	$1,039,000	$724,000
Total liabilities and stockholders' equity	$1,677,000	$1,345,000

Other information is as follows:

Dividends of $60,000 were declared and paid during the year.

Operating expenses include $50,000 of depreciation.

Land and plant and equipment were acquired for cash, and additional stock was issued for cash. Cash also was received from additional bank loans.

The president has asked you some questions about the year's results. She is very impressed with the profit margin of 18% (net income divided by sales revenue). She is bothered, however, by the decline in the company's cash balance during the year. One of the conditions of the existing bank loan is that the company maintain a minimum cash balance of $50,000.

Required:

1. Using the format in the chapter's appendix, prepare a statement of cash flows work sheet. If an amount box does not require an entry, leave it blank. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.

	Balances			Cash Inflows (Outflows)
Accounts	12/31/17	12/31/16	Changes	Operating	Investing	Financing
Cash	$	$	$	$	$	$
Accounts Receivable
Inventory
Prepayments
Land
Plant and Equipment
Accumulated Depreciation
Accounts Payable
Other Accrued Liabilities
Income Taxes Payable
Long-Term Bank Loan Payable
Common Stock
Retained Earnings
Net Income
Totals	$	$	$	$	$	$
Net increase (decrease) in cash				$

2. Prepare a statement of cash flows for 2017 using the indirect method in the Operating Activities section. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.

Peoria Corp.
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash Flows from Operating Activities
	$
Adjustments to reconcile net income to net cash provided by operating activities:







	$
Cash Flows from Investing Activities
	$

	$
Cash Flows from Financing Activities
	$


	$
	$
Cash balance, December 31, 2016
Cash balance, December 31, 2017	$

3. During the year Peoria experienced a decrease in cash at the end of the year due to

harlequinelk794

The most recent financial statements for Fleury Inc., follow.Sales for 2012 are projected to grow by 20 percent. Interestexpense will remain constant; the tax rate and the dividend payoutrate will also remain constant. Costs, other expenses, currentassets, fixed assets and accounts payable increase spontaneouslywith sales.

FLEURY, INC. 2011 Income Statement
Sales			$	751,000
Costs				586,000
Other expenses				22,000

Earnings beforeinterest and taxes			$	143,000
Interest paid				18,000

Taxable income			$	125,000
Taxes (40%)				50,000

Net income			$	75,000

Dividends	$	30,000
Addition to retainedearnings		45,000

FLEURY, INC. Balance Sheet as of December 31, 2011
Assets			Liabilities and Ownersâ Equity
Current assets			Currentliabilities
Cash	$	21,040	Accountspayable	$	55,200
Accountsreceivable		33,360	Notespayable		14,400

Inventory		70,320	Total	$	69,600

Total	$	124,720	Long-term debt	$	134,000
Fixed assets			Ownersâ equity
Netplant and equipment	$	240,000	Commonstock and paid-in surplus	$	120,000
			Retainedearnings		41,120

			Total	$	161,120

Total assets	$	364,720	Total liabilitiesand ownersâ equity	$	364,720

What is the EFN if the firm was operating at only 80 percent ofcapacity in 2011? Assume that fixed assets are sold so that thecompany has a 100 percent asset utilization.

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11. Paid the sales tax collected on $105,000 of the alarm sales.

12. Collected $198,000 of accounts receivable during the year.

13. Paid installers and other employees a total of $96,000 for salaries for the year. Assume the Social Security tax rate is 6 percent and the Medicare tax rate is 1.5 percent. Federal income taxes withheld amounted to $10,600. No employee exceeded $110,000 in total wages. The net salaries were paid in cash.

14. On October 1, declared a dividend on the preferred stock and a $1 per share dividend on the common stock to be paid to shareholders of record on October 15, payable on November 1, 2021.

15. Paid $1,625 in warranty repairs during the year.

16. On November 1, 2021, paid the dividends that had been previously declared.

17. Paid $18,500 of advertising expense during the year.

18. Paid $6,100 of utilities expense for the year.

19. Paid $9,200 of the Employee Income Tax Payable, $5,280 of the FICA Tax â Soc. Sec. Tax Payable and $1,320 of the FICA Tax â Medicare Tax Payable. Also, paid the Payroll Tax Expense for the 7.5% employer matching of FICA taxes on $88,000 of salaries.

20. Paid the accounts payable.

21. Paid bond interest and amortized the discount. The bond was issued in 2020 and pays interest at 6 percent.

22. Paid the annual installment of $14,238 on the amortized note. The interest rate for the note is 7 percent. Adjustment

23. There was $190 of supplies on hand at the end of the year.

24. Recognized the uncollectible accounts expense for the year using the allowance method. Pacilio now estimates that 1 percent of sales on account will not be collected.

25. Recognized depreciation expense on the equipment, van, and building. The equipment, purchased in 2018, has a five-year life and a $2,000 salvage value. The van has a four-year life and a $6,000 salvage value. The building has a 40-year life and a $10,000 salvage value. The company uses straight-line for the equipment and the building. The van is fully depreciated.

26. The alarm systems sold in transaction 7 were covered with a one-year warranty. Pacilio estimated that the warranty cost would be 2 percent of alarm sales.

27. The unemployment tax on the three employees has not been paid. Record the accrued unemployment tax on the salaries for the year. The unemployment tax rate is 4.5 percent and gross wages for all three employees exceeded $7,000.

28. Recognized the employer Social Security and Medicare payroll tax that has not been paid on $8,000 of salaries expense.

Indicate whether the transaction increases (+), decreases (â), or increases and decreases (+/-) for each element of the financial statements. Also, in the Cash Flow column, use the letters OA to designate operating activity, IA for investing activity, FA for financing activity. The first transaction is recorded as an example.

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ACCT 001 Lecture Notes - Lecture 24: Income Statement, Current Liability, Tax Rate

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