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ACTG 1P91 Lecture Notes - Lecture 10: Income Statement, Canada Pension Plan, Accrued Interest

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cerisegiraffe538
17 Apr 2018
School
Brock University
Department
Accounting
Course
ACTG 1P91
Professor
Darlene Bay

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ACTG 1P91 Full Course Notes
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ACTG 1P91 Full Course Notes
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Document Summary

Liabilities are created when a company: buys goods and services on credit, obtains short term loans. Issues long term debt: current liabilities, short term obligations that will be paid with current assets within the current operating cycle or one year, whichever is longer. Interest is not recorded when a liability is first recorded. Accounts payable and accrued liabilities: accounts payable: Increases (credit) when a company buys goods or services: decreases debit when a company pays its account. 35: corporate income taxes are due three months after yearend, most companies are required to pay installments during the year. Note payable is the amount owed as a result of issuing a promissory notes (all examples are textbook reference: establishing a note payable. On november 1, 2014, a company borrows ,000 cash on a one-year 6% note payable. Both principal and interest are due october 31, 2015: accruing interest expense. On december 31, 2014, accrued interest revenue is recorded.

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Related Questions

Match the following:

1. Acid-test ratio

2. Current portion of long-term debt

3. Recording a contingent liability

4. Commercial paper

5. Deferred revenues

6. Line of credit

7. Accrual accounting

8. Interest expense

9. The riskiness of a business's obligations

10. Disclosure of a contingent liability

A Cash, short-term investments, and accounts receivable alldivided by current liabilities.

B Loss is probable and amount is reasonably estimable.

C Gift cards

D Long-term debt maturing within one year.

E Informal agreement that permits a company to borrow up to aprearranged limit.

F Interest expense is recorded in the period interest isincurred rather than in the period interest is paid

G Loss is reasonably possible and amount is reasonablyestimable

H Incurred on a notes payable

I obligations Unsecured notes sold in minimum denominations of$25,000 with maturities up to 270 days

J Classifying liabilities as either current or long-term helpsinvestors and creditors assess this.

Silver ComputerCorporation
Use the financial statementsbelow to complete a financial ratio analysis.
The ratios should becalculated on the ratio worksheet. Make sure to reference
amounts from the statementsonto your ratios. Be sure that your answer
uses the correct format forthat ratio: times, percentage, days, dollar amount.
RatioFormat:
Show with your answer whetherthe ratio is times, perentage, or dollar amount.
For example:
o Current ratio is times, so it would be shown as anumber compared to one.
(ie. 2.08 to 1 or 2.08:1 )
o Working capital is a dollar amount, so it would beshown as currency.
(ie. $11, 190 )
o Net margin is a percentage, so it would be shownwith a % sign.
(ie. 12.7% )
Take a look at the ratiodescriptions in the textbook to determine if the ratio is
times, percentage, or dollaramount.
Decimal Places onRatios
The following are typicallyaccepted rules for decimal places on ratios:
o Ratios: two decimal places
o Dollars: two decimal places (the book showed threedecimal places for
earnings per share but we don't need to do that forthis class)
o Days: one decimal place
o Percentages: one decimal place (the textbook showedpercentages to two
decimal places but I think that is overkill)
o Price-Earnings ratio: two decimal places
o Times: two decimal places
Silver ComputerCorporation
IncomeStatement
For the Year EndedDecember 31, 2016
Sales $ 47,240
Cost of goods sold 18,920
Gross profit 28,320
Operating expenses
Utilities $ 6,430
Wages 8,310
Rent 1,730 16,470
Operating income 11,850
Other revenue and expense
Interest revenue $ 940
Interest expense 1,190 2,130
Income before incometaxes 9,720
Income taxes 3,730
Net income $ 5,990
Silver ComputerCorporation
Comparative BalanceSheets
As of December 31,2016 and 2015
Change
2016 2015 Amount Percent
Assets
Current assets
Cash $ 3,290 $ 6,230 $ (2,940) -47.2%
Marketable securities 1,120 1,920 (800) -41.7%
Accounts receivable 3,980 6,790 (2,810) -41.4%
Merchandise inventory 6,880 5,110 1,770 34.6%
Supplies 1,270 2,130 (860) -40.4%
Total current assets 16,540 22,180 (5,640) -25.4%
Plant and equipment
Equipment 10,560 6,450 4,110 63.7%
Truck 26,310 18,310 8,000 43.7%
Total plant and equipment 36,870 24,760 12,110 48.9%
Total assets $ 53,410 $ 46,940 $ 6,470 13.8%
Liabilities
Current liabilities
Accounts payable $ 6,940 $ 4,390 $ 2,550 58.1%
Wages payable 990 1,510 (520) -34.4%
Accrued liabilities 2,420 1,920 500 26.0%
Total current liabilities 10,350 7,820 2,530 32.4%
Long-term liabilities
Long-term notes payable 9,900 6,300 3,600 57.1%
Total liabilities 20,250 14,120 6,130 43.4%
Stockholder's Equity
Common stock 8,460 6,610 1,850 28.0%
Retained earnings 29,700 26,210 3,490 13.3%
Total stockholder'sequity 38,160 32,820 5,340 16.3%
Total liabilities &equity $ 58,410 $ 46,940 $ 11,470 24.4%
Notes for preparationof financial ratios:
o All of Silver Corporations sales were onaccount.
o 1,692 shares of common stock were outstanding atthe end of 2016.
o $2.50 of dividends per share were paid in2016.
o The market price per share of Silver stock was$34.00 for all of 2016.
Answer this question
SilverComputer Corporation
Liquidity and SolvencyFinancial Ratios
LiquidityRatios
Note - Working Capitalshown as an example to follow on the remainingratios.
Working Capital 16,540
10,350 1.6:1
Current ratio
Quick ratio
* Quick assets are cash,marketable securities, and accounts receivable
Accounts receivableturnover
Average days to collectreceivables
Inventory turnover
Average days to sellinventory
Operating cycle
Solvency Ratios(Long-term credit risk)
Debt ratio
Interest coverage ratio

Camden Biotechnology began operations in September 2018. The following selected transactions relate to liabilities of the company for September 2018 through March 2019. Camden’s fiscal year ends on December 31. Its financial statements are issued in April. 2018 On September 5, opened checking accounts at Second Commercial Bank and negotiated a short-term line of credit of up to $15,000,000 at the bank's prime rate (10.5% at the time). The company will pay no commitment fees. On October 1, borrowed $12 million cash from Second Commercial Bank under the line of credit and issued a five-month promissory note. Interest at the prime rate of 10% was payable at maturity. Management planned to issue 10-year bonds in February to repay the note. Received $2,600 of refundable deposits in December for reusable containers used to transport and store chemical-based products. For the September–December period, sales on account totaled $4,100,000. The state sales tax rate is 3% and the local sales tax rate is 3%. (This is a summary journal entry for the many individual sales transactions for the period.) Recorded the adjusting entry for accrued interest. 2019 In February, issued $10 million of 10-year bonds at face value and paid the bank loan on the March 1 due date. Half of the storage containers covered by refundable deposits were returned in March. The remaining containers are expected to be returned during the next six months. Required: 1. Prepare the appropriate journal entries for 2018 and 2019 transactions. 2. Prepare the current and long-term liability sections of the December 31, 2018, balance sheet. Trade accounts payable on that date were $252,000.