FINA 2201 Chapter Notes - Chapter 2: Historical Cost, Capital Structure, Cash Flow

34 views3 pages

whiteguinea-pig187

18 Sep 2016

School

Northeastern University

Department

Finance & Insurance

Course

FINA 2201

Professor

Mkrtchyan Anahit

For unlimited access to Textbook Notes, a Class+ subscription is required.

Document Summary

Balance sheet - financial statement showing the firm"s accounting value on a particular date. Organizes what a firm owns (assets), what a firm owes (liabilities), and the difference between the two (the firm"s equity) at a given point in time. Assets are classified as either current or fixed (listed on the left) A fixed asset is one that has a relatively long life, can be tangible, such as a truck or a computer, or intangible, like a trademark or patent. A current asset has a life of less than one year, meaning the asset will convert to cash within 12 months. Cash and accounts receivable are current assets. The firm"s liabilities are the first thing listed on the right side of the balance sheet, classified as either current or long term. Current liabilities have a life of less than one year (meaning they must be paid off within the year) and are listed before long-term liabilities.

Related Questions

Here is your first question:

Explain what current assets and fixed assets are and give as many examples as you can for each. What is the difference between tangible and intangible assets?

Liabilities and owner's equity are listed on the right-hand side respectively. Liabilities are also classified as current liabilities and long-term liabilities.

Here is your second question:

Explain what current liabilities differ from long-term liabilities and give as many examples as you can for each.

Owner's equity (also known as shareholders' equity, common equity) is the difference between total value of assets and total value of liabilities. That is, if you were to use your assets to pay off the debts, whatever is left over (the residual) would belong to shareholders. That is why they are known as residual claimants. Hence we have the identity;

Assets = Liabilities + Shareholders' equity

Net working capital is simply equal to current assets minus current liabilities. When net working capital is positive, it means cash that will be available over the next 12 months exceeds what must be paid. It is important for a healthy firm to have positive net working capital.

Here is your third question:

A firm has current assets of $100, net fixed assets of $500, short-term debt of $70 and long-term debt of $200. What is shareholders' equity. Construct a balance sheet

for this company. Is net working capital positive or negative? If so by how much? (Hint: You may utilize Example 2.1 on page 24 of the textbook).

Bluestone Company had three intangible assets at the end of the current year:

a.
A patent purchased this year from Miller Co. on January 1 for a cash cost of $3,600. When purchased, the patent had an estimated life of 12 years.
b.
A trademark was registered with the federal government for $10,500. Management estimated that the trademark could be worth as much as $250,000 because it has an indefinite life.
c.
Computer licensing rights were purchased this year on January 1 for $40,000. The rights are expected to have a five-year useful life to the company.

Required:
1.
Compute the acquisition cost of each intangible asset.

AQUSTION COST
Patent
Trademark
License rights

2.
Compute the amortization of each intangible for the current year ended December 31. (Do not round intermediate calculations.)

Amortization expenses
Patent
Trademark
License rights

3.
Show how these assets and any related expenses should be reported on the balance sheet and income statement for the current year.

Income statement for th year ending December 31

sangriasnail996

The most recent financial statements for Xporter, Inc., are shown here:

Income Statement			Balance Sheet
Sales	$	6,900	Current assets	$	3,600	Current liabilities	$	2,200
Costs		5,400	Fixed assets		10,200	Long-term debt		3,750

Taxable income	$	1,500				Equity		7,850

Taxes (34%)		510	Total	$	13,800	Total	$	13,800

Net income	$	990

Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 40 percent dividend payout ratio. As with every other firm in its industry, next year

ochreserval648

FINA 2201 Chapter Notes - Chapter 2: Historical Cost, Capital Structure, Cash Flow

Document Summary

Get access

Related Documents

FINA 2201 Chapter Notes - Chapter 2: Market Liquidity, Fixed Asset, Capital Structure

FINA 2201 Chapter Notes - Chapter 3: Intangible Asset, Profit Margin, Asset

FINA 2201 Chapter Notes - Chapter 3: Reserve Requirement, Cash Flow, Asset Management

Related Questions