ACG-3101 Chapter Notes - Chapter 3: Cash Cash, Deferral, Market Liquidity

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9 Sep 2016

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The purpose is to report a company"s financial position on a particular date. Assets and liabilities are grouped according to common characteristics: help the balance sheet to provide useful information about liquidity and long term solvency. Liquidity: refers to the period of time before an asset is converted to cash or until a liability is paid: useful in assessing a company"s ability to pay its current obligations. The risk to an investor or creditor increases as the percentage of liabilities, relative to equity, increases. The balance sheet doesn"t help directly measure the market value of an entity, but it provides valuable information that can be used to help judge market value. The broad distinction made in the balance sheet is the current versus noncurrent (long-term) classification of both assets and liabilities. Balance sheet elements are: assets: the probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.

Related Questions

Selected financial data of two competittors, Home Depot andLowe's are presented here (All dollars are in millions). Supposethe data were taken from 2014 financial statement of eachcompany.

HomeDepot Lowe's

Income Statement Data for year

NetSales $77,349 $48,283

Cost of goodssold 51,352 31,556

Selling and Administrativeexpenses 18,570 12,020

Interestexpense 696 239

Other income 74 45

Incometaxes 2,410 1,702

Netincome $4,395 $2,809

Balance sheet Data (End of the year)

Currentassets $14,674 $8,686

Non current assets 29,650 22,183

Total Assets $44,324 $30,869

Currentliabilities $12,706 $7,751

Long-termliabilities $13,904 $7,020

Total StockholderEquity 17,714 16,098

Total Liabilities and StockholdersEquity $44,324 $30,869

Net Cash provided by Operatingactivities $5,727 $4,347

Cash paid for CapitalExpenditures $3,558 $4,010

Dividendpaid $1,709 $428

Average Sharesoutstanding 1,849 1,481

Instructions

For each company compute these values and ratios

(a) working capital (b)Current ratio (Round to twodecimal places) (c) Debt to assetsratio (d) Free Cash flow (e) Earning pershare (f ) Compare liquidity, profitability and solvency of the twocompanies.

amaranthcrocodile471

Rent and insurance payments are examples of

	A.	variable expenses.
	B.	fixed expenses.
	C.	long-term liabilities.
	D.	short-term liabilities.

Matthew is concerned about his ability to save money regularlyand has prepared a budget. Which of the following budgetclassifications would be most appropriate for Matthew'sbudget?

	A.	Savings as a fixed expenditure
	B.	Saving whatever may be left over
	C.	Savings as a variable expenditure

Question 3

A successful financial plan includes

	A.	explicitly stated financial goals.
	B.	specified values that underlie the plan.
	C.	all of these.
	D.	logical and consistent financial strategies.

Question 4

A cash-flow statement is also known as a(n) ____ statement.

	A.	taxable income
	B.	net worth
	C.	income and expense
	D.	asset-and-liability

Question 5

A long-term goal is one that is projected to be acheived beyondhow much time?

	A.	five year
	B.	ten years
	C.	six months
	D.	one year

Question 6

A balance sheet includes ____, ____, and ____.

	A.	income; expenses; net worth
	B.	assets; expenses; liabilities
	C.	income; liabilities; net worth
	D.	assets; liabilities; net worth

Question 7

Disposable income is income

	A.	after all employer withholding including taxes.
	B.	minus fixed expenditures.
	C.	before taxes.
	D.	after all employer withholding except taxes.

Question 8

Which of the following would be classified as a long-termliability?

	A.	Education loan balance
	B.	Credit card debt
	C.	Bank card debt
	D.	All of these

Question 9

Stephen Scott's monthly pay stub indicates that his monthlygross income is $3,800. However, $800 is withheld for income andSocial Security taxes, $200 is withheld for his health anddisability insurance, and another $200 is contributed to hispension plan. How much is Stephen's disposable income?

	A.	$2,800
	B.	$3,000
	C.	$2,600
	D.	$3,800

Question 10

Which of the following provides information about a person'sfinancial condition at a specific point in time?

	A.	Federal tax return
	B.	Balance sheet
	C.	All of these
	D.	Income and expense statement

Question 11

The two most useful financial statements are ____ and____.

	A.	federal tax returns; income and expense statements
	B.	balance sheets; wills
	C.	cash-flow statements; balance sheets
	D.	wills; federal tax returns

Question 12

Which of the following is the best example of awell-stated financial goal?

	A.	Pay off your credit cards as soon as possible
	B.	Purchase a three-bedroom home in five years
	C.	Buy a $3,000 computer in 18 months
	D.	Buy a $2,000 stereo

Question 13

The first step in the budgeting process is

	A.	setting financial goals.
	B.	evaluating.
	C.	organizing.
	D.	decision making.

Question 13

The first step in the budgeting process is

	A.	setting financial goals.
	B.	evaluating.
	C.	organizing.
	D.	decision making.

Which of the following is a characteristic of a cash-flowstatement?

	A.	It shows if you were able to live within your income for theperiod covered.
	B.	All of these.
	C.	It covers a period of time, usually one month or one year.
	D.	The statement includes three sections: income, expenses, andsurplus (or deficit).

Question 15

The formula for calculating net worth is

	A.	income minus liabilities.
	B.	assets minus expenses.
	C.	income minus expenses.
	D.	assets minus liabilities.

Question 16

Food, clothing, and entertainment are examples of

	A.	long-term liabilities.
	B.	short-term liabilities.
	C.	fixed expenses.
	D.	variable expenses.

Question 17

To construct a balance sheet, you need to compile dollar valuesfor your assets and liabilities. Good sources from which to beginare

	A.	checkbook or savings account records.
	B.	all of these.
	C.	investments.
	D.	receipts of various payments.

Question 18

Discretionary income is used to pay for things like

	A.	housing.
	B.	vacations.
	C.	utilities.
	D.	food.

Question 19

A short-term goal is one that is projected to be acheived withinhow much time?

	A.	one month
	B.	three months
	C.	one year
	D.	five years

Question 20

The advantages of having organized financial records include

	A.	helping you take advantage of all available tax deductions.
	B.	all of these.
	C.	enabling you to review the results of financialtransactions.
	D.	helping you save money as well as make money.

magentarhinoceros749

EXERCISE 15-2 Financial Ratios for Assessing Liquidity (L015-2] Comparative financial statements for Weller Corporation, a merchandising company, for the fiscal year ending December 31 appear below. The company did not issue any new common stock dur ing the year. A total of 800,000 shares of common stock were outstanding. The interest rate on the bond payable was 12%, the income tax rate was 40%, and the dividend per share of common stock was $0.40. The market value of the company's common stock at the end of the year was $18. All of the company's sales are on account. Weller Corporation Comparative Balance Sheet (dollars in thousands) This Year Last Year Assets Current assets: Cash................... Accounts receivable, net ......... Inventory ..................... Prepaid expenses .............. Total current assets ............... Property and equipment: Land ............ Buildings and equipment, net ........ Total property and equipment. Total assets ........ $ 1,280 12,300 9,700 1,800 25,080 $ 1,560 9,100 8,200 2,100 20,960 6,000 19,200 25,200 $50,280 6,000 19,000 25,000 $45,960 .... $ 9,500 600 300 10,400 $ 8,300 700 300 9,300 Liabilities and Stockholders' Equity Current liabilities: Accounts payable.. Accrued liabilities .......... Notes payable, short term ........ Total current liabilities ......... Long-term liabilities: Bonds payable ............ Total liabilities .............................. Stockholders' equity: Common stock ... Additional paid-in capital ...... Total paid-in capital ............... Retained earnings ........ . Total stockholders' equity .. Total liabilities and stockholders' equity .......... 5,000 15,400 5,000 14,300 800 4,200 800 4,200 5,000 29,880 34,880 $50,280 5,000 26,660 31,660 $45,960 Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands) This Year Last Year Sales ...... $79,000 $74,000 Cost of goods sold .................... 52,000 48,000 Gross margin .......................... 27,000 26,000 Selling and administrative expenses: Selling expenses 8,500 8.000 Administrative expenses .... 12,000 11,000 Total selling and administrative expenses .... 20,500 19,000 rating income.................... 6,500 Interest expense ........................ 600 600 Net income before taxes ................. 5,900 6,400 Income taxes .......................... 2,360 2,560 Net income ............ .......... 3,540 3,840 Dividends to common stockholders ......... 320 Net income added to retained earings...... 3,220 3,240 Beginning retained earnings 26,660 23,420 Ending retained earnings ................. $29,880 $26,660 7,000 320 EXERCISE 15-5 Financial Ratios for Assessing Profitability [LO15-5] Refer to the data in Exercise 15-2 for Weller Corporation. Required: Compute the following financial data for this year: 1. Gross margin percentage. 2. Net profit margin percentage. 3. Return on total assets. 4. Return on equity.

ACG-3101 Chapter Notes - Chapter 3: Cash Cash, Deferral, Market Liquidity

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