ADM 2320 Lecture Notes - Lecture 1: Issued Shares, Retained Earnings, Privately Held Company

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burgundymarten87

15 Apr 2018

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The purpose and use of financial statements: the three primary business activities. Investing: statement of nancial position reports assets, liabilities, and shareholders" equity, financial statements order: (1) income statement (is) Company"s revenues rst and then its expenses. Changes in total shareholders" equity for the period, as well as the changes in each component of shareholders" equity during the period. Balance, december 31 (3) statement of nancial position, and (sfp) Supplies (4) statement of cash ows. (scf) Cash used for nancing activities: assets(accounts receivable, equipment, o ce supplies, cash ) = Equity(common share capital+ retained earnings) + liabilities(salaries payable, Bank loan payable: forms of business organization. (1)proprietorship. Usually easiest form of organization to set up (2)partnership. Owner(s) pay(s) personal income tax on company pro ts. Generally easiest form if organization to raise capital. Requires the use of ifrs as its accounting standards (4)private corporation. Shares are closely held: pro t = total revenues - total expenses.

Related Questions

Presented here are the accounts of

Town and Country RealtyTown and Country Realty

for the year ended

DecemberDecember

Land	$10,000	Owner contribution, 2018	$36,000
Notes Payable	29,000	Accounts Payable	10,000
Property Tax Expense	2,400	Accounts Receivable	1,300
Hicks, Withdrawals	36,000	Advertising Expense	12,000
Rent Expense	8,000	Building	194,800
Salaries Expense	63,000	Cash	2,200
Salaries Payable	800	Equipment	13,000
Service Revenue	235,000	Insurance Expense	1,800
Office Supplies	9,000	Interest Expense	7,300
Hicks, Capital, Dec. 31, 2017	50,000

PrintDone

3131â,

20182018.

â(Click the icon to view theâ accounts.)

Requirements

1.	Prepare Town and Country Realty'sTown and Country Realty's income statement.
2.	Prepare the statement ofâ owner's equity.
3.	Prepare the balance sheet.

Requirement 1. Prepare

Town and Country Realty'sTown and Country Realty's

income statement.

		Town and Country Realty
		Income Statement
		Year Ended December 31, 2018
Revenues:
	Service Revenue
Expenses:
	Salaries Expense
	Insurance Expense
	Advertising Expense
	Rent Expense
	Interest Expense
	Property Tax Expense
		Total Expenses
Net Income

redtiger788

QS 12-19 Indirect: Preparing statement of cash flows LO P1, P2, P3

MONTGOMERY INC. Comparative Balance Sheets December 31, 2018 and 2017
		2018			2017
Assets
Cash	$	33,200		$	33,400
Accounts receivable, net		12,100			14,700
Inventory		108,500			84,900
Total current assets		153,800			133,000
Equipment		60,100			50,200
Accum. depreciationâEquipment		(27,100	)		(18,500	)
Total assets	$	186,800		$	164,700
Liabilities and Equity
Accounts payable	$	28,800		$	30,700
Salaries payable		600			700
Total current liabilities		29,400			31,400
Equity
Common stock, no par value		130,000			118,100
Retained earnings		27,400			15,200
Total liabilities and equity	$	186,800		$	164,700

MONTGOMERY INC. Income Statement For Year Ended December 31, 2018
Sales			$	53,500
Cost of goods sold				(22,200	)
Gross profit				31,300
Operating expenses
Depreciation expense	$	8,600
Other expenses		6,600
Total operating expense				15,200
Income before taxes				16,100
Income tax expense				3,900
Net income			$	12,200

Additional Information

No dividends are declared or paid in 2018.

Issued additional stock for $11,900 cash in 2018.

Purchased equipment for cash in 2018; no equipment was sold in 2018.

1. Use the above financial statements and additional information to prepare a statement of cash flows for the year ended December 31, 2018, using the indirect method. (Amounts to be deducted should be indicated by a minus sign.)

MONTGOMERY, INC.
Statement of Cash Flows (Indirect Method)
For Year Ended December 31, 2018
Cash flows from operating activities

Adjustments to reconcile net income to net cash provided by operations:
Changes in current operating assets and liabilities






		$0
Cash flows from investing activities


		0
Cash flows from financing activities


		0
		$0
Cash balance at beginning of year
Cash balance at end of year		$0

The following is the financial statement of Executive Fruit Company for the year ended December 2014.

INCOME STATEMENT, 2014
(Figures in $ Thousands)
Revenue	$	4,000
Cost of goods sold		3,600

EBIT	$	400
Interest		80

Earnings before taxes	$	320
State and federal tax		128

Net income	$	192
Dividends		128

Additions to retained earnings	$	64

BALANCE SHEET (Year-End, 2014)
(Figures in $ Thousands)
Assets
Net working capital	$	400
Fixed assets		1,600

Total assets	$	2,000

Liabilities and shareholders' equity
Long-term debt	$	800
Shareholders' equity		1,200

Total liabilities and shareholders' equity	$	2,000

The following are the first stage and second stage pro forma financial statements of Executive Fruit Company for the year ended December 2015.

First stage pro forma statements:

PRO FORMA INCOME STATEMENT, 2015
(Figures in $ Thousands)
Revenue	$	4,400
Cost of goods sold		3,960

EBIT	$	440
Interest		80

Earnings before taxes	$	360
State and federal tax		144

Net income	$	216
Dividends		144

Additions to retained earnings	$	72

PRO FORMA BALANCE SHEET (Year-End, 2015)
(Figures in $ Thousands)
Assets
Net working capital	$	440
Fixed assets		1,760

Total assets	$	2,200

Liabilities and shareholders' equity
Long-term debt	$	800
Shareholders' equity		1,272

Total liabilities and shareholders' equity	$	2,072

Required external financing	$	128

Second stage pro forma balance sheet:

PRO FORMA BALANCE SHEET (Year-End, 2015)
(Figures in $ Thousands)
Assets
Net working capital	$	440
Fixed assets		1,760

Total assets	$	2,200

Liabilities and shareholders' equity
Long-term debt	$	928
Shareholders' equity		1,272

Total liabilities and shareholders' equity	$	2,200

How would Executive Fruitâs financial model change if the dividend payout ratio were cut to 1/3? Use the revised model to generate a new financial plan for 2015 assuming that debt is the balancing item. What would be the required external financing? (Do not round intermediate calculations.)

Dividends fall by $ . Therefore, the requirement for external financing falls from $ to $ . On the other hand, shareholders' equity will be increased by $ .

The right-hand side of the balance sheet becomes (Do not round intermediate calculations. Enter your answers in thousands.):


Long-term debt	$
Shareholders' equity

Total	$

ADM 2320 Lecture Notes - Lecture 1: Issued Shares, Retained Earnings, Privately Held Company

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