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ACCT 200 Lecture Notes - Lecture 2: International Accounting Standards Board, Financial Accounting Standards Board, International Financial Reporting Standards

46 views10 pages
pucecicada191
24 Jan 2017
School
WKU
Department
Accounting
Course
ACCT 200
Professor
Ross

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Document Summary

Balance sheet: snapshot of company"s financial positon at a certain time. Classified balance sheet- groups together similar assets and similar liabilities, using standards. The grouping helps readers determine: if the company has enough assets to pay its debts at a due time, claims of short and long term creditors on the company"s total assets. Assets that a company expects to turn to cash within or use up within a year or its operating cycle (whichever is longer) Operating cycle- average time required to go from cash to cash in producing revenue. Cutoff is one year from the balance sheet date. Accounts recievable- company will collect them & convert into cash within 1 yr. Basically, the time it takes to buy, sell, and collect- important is assessing its short term debt paying ability. Current assets (listed in order in which they expect to convert it to cash: cash, short term investments, receivables (accounts, notes, interest, inventories, prepaid expenses (insurance and supplies)

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Related Questions

Cermco produces and sells specialty customer relationship management (CRM) solutions to small and medium-size businesses in the United States and Canada. The company is more than 20 years old and has a steady, loyal customer base.

A major reason for Cermco’s success lies in the ability of its product to easily integrate with various accounting and ERP systems. As a result, even when clients upgrade their entire accounting systems to expensive ERP solutions, they continue to use Cermco’s CRM because of its superior features.

Annual revenues for Cermco’s three most recent years are about $11 million (20X3), $7 million (20X4), and $3 million (20X5), respectively. Overall interest expenses and operating margins have remained a relatively constant percentage of revenues.

Cermco attributes the decline in revenues to declines in market share as a result of natural client turnover and the entrance of many other small competing software companies into the market. Nevertheless, Cermco’s CRM product continues to enjoy the highest industry ratings and a loyal customer base.

Cermco’s balance sheets for the most recent three years follow:

CERMCO Balance Sheet December 31
20X5 20X4 20X3
Assets
Current assets
Cash and cash equivalents $390 $1,386 $2,603
Short-term investments — — —
Net receivables 720 664 1,225
Inventory — — —
Other current assets 412 469 892
Total current assets $1,522 $2,519 $4,720
Long-term investments 1,215 — —
Property, plant, and equipment 76 258 454
Goodwill 545 1,757 2,194
Intangible assets 999 1,844 3,644
Accumulated amortization — — —
Other assets — — —
Deferred long-term asset charges — — —
Total assets $4,357 $6,378 $11,012
Liabilities
Current liabilities
Accounts payable $469 $1,174 $1,436
Short/Current long-term debt — — 600
Other current liabilities 1,227 1,358 1,496
Total current liabilities $1,696 $2,532 $3,532
Long-term debt — — —
Other liabilities — — —
Deferred long-term liability charges — — —
Minority Interest — — —
Negative goodwill — — —
Total liabilities 1,696 2,532 3,532
Stockholders' equity
Misc. stock option warrants — — —
Redeemable preferred stock — — —
Preferred stock 3,014 3,211 2,333
Common stock 16 16 13
Retained earnings –25,513 –23,814 –19,165
Treasury stock — — —
Capital surplus 25,168 25,564 25,862
Other stockholders’ equity –24 –1,131 –1,563
Total stockholders’ equity $2,661 $3,846 $7,480

Produce a valuation estimate for Cermco for December 31, 20X5. Use whatever valuation method you think best but justify your choice. Note that you can estimate the annual income from year-to-year changes in the balance sheet.

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.

Cermco produces and sells specialty customer relationshipmanagement (CRM) solutions to small and medium-size businesses inthe United States and Canada. The company is more than 20 years oldand has a steady, loyal customer base.

A major reason for Cermco’s success lies in the ability of itsproduct to easily integrate with various accounting and ERPsystems. As a result, even when clients upgrade their entireaccounting systems to expensive ERP solutions, they continue to useCermco’s CRM because of its superior features.

Annual revenues for Cermco’s three most recent years are about$11 million (20X3), $7 million (20X4), and $3 million (20X5),respectively. Overall interest expenses and operating margins haveremained a relatively constant percentage of revenues.

Cermco attributes the decline in revenues to declines in marketshare as a result of natural client turnover and the entrance ofmany other small competing software companies into the market.Nevertheless, Cermco’s CRM product continues to enjoy the highestindustry ratings and a loyal customer base.

Cermco’s balance sheets for the most recent three yearsfollow:

CERMCO

Balance Sheet

December 31

20X5

20X4

20X3

Assets

Current assets

Cash and cash equivalents

$390

$1,386

$2,603

Short-term investments

—

—

—

Net receivables

720

664

1,225

Inventory

—

—

—

Other current assets

412

469

892

Total current assets

$1,522

$2,519

$4,720

Long-term investments

1,215

—

—

Property, plant, and equipment

76

258

454

Goodwill

545

1,757

2,194

Intangible assets

999

1,844

3,644

Accumulated amortization

—

—

—

Other assets

—

—

—

Deferred long-term asset charges

—

—

—

Total assets

$4,357

$6,378

$11,012

Liabilities

Current liabilities

Accounts payable

$469

$1,174

$1,436

Short/Current long-term debt

—

—

600

Other current liabilities

1,227

1,358

1,496

Total current liabilities

$1,696

$2,532

$3,532

Long-term debt

—

—

—

Other liabilities

—

—

—

Deferred long-term liability charges

—

—

—

Minority Interest

—

—

—

Negative goodwill

—

—

—

Total liabilities

1,696

2,532

3,532

Stockholders' equity

Misc. stock option warrants

—

—

—

Redeemable preferred stock

—

—

—

Preferred stock

3,014

3,211

2,333

Common stock

16

16

13

Retained earnings

–25,513

–23,814

–19,165

Treasury stock

—

—

—

Capital surplus

25,168

25,564

25,862

Other stockholders’ equity

–24

–1,131

–1,563

Total stockholders’ equity

$2,661

$3,846

$7,480

Produce a valuation estimate for Cermco for December 31, 20X5.Use whatever valuation method you think best but justify yourchoice. Note that you can estimate the annual income fromyear-to-year changes in the balance sheet.