ADMS 1500 Lecture Notes - Debit Card, Gross Profit, Revenue Recognition

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erindog215

3 Jan 2013

School

York University

Department

Administrative Studies

Course

ADMS 1500

Professor

Paul Evans

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Document Summary

4. the assignment groups can be formed during the break. Link with balance sheet (previous and current balance sheet tells you how the company has done between the two days, amount of the net income get transferred to the balance sheet as part of retain earning. Retained earnings (all your losses has been amounted as your deficit) past profits less your past profits less your dividends. The periodicity concept means chopping up the companies" operations into one year sub-periods, so that shareholders and others can receive ongoing reports of how well the company performed. Period statements (works one year at a time) The main parts of an income statement are: Net income less: leaving: less: leaving: less: leaving: Gross profit (gross margin) is the difference between revenues and the direct costs of goods sold. It is controlled by monitoring the gross profit ratio. Gross profit ratio = gross profit/sales * 100.

Related Questions

1. Which of the following identifies the proper order of theaccounting cycle?

A. Analyze, Journalize, Unadjusted Trial Balance

B. Analyze, Post, Unadjusted Trial Balance

C. Journalize, Post, Adjusted Trial Balance

D. Unadjusted Trial Balance, Adjusted Trial Balance, Close

E. Adjusted Trial Balance, Adjustments, Financial Statements

2. Interim financial statements refer to financial reports:

A. That cover less than one year, usually spanning one, three orsix-month periods

B. That are prepared before any adjustments have beenrecorded

C. That show the assets above the liabilities and theliabilities above the equity

D. Where revenues are reported on the income statement when cashis received and expenses are reported when cash is paid

E. Where the adjustment process is used to assign revenues tothe periods in which they are earned and to match expenses withrevenues

3. The accounting principle that requires revenue to be reportedwhen earned is the:

A. Matching principle

B. Revenue recognition principle

C. Time period principle

D. Accrual reporting principle

E. Going-concern principle

4. Adjusting entries:

A. Affect only income statement accounts

B. Affect only balance sheet accounts

C. Affect both income statement and balance sheet accounts

D. Affect only cash flow statement accounts

E. Affect only equity accounts

5. The system of preparing financial statements based onrecognizing revenues when the cash is received and reportingexpenses when the cash is paid is called:

A. Accrual basis accounting

B. Operating cycle accounting

C. Cash basis accounting

D. Revenue recognition accounting

E. Current basis accounting

6. If throughout an accounting period the fees for legalservices paid in advance by clients are recorded in an accountcalled Unearned Legal Fees, the end-of-period adjusting entry torecord the portion of those fees that has been earned is:

A. Debit Cash and credit Legal Fees Earned

B. Debit Cash and credit Unearned Legal Fees

C. Debit Unearned Legal Fees and credit Legal Fees Earned

D. Debit Legal Fees Earned and credit Unearned Legal Fees

E. Debit Unearned Legal Fees and credit Accounts Receivable

7. A company had no office supplies available at the beginningof the year. During the year, the company purchased $250 worth ofoffice supplies. On December 31, $75 worth of office suppliesremained. How much should the company report as office suppliesexpense for the year? A. $75 B. $125 C. $175 D. $250 E. $325 8. OnJanuary 1 a company purchased a five-year insurance policy for$1,800 with coverage starting immediately. If the purchase wasrecorded in the Prepaid Insurance account and the company recordsadjustments only at year-end, the adjusting entry at the end of thefirst year is:

A. Debit Prepaid Insurance, $1,800; credit Cash, $1,800

B. Debit Prepaid Insurance, $1,440; credit Insurance Expense,$1,440

C. Debit Prepaid Insurance, $360; credit Insurance Expense,$360

D. Debit Insurance Expense, $360; credit Prepaid Insurance,$360

E. Debit Insurance Expense, $360; credit Prepaid Insurance,$1,440

9. Unearned revenue is reported on the financial statementsas:

A. A revenue on the balance sheet

B. A liability on the balance sheet

C. An unearned revenue on the income statement

D. An asset on the balance sheet

E. An operating activity on the statement of cash flows

10. Which of the following assets is not depreciated?

A. Store fixtures

B. Computers

C. Land

D. Buildings

E. Vehicles

11. On April 30, 2011, a three-year insurance policy waspurchased for $18,000 with coverage to begin immediately. What isthe amount of insurance expense that would appear on the company'sincome statement for the year ended December 31, 2011? A. $500 B.$4,000 C. $6,000 D. $14,000 E. $18,000 12. Expenses incurred butunpaid that are recorded during the adjusting process with a debitto an expense and a credit to a liability are:

A. Intangible expenses

B. Prepaid expenses

C. Unearned expenses

D. Net expenses

E. Accrued expenses

13 The difference between the cost of an asset and theaccumulated depreciation for that asset is called

A. Depreciation Expense

B. Unearned Depreciation

C. Prepaid Depreciation

D. Depreciation Value

E. Book Value

14. A company purchased a new truck at a cost of $42,000 on July1, 2011. The truck is estimated to have a useful life of 6 yearsand a salvage value of $3,000. How much depreciation expense willbe recorded for the truck for the year ended December 31, 2011?

A. $3,250

B. $3,500

C. $4,000

D. $6,500

E. $7,000

15. A company's Office Supplies account shows a beginningbalance of $600 and an ending balance of $400. If office suppliesexpense for the year is $3,100, what amount of office supplies waspurchased during the period?

A. $2,700

B. $2,900

C. $3,300

D. $3,500

E. $3,700

chocolatereindeer731

Data for Barry Computer Co. and its industry averages follow.

Barry Computer Company:
Balance Sheet as of December 31, 2014 (In Thousands)

Cash	$139,080	Accounts payable	$139,080
Receivables	382,470	Other current liabilities	115,900
Inventories	231,800	Notes payable	127,490
Total current assets	$753,350	Total current liabilities	$382,470
		Long-term debt	$266,570
Net fixed assets	405,650	Common equity	509,960
Total assets	$1,159,000	Total liabilities and equity	$1,159,000

Barry Computer Company: Income Statement for Year Ended December 31, 2014 (In Thousands)

Sales		$1,900,000
Cost of goods sold
Materials	$779,000
Labor	418,000
Heat, light, and power	95,000
Indirect labor	190,000
Depreciation	57,000	$1,539,000

Gross profit		$361,000
Selling expenses		228,000
General and administrative expenses		19,000
Earnings before interest and taxes (EBIT)		$114,000
Interest expense		26,657
Earnings before taxes (EBT)		87,343
Federal and state income taxes (40%)		34,937
Net income		$52,406

1. Calculate the indicated ratios for Barry. Round your answers to two decimal places.

Ratio	Barry	Industry Average
Current	x	1.99x
Quick	x	1.35x
Days sales outstanding^a	days	34.99days
Inventory turnover	x	8.44x
Total assets turnover	x	1.91x
Profit margin	%	2.63%
ROA	%	5.02%
ROE	%	10.93%
ROIC	%	7.90%
TIE	x	3.20x
Debt/Total capital	%	47.00%

^aCalculation is based on a 365-day year.

2. Construct the Du Pont equation for both Barry and the industry. Round your answers to two decimal places.

	FIRM	INDUSTRY
Profit margin	%	2.63%
Total assets turnover	x	1.91x
Equity multiplier

3. Outline Barry's strengths and weaknesses as revealed by your analysis. Select One below

a. The firm's days sales outstanding is less than the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets decreased, or both. While the company's profit margin is lower than the industry average, its other profitability ratios are high compared to the industry - net income should be higher given the amount of equity and assets. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry.

b. The firm's days sales outstanding is more than the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy. The total assets turnover ratio is well above the industry average so sales should be increased, assets increased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity and assets. However, the company seems to be in an above average liquidity position and financial leverage is similar to others in the industry.

c. The firm's days sales outstanding is comparable to the industry average, indicating that the firm should neither tighten credit nor enforce a more stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets increased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity and assets. However, the company seems to be in a below average liquidity position and financial leverage is similar to others in the industry.

d. The firm's days sales outstanding ratio is more than twice as long as the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets decreased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity and assets. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry.

e. The firm's days sales outstanding is more than twice as long as the industry average, indicating that the firm should loosen credit or apply a less stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets increased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity and assets. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry.

4. Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2014. How would that information affect the validity of your ratio analysis? (Hint: Think about averages and the effects of rapid growth on ratios if averages are not used. No calculations are needed.)

Select one below

a. If 2014 represents a period of normal growth for the firm, ratios based on this year will be accurate and a comparison between them and industry averages will have substantial meaning. Potential investors who look only at 2014 ratios will be misled, and a return to supernormal conditions in 2013 could hurt the firm's stock price.

b. If 2014 represents a period of supernormal growth for the firm, ratios based on this year will be distorted and a comparison between them and industry averages will have substantial meaning. Potential investors who look only at 2014 ratios will be well informed, and a return to normal conditions in 2013 could hurt the firm's stock price.

c. If 2014 represents a period of supernormal growth for the firm, ratios based on this year will be distorted and a comparison between them and industry averages will have little meaning. Potential investors who look only at 2014 ratios will be misled, and a return to normal conditions in 2013 could hurt the firm's stock price.

d. If 2014 represents a period of supernormal growth for the firm, ratios based on this year will be accurate and a comparison between them and industry averages will have substantial meaning. Potential investors need only look at 2014 ratios to be well informed, and a return to normal conditions in 2013 could help the firm's stock price.

e. If 2014 represents a period of normal growth for the firm, ratios based on this year will be distorted and a comparison between them and industry averages will have little meaning. Potential investors who look only at 2014 ratios will be misled, and a continuation of normal conditions in 2013 could hurt the firm's stock price.

taupehornet862

Staying Alive in Tough Economic Times

Going broke is an idea that any business hates to think about. However, if you are going to go broke in the United States, it helps to be a large, established company. For example, after the September 11, 2001, terrorist attacks, the government stepped in and saved major air carriers like American and United. More recently quasi-government agencies like Fannie Mae and Freddie Mac received money from the government to stay afloat despite poor practices in the mortgage business. Banks that risked capital on risky investments like derivatives and credit swaps were also beneficiaries of the federal governmentâs largesse. Even automakers whose managers misjudged the market were propped up by government dollars. Which leads us to the question, âWhat if small-business owners run out of cash?â

The simple answer is, itâs goodbye to the business. Thatâs why having enough cash on hand (liquidity) is especially critical for entrepreneurs during economic tough times. Unfortunately, this is no simple task. Liquidity for small companies can change almost immediately due to some unexpected event such as a major customer going out of business or perhaps an unexpected natural catastrophe like a flood. Experts agree that keeping enough liquid assets (like cash and cash equivalents like bonds) to fund the next six months is a good rule of thumb. If you keep a reserve of liquid assets, you have time to work on a remedy if a crisis hits rather than having to close your doors.

Accountants and financial managers also advise small businesses to be particularly aware of three ratios to make sure the business is liquid enough to survive: current ratio, quick ratio, and the debt-to-equity ratio.

Current ratio: current assets divided by current liabilities. Most bankers like the ratio to be at least 2:1.

Quick ratio: cash and receivables divided by current liabilities. This ratio addresses the scary question of whether or not a company can meet its obligations if sales suddenly fall or dry up. A ratio greater than 1:1 is often acceptable.

Debt-to-equity ratio: total liabilities divided by shareholders equity. The higher this ratio is the less likely bankers can deal with you. A ratio below 3:1 is often considered safe for small businesses.

Locating corporate annual reports is easier than it has ever been. AnnualReports.com (Links to an external site.)Links to an external site. hosts a website (www.annualreports.com/ (Links to an external site.)Links to an external site.)[i] containing annual reports for hundreds of corporations. The site is comprehensive and easy to use. You can also find publicly traded companies Annual Report on their websites, usually under "Investor Information".

Go to the website (www.annualreports.com/ (Links to an external site.)Links to an external site. ) and choose one company to research. Use the information given in this report to answer the following questions. (Sometimes the Web address for a location changes. You might need to search to find the exact location mentioned.)

1. What is the name of the company?

2. What is the financial year?

3. Calculate the three financial ratios discussed above and listed below and the additional calculations below. Show your work for the ratios. Provide a link to the Annual Report or source you used for the financial information.

a. What is the current ratio?

b. What is the quick ratio?

c. What is the debt-to-equity ratio?

d. On their Balance Sheet, find their Total Assets. What is the total?

e. On their Balance Sheet, find their Total Liabilities. What is the total?

f. On their Income Statement, find their Total Revenues. What is the total?

g. On their Income Statement, find their Total Income. What is the total?

4. Reflect on these calculations. What do they tell you?

ADMS 1500 Lecture Notes - Debit Card, Gross Profit, Revenue Recognition

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