FIN 300 Chapter 2: FIN 300 - Chapter 2 Notes.docx

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greenskunk609

14 May 2012

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Fin 300 chapter 2: financial statements, cash flow, & taxes. Cash flow difference between the number of dollars that come in and the number that go out: measured after taxes. Balance sheet financial statement showing a firm"s accounting value on a particular date: snapshot of the firm; summarizes what the firm owns (assets), owes (liabilities), and the difference between the two (equity) at a given time. Classified as either current or fixed: fixed asset has a relatively long life and can either be tangible (truck) or intangible (patent/trademark). Accountants refer to them as capital assets: current asset has a life of less than a year and will convert to cash within 12 months. Inventory, cash, and accounts receivable are current assets. Liabilities are listed first thing on the right-hand side of the b/s. Liabilities are classified as either current or long-term: current liabilities have a life of less than a year, they must be paid within a year.

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Here is your first question:

Explain what current assets and fixed assets are and give as many examples as you can for each. What is the difference between tangible and intangible assets?

Liabilities and owner's equity are listed on the right-hand side respectively. Liabilities are also classified as current liabilities and long-term liabilities.

Here is your second question:

Explain what current liabilities differ from long-term liabilities and give as many examples as you can for each.

Owner's equity (also known as shareholders' equity, common equity) is the difference between total value of assets and total value of liabilities. That is, if you were to use your assets to pay off the debts, whatever is left over (the residual) would belong to shareholders. That is why they are known as residual claimants. Hence we have the identity;

Assets = Liabilities + Shareholders' equity

Net working capital is simply equal to current assets minus current liabilities. When net working capital is positive, it means cash that will be available over the next 12 months exceeds what must be paid. It is important for a healthy firm to have positive net working capital.

Here is your third question:

A firm has current assets of $100, net fixed assets of $500, short-term debt of $70 and long-term debt of $200. What is shareholders' equity. Construct a balance sheet

for this company. Is net working capital positive or negative? If so by how much? (Hint: You may utilize Example 2.1 on page 24 of the textbook).

1.)Company ABC has sales of $1,650,000, cost of goods sold of$600,000, EBIT of $450,000, interest expense of $70,000, and a taxrate of 27%. If the company paid $57,000 in dividends what is theaddition to retained earnings.

2.)At the beginning of the year, a firm had current assets of$121,306 and current liabilities of $124,509. At the end of theyear, the current assets were $122,418 and the current liabilitieswere $103,718. What is the change in net working capital?

3.)

Use the Income Statement and Balance Sheet below to calculatethe companies free cash flow.

Income Statement	2017
Net Sales	675
Cost of goods sold	210
Depreciation	50
EBIT	415
Interest Paid	15
EBT	400
Taxes (30%)	120
Net Income	280
Dividends	105
Addition to Retained Earnings	175

Assets	2016	2017	Liabilities and Shareholders equity	2016	2017
Current Assets			Current Liabilities
Cash	100	125	Accounts Payable	200	250
Accounts Receivable	250	350	Notes Payable	150	225
Inventory	400	375
Total Current Assets	750	850	Total Current Liabilities	350	475
			Long term debt	300	250
Fixed Assets			Stockholders equity
PPE	1500	1700	Common stock	300	300
Accumulated Depreciation	400	450	Retained earnings	900	1075
Net PPE	1100	1250	Total Shareholderâs Equity	1200	1375
Total Assets	1850	2100	Total Liabilities & Equity	1850	2100

4.)A firm has net working capital of $900. Long-term debt is$4,200, total assets are $8,000, and fixed assets are $4,300. Whatis the amount of the total liabilities?

beigedeer979

From the following information (given in scrambled order) obtainedfrom the accounting records of Alleg, Inc., as of December 31,2008, prepare a classified balance sheet in report form and astatement of stockholdersâ equity. For assets, use theclassifications of current assets, plant and equipment,intangibles, and other assets. For liabilities, use theclassifications of current liabilities, and long-termliabilities.

Common stock, authorized 21,000 share
At $1 par value, issued 10,000 shares $10,000
Additional paid-in capital $38,000
Cash $13,000
Marketable securities $17,000
Accounts receivable $26,000
Accounts Payable $15,000
Current maturities of long-term debt $11,000
Mortgages payable $80,000
Bonds payable $70,000
Inventory $30,000
Land and buildings $57,000
Machinery and equipment $125,000
Goodwill $8,000
Patents $10,000
Other assets $50,000
Deferred income taxes (long-term liability) $18,000
Retained earnings $33,000
Accumulated depreciation $61,000

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FIN 300 Chapter 2: FIN 300 - Chapter 2 Notes.docx

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