ACTG 2010 Lecture Notes - Current Liability, Income Tax, Working Capital

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beigezebra344

26 Mar 2014

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Current assets are expected to be sold or converted to cash within a year or one operational cycle (operational cycle is the initial investment an entity makes in goods & services to when cash is received from customers) Non-current assets are the opposite not expected to be sold or converted to cash within a year/1 operational cycle. Ie: company equipment are expected to sit in a retail store as a economic resource to provide the store a service for a number of years (staying within a year would constitute the asset as being a non-current asset) If under assets in a balance sheet, there is no current assets then its assumed that all the assets listed are non-current assets. Gaap rules state that in order for it to be an asset: Asset must be the result of a transaction with another entity.

Related Questions

Produce a balance sheet for a company that distinguishes betweencurrent and non- current assets and liabilities.

Create a balance sheet from a trial balance.

Create a comparison of net income based on different methods ofinventory accounting.

Analyze a statement of cash flows and show where each line itemcan be found or

calculated from the other financial statements.

Prepare a full analysis of key financial ratios for a companyand state conclusions about

the financial strength of the company compared to industryratios.

PROJECT SUBMISSION PLAN

Project Part

Description/Requirements of Project Part

Evaluation Criteria

Title: Creating a Balance Sheet and Evaluating Inventory
You will be provided with financial information about a fictionalcompany. You will have to determine what information is relevantfor Project Parts 1 and 2.

Task 1: Create a balance sheet from a trial balance for a givenscenario. Make sure you classify the accounts appropriately ascurrent or non-current. Click here to download the trialbalance.

Page 1

AC1420: Project

Project Part

Description/Requirements of Project Part

Evaluation Criteria

Task 2: Perform inventory valuations using LIFO, FIFO, andweighted average methods based on the following information.Explain the impact of each method on the cost of goods sold andending inventory.

The company imports microwaves from a supplier in China for theUS market. At the end of the first quarter, 100 microwaves are instock. The company purchased a total of 400 microwaves during thequarter at various prices: January: 100 units @ $75

February: 250 units @ $83
March: 50 units @ $87
The company had no inventory at the beginning of the quarter.
Task 3: If the companyâs goal is to maximize net income, whichevaluation method will you use and why?

Project Part 1 -Task 2:

Value of Ending Inventory of100 Units

Weighted AVG

LIFO

FIFO

Cost of Goods Sold (300 UnitsSold)

Weighted AVG

LIFO

FIFO

Create a BalanceSheet from the trial balance:
		Debits	Credits	Classification

	Cash	300,000.00		Current asset

	Sales		(10,000,000.00)	Income statement

	Cost of Goods Sold	7,000,000.00		Income statement

	Selling Expenses	500,000.00		Income statement

	Other income		(50,000.00)	Income statement

	Administrative expenses	350,000.00		Income statement

	Interest Expenses	12,500.00		Income statement

	Land	300,000.00		non-current asset

	Building	2,000,000.00		non-current asset

	Long Term bond payable		(550,000.00)	non-current liability

	Accrued Liabilities		(50,000.00)	current- liability

	Accumulated Depreciation Buildings		(250,000.00)	non-current asset

	Equipment	750,000.00		non-current asset

	Receivables	100,000.00		current asset

	Allowance for doubtful accounts		(7,500.00)	current asset

	Accumulated depreciation equipment		(125,000.00)	non-current asset

	Common Stock		(200,000.00)	equity

	Payables		(115,000.00)	current Liability

	Inventories	200,000.00		current asset

	Prepaid Expenses	50,000.00		current asset

	Retained Earnings		(215,000.00)	equity



		11,562,500.00	(11,562,500.00)

Assets		Equity and Liabilities

Current Assets		Current Liabilities





Total Current Assets	-	Total Current Liabilities	-




		Total long term Liabilities	-

Total property plant andequipment	-






		Total Equity	-


Total Assets	-	Total Equity and liabilities	-

pearlouse123

Keeping an asset implies reinvestment in the asset. Finance theory is consistent with the notion that reinvestment is at current value, or replacement cost. Such a decision is presumably based on comparing expected future cash flows that will be generated by the asset and the cost of replacing it with a new one that could generate the same or different cash flows. According to the conceptual framework, the purpose of financial statements is to provide information regarding performance. Investment or reinvestment decisions are a part of that performance. Yet, the historical cost of fixed assets is retained and allocated over subsequent accounting periods.

b. Does cost allocation provide relevant information?

c. Would a current?value approach to measurement of fixed assets be preferable? Why?

Which of the following statements are true? Select all that apply.

a. By adding the current market value of a publicly traded stock and the current market value of the firmâs debt, will equal the total market value of the firm.

b. An asset which is sold quickly no matter the price, is considered a liquid asset.

c. The income statement accurately measures a firmâs operating cash flows.

d. Depreciation expense is a non-cash item on the balance sheet.

e. The cash flow from assets include operating cash flow, net capital spending and additions to net working capital.

f. Cash flow to stockholders is equal to dividends paid less net new equity.

g. Cash flow from assets may still be positive even though operating cash flow is negative.

h. Cash flow to creditors minus cash flow to stockholders is equal to cash flow from assets.

coffeeelephant81

ACTG 2010 Lecture Notes - Current Liability, Income Tax, Working Capital

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