MGAB01H3 Chapter Notes - Chapter 3: Gross Profit, Asset Turnover, Accrual

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22 Sep 2016

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MGAB01H3 Full Course Notes

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Chapter 3: operating decisions and the statement of earnings. Operating (cash-to-cash) cycle: the time required for a company to cash to suppliers, sell goods/services to customers, and collect cash from customers. Periodicity assumption: the long life of a company may be reported over shorter time periods. Statement of earnings include: results of continuing operations, results of discontinued operations. Recognize revenue when the risk and rewards of ownership is transferred. Expenditures are not always expenses and is just an outflow of cash for any purpose; while expense is necessary to generate revenue. Gross profit= net sales cost of sales. Earnings from operations= net sales cost of sales other operating expenses. Non-operating items/other income or expense include: investment income, financing costs, gains (losses) on disposal of assets (peripheral transactions) Earnings before income tax= earnings from operations /+ non-operating items. Earnings per share= net earnings/average number of shares outstanding during the period.

Related Questions

Which of the following characteristics may result in theclassification of a liability being changed from current tononcurrent:

a) violation of a subjective acceleration clause

b) violation of a objective acceleration clause

c) a demand provision for payment

d) refiancing after the balance sheet date

Pending litigation would generally be considered:

a) nonmonetary liabilty

b) contingent liability

c) estimated liability

d) current liability

Barrons Co. current ratio is 2:1. Which of the followingtransactions would normally increase Barney's current ratio?

a) purchasing inventory on account

b) borring money by signing a long-term note

c) collecting an account receivable

d) purchasing land for cash

On multiple step income statement, gains or losses on sale ofequipment would be shown

a) before gross profit on sales

b) after gross profit on sales but before income from conitnuingoperations

c) after income from continuing operations but before incomefrom extraordinary items

d) after income before extraordinary items but before netincome

A single step income statement is a format that

a) compares the current years income with last year's income

b) recongnizes subtotals at intermediate stages such as grossmargin

c) combines revenues and gains and subtracts from them expensesand losses, resulting in income from operations

d) reports sales revenue, cost of goods sold, gross margin, andall other expenses

In contrast with a multiple-step income statement, a single stepincome statement does NOT show the amount of

a) income taxes on continuing operations

b) cost of goods sold

c) gross profit

d) earnings per share

The amount of income reported for tax purposes

a) is nomally greater than the net income reported tostockholders

b) must be computed according to GAAP

c) is used to compute earnings per share

d) may differ from the amount of income detemined for financialreporting purposes

Under the general rule of revenue recognition, revenue isrecognized when

a) marketability and market price are assured

b) a contractual agreement exists, and cash collection isassured

c) the earnings process is complete, and a valid promise ofpayment has been received

d) all related expenses have been incurred

Seaworth Company's gross sales in 2014 were 3930000. Assumingsales returns and allowances were 74000 sales discounts were 35000and freight-out was 28000 what were Seaworthy's net sales in2014?

a) 3792000

b) 3821000

c)3856000

d) 3930000

On June 30, 2014 Sonata COmpanys operating facilities inNebraska were detroyed by a flood. The loss of $700000 was notcovered by insurance. Sonata's tax rate for 2014 is 40 percent. InSonatas income statement for the year ended sept 30 2014 this eventshould be reported as an extraordinary loss of

a) 0

b) 280000

c) 420000

d) 700000

In a statement of cash flows, payments to acquire debtinstruments of other entities would typically be classified as cashoutflows for

a) financing activities

b) equity activities

c) operating activities

d) investing activities

A gain on the sale of a plan asset in the ordinary course ofbusiness should be presented in a staement of cash flows preparedusing the indirect method as

a) a cash inflow from investing activities

b) a cash inflow from financing activities

c) a deduction from net income

d) a addition to net income

In a statement of cash flows, proceeds from issuing equityinstruments should be classified as cash inflows from

a) brokerage activities

b) financing activities

c) investing activites

d) operating activities

When preparing a statement of cash flows using the indirectmethod, the amortization of trademarks should be reported as a

a) increase in cash flows from investing activities

b) reduction in cash flows from investing activities

c) increase in cash flows from operating activities

d) reduction in cash flows from operating activites

A loss in the sale of machinery in the ordinary course ofbusiness should be presented in a statement of cash flows( indirectmethod) as

a) an addition to net income

b) a deduction from net income

c) an inflow and outflow of cash

d) an outflow of cash

In preparing a statement of cash flows, which of the followingtransactions would be considered an investing activity?

a) sale of a business segment

b) Issuance of bonds payable at a discount

c) purchase of treasury stock

d) sale of capital stock

In a statement of cash flows (indirect method), depreciation istreated as an adjustment to reported net income becausedepreciation

a) is an inflow of cash to reserve account for assetreplacement

b) reduces the reported net income and involves an inflow ofcash

c) reduces the reported net inome but does not involve anoutflow of cash

d) usually represents a significant portion of operatingexpense

orchidfrog938

Download Starbucks 10K for fiscal year 2013 (that is, the year ended September 29, 2013).

a. Review the revenue recognition policies of Starbucks discussed in Note 1 (Summary of Significant Accounting Policies). Does Starbucks record revenue when they receive cash from their customers (cash-basis accounting) or do they follow a different rubric (for example, accrual accounting)? How does Starbucks record revenue on stored value cards (i.e., gift cards)? What challenges in measuring revenue do you observe? That is, are there any significant judgments management needs to make in recording sales revenues at Starbucks?

b. What are Starbucks' major expenses?

c. Were there any significant changes in the cost structure during the most recent year?

d. In fiscal 2013, Starbucks separately reported a litigation charge included it in operating income. Why didn't the company just include this amount within the line item for general and administrative expenses? Why is it an operating expense?

e. Was the company profitable during 2013? During 2012? Explain your definition of âprofitableâ.

f. Refer to Starbucksâ fiscal 2013 statement of cash flows:

a. Compare Starbucksâ net earnings to cash provided by operating activities and explain the difference.

b. How much cash did Starbucks use for expenditures for property, plant and equipment during fiscal 2013?

c. What amount of dividends did Starbucks pay during the year? How does this amount compare to the amount of dividends declared as shown in the statement of equity? g. Several notes to the financial statements refer to the use of âestimates.â Which accounts on Starbucksâ balance sheet require estimates? Are any accounts estimate free?

skyweasel580

Presented below are the financial statements of NoskerCompany.

NOSKER COMPANY Comparative Balance Sheets December 31
Assets	2014		2013
Cash	$35,350		$20,540
Accounts receivable	32,030		19,280
Inventory	26,330		20,170
Equipment	59,700		77,740
Accumulated depreciationâequipment	(29,170	)	(23,220	)
Total	$124,240		$114,510

Liabilities and Stockholdersâ Equity
Accounts payable	$28,500		$ 16,570
Income taxes payable	7,360		8,400
Bonds payable	27,750		32,280
Common stock	18,490		14,690
Retained earnings	42,140		42,570
Total	$124,240		$114,510

NOSKER COMPANY Income Statement For the Year Ended December 31, 2014
Sales revenue		$241,740
Cost of goods sold		176,380
Gross profit		65,360
Operating expenses		24,550
Income from operations		40,810
Interest expense		2,370
Income before income taxes		38,440
Income tax expense		8,140
Net income		$30,300

Additional data:

1.		Dividends declared and paid were $30,730.
2.		During the year equipment was sold for $7,800 cash. Thisequipment cost $18,040 originally and had a book value of $7,800 atthe time of sale.
3.		All depreciation expense, $16,190, is in the operatingexpenses.
4.		All sales and purchases are on account.

Further analysis reveals the following.

1.		Accounts payable pertain to merchandise suppliers.
2.		All operating expenses except for depreciation were paid incash.

Prepare a statement of cash flows for Nosker Company using thedirect method.

blacklizard459

MGAB01H3 Chapter Notes - Chapter 3: Gross Profit, Asset Turnover, Accrual

MGAB01H3 Full Course Notes

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