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ACCT 1201 Chapter Notes - Chapter 9: Current Liability, Accounts Payable, Working Capital

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School
Northeastern University
Department
Accounting
Course
ACCT 1201
Professor
All

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Document Summary

Financing activities serve 2 important purposes: generate funds to finance the current operating activities of the business, generate funds to acquire long-term assets that will permit the company to grow in the future. Business finance the acquisition of assets from 2 external sources: creditors (debt, funds provided by owners (equity) Mix of debt and equity a business uses is called its capital structure. Management can select from a variety of sources to borrow money. From firm"s perspective debt capital is riskier than equity b/c payments associated with debt are a company"s legal obligation. If a company can"t make required payment b/c of temp. cash shortage the creditor might force the company into bankruptcy and require sale of assets to satisfy the debt. Balance short term and long term debt. Liabilities: probable debts or obligations of the entity that result from past transactions paid with assets or services.

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Related Questions

Complete the following statement of cash flows:

Estimate an indirect method statement of cash flows for 2011 onthe form provided below. Assume net income (profit) for 2011 willbe $4,230 and property, plant and equipment with a historical cost$1,296 and accumulated depreciation of $1,138 will be sold for cashof $303. Use only the information on this page and the forecastedbalance sheet on the following page. You don’t have to worry aboutaccounts that don’t change on the balance sheet.

FORECASTED STATEMENT OF CASH FLOWS

Cash flow from operating activities 12/31/2011

Profit

Depreciation and amortization

Gain on sale of property, plant and equipment

Change in assets and liabilities

Receivable‐‐trade

Prepaid expenses

Inventories

Accounts payable

Accrued wages and salaries

Customer advances

Net cash provided by operating activities

Cash flow from investing activities

Capital expenditures

Proceeds from disposal of property, plant and equipment

Net cash provided by (used for) investing activities

Cash flow from financing activities

Dividends paid

Share repurchases for treasury

Payments on debt

Net cash provided by (used for) financing activities

Change in cash

---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

FORECASTED BALANCE SHEET FOR PROBLEM I ONLY

Assets 12-31-2011/12-31-2010/Change

Current assets:

Cash and equivalents $3,821/ $3,592/ $229

Receivables‐‐trade, net 8,808 /8,494/314

Receivables‐‐finance, net 8,298 /8,298 /0

Prepaid expenses 1,745 1,839 ‐94

Inventories 8,823 /9,587/ ‐764

Total current assets $31,495/ $31,810/ ‐$315

Property, plant and equip., net of accumulated 13,104/ 12,539/565

deprc of $13,946 in 2011 & $12,673 in 2010

Receivables‐‐trade 744/ 793/ ‐49

Receivables‐‐finance 11,264/ 11,264/ 0

Goodwill 2,614 /2,614/ 0

Other noncurrent assets 5,000 /5,000/ 0

Total assets $64,221 /$64,020/ $201

Liabilities

Current liabilities:

Current portion of long‐term debt:

Machinery and Engines 685/ 699/ ‐14

Financial Products 7,282 /7,282/ 0

Accounts payable 4,431/ 5,856/ ‐1,425

Accrued wages and salaries 1,213 /1,670/ ‐457

Customer advances 1,911/ 1,831/ 80

Other current liabilities 4,682/ 4,682/ 0

Total current liabilities $20,204/ $22,020/ ‐$1,816

Long‐term debt

Machinery and Engines 4,103/ 4,505/ ‐402

Financial Products 15,932/ 15,932/ 0

Liability for postemployment benefits 7,584/ 7,584/ 0

Other liabilities 2,654/ 2,654/ 0

Total liabilities $50,477/ $52,695/ ‐$2,218

Stockholders' equity

Contributed capital 4,389/ 4,389/ 0

Treasury stock -11,108/ ‐10,397/ ‐711

Profit employed in the business 24,514/ 21,384/ 3,130

Accumulated &compre income ‐4,051/ ‐4,051/ 0

Total stockholders' equity $13,744/ $11,325/ $2,419

Total liabilities &stockholders' equity $64,221/ $64,020/$201

1. Creditors' claims on the assets of a company are called: (Points : 2)
 
Net losses
Expenses
Revenues
Equity
Liabilities
 
2. The primary objective of financial accounting is: (Points : 2)
 
To serve the decision-making needs of internal users
To provide financial statements to help external users analyze and interpret an organization's activities
To monitor and control company activitiesTo provide information on both the costs and benefits of managing products and services
To know what, when and how muchto produce
 
3. Assets created by selling goods and services on credit are: (Points : 2)
 
Accounts payable
Accounts receivable
Liabilities
Expenses
 
4. The debt ratio is used: (Points : 2)
 
To measure the amount of equity relative to the expenses
To reflect the risk associated with a company's debts
Only by banks when a business applies for a loan
To determine how much debt a firm should pay off
 
5. Net Income: (Points : 2)
 
Decreases equity
Represents the amount of assets owners put into a business
Equals assets minus liabilities
Is the excess of revenues over expenses
Represents the owners' claims against assets
 
6. Internal users of accounting information include: (Points : 2)
 
Shareholders
Customers
Creditors
Government regulators
Line Supervisor
 
7. Risk is: (Points : 2)
 
Net income divided by average total assets
The reward for investment
The uncertainty about the expected return that will be earned from an investment
Unrelated to expected return
 
8. An example of an operating activity is: (Points : 2)
 
Paying wages
Purchasing office equipment
Borrowing money from a bank
Selling stock
Paying off a loan
 
9. Which accounting assumption assumes that all accounting information is reported monthly or yearly? (Points : 2)
 
Business entity assumption
Monetary unit assumption
Value assumption
Cost assumption
Time period assumption
 
10. Distributions of assets by a business to its stockholders are called: (Points : 2)
 
Dividends
Expenses
Assets
Retained earnings
Net Income

(Liquidity analysis and interpretation)

Refere to Simon Company information below. The companys incomestatements for the year ended December 31, 2015 and 2014, follow.Assume that all sales are on credit and the compte: (1) day's salesuncollected, (2) accounts receivable turnover, (3) inventoryturnover, and (4) days's sales in inventory. Comment on the changesin the ratios from 2014 a to 2015. (round amounts to onedecimal)

2. (Risk and capital structure analysis) Compare the company'slong-term risk and capital structure positions at the end of 2015and 2014 by computing ratios: (1) debt and equity ratios-percentrounded to one decimal, (2) debt-to equity ratio - rounded to twodecimals and (3) times interest earned-rounded to one decimal.Comment on these ratio results.

For Year ended December 31 2015 2014
sales $673,500 $532,000
Cost of goods sold $411,225 $345,500
Other operating expenses 209,550 134,980
Interest expense 12,100 13,300
Income taxes 9,525 8,845
Total cost and expenses 642,400 502,625
Net income 31,100 29,375
Earnings per share 1.90 1.80

Simon Companys information:

At December 31

 2015 2014

2013
Assets
Cash $31,800 $35,625 $37,800
Accounts receivable,net 89,500 62,500 50,200
Merchandise inventory 112,500 82,500 54,000
Prepaid expenses 10,700 9,375 5,000
Plant assets,net 278,500 255,000 230,500
Total assets $523,000 $445,000 $377,500
Liabilities and Equity
Accounts payable $129,900 $75,250 $51,250

Long-term notes payable secured by

mortgage on plant assets

 98,500 101,500 83,500
Common Stock, $10 par value 163,500 163,500 163,500
Retained earnings 131,100 104,750 79,250
Total Liabilities and equity $523,000 $445,000

$377,500