AFM123 Lecture 6: WEEK 6

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salmonkangaroo235

26 Oct 2015

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM123

Professor

Peter Blake

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Document Summary

Paying (afford to pay this - i have r/e) Extra comes out of retained earnings. What happens if i buy it back for (that"s good for me bc i still have ) So they come up with this account contributed surplus (learn) Take it out of contributed surplus first. Then the rest comes out of r/e. Understand what when on in cash during the year. * it"s going to look different this time around (what you would expect to see in real life) Cash flow for year = ,000 (25k - 12k) You would think positive cash flow is a good thing - but it could also be bad. Just because cash is going down, doesn"t tell you anything. You need to know why, readers want to know why. You can lose money every year yet still be in business eg. pharmaceutical companies.

Related Questions

You should use MS Excel for this assignment.

PROBLEM

Congratulations! You just finished a successful year (YEAR NUMBER 2) as Chief Financial Officer of "Body Fumigation Development" (BFD) and animal extermination facility. The CEO

just asked you for a quick, summarized copy of the financial statements. Of course you say, no problem boss, it will only take me a few minutes----NOT!! However, like a good employee, you tell him you will produce this summary for him as soon as possible.

a) Construct an Income Statement

Your current year figures are as follows:

Revenues, $100,000

Expenses, $45,000

Depreciation Expense, oopsÂ¿you still have to figure that out. Two pieces of equipment have been purchased--1

piece in year 1 for $70,000 that has a 5 year life with no salvage value, 1 piece in year 2 for $500,000 that has a 25 year life with no salvage value. You realize that your boss needs this info quickly, so you are just going to figure out the depreciation expense for the current year (year 2). You will use the straight line method. Your tax rate is estimated at 30%.

b) Construct a Balance Sheet

You have current balances as follows: Accounts Payable, $10,000; Accounts Receivable, $50,000; Cash, $20,000; Wages Payable, $30,000; And of course your equipment as stated in the preceding paragraph. Your prior year net income was $0 and prior year paid in capital was $83,000. You do have some stockholderÂ¿s equity (hint: in this section you will have two line items-- 1) retained earnings, for which you need to figure out on your own; and 2) paid in capitalÂ¿current year paid in capital balance is $537,300)

c) Construct a Cash Flow

All prior year balance sheet items (asset and liability sections only) were 10% lower with the exception of equipment & depreciation, which you have already figured out from the prior sections. I am looking forward to this discussion since (I have heard rumored through the cyber grapevine) you are all so bright and intelligent!! :-)

crimsonshark569

Find an article dealing with budgeting and prepare a 1 page summary of how you can apply the information to your personal finances.

ARTICLE:

Budgeting is the foundation of personal finance. Whether or not you write a personal budget, use a budget spreadsheet, use a budgeting app, or simply keep track in your head â youâre probably already budgeting.

And budgeting is never more important than in your early adult life as you figure out how to stretch a paycheck, pay off debt, and â hopefully â save a little bit, too.

This page will give you the basic tools youâll need to start budgeting.

What is a Budget, Exactly?

A monthly budget is a plan for how you will allocate income to meet your expenses for a designated month. Some think of budgets as spending constraints, but budgets are better described as âspending plansâ. If you budget correctly you will be able to spend money on things you enjoy without worrying about meeting other financial obligations, overdrawing your accounts, or going into credit card debt.

A monthly budget typically consists of a list describing your income sources and expenses. Each description is followed by the amount you project for the amount of the income or expense for the designated month. A monthly budget can be an Excel spreadsheet, managed within a software program like Quicken, or simply jotted on a piece of notebook paper.

Writing Your Budget

A monthly budget is an estimate, but your goal should be to make as educated an estimate as possible. To do this, you will want to collect a monthâs worth of pay stubs, bills, and bank statements, if possible.

INCOME

Assuming you are budgeting for an upcoming calendar month, start by looking at your previous monthâs take-home pay.

If you are paid monthly or semi-monthly, this will be easy.

If you are paid every other week, multiply your paycheck by 2.166 to determine your monthly pay.

Paid weekly? Multiply your check amounts by 4.333.

Budgeting is a bit trickier if your main source of monthly income varies (if you work variable hours or earn tips), you can average several months of income or estimate based upon experience. But be conservative. In a monthâs time you want to have spent less than you planned for in your budgetâa difficult goal when you donât bank as much cash as you thought.

You also want to take other income sources into account.

Do you work more than one job?

Will you get a bonus next month?

Do you pick up odd gigs or sell old stuff from time to time?

Do you have any investments paying dividends?

Create entries in your monthly budget for these additional income sources and create a line for your total monthly income. This is the amount you have to spend for the month and the basis for your âspending planâ. You cannot spend more than this in any one month. If you anticipate unusually large expenses next month for which you have money saved (a vacation, for example), consider including the savings you will use to pay for the expense as income. This will allow you to see a more typical monthly spending plan despite the inclusion of a non-monthly expense.

EXPENSES

For your monthly budget to work, your expense projections need to be as accurate as possible. Some expenses, like your rent, car payment, and insurance bill, are simple. From there, it gets trickier.

Chances are your utility bills fluctuate from month to month and how much you spend on groceries, dining out, and clothing may vary drastically. Hereâs where having a few bills and bank statements will be useful so you can average several monthâs worth of data.

Place each expense on a line and write down the amount next to it. You may find it useful to create categories of expenses like:

âTransportationâ

âHouseholdâ

âFoodâ

âEntertainmentâ

âDebtâ

Consider expenses that may not be monthly, such as clothing or car maintenance. You should still budget for these items. If you allocate money every month for these things, that money will be available when you do need it.

Tracking and estimating your monthly expenses will be harder, but not impossible, if you frequently pay in cash. While cash is a good way to moderate your spending, you need to be diligent about collecting receipts if you want to know where your money went. A new benefit of credit and debit cards now that you can use them virtually everywhere, even for micro payments of just a few dollars, is at the end of the month you get a statement with all of your monthly expenses on one page. If youâre struggling with credit card debt, definitely stick with debit cards or cash. But if you can learn to use a credit card responsibly and pay it off in full each month, I actually think a good credit card can make budgeting easier.

Your Bottom Line

When you have a complete list of your monthly expenses, add them up and subtract the sum from your monthly income. You should have a positive number. No? Uh-oh. If you have been spending according to this budget, you are going into debt. You will need to find out why your expenses exceed your income and find ways to cut your expenses â fast! Look at your list of expenses and separate discretionary spending. This includes entertainment, travel, gifts, and all dining (including lunches!) Most people can cut their monthly expenses significantly by learning to give up small daily expenditures like coffee or snacks.

If your budgeted expenses fall below your income, congratulations! You are successfully living below your means. The question, now, is how to use your extra money. Follow our six steps to financial stability to help you prioritize your money goals.

Finally, Keep It Simple

If you ever want to build wealth and stay out of debt, you have to spend less than you earn. And a budget can ensure that you do that. Still, rigidly tracking every dime you spend is like counting calories â it sounds good in theory, but most of us fail to keep up with it.

But you can stick with a budget if:

You keep your budget as simple as possible.

You harness the power of automating your money.

After you get a handle on your budget, youâll be able to focus on other priorities like getting out of debt, building emergency savings, and begin to save for retirement. They arenât the most exciting financial goals of your lifetime, but once they are out of the way they provide solid footing for financial security for the rest of your life.

Read more at: https://www.moneyunder30.com/budgeting-in-your-twenties

magentadeer293

On Monday, May 26, Tina Brown walked into Innovative Patios to begin her new job as Payroll Manager. She was met by Julie Thornbury , President and major shareholder of the company. Julie got to the point: âGood, youâre here. I need a payroll plan by Friday. This place is a mess.

Yesterday I got a call from Human Resources & Skills Development Canada . He said we arenât filing ROEs. Do you know what they are?

Weâve got employees telling us that they get more tax deducted than their friends who earn the same amount. Jim, our production manager is barking that he should have a tax credit for his kid. Weâve been fined for sending in employee taxes late. I donât get it. I pay two people to run the administrative side of things and they mess things up.

I hear there are changes in the pipeline. I heard the federal budget, but I donât know if we will benefit or not. Will it be just more paperwork? The bottom line is that I donât want any more government types coming around here threatening me. Tell me what we have to do.â

Company History

Innovative Patios is a private corporation that installs patios stones made from recycled material. The company was started twenty years ago by Julieâs parents Elena and Seamus. Elena and Seamus were immigrants to Canada and earned a living through a small landscaping business. They hired workers on contract and paid in cash for many years until they were audited by the tax department.

To avoid further problems, they incorporated the company five years ago, put their workers on the payroll and hired Mary as a bookkeeper to fill out all the government forms.

Payroll Department

Mary quickly became Innovative Patiosâ office manager, human resources manager, financial administrator and payroll manager. The workload was overwhelming and she convinced Julie to hire Liza to help her. Liza suggested they use Quicken to keep track of all accounts including payroll.

Mary and Liza fill out all cheques by hand for the ten employees and fill out all the government forms by hand. The companyâs remittances are based on a checklist Mary developed in 2009 (See Exhibit), Mary is unhappy because she works very hard, but everyone complains about things being wrong. When Julie landed a large contract that would require 15 more people be hired, Mary recommended that Julie hire a professional payroll manager. âI can handle the other stuff, but the Canada Revenue Agency and the employee complaints are driving me crazy. I just canât keep up. I will be as helpful as I canâ.

Julie led Tina to her office and rushed off to take care of a crisis on the loading dock. Before Tina could get settled, Mary walked in, âIâm so happy to meet you. Just tell me what you need and Liza and I will get it for you. The employees are paid bi-weekly and this Wednesday is a payday. I havenât prepared anything

because I knew you would be here.

Exhibit: Maryâs 2009 Remittance list

Item	Amount	How much to remit	When
Payroll	Annual $500,000	$1,000 payroll remittance	Monthly Pay balance plus interest when assessment arrives
CPP	4.95% earnings (to annual max)	$2,062.50	Monthly
EI	1.98% earnings (to annual Max)	$49,000	Year -end
GST	Net annual subject to HST $200,000 at 13%	$1,500	Monthly Use refund to go toward payroll remittances due

Please answer the following questions:

a) Who are the key stakeholders in this case?
b) What are the resources needed?
c) What resources are available?
d) What is the main issue in this case?

Thank you in advance!

AFM123 Lecture 6: WEEK 6

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