ADMS 2500 Study Guide - Final Guide: Income Statement, Operating Expense, Dividend Policy

112 views12 pages

byzantiumcockroach946

11 Dec 2015

School

York University

Department

Administrative Studies

Course

ADMS 2500

Professor

Marcela Porporato

For unlimited access to Study Guides, a Grade+ subscription is required.

ishvindersinghsandhu and 38251 others unlocked

ADMS 2500 Full Course Notes

Verified Note

12 documents

Document Summary

Classes of shares: common shares have the claim to earnings of the corporation after commitments to preferred shareholders have been satis ed. In case of corporate dissolution - proceeds of assets disposition: preferred shares have special privileges. In order to issue and market its shares, a company may incur legal fees; accounting fees; underwriting commissions; and mailing, registration, and advertising costs. It is common practice to treat these costs as a reduction of the net proceeds received for the share issuance. These costs are usually charged to an account called organization costs and are carried as an asset on the balance sheet. The cots are amortized over an arbitrary period, usually up to ve years (a short period as the amounts tend not to be signi cant and are assumed to most bene t the early years). Organization costs are classi ed with other deferred costs on the balance sheet: for non-cash assets:

Related Questions

1. Which of the following statements is true about apartnership?

a. One capital and one drawings account is used for eachpartnership.

b. The capital account is used to record each partner'sinvestment and that partner's designated share of the earnings.

c. Partnerships are subject to separate income taxes.

d. The drawings account is closed to retained earnings at theend of the period.

2. Which of the followingstatements does not correctly describe preferred stock?

a. Preferred shareholders have a preference with respect todividend payments.

b. Preferred shareholders have a preference with respect toassets in the event of dissolution.

c. Preferred shareholders have voting rights on a per sharebasis.

d. Preferred stock typically has a fixed dividend rate.

3. Which of the followingstatements is false?

a. Common stockholders have a residual claim on assets in theevent of liquidation.

b. Shares of stock held in the treasury are subtracted from thenumber of issued shares in the determination of the number ofoutstanding shares.

c. Common stockholders have voting rights at annual stockholdermeetings.

d. Corporations are governed by their stockholders.

4. Which of the following would not be reportedas a financing activities cash flow?

a. Issuing common stock for cash.

b. Cash dividend payments.

c. Purchasing treasury stock.

d. Purchase of a building by signing a note payable.

5. Which of the following is not reported as acash flow from investing activities?

a. Sale of a depreciable asset for cash.

b. Purchasing land in exchange for common stock.

c. Selling a long-term investment at a loss for cash.

d. Purchase of a patent in exchange for cash.

6. Which of the following transactions would be reported withinthe investing section of the cash flow statement?

a. The cash sale of land at a loss.

b. The purchase of a building in exchange for common stock.

c. The receipt of a stock dividend from a stock investment.

d. The cash receipt of a dividend from a stock investment.

7. Which of the following would be subtracted from net incomewhen determining cash flows from operating activities under theindirect method?

a. A decrease in utilities payable.

b. Patent amortization expense.

c. A decrease in prepaid rent.

d. A loss on the sale of a depreciable asset.

7. Which of the following would be added to net income whendetermining cash flows from operating activities under the indirectmethod?

a. A decrease in accounts payable.

b. Patent amortization expense.

c. An increase in prepaid insurance.

d. A gain on the sale of a depreciable asset.

8. Which of the following would not be a cashflow from financing activities?

a. Issuance of common stock for cash.

b. Borrowing cash on a long-term note payable.

c. Collection of a cash dividend.

d. Repayment of principal on a long-term note payable.

9. The cash payment of a previously declared dividend increaseswhich of the following ratios?

a. Debt-to-equity.

b. Earnings per share.

c. Price/earnings ratio.

d. Asset turnover.

10. The debt-to-equity ratio measures which of thefollowing?

a. Liquidity.

b. Solvency.

c. Profitability.

d. Market strength.

11. Negative financial leverage occurs when the:

a. Average net (after tax) interest rate on borrowed funds isless than the company's earnings rate on its assets.

b. Return on assets is more than return on equity.

c. Return on equity is more than return on assets.

d. Operating expenses exceed gross profit.

12. Which of the following ratios is notconsidered to be a test of profitability?

a. Current ratio.

b. Profit margin.

c. Return on assets.

d. Earnings per share.

13. Home Depot's operating strategy is to offer a broadassortment of high-quality merchandise and services at competitiveprices using highly knowledgeable service-oriented personnel andaggressive advertising. Which of the following isnot as critical to achieving Home Depot'sstrategy?

a. Cost control

b. Product differentiation

c. High level of customer service

d. High sales volume

13. Which of the following ratios is not partof the DuPont model?

a. Asset turnover.

b. Debt-to-equity.

c. Net profit margin.

d. Return on equity.

Which of the following statements is notcorrect?

Purchasing fixed assets through debt financing decreases thefinancial leverage ratio.

Accruing an expense will affect the net profit margin ratio.

Return on equity may increase even when the financial leverageratio decreases.

Purchasing treasury stock results in a decrease in assetturnover.

orchidgoldfish574

This is a question from the Advanced Accounting (9780077632588)book. Chapter 2, number 32.

On December 31, 2014, Pacifica, Inc., acquired 100 percent ofthe voting stock of Seguros Company. Pacifica will maintainSerguros as a wholly owned subsidiary with its own legal andaccounting identity. The consideration trasferred to the owner ofSeguros included 50,000 newly issued Pacifica common shares ($20market value, $5 par value) and an agreement to pay an additional$130,000 cash if Seguros meets certain project completion goals byDecember 31, 2015. Pacifica estimates a 50 percent probability thatSeguros will be successful in meeting these goals and uses a 4percent discout rate to represent the time value of money.Immediately prior to the acquisition, the following data for bothfirms were available:

Pacifica // Seguros Book Value // Seguros Fair Value

revenues........................................$(1,200,000)

expenses...................................... 875,000

net income......................... $(325,000)

retained earnings 1/1/14.............. $(950,000)

net income................................... (325,000)

dividends declared...................... 90,000

retained earnings 12/31/14.................. $(1,185,000)

cash............................................ $110,000 //$85,000 // $85,000

receivables and inventory........................ 750,000 //190,000 // 180,000

property, plant, & equipment.................. 1,400,000 //450,000 // 600,000

trademarks............................................. 300,000// 160,000 // 200,000

total assets.................................. $2,560,000 //$885,000//

liabilities...............................................$(500,000) // (180,000) // (180,000)

commom stock................................... ($400,000) //(200,000)

additional paid in capital..................... (475,000) //(70,000)

retained earnings............................... (1,185,000) //(435,000)

total liabilities and equities.......... $(2,560,000) //$(885,000)

In addition, Pacifica assessed a research and developmentproject under way at Seguros to have a fair value of $100,000.Athough not yet recorded on its books, Pacifica paid legal fees of$15,000 in connection with the acquisition and $9,000 in stockissue costs.

Prepare the following:

a. Pacifica's entries to account for the considerationtransferred to the former owners of Seguros, the direct combinationcosts, and the stock issue and registration costs. (use a 0961538present value factor where applicable.)

b. A postacquisition colun of accounts for Pacifica.

c. A worksheet to produce a consolidated balance sheet as ofDecember 31,2014.

Case 2.3 Walgreens Co. and Subsidiaries

The following excerpts are from the 2013 Walgreen Co. Form 10-K:

CONSOLIDATED BALANCE SHEETS

Walgreens Co. and Subsidiaries at August 31,2013 and 2012

(in millions, except shares and per share amounts)

Cash and cash equivalents

Property & equipment, at cost,less accumulated deprec & amortization

$12,138

$12,038

Equity investment in Alliance Boots

$2,410

$2,161

Alliance Boots call option

Other noncurrent assets

Liabilities and Shareholders' Equity

Current Liabilities

Short-term borrowings

$570

$1,319

Trade accounts payable

$4,635

$4,384

Accrued expenses and other liabilities

Total Current Liabilites

$8,883

$8,722

Noncurrent liabilites

Long-term debt

$4,477

$4,073

Deferred income taxes

$600

$545

Other noncurrent liabilities

$2,067

$1,866

Total noncurrent liabilites

$7,144

$6,504

Commitments and contingencies(see note)

Shareholders' Equity

Preferred stock, $.0625 per value; authorized 32 million shares;

issued 1,028,180,150 shares in 2013 and 2012

Employee stock loan recievable

Accumulated other comprehensive (loss) income

($98)

$68

Treasury Stock at cost, 81,584,572 shares in 2013 and

84,124,816 shares in 2012

($3,114)

($2,985)

Total Shareholders' Equity

$19,454

$18,236

Total Liabilites and Shareholder's Equity

$35,481

$33,462

The accompanying Notes to Consolidated Financial Statements are integral parts of these statments.

Notes to Consolidated financial Statements

1.Summary of Major Accounting Policies

Description of Business

The company is principally in the retail drugstore business and its operations are within one reportable segment. At August 31,2013 there was 8,582 drugstore and other locations in 50 states, the District of Columbia, Guam, and Puerto Rico. Prescription sales were 62.9% of total sales for fiscal 2013 compared to 63.2% in 2012 and 64.7% in 2011.

Allowance for Doubtful Accounts

The provision for bad debt is based on both historical write-off percentages and specifically identified receivables. Activity in the allowance for doubtful accounts was as follows (In millions):

	2013	2012	2011
Balance at beginning of year	$99	$101	$104
Bad debt provision	$124	$107	$88
Write-offs	($69)	($109)	($91)
Balance at end of year	$154	$99	$101

Inventories

Inventories are valued on a lower of last-in, first-out (LIFO) cost or market basis. At August 31, 2013 and 2012, inventories would have been greater by $2.1 billion and $1.9 billion, respectively, if they had been valued on a lower of first-in, first-out (FIFO) cost or market basis. As a result of declining inventory levels, the fiscal 2013 and 2012 LIFO provisions were reduced by $194 million and $268 million of LIFO liquidation, respectively. Inventory includes product costs, inbound freight, warehousing costs, and vendor allowances not classified as a reduction of advertising expense.

3.Leases

The company owns 20.2% of its operating locations; the remaining locations are leased premises. Initial terms are typically 20 to 25 years, followed by additional terms containing renewal options at five-year intervals, and may include rent escalation clauses. The commencement date of all lease terms is the earlier of the date the company becomes legally obligated to make rent payments or the date the Company has to right to control the property. The Company recognizes rent expense on a straight-line basis over the term of the lease. In addition to minimum fixed rentals, some leases provide for contingent rentals based upon a portion of sales.

Minimum rental commitments at August 31, 2013, under all leases having an initial or remaining non-cancelable term of more than one year are shown below (in Millions):

	Capital Lease	Operatin Lease
2014	$19	$2,536
2015	$19	$2,514
2016	$18	$2,464
2017	$17	$2,389
2018	$15	$2,292
Later	$270	$23,507
Total Minimum lease Payments	$358	$35,702

The capital lease amoutn includes $155 million of imputed interest and executory costs. Total minimum lease payments have not been reduced by minimum sublease rentals of approximately $140 million on leases due in the future under non-cancelable subleases.

The Company remains secondarily liable on 26 assigned leases. The maiximum potential undiscounted future payments are $18 million at August 31, 2013. Lease option dates vary, with some extending to 2041.

WALGREEN CO. INFORMATION FROM CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended August 31,2013 and 2012 (in millions)
	2013	2012
Sales	$72,217	$71,633
Net Income	$2,450	$2,127

Required:

a. Using the consolidated balance sheets for Walgreen Co. for August 31,2013 and 2012, prepare a common-size balance sheet.

b. Which current asset is the most significant? Which noncurrent asset is the most significant? Are the relative proportions of current and noncurrent assets what you would expect for a drug store?

c. Analyze accounts recievable and allowance for doubtful accounts.

d. What inventory is used to value inventories? Has Walgreen experienced inflation or deflation? Explain your answer. Explain the reference in the inventory note to the LIFO liquidation and what this means with regard to net income reported.

e. Assess the level of debt and risk that Walgreen has by looking only at the balnce sheet.

f. Estimate the dollar amount of dividends Walgreens paid in 2013.

g. Does Walgreen use off-balance sheet fiancing? Explain your answer.

h. Evaluate the creidtworthiness of Walgreen based on the Balance sheet and the excerpts from the notes.

coralhyena380

ADMS 2500 Study Guide - Final Guide: Income Statement, Operating Expense, Dividend Policy

ADMS 2500 Full Course Notes

Document Summary

Get access

Related Documents

ADMS 2500 Chapter Notes -Canada Business Corporations Act, Cash Flow, Historical Cost

ADMS 2500 Chapter Notes - Chapter 11: Toronto Stock Exchange, Canada Business Corporations Act, Dividend Tax

ADMS 2500 Chapter Notes -Book Value, Impaired Asset, Capital Asset

Related Questions