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AFM121 Chapter Notes - Chapter 1: Financial Statement, Retained Earnings, Income Statement

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erinplatypus481
13 Jul 2018
School
University of Waterloo
Department
Accounting & Financial Management
Course
AFM121
Professor
Andrew Ecclestone

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Document Summary

Financial statements & business decisions: the accounting system collects and processes financial information about an organization and reports information. 16 has examples of each statement: statement of financial position (balance sheet, assets = liabilities + owners" or shareholders" equity. Asset definition: has an economic benefit, contributes to cash, controllable due to past events, expected to flow, measure financial value reliably, resource can meet the definition of an asset and still not be reported on balance sheet. Liability definition: obligation from past events, result in an outflow of resources with economic, measure financial value reliably, obligation can meet the definition of a liability but not be reported on balance. *student liabilities: student loans, line of credit, osap, credit card balance, amount owing rent, cellphone bill, utility bill sheet. Asset & liability measurement: the dispersion of estimates can differ greatly. Several assets are not recognized on the balance sheet.

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Related Questions

The following is the financial statement of Executive Fruit Company for the year ended December 2014.
INCOME STATEMENT, 2014
(Figures in $ Thousands)
Revenue $ 5,500
Cost of goods sold 4,950
EBIT $ 550
Interest 110
Earnings before taxes $ 440
State and federal tax 176
Net income $ 264
Dividends 176
Additions to retained earnings $ 88
BALANCE SHEET (Year-End, 2014)
(Figures in $ Thousands)
Assets
Net working capital $ 550
Fixed assets 2,200
Total assets $ 2,750
Liabilities and shareholders' equity
Long-term debt $ 1,100
Shareholders' equity 1,650
Total liabilities and shareholders' equity $ 2,750

The following are the first stage and second stage pro forma financial statements of Executive Fruit Company for the year ended December 2015.
First stage pro forma statements:
PRO FORMA INCOME STATEMENT, 2015
(Figures in $ Thousands)
Revenue $ 6,050
Cost of goods sold 5,445
EBIT $ 605
Interest 110
Earnings before taxes $ 495
State and federal tax 198
Net income $ 297
Dividends 198
Additions to retained earnings $ 99
PRO FORMA BALANCE SHEET (Year-End, 2015)
(Figures in $ Thousands)
Assets
Net working capital $ 605
Fixed assets 2,420
Total assets $ 3,025
Liabilities and shareholders' equity
Long-term debt $ 1,100
Shareholders' equity 1,749
Total liabilities and shareholders' equity $ 2,849
Required external financing $ 176
Second stage pro forma balance sheet:
PRO FORMA BALANCE SHEET (Year-End, 2015)
(Figures in $ Thousands)
Assets
Net working capital $ 605
Fixed assets 2,420
Total assets $ 3,025
Liabilities and shareholders' equity
Long-term debt $ 1,276
Shareholders' equity 1,749
Total liabilities and shareholders' equity $ 3,025

How would Executive Fruit’s financial model change if the dividend payout ratio were cut to 1/3? Use the revised model to generate a new financial plan for 2015 assuming that debt is the balancing item. What would be the required external financing? (Do not round intermediate calculations.)

Dividends fall by $ . Therefore, the requirement for external financing falls from $ to $ . On the other hand, shareholders' equity will be increased by $ .

The right-hand side of the balance sheet becomes (Do not round intermediate calculations. Enter your answers in thousands.):
Long-term debt $
Shareholders' equity
Total $

The following is the financial statement of Executive Fruit Company for the year ended December 2014.
INCOME STATEMENT, 2014
(Figures in $ Thousands)
Revenue $ 4,000
Cost of goods sold 3,600
EBIT $ 400
Interest 80
Earnings before taxes $ 320
State and federal tax 128
Net income $ 192
Dividends 128
Additions to retained earnings $ 64
BALANCE SHEET (Year-End, 2014)
(Figures in $ Thousands)
Assets
Net working capital $ 400
Fixed assets 1,600
Total assets $ 2,000
Liabilities and shareholders' equity
Long-term debt $ 800
Shareholders' equity 1,200
Total liabilities and shareholders' equity $ 2,000

The following are the first stage and second stage pro forma financial statements of Executive Fruit Company for the year ended December 2015.
First stage pro forma statements:
PRO FORMA INCOME STATEMENT, 2015
(Figures in $ Thousands)
Revenue $ 4,400
Cost of goods sold 3,960
EBIT $ 440
Interest 80
Earnings before taxes $ 360
State and federal tax 144
Net income $ 216
Dividends 144
Additions to retained earnings $ 72
PRO FORMA BALANCE SHEET (Year-End, 2015)
(Figures in $ Thousands)
Assets
Net working capital $ 440
Fixed assets 1,760
Total assets $ 2,200
Liabilities and shareholders' equity
Long-term debt $ 800
Shareholders' equity 1,272
Total liabilities and shareholders' equity $ 2,072
Required external financing $ 128
Second stage pro forma balance sheet:
PRO FORMA BALANCE SHEET (Year-End, 2015)
(Figures in $ Thousands)
Assets
Net working capital $ 440
Fixed assets 1,760
Total assets $ 2,200
Liabilities and shareholders' equity
Long-term debt $ 928
Shareholders' equity 1,272
Total liabilities and shareholders' equity $ 2,200

How would Executive Fruit’s financial model change if the dividend payout ratio were cut to 1/3? Use the revised model to generate a new financial plan for 2015 assuming that debt is the balancing item. What would be the required external financing? (Do not round intermediate calculations.)

Dividends fall by $ . Therefore, the requirement for external financing falls from $ to $ . On the other hand, shareholders' equity will be increased by $ .

The right-hand side of the balance sheet becomes (Do not round intermediate calculations. Enter your answers in thousands.):
Long-term debt $
Shareholders' equity
Total $

The following is the financial statement of Executive Fruit Company for the year ended December 2014.
INCOME STATEMENT, 2014
(Figures in $ Thousands)
Revenue $ 4,000
Cost of goods sold 3,600
EBIT $ 400
Interest 80
Earnings before taxes $ 320
State and federal tax 128
Net income $ 192
Dividends 128
Additions to retained earnings $ 64
BALANCE SHEET (Year-End, 2014)
(Figures in $ Thousands)
Assets
Net working capital $ 400
Fixed assets 1,600
Total assets $ 2,000
Liabilities and shareholders' equity
Long-term debt $ 800
Shareholders' equity 1,200
Total liabilities and shareholders' equity $ 2,000

The following are the first stage and second stage pro forma financial statements of Executive Fruit Company for the year ended December 2015.
First stage pro forma statements:
PRO FORMA INCOME STATEMENT, 2015
(Figures in $ Thousands)
Revenue $ 4,400
Cost of goods sold 3,960
EBIT $ 440
Interest 80
Earnings before taxes $ 360
State and federal tax 144
Net income $ 216
Dividends 144
Additions to retained earnings $ 72
PRO FORMA BALANCE SHEET (Year-End, 2015)
(Figures in $ Thousands)
Assets
Net working capital $ 440
Fixed assets 1,760
Total assets $ 2,200
Liabilities and shareholders' equity
Long-term debt $ 800
Shareholders' equity 1,272
Total liabilities and shareholders' equity $ 2,072
Required external financing $ 128
Second stage pro forma balance sheet:
PRO FORMA BALANCE SHEET (Year-End, 2015)
(Figures in $ Thousands)
Assets
Net working capital $ 440
Fixed assets 1,760
Total assets $ 2,200
Liabilities and shareholders' equity
Long-term debt $ 928
Shareholders' equity 1,272
Total liabilities and shareholders' equity $ 2,200

How would Executive Fruit’s financial model change if the dividend payout ratio were cut to 1/3? Use the revised model to generate a new financial plan for 2015 assuming that debt is the balancing item. What would be the required external financing? (Do not round intermediate calculations.)

Dividends fall by $ . Therefore, the requirement for external financing falls from $ to $ . On the other hand, shareholders' equity will be increased by $ .

The right-hand side of the balance sheet becomes (Do not round intermediate calculations. Enter your answers in thousands.):
Long-term debt $
Shareholders' equity
Total $