AFM101 Lecture Notes - Cash Cash, Promissory Note, Accounts Payable

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orchidhedgehog763

4 Aug 2014

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM101

Professor

Donna Psutka

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AFM101 Full Course Notes

Verified Note

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Document Summary

Liability: debts or obligations that a company has from past transactions that will be paid through assets or services (ie. notes payable, accounts payable) When a liability is first recorded, it is measured in terms of its current cash equivalent, which is the cash amount that a creditor would accept to settle the liability immediately. Liabilities are very important from an analytical perspective because they affect a company"s future cash flows and risk characteristics. Different types of liabilities are categorized differently (ie. short-term notes payable, income tax payable) Most liabilities are recorded as they occur, others need to be adjusted. Current cash equivalent: the cash amount that a creditor would accept to settle the liability immediately. In terms of different types of notes payable, there is usually an interest expense. Interest payable in the future is not included in the amount of the liability because it accrues (increases over time) and becomes a liability with the passage of time.

Related Questions

1.All of the following are generally considered current liabilities on a company balance sheet except

Wages Payable

Interest Payable

Bonds Payable

Taxes Payable

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2.If a one-year company loan spans equally over 2 fiscal periods, but interest is set to be paid when the loan amount itself is due, the company would

Still pay cash out for half the interest at the end of the first fiscal year to keep its records correct

Accrue the appropriate amount of interest payable at the end of the first fiscal period

Increase the Loan Payable amount by the interest amount accrued at the end of the first fiscal period

Do nothing until the interest payment itself is actually due

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3.If a firm has a warranty obligation on its product that is redeemed by the customer for cash, the firm would

		Record a warranty payable at the time of the redemption
		Reduce the already recorded warranty payable and cash for the amount of the claim
		Do nothing and just fix the product
		Reduce revenues and retained earnings at the time of the warranty redemption

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4.If a company collects sales tax on its products for the state in which it operates its business, it would

Include the amount in Revenue

Include the amount as an expense

Record a Sales Tax Payable until it is due to the state

Put the cash in a box under the counter

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5.An installment loan generally has all of the following features except

The cash payment per period by the borrower is the same amount each time

The amount of the payment applied to interest decreases over time

The amount of the payment applied to interest increases over time

The amount of the payment applied to the principal increases over time

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6.A pre-approved financing plan that allows companies to borrow and repay funds as needed up to the maximum amount set by the creditor and that is often used for relatively short-term borrowing to finance varying business needs is

		Trade credit
		A Line of Credit
		An account payable
		A debit card

coralbutterfly797

Complex Balance Sheet

Presented below is the unaudited balance sheet as of December31, 2016, prepared by Zeus Manufacturing Corporationâsbookkeeper.

Zeus Manufacturing Corporation Balance Sheet for the Year Ended December 31, 2016
Assets		Liabilities and Shareholders' Equity
Cash	$225,000	Accounts payable	$133,800
Accounts receivable (net)	345,700	Mortgage payable	900,000
Inventories	560,000	Notes payable	500,000
Prepaid income taxes	40,000	Lawsuit liability	80,000
Investments	57,700	Income taxes payable	61,200
Land	450,000	Deferred tax liability	28,000
Building	1,750,000	Accumulated depreciation	420,000
Machinery and equipment	1,964,000	Total Liabilities	$2,123,000
Goodwill	37,000	Common stock, $50 par; 40,000 shares issued	$2,231,000
Total Assets	$5,429,400	Retained earnings	1,075,400
		Total Shareholders' Equity	$3,306,400
		Total Liabilities and Shareholders' Equity	$5,429,400

Your company has been engaged to perform an audit, during whichyou discover the following information:

Checks totaling $14,000 in payment of accounts payable weremailed on December 31, 2016, but were not recorded until 2017. Latein December 2016, the bank returned a customerâs $2,000 checkmarked "NSF," but no entry was made. Cash includes $100,000restricted for building purposes.

Included in accounts receivable is a $30,000 note due onDecember 31, 2019, from Zeusâs president.

During 2016, Zeus purchased 500 shares of common stock of amajor corporation that supplies Zeus with raw materials. Total costof this stock was $51,300, and fair value on December 31, 2016, was$47,000. The decline in fair value is considered temporary. Zeusplans to hold these shares indefinitely.

Treasury stock was recorded at cost when Zeus purchased 200 ofits own shares for $32 per share in May 2016. This amount isincluded in investments.

On December 31, 2016, Zeus borrowed $500,000 from a bank inexchange for a 10% note payable, maturing December 31, 2021. Equalprincipal payments are due December 31 of each year beginning in2017. This note is collateralized by a $250,000 tract of landacquired as a potential future building site, which is included inland.

The mortgage payable requires $50,000 principal payments, plusinterest, at the end of each month. Payments were made on January31 and February 28, 2017. The balance of this mortgage was due June30, 2017. On March 1, 2017, prior to issuance of the auditedfinancial statements, Zeus consummated a noncancelable agreementwith the lender to refinance this mortgage. The new terms require$100,000 annual principal payments, plus interest, on February 28of each year, beginning in 2018. The final payment is due February28, 2025.

The lawsuit liability will be paid in 2017.

Of the total deferred tax liability, $5,000 is considered acurrent liability.

The current income tax expense reported in Zeusâs 2016 incomestatement was $61,200.

The company was authorized to issue 100,000 shares of $50 parvalue common stock.

Required:

Prepare a corrected classified balance sheet as of December 31,2016.

Zeus Manufacturing Corporation Balance Sheet December 31, 2016
Assets
Current Assets:
Cash		$
Accounts receivable (net)
Inventories
Total current assets			$
Long-Term investment, at fair value
Property, Plant, and Equipment (at cost):
Land		$
Building	$
Machinery and equipment
Total
Less: Accumulated depreciation
Total property, plant, and equipment
Intangible Asset:
Goodwill
Other Assets:
Cash restricted for building purposes		$
Officer's note receivable
Land held for future building site
Total Assets			$
Liabilities
Current Liabilities:
Accounts payable		$
Current installments of long-term debt
Lawsuit liability
Income taxes payable
Deferred tax liability
Total current liabilities			$
Long-Term Debt:
Mortgage payable		$
Notes payable
Deferred tax liability
Total long-term debt
Total Liabilities			$
Shareholders' Equity
Contributed Capital:
Common stock, $50 par value		$
Additional paid-in capital
Total paid-in capital		$
Retained earnings
Accumulated Other Comprehensive Loss:
Unrealized decrease in value of long-term investment
Total		$
Less: Cost of treasury stock
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity			$

browncattle687

complex Balance Sheet