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ACC 110 Chapter Notes - Chapter 2: Cash Flow Statement, Retained Earnings, Current Liability

182 views22 pages
erinmosquito696
14 Apr 2011
School
Ryerson University
Department
Accounting
Course
ACC 110
Professor
Else Grech

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Document Summary

Current assets are assets that will be used up, sold, or converted to cash within one year or one operating cycle. Current liabilities will be paid or satisfied within one year or one operating cycle. It"s assumed below that the period to be applied is one year. Current asset, since the inventory is expected to be sold within one year. Current liability, since these amounts must be paid within 60 days. Current asset, since the amount is expected to be collected in less than one year. Non-current asset, since the machines will be used for more than one year unless there is an expectation that they will be replaced or sold within the year. Non-current asset, since machines are used over more than one period. An exception would be if there is an expectation that it will be sold soon. Current liability, since the bank loan might have to be paid at any time.

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Related Questions

Financial Information for Case9-1
Industy Wide
Balance Sheets
Years Ended December 31, 2014and 2015
2015 2014
Assets
Current Assets:
Cash $ 30,000 $ 25,000
Accounts receivable 110,000 90,000
Inventories 100,000 80,000
Total Current Assets 240,000 195,000
Fixed Assets;
Plant and equipment 250,000 220,000
Less accumulated depreciation (100,000) (65,000)
Land 50,000 50,000
Total Fixed Assets 200,000 205,000
Total Assets $ 440,000 $ 400,000
Liabilities and Equity
Current Liabilities:
Accounts payable $ 58,000 $ 50,000
Notes payable-due within one year 50,000 50,000
Accrued liabilities - -
Total Current Liabilities 108,000 100,000
Long Term Liabilities 32,000 20,000
Total Liabilities 140,000 120,000
Stockholders' Equity:
Common stock 100,000 100,000
Retained earnings 200,000 180,000
Total Stockholders' Equity 300,000 280,000
Total Liabilities and Equty $ 440,000 $ 400,000
Industry Wide
Income Statement
Years Ended December 31, 2014and 2015
Revenues $ 1,100,000 $ 1,000,000
Cost of goods sold (700,000) (650,000)
Gross margin 400,000 350,000
Operating expenses (275,000) (255,000)
Operating income 125,000 95,000
Interest expense (15,000) (15,000)
Income before taxes 110,000 80,000
Income taxes (44,000) (32,000)
Net income $ 66,000 $ 48,000
Financial Information for Case9-1
Industy Wide
Balance Sheets
Years Ended December 31, 2014and 2015
2015 2014
Assets
Current Assets:
Cash $ 30,000 $ 25,000
Accounts receivable 110,000 90,000
Inventories 100,000 80,000
Total Current Assets 240,000 195,000
Fixed Assets;
Plant and equipment 250,000 220,000
Less accumulated depreciation (100,000) (65,000)
Land 50,000 50,000
Total Fixed Assets 200,000 205,000
Total Assets $ 440,000 $ 400,000
Liabilities and Equity
Current Liabilities:
Accounts payable $ 58,000 $ 50,000
Notes payable-due within one year 50,000 50,000
Accrued liabilities - -
Total Current Liabilities 108,000 100,000
Long Term Liabilities 32,000 20,000
Total Liabilities 140,000 120,000
Stockholders' Equity:
Common stock 100,000 100,000
Retained earnings 200,000 180,000
Total Stockholders' Equity 300,000 280,000
Total Liabilities and Equty $ 440,000 $ 400,000
Industry Wide
Income Statement
Years Ended December 31, 2014and 2015
Revenues $ 1,100,000 $ 1,000,000
Cost of goods sold (700,000) (650,000)
Gross margin 400,000 350,000
Operating expenses (275,000) (255,000)
Operating income 125,000 95,000
Interest expense (15,000) (15,000)
Income before taxes 110,000 80,000
Income taxes (44,000) (32,000)
Net income $ 66,000 $ 48,000

1. Calculate the current ratio and average collection period foraccounts receivable, inventory turnover, gross margin percentage,and return on equity for 2014 and 2015 for the JordanCorporation.

2. Calculate the current ratio and average collection period foraccounts receivable, inventory turnover, gross margin percentage,and return on equity for the Industry.

3. Compare the performance of the Jordan Corporation between2014 and 2015 and comment on the trend of each ratio.

4. Compare the performance of the Jordan Corporation in 2015 tothe industry averages and comment on each.

EXERCISE 15-8 Selected Financial Ratios (L015-2, LO15-3, L015-4] The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance Sheet December 31 Assets Current assets: Cash.. Accounts receivable, net ................ Merchandise inventory ................. Prepaid expenses ..................... Total current assets ...................... Property and equipment, net ............... Total assets $ 6,500 35,000 70,000 3,500 115,000 185,000 $300,000 $ 50,000 80,000 130,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities .......... Bonds payable, 10% .......... Total liabilities ................. Stockholders' equity: Common stock, $5 per value ............. Retained earnings .... Total stockholders' equity ................. Total liabilities and equity ................. $ 30,000 140,000 170,000 $300,000 Castile Products, Inc. Income Statement For the Year Ended December 31 Sales .... Cost of goods sold .......... Gross margin ............ Selling and administrative expenses ....... Net operating income ........ Interest expense......................... Net income before taxes ........... Income taxes (30%) Net income .......... $420,000 292,500 127,500 89,500 38,000 8,000 30,000 9,000 $ 21,000 Account balances at the beginning of the year were: accounts receivable, $25,000; and inven- tory, $60,000. All sales were on account. Required: Compute the following financial data and ratios: 1. Working capital. 2. Current ratio. 3. Acid-test ratio. 4. Debt-to-equity ratio. 5. Times interest earned ratio. 6. Average collection period. 7. Average sale period. 8. Operating cycle.

Required - Using the attached- below- financial statements for Coca-Cola calculate the following ratios for 2014 - Hint: use excel to set up the formulas and amounts to calculate (see below chart)

https://www.sec.gov/Archives/edgar/data/21344/000002134415000005/a2014123110-k.htm

Liquidity ratio

Current assets

92023

Current liabilities

32374

Current ratio is current asset/current liabilities

92023/32374=

2.84

Quick assets=current assets- inventory + prepaid expenses

92023-3100+3066=

91989

Quick ratio is quick assets/current liabilities

91989/32374=

2.84

Calculate debt to equity ratio=

Total liabilities/ total stockholder equity

Times interest earned=

Earnings before interest and taxes (EBIT)/interest expense

Return on Net Operating Assets – RNOA

Net Operating assets RNOA= NPOAT/Average NOA

Net Operating Profit After Taxes – NOPAT

Net operating profit after taxes= net income- (nonperatinge revenues-nonoperating expenses)x(1-marginal tax rates)

Net Operating Profit Margin – NOPM

NPOM= NOPAT/Sales Revenue

Net Operating Asset Turnover – NOAT

NOAT= Sales/Average NOA

Note 1

Coca-Cola

Operating Assets

Total assets - Non-operating assets

(ie NOA = Total assets less Short-term investments + Other investments

Operating Liabilities

Total liabilities - Non-operating liabilities

ie NOL = Total liabilities - Loans and notes payable + Current maturities of long-term debt+Long-term debt)