ACC200 - Jordan Exam 3
What are current liabilities?
Accounts payable short-term notes payable wages payable taxes payable interest payable
how do you calculate Gross margin?
Sales - COGS
____ ____ is a reduction to stockholders equity because the shares of stock is no longer in the hands of the public.
Treasury stock
A company sells a product for $375 in a state that has a 9% sales tax. What is the revenue received from the sale? a. $408.75 b. $375 c. $33.75 d. none
b.
A company's current ratio is 1.35. You can safely conclude that a. the company is a good investment b. the company will have no trouble paying its current obligations c. the company has a long term problem related to meeting its obligations d. the company has a short-term problem paying its bills
b.
Bush corporation authorized 100,000 shares of $25 par value common stock and issued 32,000 shares at $28. how much cash did bush corporation receive from selling stock? a. $2,500,000 b. $896,000 c. $800,000 d. $1,604,000
b. 32,000 x $28 = 896,000
Common stock
bear the highest risk (debtors and preferred stockholders paid first) highest rewards - dividend is not limited primary type of stock issued by a company that comes with a set of rights
A ___ ____ is a debt security (investment) used to obtain long term financing in which a company borrows funds firm a number of lenders called bond holders
bond certificate
the ____ _____ is the lender; the buyer of the bond
bond holder
____ are where loans are made by many lenders to a borrower (company).
bonds
the issuer(seller) is the _____(company).
borrower
Bond issued at 100 are issued at a. premium b. discount c. face value d. none
c.
Treasury stock = a. issued shares plus outstanding shares b. authorized shares minus issued shares c. issued shares minus outstanding shares d. authorized shares plus issued shares
c.
when we are buying back our stock that is a reduction of ____.
equity
The ___ ___ provides additional information on financial condition, risk, performance, and sustainability for internal and external decision makers.
financial analysis
Initial public offering (IPO)
first time a corporation offers stock to the public typically large gains for investors
if the likelihood is ____ ____ but not likely or if it is probable but cannot be reasonably estimated, the potential liability is disclosed in the notes to the financial statements
reasonably probable
if the likelihood is ___, there is no liability and no disclosure.
remote (note likely)
What is a treasury stock?
shares of a company's own stock it has required(repurchased) purchased from existing stockholders at market price it reduces the total stockholders equity
a buyback is usually ____.
strategic
horizontal analysis (trend analysis)
studying the behavior of individual financial statement items over several accounting periods - trends in dollar amounts or % compares items over MANY time periods
ratio analysis
studying the relationship between different items reported in a set of FS
Par value/No-Par/State value
the assigned value of the stock issued by company if stock does not have an assigned value = no par stock some no-par stock may have a "stated value"
Avg day to collect receivables
the average number of days it takes to collect a receivable (365/Accounts receivable turnover) ex: = 25 (takes on avg 25 days for customers to settle accounts)
Avg days to sell inventory
the avg number of says to sell inventory without purchasing more 365/inventory turnover avg time inventory is on the the shelf
Inventory turnover
the avg number of times total inventory is replaced during the year COGS/Average inventory if = 9 inventory is completely replaced 9 times in a year
Profitability
the company's potential to generate a return on investment
What is double taxation?
the corporation pay taxes on the income it earns and the owners pay taxes on dividends received from the corporation
return on equity
the profitability of the stockholders investment net income / average stockholder equity
return on investment
the ratio of wealth generated (net income) to the amount invested (average total assets) to generate the wealth net income / average total assets
shares issued(sold) and repurchased by the corporation in the open market (shares bought back) = issued share - outstanding shares what kind of share is this?
treasury
list a disadvantage of a proprietorship
unlimited liability, less access to capital
accrued
unpaid, liability
What is a buyback?
used for employee stock plan(compensation) prepare for mergers of business combinations increase earning per share manipulate market price (supply and demand) create a concentrated ownership percentage/prevent hostile takeover
Vertical analysis
uses % to compare individual components of FS to a key figure IS: sales BS: assets compare items within the same time period
Dividends are a transfer of ___ from the ___ to its ___.
wealth, business, owners
A ___ ___ company is publicly traded, which could have millions of stockholders, harder to gain influence over the operations
widely held
earning per share
(profit)earnings per share of common stock (outstanding) net earnings available for common stock (net income - preferred dividends) / avg number of common stock shares outstanding
Sales tax is reported as rev when collected and expensed when it is paid. T or F
F
Solvency Analysis focuses on a the ability of a business to make a profit T or F
F deals with long term debt paying ability
debt to asset ratio
% of assets financed by debt total liabilities / total assets should be < 1
net margin
% of each sales dollar remaining after subtracting other expenses, as well as cost of good sold net income(profit) / net sales
How do you find % change for horizontal analysis?
($ change) / base year
Book value per share
(Total stockholders' equity - preferred stock) / Number of common shares outstanding
what are the 2 ways stockholders benefit when a company generates earnings?
1. may distribute earnings directly to the stockholders in the form of DIVIDENDS 2. may retain some or all of the earnings to finance growth and increase its potential for future earnings, which should make the market value of its stock increase. STOCK APPRECIATING
Common stock rights
1. right to buy and sell stock 2. right to participate in profits (if any and not guaranteed) 3. right to share in distribution of assets in liquidation 4. right to vote on corporate matters 5. right to participate in the election of directors
what is a Partnerships?
2 owners fairly easy to set up and inexpensive (adv.) agreements are put in place regarding profit sharing and liability (partnership agreement) access to more capital than sole proprietor (adv.) personably liable (responsible for debts of partnership) (disadv.) organization managed by owners pass through org for tax purposes business terminate with the departure of the owners
Collatoral
Assets that are assigned as security
max number of shares legally permitted to issue what kind of share is this?
Authorized
What is a stock split?
BOD increases the number of shares and reduces the par value per share pro-rata (2 for 1 stock split) does not affect equity on FS
The relationship of each asset as a percent of total assets is an example of horizontal analysis. T or F
F would be an example of vertical analysis; should be the change in assets for HA
____ : the recipient is determined based on stock ownership
Date of Record
____ : the BOD declares an amount payable (liability created)
Declaration date
The stated rate (interest on bond) of interest is less than the market rate of interest. Selling price of the bond < the face value of the bond (issued @ < 100) What type of bond is issued here?
Discount
The stated rate (interest on bond) of interest is the same as the market rate of interest. Selling price of the bond = the face value of the bond What type of bond is issued here?
Face Value
The stated rate (interest on bond) of interest is more than the market rate of interest. Selling price of the bond > the face value of the bond (issued @ > 100) What type of bond is issued here?
Premium
What are the characteristics of Note Payables?
Maker, Payee, Principal, Interest, Maturity date, Collateral
how do you find total PIC in excess of par?
PIC in excess of par x shares issued ex: $16 x 100,000 = $1,600,000
Corporate Financial reports are required by ___ ___ ___ ___. - form 10-Q: quarterly form - form 10-K: annual report (audited) - form 8-K: supplemental information ex: CEO resigns or CEO caught in scandal must report it
Securities and Exchange commission
Articles of incorporation, prepared by a business that wishes to incorporate, normally include name, purpose, location and provisions for stock. T or F
T
Contingent liabilities only arise from past events. T or F
T
Partnerships and Proprietorships are not separate legal entities; their earnings are taxable to the owners and not the business itself. T or F
T
principal
The amount of money loaned
Maturity date
The date on which the maker must repay the principal and interest
Intrest
The economic sacrifice paid by the maker for borrowing the principal
maker
The party who issues the check (making the promise to pay)
payee (lender)
The person to whom the note is made payable
To attract customers, many companies guarantee their products or services. Within the _____ period, the seller promises to replace or repair defective products without charge. (companies recognize the liability when the product is sold)
Warranty
What is a cash dividend?
a cash return on equity investment that give stockholders cash
Liquidity ratio
a company's ability to meet its short term obligations the ability to convert assets into cash focuses on current assets and current liabilities
What is a corporation?
a legal entity organized under an articles of incorporation (state charter) --> name, purpose, location BOD considered a separate entity from its owners( not pass through entity) owners are called stockholders --> ownership evidenced by Stock certificate --> Transferability of ownership easy owners have limited liability --> loss up to personal investment, not personal assets (adv.) More costly and complex to form compared to sole proprietorships and partnerships (disadv.) heavily regulated (disadv.) --> securities and exchange Act of 1934 --> FASB and GAAP --> Sarbanes Oxley Act of 2002 --> PCAOB may be either public or closely held (private) has access to greater amounts of capital than a SP or P (adv.) pays taxes based on criteria set forth in the internal rev code (IRC) o certain income less certain expenses Double taxation (disadv.) board of directors - oversee operations continues with the departure of the owners
What is a stock dividend?
a non-cash return on equity that gives stockholders incremental shares of stock( based on outstanding shares)
A company sells a product for $375 in a state that has a 9% sales tax. What is the total cash received from the sale? a. $408.75 b. $375 c. $33.75 d. none
a.
Borden, Inc reported net income of $66,000 on sales of $460,000. the company's average total assets of $740,000 and average total liabilities of $260,000. What is the company's return on equity? a. 13.8% b. 8.9% c. 14.3% d. 25.38%
a. ROE = NI/avg equity = 66,000/480,000 (A = L + E; 740,000 - 260,000 = 480,000) = 13.8%
Financial analysis can help determine
a. financial and other risks b. trends in performance from one period to the next c. evaluate performance compared to other entities d. predict future outcomes
What is face value?
amount due at maturity
market value
amount investors are willing to pay for a share of stock
Paid - in capital in excess of par
amounts received by stockholders in excess of par or stated value
A company has determined it will pay a cash dividend. On which date is a liability recorded? a. date of payment b. date of declaration c. date of record d. a liability is never recorded
b.
What is an advantage of a bond? a. bonds usually have longer terms than notes issued to the banks. (allows companies to implement long term strategic plans w/o having to worry about frequent refinancing arrangements) b. bond interest rates may be lower than bank interest rates. c. all the above
c.
Which of the following ratios would demonstrate that stock was selling for more than what could be earned by common stockholders? a. current ratio b. debt ratio c. prices earning ratio d. return on assets e. gross profit percentage
c.
A company sells a product for $375 in a state that has a 9% sales tax. What was the amount of sales tax that was collected? a. $408.75 b. $375 c. $33.75 d. none
c. $375 x .09 = $33.75
A corporation has issued 25,00 shares of $100 par common stock and holds 3,000 shares as treasury stock. If the corporation declares a $2/share cash dividend, what amount is recorded as cash dividend payable? a. $22,000 b. $25,000 c. $44,000 d. $50,000
c. 25,000 - 3,000 = 22,000 x 2 = 44,000
A company reports $40 par common stock total as $300,000 on the statement of stockholder equity. how man shares of common stock have been issued? a. 300,000 b. 12,000,000 c. 7,500 d. none
c. 300,000/$40 = 7,500
What are current assets?
cash marketable securities accounts receivables short-term notes receivables interest receivable inventory supplies prepaid items
A ___ ___ company has more control, more influence, more benefit as a result of owning stock and only has a few people
closely held
Most state require retail companies to ___ ____ __ on items sold to their customers
collect sales tax
Solvency
company's ability to pay long term debt creditors and bond holders are interested in this measure
Debt to Equity Ratio
compares creditor financing to owner financing liabilities per $ of equity Total liabilities/Total Equity
Price earning ratio
compares the earnings per share of a a companyfrevdc to the market price for a share of the company's stock market price per share of common stock / earning per share of common stock (NI - preferred dividends / outstanding common shares)
percentage analysis
computing the % relationship between 2 amounts - Net income/rev = %
a _____ _____ is a potential obligation arising from a past event. The amount or existence of the obligation depends on some future event.
contingent liability
_____ _____ will be converted to cash or used up within 1 year or operating cycle
current assets
____ ____ is the amount that will be due within 1 year or operating cycle
current liabilities
a company reacquires 18,000 shares of its own $50 par stock for $2,250,000. What affect does this transaction have? a. decrease profit b. increases expenses c. increases equity d. decreases equity
d.
a company's own stock that it has issued and repurchased is called? a. outstanding stock b. dividend stock c. issued stock d. treasury stock
d.
KR company has cash of $35,000, accounts receivable of $45,000, inventory of $ 23,500 and equipment of $65,000. Assuming current liabilities are $31,500, what is the company's working capital? a. $102,000 b. $48,500 c. $13,500 d. $72,000
d. working capital = current assets - current liabilities CA = Cash of $35,000, AR of $45,000, and inventory of $23,500 CA = $35,000 + $45,000 + $23,500 = $103,500 $103,500 - $31,500 = $72,000
Corporations are not required to pay only paid when the BOD declares it company should have retained earnings and cash available in order to declare a cash dividend 3 dates these are all characteristics of what?
dividends
list a disadvantage of a corporation
double taxation, costly and complex, laws and regulations, heavily regulated
____ ____ are accumulated net income from operating the business that is not distributed to the owners/stockholders
earned capital/retained earnings
What is a sole proprietorship?
easiest to set up and inexpensive (advantage) all profits and losses go to owner limited liability - personally liable (disadvantage) less regulation than corporations (advantage) business ceases with the death or departure of the owner organization managed by owners pass through organization for tax purpose transfers: must purchase entire business
list an advantage of a proprietorship
easy to set up, less regulations, easy and inexpensive to form
Accounts receivable turnover
how quickly credit sales are converted to cash net credit sales / average accounts receivables ((beg + end)/2 or y1+y2)/2) higher the better when a breakdown of cash and credit sales is not available use total sales in the numerator if = 9 Avg. AR balance is converted to cash 9 times a year
authorized stock that has been sold what kind of share is this?
issued
The retailer then remits (pays) the tax to the state at regular intervals. Sales tax is a ___ to the retailer until paid to the state.
liability
list an advantage of a corporation
limited liability, has access to greater amounts of capital, decreased personal risk, etc.
____ : how quickly an asset can be converted to cash
liquidity
how do you find the amount paid in capital in excess of par?
market (cash per share) - par value stock ex: $17 - $1 = $16 PIC in excess of par
Current ratios
measure how well current assets cover current liabilities (tot current assets/tot current liabilities) should be greater than 1!!!!
dividend yield
measures dividends received as a % of a stocks market price dividends per share/market price per share
Asset turnover ratio
measures how many sales dollars were generated for each dollar of assets invested net sales / average total assets
Quick ratio(acid test)
measures immediate debt paying ability quick assets / current liabilities) disregard inventory, prepaid items quick assets are cash receivables, current marketable securities
Working capital
measures the excess funds available for operations, Inventory, utilities, salaries (tot current assets - tot current liabilities)
What is preferred stock?
offered by some but not all companies, has special privileges in exchange for other privileges - no voting rights - limited dividend EX: preferred 2%, $10 par stock - dividend is limited to 2% of the par value, any preferred stockholder can only get $2 per share
what is the average time it takes to convert cash into inventory, inventory into accounts receivables and accounts receivable back into cash about a 12 month period?
operating cycle
shares issued and still in stockholders hands (not repurchased by the corporation) = issued - treasury (out in the hands of shareholders) what kind of share is this?
outstanding
What is limited liability?
owner could be sued for both personal and business assets
____ contributions are amounts paid into the business from the owners/stockholders
owner/investor
how do you find total par value?
par value stock x shares issued
___ : dividend is paid (cash is decreased)
payment date
dividend on preferred stock may be quoted as a ___ of as a ___ amount.
percent, dollar
What are the special privileges of being a preferred stockholder?
preference to assets preference to dividend (stock holders get paid first) Cumulative dividends - unpaid dividends acclumate and are paid before other dividends
how do you calculate interest?
principal x rate x time
If the likelihood is ____ and the amount can be reasonably estimated, a liability is recognized in the financial statements
probable
the purchasing, selling, maneuvering of stock of any kind is never ____, never ___ and never an ____.
profit, rev, expense
The report of the Independent Registered Public Accounting Firm (auditors report) provide ____ ___ to users. - financials prepared according to U.S. GAAP - contain no material misstatement
reasonable assurance