AFM123 Study Guide - Final Guide: Net Present Value, Capital Budgeting, Cash Flow
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1. Produce a balance sheet for a company that distinguishesbetween current and non-current assets and liabilities.
2. Create a balance sheet from a trial balance.
3. Create a comparison of net income based on different methods ofinventory accounting.
4. Analyze a statement of cash flows and show where each line itemcan be found or calculated from the other financialstatements.
5. Prepare a full analysis of key financial ratios for a companyand state conclusions about the financial strength of the companycompared to industry ratios.
| Create a BalanceSheet from the trial balance: | ||||
| Debits | Credits | Classification | ||
| Cash | 300,000.00 | Current asset | ||
| Sales | (10,000,000.00) | Income statement | ||
| Cost of Goods Sold | 7,000,000.00 | Income statement | ||
| Selling Expenses | 500,000.00 | Income statement | ||
| Other income | (50,000.00) | Income statement | ||
| Administrative expenses | 350,000.00 | Income statement | ||
| Interest Expenses | 12,500.00 | Income statement | ||
| Land | 300,000.00 | non-current asset | ||
| Building | 2,000,000.00 | non-current asset | ||
| Long Term bond payable | (550,000.00) | non-current liability | ||
| Accrued Liabilities | (50,000.00) | current- liability | ||
| Accumulated Depreciation Buildings | (250,000.00) | non-current asset | ||
| Equipment | 750,000.00 | non-current asset | ||
| Receivables | 100,000.00 | current asset | ||
| Allowance for doubtful accounts | (7,500.00) | current asset | ||
| Accumulated depreciation equipment | (125,000.00) | non-current asset | ||
| Common Stock | (200,000.00) | equity | ||
| Payables | (115,000.00) | current Liability | ||
| Inventories | 200,000.00 | current asset | ||
| Prepaid Expenses | 50,000.00 | current asset | ||
| Retained Earnings | (215,000.00) | equity | ||
| 11,562,500.00 | (11,562,500.00) | |||
| Assets | Equity and Liabilities | |||||||||
| Current Assets | Current Liabilities | |||||||||
| Total Current Assets | - | Total Current Liabilities | - | |||||||
| Total long term Liabilities | - | |||||||||
| Total property plant and equipment | - | |||||||||
| Total Equity | - | |||||||||
| Total Assets | - | Total Equity and liabilities | - | |||||||
| The comparative balance sheets for 2016 and 2015 and the statement of income for 2016 are given below for Wright Company. Additional information from Wright's accounting records is provided also. |
| WRIGHT COMPANY Comparative Balance Sheets December 31, 2016 and 2015 ($ in 000s) | ||||
| 2016 | 2015 | |||
| Assets | ||||
| Cash | $ | 109 | $ | 70 |
| Accounts receivable | 110 | 115 | ||
| Short-term investment | 52 | 24 | ||
| Inventory | 115 | 110 | ||
| Land | 82 | 100 | ||
| Buildings and equipment | 615 | 480 | ||
| Less: Accumulated depreciation | (163) | (115) | ||
| $ | 920 | $ | 784 | |
| Liabilities | ||||
| Accounts payable | $ | 35 | $ | 43 |
| Salaries payable | 6 | 8 | ||
| Interest payable | 7 | 5 | ||
| Income tax payable | 7 | 11 | ||
| Notes payable | 0 | 27 | ||
| Bonds payable | 234 | 180 | ||
| Shareholders' Equity | ||||
| Common stock | 355 | 280 | ||
| Paid-in capital—excess of par | 161 | 140 | ||
| Retained earnings | 115 | 90 | ||
| $ | 920 | $ | 784 | |
| WRIGHT COMPANY Income Statement For Year Ended December 31, 2016 ($ in 000s) | ||||
| Revenues: | ||||
| Sales revenue | $ | 460 | ||
| Expenses: | ||||
| Cost of goods sold | $ | 210 | ||
| Salaries expense | 67 | |||
| Depreciation expense | 48 | |||
| Interest expense | 17 | |||
| Loss on sale of land | 4 | |||
| Income tax expense | 64 | 410 | ||
| Net income | $ | 50 | ||
| Additional information from the accounting records: | |
| a. | Land that originally cost $18,000 was sold for $14,000. |
| b. | The common stock of Microsoft Corporation was purchased for $28,000 as a short-term investment not classified as a cash equivalent. |
| c. | New equipment was purchased for $135,000 cash. |
| d. | A $27,000 note was paid at maturity on January 1. |
| e. | On January 1, 2016, bonds were sold at their $54,000 face value. |
| f. | Common stock ($75,000 par) was sold for $96,000. |
| g. | Net income was $50,000 and cash dividends of $25,000 were paid to shareholders. |
| Required: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Prepare the statement of cash flows of Wright Company for the year ended December 31, 2016. Present cash flows from operating activities by the direct method. (Amounts to be deducted should be indicated with a minus sign. Enter your answers in thousands (i.e., 5,000 should be entered as 5).) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Prepare the Income Statement, Statement of Owners’ Equity and the Balance Sheet for the fiscal year ending September 30, 2017. To support your work prepare the appropriate journal entries and post to the related Accounting Equation or “T-accounts".
The attached Balance Sheet gives your firm's position at the end of fiscal 2016. During fiscal 2017, your firm has the following transactions:
Your firm has total sales for the year of $1,210,500. Included in the total sales figure are $1,010,500 sales on credit. During the year, the firm received $792,000 of payments on account. Customers returned $7,800 for cash refunds during the year.
During the year, the firm determined that accounts totaling $2,900 were uncollectible. Moreover, a $375 receivable written off during the year was subsequently collected. The $375 is not included in “A.” above.
Your firm uses the allowance method to record bad debts. Specifically, the firm uses the percentage of receivables method to compute the allowance for doubtful accounts. The firm uses the following information to determine the allowance:
| Age of Receivables | Percent of current balance | Percent expected uncollectible |
| <30 days | 70% | 2% |
| < 60 days | 23% | 10% |
| >60 days | 7% | 50% |
| Your Firm | |||
| Balance Sheet | |||
| September 30, 2016 | |||
| Assets | |||
| Cash | $ 102,530 | ||
| Accounts receivable | $ 101,640 | ||
| Allowance for doubtful accounts | (6,160) | ||
| Accounts receivable, net | 95,480 | ||
| Inventories | 136,400 | ||
| Trading securities | 111,100 | ||
| Prepaid insurance | 17,100 | ||
| Total Current Assets | 462,610 | ||
| Property, Plant and Equipment, gross | $ 1,633,500 | ||
| Accumulated depreciation | (546,975) | ||
| Property, Plant and Equipment, net | 1,086,525 | ||
| Total Assets | $ 1,549,135 | ||
| Liabilities and Shareholders' Equity | |||
| Accounts payable | $ 89,645 | ||
| Salaries payable | 31,575 | ||
| Dividends payable | 4,400 | ||
| Total Current Liabilities | 125,620 | ||
| Long-term note payable | 380,000 | ||
| Total Liabilities | 505,620 | ||
| Common stock, no par | 490,000 | ||
| Retained Earnings | 591,215 | ||
| Accumulated Other Comprehensive Income | 4,300 | ||
| Treasury stock | (42,000) | ||
| Total Shareholder's Equity | 1,043,515 | ||
| Total Liabilities and Shareholder's Equity | $ 1,549,135 | ||
