ACCT 5
Investing Activities cash outflows
to buy intangible assets to buy plant assets to loan money in return for notes receivable to buy investments
Financing Acivities cash outflows
to pay dividends to shareholders to purchase treasury stock withdrawals by owners to pay off longterm debt
operating activities cash outflow
to pay operating expenses to pay taxes to pay interest owed to pay salaries and wages to pay suppliers for good services
financing activities
transactions and events that affect long-term liabilities and equity -getting cash from issuing debt and repaying debt -receiving cash from or distributing cash to owners -borrowing and repaying principal are financing
A company issued 60 shares of $100 par value common stock for $7,000 cash. The total amount of paid-in capital in excess of par is:
1,000
sections of cash flow statement
1. operating activities 2. investing activities 3. financing activities
JE to convert from accounts payable
Notes payable Dr. 500 Interest expense Dr. 10 Cash Cr. 510
depreciation adjustment to net income
add back depreciation expense to net income because depreciation did not reduce cash
increase in current liabilities
add to net income
Amortization adjustment to net income
added back to net income because it is a non-cash expense
decreases in current asset
added to net income
accounts payable
amounts owed to suppliers for products or services purchased on credit
where is net income
beginning of the cash flow statement
Cash dividends
date of declaration- Dr. Retained earnings Cr. common dividend payable date of record- NO JE date of payment- Dr. Common dividend payable Cr. Cash
FICA taxes
employee withhold federal insurance contributions act from employees pay. -social security taxes: withholdings to cover retirement disability, and survivorship @ 6.2% -medicare taxes: withholding to cover medical benefits @ 1.45% -they are computed seperately
Calculate maturity value of note payable
face value plus interest
Financing Activities cash inflows
from contributions by owners from issuing long-term debt (notes payable and bonds payable) from issuing its common and preferred stock from reissuing its treasury stock
Investing Activities cash inflow
from selling intangible assets from selling investments from collecting principal on notes receivable from selling plant assets
gain on sale adjustment to net income
gain is subtracted from net income because it was not a cash outflow
gross pay
is the total compensation an employee earns including wages, salaries, commission, bonuses, and any compensation earned before deductions such as taxes.
Authorized Number of Shares
number of shares that a corporations charter allows it to sell number of authorized shares usually exceeds number of shares issued
par value
Par value is an arbitrary amount assigned to each share of stock when it is authorized.
Gross pay is:
Total compensation earned by an employee before any deductions.
FICA taxes include:
Social Security and Medicare taxes.
bottom of cash flow statement
the Net Increase (Decrease) in Cash and Cash Equivalents
Trey Morgan is an employee who is paid monthly. For the month of January of the current year, he earned a total of $4,538. The FICA tax for social security is 6.2% and the FICA tax rate for Medicare is 1.45% for both the employee and the employer. The amount of federal income tax withheld from his earnings was $680.70. What is the total amount of taxes withheld from the Trey's earnings?
$1,027.86
Trey Morgan is an employee who is paid monthly. For the month of January of the current year, he earned a total of $4,538. The FICA tax for social security is 6.2% and the FICA tax rate for Medicare is 1.45% for both the employee and the employer. The amount of federal income tax withheld from his earnings was $680.70. His net pay for the month is:
$3,510.14
On December 1, Victoria Company signed a 90-day, 6% note payable, with a face value of $15,000. What amount of interest expense is accrued at December 31 on the note (calculate interest for 30 days)?
$75
On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of $9,000. What is the maturity value of the note on March 1?
$9,240
operating activities cash inflow
-sale of goods or services -from cash sales to customers -from receipt of interest revenue -from receipt of dividend revenue -from collections on credit sales
On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of $9,000. What is the amount of interest to be paid at maturity?
240 or 720
A corporation sold 14,000 shares of its $1 par value common stock at a cash price of $13 per share. The entry to record this transaction would include:
A credit to Common Stock for $14,000.
An increase in the accounts receivable account during the year should be reported on the statement of cash flows as:
A decrease in cash flows from operating activities
A dividend payment to shareholders during the year should be reported on the statement of cash flows as:
An decrease in cash flows from financing activities
A decrease in the inventory account during the year should be reported on the statement of cash flows as:
An increase in cash flows from operating activities
The number of shares that a corporation's charter allows it to sell is referred to as:
Authorized stock.
JE to borrow money
Cash $2000 Dr. Notes Payable $2000 Cr. (when interest and principal are paid) Notes payable Dr. 2000 Interest payable Dr. 40 Cash Cr. 2040
On May 22, Jarrett Company borrows $7,500 from Fairmont Financing, signing a 90-day, 8%, $7,500 note. What is the journal entry needed to record the transaction by Jarrett Company?
Debit Cash $7,500; credit Notes Payable $7,500.
Obligations to be paid within one year or the company's operating cycle, whichever is longer, are:
Current liabilities.
The date the directors vote to declare and pay a dividend is called the:
Date of declaration.
On December 1, Watson Enterprises signed a $24,000, 60-day, 4% note payable as replacement of an account payable with Erikson Company. What is the journal entry that should be recorded upon signing the note?
Debit Accounts Payable $24,000; credit Notes Payable $24,000.
A corporation issued 2,500 shares of its no par common stock at a cash price of $11 per share. The entry to record this transaction would be:
Debit Cash $27,500; credit Common Stock $27,500.
A company issued 70 shares of $30 par value preferred stock for $4,000 cash. The journal entry to record the issuance is:
Debit Cash $4,000; credit Paid-in Capital in Excess of Par Value, Preferred Stock $1,900; credit Preferred Stock $2,100.
A company issued 60 shares of $100 par value common stock for $7,000 cash. The journal entry to record the issuance is:
Debit Cash $7,000; credit Common Stock $6,000; credit Paid-in Capital in Excess of Par Value, Common Stock $1,000.
A company's board of directors votes to declare a cash dividend of $1.00 per share on its 12,000 common shares outstanding. The journal entry to record the payment of the cash dividend is:
Debit Common Dividend Payable $12,000; credit Cash $12,000.
On September 1, Knack Company signed a $50,000, 90-day, 5% note payable with Central Savings Bank. What is the journal entry that should be recorded by Knack upon maturity of the note?
Debit Notes Payable $50,000; debit Interest Expense $625; credit Cash $50,625.
. On May 22, Jarrett Company borrows $7,500 from Fairmont Financing, signing a 90-day, 8%, $7,500 note. What is the journal entry needed to record the payment of the note by Jarrett Company on the maturity date?
Debit Notes Payable $7,500; debit Interest Expense $150; credit Cash $7,650.
A company's board of directors votes to declare a cash dividend of $1.00 per share on its 12,000 common shares outstanding. The journal entry to record the declaration of the cash dividend is:
Debit Retained Earnings $12,000; credit Common Dividend Payable $12,000.
JE to pay when due
Dr interest expense Dr Interest payable Dr notes payable Cr cash
JE to issue stock
Dr. Cash 300,000 Cr. Common stock, $10 Par Value 300,000
A company's transactions with its creditors to borrow money and/or to repay the principal amounts of both short- and long-term debt are reported as cash flows from:
Financing activities.
The appropriate section in the statement of cash flows for reporting the borrowing of money by issuing long term debt is
Financing activities.
The appropriate section in the statement of cash flows for reporting the issuance of common stock for cash is:
Financing activities.
The appropriate section in the statement of cash flows for reporting the payment of long-term debt is
Financing activities.
The Wage and Tax Statement given to each employee annually is:
Form W-2.
characteristics of a corporation: Disadvantages
Governmental regulation. Corporate taxation.
Addams Corporation paid cash dividends totaling $75,000 during its most recent fiscal year. How should this information be reported on Addam's statement of cash flows?
In financing activities as a use of funds.
The appropriate section in the statement of cash flows for reporting the purchase of a new building is
Investing activities.
Investing activities do not include the:
Issuance of common stock.
short term note payable JE (extend period)
accounts payable Dr. 600 Cash Cr. 100 Notes Payable Cr. 500
long term liability
Obligations due after one year
A premium on common stock:
Occurs when a corporation sells its stock for more than par or stated value.
Activities that involve the production or purchase of merchandise and the sale of goods and services to customers, including expenditures related to administering the business, are classified as:
Operating activities.
The appropriate section in the statement of cash flows for reporting the depreciation is
Operating activities.
If a company borrows money from a bank, the interest paid on this loan should be reported on the statement of cash flows as a(n):
Operating activity.
When preparing a statement of cash flows using the indirect method, each of the following should be classified as an operating cash flow except:
Proceeds from the disposal of a long-term asset with no gain or loss.
characteristics of a corporation: Advantages
Separate legal entity. Limited liability. Transferable ownership rights. Continuous life. No mutual agency for stockholders. Easier capital accumulation.
Issued Number of Shares
The total number of shares of a corporation's stock that have been sold or issued by the corporation
treasury stock
Treasury stock represents shares of a company's own stock that has been acquired. A corporation might acquire its own stock to: Use its shares to buy other companies. Avoid a hostile takeover. Reissue to employees as compensation. Maintain a strong market.
Par value of a stock refers to the:
Value assigned per share by the corporate charter.
sales taxes payable JE
cash 6300 Dr. sales 6000 Cr. Sales Taxes Payable Cr. 300 (6000x .05 sales tax)
presentation of cash flow statement
cash flow of operating activities cash flow of investing activities cash flow of financing activities net increase (decrease) in cash cash (and equivalents) balance at prior period end cash (and equivalents) balance at current period end
Net Pay Calculation
gross pay - deductions ex- gross earning for week: 1462.00 deductions -social security tax: 87.72 -medicare tax: 21.93 -federal income tax: 263.40 -retirement savings united fund: 20.00 - united fund: 5.00 net pay=1063.95
Operating Activities
include transactions and events that affect net income. -production and purchase of inventory -the sale of good and services to customers -expenditures to operate the business
Investing Activities
include transactions and events that come from the purchase of long term assets -purchase of sale investment -lending and collecting money for notes receivable
calculate net cash flow
inflow - outflow
Salaries payable
is a liability account with a normal credit balance
loss on sale of plant asset adjustment to net income
loss is added back to net income because it is not a cash outflow
calculate interest expense
multiply principal of the note (500) by the annual interest rate (12%) for the fraction of the year the note is outstanding (60 days/ 360 days) -500 x .12 x 60/360 = 10
common stock
normal credit balance equity
JE for interest expense
notes payable Dr. 500 interest expense Dr. 10 cash Cr. 510
Calculate Outstanding Shares
number of issued shares minus the number of shares held in the company's treasury.
current liability
or short term liabilities are liabilities that are due within one year or the company's operating cycle -paid w current assets or other current liabilities
Treasury stock location
shown as a reduction in total stockholders' equity on the balance sheet. Dr. treasury stock, common Cr. cash
Outstanding number of shares
stock held by stockholders equity section of balance sheet NO JE
decreases in current liabilities
subtract from net income
increases in current assets
subtracted from net income
Current Portion of Notes Payable
the amount of the principal that is payable within one year (current liability)