MGAB01H3 Chapter Notes - Chapter 2: Current Liability, Historical Cost, Financial Statement

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13 Apr 2016

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MGAB01H3 Full Course Notes

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Chapter 2 quesions: the primary objecive of external inancial reporing is to provide inancial informaion about a business to help external paries, primarily investors and creditors, make sound inancial decisions in their capacity as capital providers. Retained earnings refers to the accumulated earnings of a company that are not distributed to the shareholders and are reinvested in the business. It is important to have accouning assumpions because then all inancial report can be prepared following the same guild ines thus making sure that the inancial reports are similar and can be compared. Meanwhile a current raion lower than one indicates that the company is not liquid: an account is a standardized record that organizaions use to accumulate the monetary efects of transacions on each inancial statement item. Accounts are used in the accouning system in order to keep track of the low of money and how it changes as each transacion occurs.

Related Questions

1. Creditors' claims on the assets of a company are called: (Points : 2)

2. The primary objective of financial accounting is: (Points : 2)

To serve the decision-making needs of internal users

To provide financial statements to help external users analyze and interpret an organization's activities

To monitor and control company activitiesTo provide information on both the costs and benefits of managing products and services

To know what, when and how muchto produce

3. Assets created by selling goods and services on credit are: (Points : 2)

4. The debt ratio is used: (Points : 2)

To measure the amount of equity relative to the expenses

To reflect the risk associated with a company's debts

Only by banks when a business applies for a loan

To determine how much debt a firm should pay off

5. Net Income: (Points : 2)

Decreases equity

Represents the amount of assets owners put into a business

Equals assets minus liabilities

Is the excess of revenues over expenses

Represents the owners' claims against assets

6. Internal users of accounting information include: (Points : 2)

Shareholders

Customers

Creditors

Government regulators

Line Supervisor

7. Risk is: (Points : 2)

Net income divided by average total assets

The reward for investment

The uncertainty about the expected return that will be earned from an investment

Unrelated to expected return

8. An example of an operating activity is: (Points : 2)

Paying wages

Purchasing office equipment

Borrowing money from a bank

Selling stock

Paying off a loan

9. Which accounting assumption assumes that all accounting information is reported monthly or yearly? (Points : 2)

Business entity assumption

Monetary unit assumption

Value assumption

Cost assumption

Time period assumption

10. Distributions of assets by a business to its stockholders are called: (Points : 2)

Using the 2005 and 2006 Statement of Financial Position (SFP) and the Statement of Earnings (SE) found on pages 465 and 466, complete a vertical analysis (common-sized statements) for both years and a horizontal analysis (trend) from 2005 to 2006.Please show work.......thanks

Table13:1

Bayside Memorial Hospital Statements of Operations (Income Statements) Years Ended December 31, 2006 and 2005 (Thousands of dollars 2006 2005

Net Patient Service Revenue $108,600 $97,393

Premium revenue 5,232 4,622

Other revenue $ 3,644 6,014

Total revenues $117,476 $108,029

Expense:

Nursing Services $58,245 56,752

Dietary Services 5,424 4,718

General services 13,198 11,655

Administrative services 11,427 11,585

Employee health and welfare 10,250 10,705

Provision for uncollectible 3,328 3,469

Provision for malpractice 1,320 1,204

Depreciation 4,130 4,025

Interest expense 1,542 1,521

Total Expense $108,904 $105,634

Net Income $8,572 $2,395

Balance Sheet

Table 13.2 contains Bay sideâs 2005 and 2006 balance sheets. Although the assets are all stated in terms of dollars, only cash represents actual money we see that bayside can if it liquidated its short-term investment securities. Write checks at the end of 2006 for a total $6,263,000 (verse total current liabilities of $13,332,000 due during 2006). The noncash current assets will presumably be converted to cash within a year, but they do not represent cash on hand.

Then Claims against assets are two types: 1) liabilities, or money the firm owes, and 2) equity, also called net assets or fund capital. Equity is a residual, so for 2006

Assets -Liabilities = Equity

151,278,000 - ($13,332,000+$30,582,000) =$107,364,000

Liabilities consist of $(13,332,000 of current liabilities plus $30,582,000of long-term liabilities. If assets decline in value-suppose some of Baysideâ s fixed assets were sold at less that book value-liabilities remain constant, so the value of the equity capital declines.

Table 13:2 Bayside Memorial Hospital Balance Sheets December 31, 2006 and 2005 (thousand of dollars)

2006 2005

Cash $4,263 $5,095

Short-term investments 2,000 0

Accounts receivable 21,840 20,738

Inventories 3,177 2,982

Total current assets $31,280 $28,815

Gross plant and equipment $145,168 $140,865

Accumulated depreciations 25,160 21,030

Net plant and equipment $119,998 $119,835

Total assets $151,278 $148,650

Accounts payable $4,707 $5,145

Accrued expenses 5,650 5,421

Notes payable 825 4,237

Current portion of long-term debt 2,150 2,000

Total current liabilities $13,332 $16,803

Long-term debt $28,750 $30,900

Capital lease obligations 1,832 2,155

Total long-term liabilities $30,582 $33,055

Net assets (equity) $107,364 $98,792

Total liabilities and net assets $151,278 $148,650

Challenger Limited
Balance Sheets for the year
ended at 31 December
( U.S dollars)
	2007	2008
Assets
Non-Current Assets
Property , plan and equipment	$152,425,129.00	$49,410,844.00
Total non-currentassets	$152,425,129.00	$49,410,844.00
Current assets
Spare parts inventory	$6,956,849.00	$12,874,676.00
Receivables and prepayments	$40,518,272.00	$18,887,780.00
Due from related parties	$519,044.00	$140,136.00
Cash and Cash equivalents	$2,842,879.00	$2,753,003.00
TotalCurent assets	$50,837,044.00	$34,655,595.00
Total Assets	$202,262,173.00	$84,066,439.00

Equity and liabilities
Equity
Capital	$64,957,265.00	$50,000,000.00
Additional Paid-in Capital	$70,795,653.00	$15,000,000.00
Revaluation reserve	$16,782,544.00	$1,403,983.00
Other	-$1,368,122.00
R/E	$9,240,432.00	$2,314,787.00
Total Equity	$160,407,772.00	$68,721,770.00
Liabilities
Non-Current Liabilities
Borrowings	$4,545,190.00	$738,499.00
Total Non-CurrentLiabilities	$4,545,190.00	$738,499.00
Current Liabilities
Borrowings	$13,554,645.00	$2,676,000.00
Trade and other payables	$14,060,820.00	$7,016,164.00
Current Tax liabilities	$4,062,411.00	$2,869,643.00
Provisions	$491,280.00
Divididends and redemption payable	$3,078,302.00	$2,044,363.00
Due to related parties	$3,061,753.00
Total CurrentLiabilities	$38,309,211.00	$14,606,170.00
Total liabilities	$42,854,401.00	$15,344,669.00
Total equity and liabilities	$203,262,173.00	$84,066,439.00

Challenger Limited
Statements of Income
for the year ended
31 of december
( US dollars)
	2007	2008

Drilling revenue	$73,071,917.00	$46,043,831.00
Drilling costs	-$52,933,369.00	-$34,309,267.00
Gross Profit	$20,138,548.00	$11,734,564.00
General and administrative Expenses	-$9,775,827.00	-$8,021,383.00
Other income	$2,446,433.00	$19,005.00
Other expense	-$1,870,000.00
Operating (loss) / Profit fromoperations	$10,939,154.00	$3,732,186.00

Finance income	$46,015.00	$751,224.00
Finance cost	-$673,397.00	-$559,662.00
(Loss) / profit before income tax	$10,311,772.00	$3,923,748.00
Income tax	-$3,389,127.00	-$2,307,594.00
(Loss)/ profit for the year	$6,922,645.00	$1,616,154.00

Basis of Preparation The financial statements have been preparedin accordance with International Financial Reporting Standards(IFRS). The financial statements have been prepared under thehistorical cost convention as modified by the revaluation of therigs. Rigs include drilling equipment, well control equipment,electrical equipment, power plant, and so on.

Required:

A. Since the financial statements are prepared in U.S. dollars,does this imply that the financial statements are prepared inaccordance with U.S. GAAP? Why or why not?

B. List three major differences between this balance sheet incomparison to balance sheets prepared under U.S. GAAP.

C. Evaluate the performance of the company using the incomestatement. What appears to be the cause of the major change inperformance?

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MGAB01H3 Chapter Notes - Chapter 2: Current Liability, Historical Cost, Financial Statement

MGAB01H3 Full Course Notes

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