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ACC 3010 Lecture Notes - Lecture 2: Common Stock, Financial Statement, Current Liability

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pearferret420
18 Dec 2017
School
Wayne State University
Department
Accounting
Course
ACC 3010
Professor
Holmes, Terry

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Document Summary

Assets that a company expects to convert to cash or use up within one year or the operating cycle, whichever is longer. Operating cycle is the average time it takes from the purchase of inventory, to the sale of goods, and then to the collection of cash from customers. Investments in stocks and bonds of other corporations that are held for more than one year. Long-term assets such as land or buildings that a company is not currently using in its operating activities. Assets that do not have physical substance. Obligations the company is to pay within the next year or operating cycle, whichever is longer. Also included as current liabilities are current maturities of long-term obligations payments to be made within the next year on long-term obligations. Obligations a company expects to pay after one year. Include bonds payable, mortgages payable, long-term notes payable, lease liabilities, and pension liabilities.

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Related Questions

Required information

[The following information applies to the questions displayed below.]

Comparative financial statements for Weaver Company follow:

Weaver Company
Comparative Balance Sheet
at December 31
This Year Last Year
Assets
Cash $ 2 $ 12
Accounts receivable 308 230
Inventory 157 194
Prepaid expenses 9 5
Total current assets 476 441
Property, plant, and equipment 514 436
Less accumulated depreciation (86 ) (72 )
Net property, plant, and equipment 428 364
Long-term investments 26 32
Total assets $ 930 $ 837
Liabilities and Stockholders' Equity
Accounts payable $ 302 $ 225
Accrued liabilities 73 77
Income taxes payable 71 65
Total current liabilities 446 367
Bonds payable 195 172
Total liabilities 641 539
Common stock 162 201
Retained earnings 127 97
Total stockholders’ equity 289 298
Total liabilities and stockholders' equity $ 930 $ 837
Weaver Company
Income Statement
For This Year Ended December 31
Sales $ 753
Cost of goods sold 445
Gross margin 308
Selling and administrative expenses 222
Net operating income 86
Nonoperating items:
Gain on sale of investments $ 7
Loss on sale of equipment (1 ) 6
Income before taxes 92
Income taxes 23
Net income $ 69

During this year, Weaver sold some equipment for $19 that had cost $30 and on which there was accumulated depreciation of $10. In addition, the company sold long-term investments for $13 that had cost $6 when purchased several years ago. Weaver paid a cash dividend this year and the company repurchased $39 of its own stock. This year Weaver did not retire any bonds.

Required:

1. Using the indirect method, determine the net cash provided by/used in operating activities for this year. Please provide the whole Statement of Cash Flows (using Indirect Method) for Weaver Company.

Mary Walker, president of Rusco Company, considers $28,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $23,000 in cash was available at the end of this year. Since the company reported a large net income for the year, and also issued both bonds and common stock, the sharp decline in cash is puzzling to Ms. Walker.

Rusco Company
Comparative Balance Sheet
at July 31
This Year Last Year
Assets
Current assets:
Cash $ 23,000 $ 42,600
Accounts Receivable 231,200 220,400
Inventory 257,200 200,800
Prepaid expenses 12,600 24,600
Total current assets 524,000 488,400
Long-term investments 114,000 160,000
Plant and equipment 876,000 758,000
Less accumulated depreciation 214,000 192,400
Net plant and equipment 662,000 565,600
Total assets $ 1,300,000 $ 1,214,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 295,400 $ 238,800
Accrued liabilities 8,800 16,600
Income taxes payable 48,400 43,000
Total current liabilities 352,600 298,400
Bonds Payable 224,000 116,000
Total liabilities 576,600 414,400
Stockholders’ equity:
Common stock 665,000 640,000
Retained earnings 58,400 159,600
Total stockholders' equity 723,400 799,600
Total liabilities and stockholders' equity $ 1,300,000 $ 1,214,000
Rusco Company
Income Statement
For This Year Ended July 31
Sales $ 960,000
Cost of goods sold 600,000
Gross margin 360,000
Selling and administrative expenses 256,800
Net operating income 103,200
Nonoperating items:
Gain on sale of investments $ 24,000
Loss on sale of equipment (7,600 ) 16,400
Income before taxes 119,600
Income taxes 35,840
Net income $ 83,760

The following additional information is available for this year.

The company declared and paid a cash dividend.

Equipment was sold during the year for $50,400. The equipment originally cost $106,000 and had accumulated depreciation of $48,000.

Long-term investments that cost $46,000 were sold during the year for $70,000.

The company did not retire any bonds payable or repurchase any of its common stock.

Required:

1. Using the indirect method, compute the net cash provided by/used in operating activities for this year.

2. Prepare a statement of cash flows for this year.

3. Compute free cash flow for this year.

Uhura Company has decided to expand its operations. Thebookkeeper recently completed the balance sheet presented below inorder to obtain additional funds for expansion.

UHURA COMPANY
BALANCE SHEET
FOR THE YEAR ENDED 2014

Current assets
Cash $232,650
Accounts receivable (net) 342,650
Inventory (lower-of-average-cost-or-market) 403,650
Equity investments (trading)-at cost (fair value$123,310) 143,310
Property, plant, and equipment
Buildings (net) 573,310
Equipment (net) 163,310
Land held for future use 178,310
Intangible assets
Goodwill 82,650
Cash surrender value of life insurance 92,650
Prepaid expenses 14,650
Current liabilities
Accounts payable 138,310
Notes payable (due next year) 127,650
Pension obligation 85,310
Rent payable 51,650
Premium on bonds payable 55,650
Long-term liabilities
Bonds payable 503,310
Stockholders’ equity
Common stock, $1.00 par, authorized 400,000 shares,issued 292,650 292,650
Additional paid-in capital 162,650
Retained earnings ?


Prepare a revised balance sheet given the available information.Assume that the accumulated depreciation balance for the buildingsis $162,650 and for the equipment, $107,650. The allowance fordoubtful accounts has a balance of $19,650. The pension obligationis considered a long-term liability.