FINS1613 Lecture Notes - Lecture 6: Cash Flow Statement, Financial Statement, Cash Flow

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22 Jul 2018

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Financial statements accounting reports that a firm issues to provide a snapshot of financial health: balance sheet. And describe past performance: income statement, cash flows statement. The firm"s cash, inventory, property and any other investments. The difference between the firm"s assets and liabilities. It is the book value of the firm"s equity. The process of closing a firm by selling its assets and paying its liabilities. Book value equity is the result of past transactions. The two sides of the balance sheet must balance: The firm"s assets must equal the claims on those assets. Recognition of the firm"s sources of revenue and expenses over a period of time. Net profit = revenue minus expenses over the period. Net profit may also be referred to as: net income, earnings, the bottom line", due to location on income statement. Determined using accounting rules of accrual: revenues and expenses are matched in time, and recognised when incurred, not when paid.

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2. Balance sheet

The balance sheet provides a snapshot of the financial conditionof a company. Investors and analysts use the information given onthe balance sheet and other financial statements to make severalinterpretations regarding the companyâs financial condition andperformance.

Blue Hamster Manufacturing Inc. is a hypothetical company.Suppose it has the following balance sheet items reported at theend of its first year of operation. For the second year, some partsare still incomplete. Use the information given to complete thebalance sheets for Blue Hamster Manufacturing Inc. for the yearsending December 31, Year 2 and 1, respectively.

Blue Hamster Manufacturing Inc.
Balance Sheet
For the Year ended December 31
	Year 2	Year 1		Year 2	Year 1
Assets			Liabilities and equity
Current assets:			Current liabilities:
Cash and equivalents		$55,350	Accounts payable	$0	$0
Accounts receivable	$25,312	$20,250	Accruals	$3,516	$0
Inventories	$74,250	$59,400	Notes payable	$19,921	$18,750
Total current assets	$168,750	$135,000	Total current liabilities		$18,750

Net fixed assets:			Long-term debt	$70,312	$56,250
Net plant and equipment		$165,000	Total debt	$93,750	$75,000
			Common equity:
			Common stock	$182,812	$146,250
			Retained earnings		$78,750
			Total common equity	$281,250	$225,000
Total assets	$375,000	$300,000	Total liabilities and equity	$375,000	$300,000

Given the information in the preceding balance sheetâandassuming that Blue Hamster Manufacturing Inc. has 50 million sharesof common stock outstandingâread each of the following statements,then identify the selection that best interprets the informationconveyed by the balance sheet.

Statement #1: Blue Hamsterâs pool of relatively liquid assets,which are available to support the companyâs current and futuresales, decreased from Year 1 to Year 2.

This statement is , because:

Blue Hamsterâs total current liabilities balance decreased by$33,750 between Year 1 and Year 2.

Blue Hamsterâs total current liabilities balance increased from$20,250 to $25,312 between Year 1 and Year 2.

Blue Hamsterâs total current asset balance actually increasedfrom $135,000 to $168,750 between Year 1 and Year 2.

Blue Hamsterâs total current asset balance decreased from$168,750 to $135,000 between Year 1 and Year 2.

Statement #2: In Year 2, Blue Hamster Manufacturing Inc. wasprofitable.

This statement is , because:

Blue Hamsterâs retained earnings account increased between theend of Years 1 and 2.

The cash and equivalents account increased between Years 1 and2.

Blue Hamsterâs total assets increased between Years 1 and 2.

Statement #3: The book value per share of Blue Hamsterâs stockin Year 2 was $5,625.

This statement is , because:

The per-share book value is calculated by dividing the companyâstotal assets by the number of outstanding shares of commonstock.

The per-share book value is calculated by dividing the companyâstotal debt by the number of outstanding shares of common stock.

The per-share book value is calculated by dividing the companyâstotal common equity by the number of outstanding shares of commonstock.

Based on your understanding of the different items reported onthe balance sheet and the information they provide, if everythingelse remains the same, then the cash and equivalents item on thecurrent balance sheet is likely to if the firm issues$3 million of new common stock.

Based on your understanding of the different items reported inthe balance sheet and the information they provide, which statementregarding Blue Hamster Manufacturing Inc.âs balance sheet isconsistent with U.S. Generally Accepted Accounting Principles(GAAP)?

The companyâs assets should be listed in alphabetical order.

The companyâs assets should be listed in the order in which theyare to be converted into cash.

The companyâs assets should be listed from those carrying thelargest balance to those with the smallest balance.

magentabuffalo389

Financial statements of Ansbro Corporation follow:

Ansbro Corporation Comparative Balance Sheet
	Ending Balance	Beginning Balance
Assets:
Cash and cash equivalents	$32	$29
Accounts receivable	82	80
Inventory	41	39
Property, plant and equipment	648	560
Less: accumulated depreciation	346	307
Total assets	$457	$401
Liabilities and stockholders' equity:
Accounts payable	$49	$68
Bonds payable	135	190
Common stock	92	80
Retained earnings	181	63
Total liabilities and stockholders' equity	$457	$401

Income Statement
Sales	$745
Cost of goods sold	373
Gross margin	372
Selling and administrative expenses	127
Net operating income	245
Income taxes	87
Net income	$158

Cash dividends were $40. The company did not dispose of any property, plant, and equipment. It did not issue any bonds payable or repurchase any of its own common stock. The following questions pertain to the company's statement of cash flows.

The net cash provided by (used in) investing activities for the year was:

$12

$(88)

$(55)

$(40)

blushtoad595

Presented below are the December 31 financial statements for Apple Corporation (in $ Millions).

Apple Corporation Balance Sheets as of December 31 Assets Year 2 Year 1

Cash $29,025 $162,000

Accounts Receivable 263,250 141,750

Inventory 243,000 303,750

Long-Term Investments - 81,000 Totals $535,275 $688,500

Liabilities and Shareholders' Equity

Accounts Payable $101,250 $162,000

Other Current Liabilities 32,400 20,250

Notes Payable 94,500 135,000

Common Stock 168,750 168,750

Retained Earnings 138,375 202,500

Totals $535,275 $688,500

Apple Corporation Income Statement For the Year Ended December 31, Year 2

Sales $756,000

Cost of Goods Sold 506,250

Gross Profit 249,750

Operating expenses 243,000

Income from operations 6,750

Loss on Sale of long term investment (10,125)

Net loss $(3,375)

Cash dividends of $60,750 were paid to shareholders during Year 2. Prepare a statement of cash flows using the direct method.

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FINS1613 Lecture Notes - Lecture 6: Cash Flow Statement, Financial Statement, Cash Flow

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