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ACC 333 Lecture Notes - Lecture 13: Current Liability, Cash Flow, Working Capital

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orangeminnow913
3 Jan 2018
School
Ryerson University
Department
Accounting
Course
ACC 333
Professor
Douglas Kong

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Document Summary

Cash flow statement: operating, investing, financing, cash balance. The amount that a company actually received during a specific period, including discounts are deductions for returned merchandise. It is the (cid:498)top line(cid:499) or (cid:498)gross income(cid:499) First profit measurement point for any business that sells goods. Profit needs to be adequate to cover expenses and still have something left over. Depends on quantity of goods sold (revenue increase) Cogs from merchandising companies have higher mark ups on prices. Expenses should be recognized at the time they are incurred not regarding when they are paid in cash. Why sales and cogs are in gear. Inventory term used for production materials, products purchased, or products manufactured and held by the company until sold. A company that manufactures its products might show several categories of inventory: raw materials, work in progress o finished goods. Any expense related to finding customers and completing sale.

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Related Questions

Profit and Loss Statement 2018
Revenue 34,290
percent of growth 0.0%
Gross Profit 34,290
Gross Margin 100%
SGA Costs (2,500)
EBITDA 31,790
EBITDA Margin 92.7%
Depreciation (7,500)
% of Sales -21.9%
EBIT 24,290
EBIT Margin 70.8%
Interest (2,500)
% of Sales -7.3%
EBIT 21,790
EBIT Margin 63.5%
Net Income 21,790
Net Income Margin 63.5%
Balance Sheet 2017 2018
Cash 9,000 12,000
Inventory 0 0
A/R 0 3,179
Current Assets 9,000 15,179
Fixed Assets 747,300 763,800
Total Assets 756,300 778,979
Liabilities
A/P 16,800 14,460
Current Liabilities 16,800 16,800
Long Term Debt 499,652 468,000
Total Liabilities 516,452 482,460
Total Equity 239,848 296,519
Total Liabilities and Equity 756,300 778,979
Cash Flows 2018
EBIT 24,290
Depreciation 7,500
Interest (2,500)
Working Capital (2,500)
Operating Cash Flow 26,790
Capex (50,000)
Investing Cash Flows (50,000)
Long Term Debt 50,000
Financing Cash Flows 50,000
Cash Flow 26,790
Cash Overdraft 26,790

1. Question is to identify gaps in funding for my propertyrental business of10 years, using my financial statements 2.Whatarea(s) do you notice a gap in funding (a shortfall in capitalneeded to fund future operations or projects)? Really evaluate,even if it’s $1,000 or $10,000; identify it. Evaluate those gaps todetermine the cause of those gaps. Prioritize your funding needs.Priority for Funding Gap in Funding Example 1. Initial inventoryUnsure ,Have not fully identified the amount of initial inventoryneeded. Example 2 Computer system $5,000 ,Do not have funding tocover this expense. 3 Submit matrix and a 2-page explanation foryour prioritization. HOW DO I IDENTIFY FUNDING GAPS, ( A SHORTFALLIN CAPITAL TO FUND FUTURE OPERATIONS Larry I assume they aretalking about gaps in working capital whn funding business cashflows.Larry

Forten Company, a merchandiser, recently completed itscalendar-year 2015 operations. For the year, (1) all sales arecredit sales, (2) all credits to Accounts Receivable reflect cashreceipts from customers, (3) all purchases of inventory are oncredit, (4) all debits to Accounts Payable reflect cash paymentsfor inventory, and (5) Other Expenses are paid in advance and areinitially debited to Prepaid Expenses. The company's incomestatement and balance sheets follow.

FORTEN COMPANY
Comparative Balance Sheets
December 31, 2015 and 2014

2015

2014
Assets
Cash $ 49,800 $ 74,000
Accounts receivable 65,900 59,000
Inventory 277,000 252,500
Prepaid expenses 1,500 1,700
Total current assets 394,200 387,200
Equipment 158,500 106,500
Accum. depreciation—Equipment (36,375) (46,000)
Total assets $ 516,325 $ 447,700
Liabilities and Equity
Accounts payable $ 54,325 $ 113,000
Short-term notes payable 9,000 8,000
Total current liabilities 63,325 121,000
Long-term notes payable 65,000 48,000
Total liabilities 128,325 169,000
Equity
Common stock, $5 par value 162,500 150,750
Paid-in capital in excess of par, common stock 35,250 0
Retained earnings 190,250 127,950
Total liabilities and equity $ 516,325 $ 447,700
FORTEN COMPANY
Income Statement
For Year Ended December 31, 2015
Sales $ 582,500
Costof goods sold 287,000
Gross profit 295,500
Operating expenses
Depreciation expense $ 20,000
Other expenses 132,000 152,000
Other gains (losses)
Loss on sale ofequipment (5,250)
Income before taxes 138,250
Income taxes expense 24,250
Netincome $ 114,000
Additional Information on Year 2015Transactions
a. Net income was$114,000.
b. Accountsreceivable increased.
c. Inventoryincreased.
d. Prepaid expensesdecreased.
e. Accounts payabledecreased.
f. Depreciationexpense was $20,000.
g.

Sold equipment costing $46,500, with accumulated depreciation of$29,625, for $11,625 cash. This yielded a loss of $5,250.
h.

Purchased equipment costing $98,500 by paying $25,000 cash and(i.) by signing a long-term note payable for thebalance.
j. Borrowed $1,000cash by signing a short-term note payable.
k. Paid $56,500cash to reduce the long-term notes payable.
l. Issued 2,350shares of common stock for $20 cash per share.
m. Declared andpaid cash dividends of $51,700.
Required:

Prepare a complete statement of cash flows using a spreadsheet;report its operating activities using the indirect method.(Enter all amounts as positive values.)

FORTEN COMPANY
Spreadsheet for Statement ofCash Flows
For Year Ended December 31,2015
Analysis of Changes
December 31, 2014 Debit Credit December 31, 2015
Balance sheet—debit
Cash $74,000 $49,800
Accounts receivable 59,000
Inventory 252,500
Prepaid expenses 1,700
Equipment 106,500
$493,700
Balance sheet—credit
Accumulateddepreciation—Equipment $46,000
Accounts payable 113,000
Short-term notes payable 8,000
Long-term notes payable 48,000
Common stock, $5 parvalue 150,750
Paid-in capital in excess ofpar value, common stock 0
Retained earnings 127,950
$493,700
Statement of cash flows
Operating activities
Investing activities
Financing activities
Non cash investing andfinancing activities
Purchase of equipment financedby long-term note payable

Alex’s Interiors, Inc., is an international manufacturer and retailer of home furnishings. The following is from Alex’s balance sheet as of September 30, 2020 (dollars are in millions).
 

              Cash $ 120.00    Accounts Payable $ 46.00      Accounts Receivable   32.00    Wages and Other Expenses Payable   171.00      Inventories   248.00    Notes Payable, (long-term)   263.00      Other Current Assets   46.00    Other Long-Term Liabilities   64.00      Property, Plant, and Equipment   435.00    Contributed Capital   436.00      Other Assets   139.00    Retained Earnings   40.00   


Assume that the following events occurred in the quarter ended December 31 (amounts provided are in whole dollars):
 

a. Paid $12,000,000 cash for an additional other asset.

b. Issued additional shares for $12,000,000 in cash.

c. Purchased property, plant, and equipment; paid $12,000,000 in cash and signed a note to pay the remaining $29,000,000 in two years.

d. Sold, at cost, other assets for $2,000,000 cash.

e. Conducted negotiations to purchase a sawmill, which is expected to cost $56,000,000.

1. Analyze transactions (a) through (e) to determine their effects on the accounting equation. 

2. Record the transaction effects determined in requirement 1 using journal entries. 

3. Summarize the journal entry effects from requirement 2 using T-accounts. Use the September 2020 ending balances as the beginning balances for the October to December 2020 quarter.

4. Prepare a classified balance sheet at December 31, 2020

5. As of December 31, 2020, has the financing for Alex’s Interiors’ investment in assets primarily come from liabilities or from shareholders’ equity?