a304: exam 3

long term liabilities

include all obligations that are not classified as current liabilities such as long term notes payable and bonds payable

concurrent liabilities

include all other liabilities other than current

cash flows from financing activities

include exchanges of cash with creditors and stockholders

most common method (indirect vs direct)

indirect, 99% of companies use it

another name for loan with annuity payments

installment loan

record the interest of 8% incurred on the note payable of $214,334 (NON-BEARING NOTE)

interest expense (+E, -SE) $18,519 note payable (+L) $18,519

journal entry for recording interest expense after each period after borrowing $190,000 at 6% annual interest for 7 months (SHORT TERM NOTES PAYABLE)

interest expense (+E, -SE) $2,850 (debit) note payable (+L) $2,850 (credit)

too much working capital

may tie up resources in unproductive assets

the loan payment for annuity payments is _______ than the amount of interest expense

more

treasury stock is shown as a ________ number on the balance sheet

negative

top line of statement of comprehensive income

net earnings (bottom line of income statement)

general structure of operating activities: indirect method

net income adjustments to reconcile net income to car flow from operation activities +depreciation and amortization expense +/- gains.loses on sales of equipment +/- decrease in accounts receivable net cash flow from operating activities

indirect method formula

net income +/- adjustments for non cash items = net cash inflow (outflow) from operating activities

indirect method operating activities sections starts with...

net income and removes revenues and expenses that do not affect cash

earnings per share formula

net income/ weighted average number of common shares outstanding

do remote contingencies require disclosure

no

do treasury stock have the same rights as stockholders

no

do shares sold from investor to investor effect the company

no and does not require the company to record a transaction

do treasury shares have rights

no voting, dividend or other stockholder rights while they are held as treasury stock

do stockholders participate in managing the business

no, instead they elect a board of directors and the board hires executives

another name for loan with a single payment

non-interest bearing note

is interest that will be paid in the future recorded

not included in the reported amount of the liability because it accrues and becomes a liability with the passage of time

journal entry for recording annuity payments for an espresso machine (SHORT TERM NOTES PAYABLE)

note payable (-L) $132,850 (debit) interest expense (+E, -SE) $30,835 (debit) cash (-A) $163,685 (credit)

journal entry for recording the payment of a loan at the end of the final period (SHORT TERM NOTES PAYABLE)

note payable (-L) $200,000 (debit) cash (-A) $200,000 (credit)

where are contingent liabilities reported

on the balance sheet at a specific dollar amount since each involves the probable future sacrifice of economic benefits

where are liabilities reported

on the balance sheet because they involve the PROBABLE future sacrifice of economic benefits

each share of stock represents ______ vote

one

loan with a single payment

only one payment of interest and is made on the maturity date of the loan; note where the interest is built into the final payment

investments that pay the company dividends is a _______ cash flow activity

operating

borrowed $10,000 from bank for 3 years (O,I,F and increase or decrease)

operating, decrease

$25 cash received from customers for services to be provided next year (O,I,F and increase or decrease)

operating, increase

collected $30 from customers from AR (O,I,F and increase or decrease)

operating, increase

preferred dividends formula

par value * number of preferred shares * dividend %

lessee

partner that pays for the right to use the asset

lessor

party that owns the asset

date of payment

payment date on which cash is disbursed to pay the dividend (journal entry made)

loan with annuity payments

payment every period in both interest and principal, borrower pays off the loan with fixed payments every period

loan with both annuity and single payment

payments of periodic interest payments and a large payment at the maturity date, can be notes or bonds payable

present value formulas

present value + interest = future value future value - interest = present value

buying stock on the ex-dividend date or later

previous owner will get the dividend

for statement of cash flows, what is the income statement used for

primarily in calculating cash flows from operating activities

recording an account where the company borrowed $100,000 cash with 12% interest when the company borrowed the money on nov 1, the end of the fiscal year is dec 31 and the interest will not be paid till April 30. create entry to record interest expense and payable (for two months)

principal x annual interest rate x number of months/12 months = interest for the period 100,000 * .12 * 2/12 months = $2,000 interest expense (+E, -SE) $2,000 (debit) interest payable (+L) $2,000 (credit)

recording an account where the company borrowed $100,000 cash with 12% interest when the company borrowed the money on nov 1, the end of the fiscal year is dec 31 and the interest will not be paid till april 30. create entry to record interest expense and payable when april 30 (an additional four months)

principal x annual interest rate x number of months/12 months = interest for the period 100,000 * .12 * 4/12 months = $4,000 interest expense (+E, -SE) $4,000 (debit) interest payable (+L) $4,000 (credit)

interest rate per period formula based on a monthly rate

principle * annual interest rate * number of months/12 months = interest rate for the period

time value of money

principle that a given amount of money deposited in an interest bearing account increases over time

companies can raise capital from a number of financial service organizations in a _______________

private placement aka notes payable (banks, insurance companies, pension plans)

private placement

raising capital from a number of financial service organizations such as banks, insurance companies and pension plans

probable event occurs + amount can be reasonably estimated

record as liability on balance sheet

what is treasury stocks effect on the number of outstanding common shares

reduces outstanding common shares

direct method

reports the components of cash flows from operating activities as gross receipts and gross payments

outstanding shares

represent the total number of shares owned by stockholders on any particular date

if only one condition is met, estimable or probable then does the company record the liability

required to let the customer know and put it in the footnote

current dividend preference

requires a company to pay dividends to a preferred stockholders before paying dividends to common stockholders

cumulative dividend preference

requires any unpaid dividends on preferred stock to accumulate

recording the declaration date of $3,886,000,000

retained earnings (-SE) $3,886,000,000 (debit) dividends payable (+L) $3,886,000,000 (credit)

stock options

rights to buy a certain number of shares of stock at a specified price

treasury stock

shares that the company have bought back, can be retired or held

investing activities

short term investments, property plant and equipment

cash equivalents

short term, highly liquid investments that are both 1. readily convertible to known amounts of cash and 2. so near to maturity there is little risk that their value will change if interest rates change

tools needed by accountants

spreadsheets, queries, scripting, visualizations

indirect method

starts with net income from the income statement then eliminates non cash items to arrive at net cash inflow (outflow) from operating activities

return from investing in a company's common stock can come from what two sources

stock price appreciation and dividends

preferred stock

stock that entitles the holder to a fixed dividend, whose payment takes priority over that of common-stock dividends

who are able to vote at annual stockholders' meetings and who are not

stockholders are, creditors are not

additional paid in capital

the amount "in addition" to par value that the company received when it issued the shares

legal capital

the amount of capital that must be retained in the business for the protection of corporate creditors

future value

the amount of money in the future that an amount of money today will yield, given prevailing interest rates ($100 --> $110)

for long term leases, what is the amount recognized

the current cash equivalent of the required future lease payments

declaration date

the date on which the board of directors officially approves the dividend, as soon as the board declares a dividend a liability is created and must be recorded (journal entry made)

working capital

the dollar difference between current assets and current liabilities

what does working capital reveal

the health and profitability of a company, the amount the company would have left over if all current assets pay off the current liabilities

amount of interest is always calculated based off of....

the loan balance or the amount borrowed/owed

authorized shares

the maximum number of shares a corporation may issue to the public

the combination of net flows from operating, investing and financing activities must equal...

the net increase or decrease in cash

many current liabilities have a direct relationship to...

the operating activities of a business

for long term liabilities, the current cash equivalent is...

the present value of the loan

liabilities

the probable future sacrifice of economic benefits that arise from past transactions

data analytics

the process of evaluating data with the purpose of drawing conclusions to address business questions

date of record

the record date follows the declaration date; it is the date on which the corporation prepares the list of current stockholders who will receive the dividend payment. dividend is payable only to those names (no journal entry is made on this)

issued shares

the shares a company has actually sold to the public

most important thing to remember about the two methods of indirect and direct

they are simply alternative ways to arrive at the same number

when a company sells treasury stock how are profit or losses reported

they're not, even if it sells the stock for more or less than it originally costs to purchase

publicly traded companies report ______ years of activity on the statement of stockholders' equity

three

example for "master the data" (AMPS)

tradeoffs? data integrity, data types

recording of the repurchase of 100,000 shares of stock that were selling for $140 per share

treasury stock (+XSE, -SE) $14,000,000 (debit) cash (-A) $14,000,000 (credit)

example of "perform the analysis" (AMPS)

types of analysis, statistical techniques, statistical tools

if you agree to pay $110 in one year, how much do you owe today (assume 10% interest)

$100

if you borrowed $100 today (at 10% interest), how much would you owe after one year

$110

find the notes payable for equipment costing $214,334 with 8% interest applies 3 times a year (NON-BEARING NOTE)

$213,334 +$17,147 = $231,481 +$18519 =$250,000 +$20,000 =270,000

recording an account where the company borrowed $100,000 cash with 12% interest when the company borrowed the money on nov 1, the end of the fiscal year is dec 31 and the interest will not be paid till april 30. create entry to record when april 30 and interest and principle is paid off

$4,000 + $2,000 = $6,000 interest payable (-L) $6,000 (debit) notes payable (-L) $100,000 (debit) cash (-A) $106,000 (credit)

current liability accounts

-accounts payable -accrued liabilities/expenses -deferred revenues -short term notes payable -wages payable -sales tax payable -rent payable -insurance payable -dividends payable -miscellaneous or other payable

what does AMPS stand for

-ask the question -master the data -perform the analysis -share the story

analytics mindset

-ask the right questions -extract, transform, and load relevant data -apply appropriate data analytics techniques -interpret and share the results with stakeholders

why would a company repurchase its stock

-avoid dilutive effect -due to SEC regulations it's less costly to give employees repurchased shares than issue new ones -company may feel stock price is too low, buying can increase market prices -change financial ration to reduce number of average outstanding shares (aka earnings per share)

common stock rights

-basic voting stock issued by a corporation -holders are owners and have voting rights -dividends are declared at the discretion of the board of directors

what do stockholders' equity accounts include

-common stock and additional paid in capital -preferred stock -treasury stock -retained earnings -AOCI

preferred stock rights

-no voting rights -more like creditors, than owners to the company -pay a fixed dividend amount based on the par value of the preferred stock (which is usually much higher than par value of common stock)

what do stockholders have the right to

-vote -share in profits of the business -elect the board of directors who hire and monitor the executives who manage a company's activities on a day-to-day business

what two steps involve completing the operating section using the indirect method

1. adjusting net income for depreciation and amortization expense and gains/losses on sale of investing assets such as property, plant and equipment investments 2. adjust net income for changes in assets and liabilities marked as operation o

annuity

1. an equal dollar amount each period 2. interest periods of equal length 3. the same interest rate each period

to prepare the statement of cash flows what data is needed

1. comparative balance sheets 2. complete income statement 3. additional details

two alternative approaches for presenting the operating activities section of the statement

1. direct method 2. indirect method

statement of cash flows report cash inflows and outflows in what three broad categories

1. operating activities 2. investing activities 3. financing activities

order of dividend payment preference

1. pay any dividends in arrears (owned) for cumulative preferred stock 2. pay current year preferred stock dividend 3. pay common stock dividends

three most signifiant differences between common stock and preferred stock

1. preferred stock typically does not have voting rights 2. preferred stock is less risky 3. preferred stock typically has a fixed dividend rate

to calculate present value, what two calculations must you do

1. present value of the annuity (interest payment) and 2. present value of the maturity payment add two amounts together to determine the present value

what three things do you need to calculate present value

1. the amount to be received or paid in the future 2. the interest rate per period 3. the number of periods

what two things do you need to calculate interest for a period

1. the principle amount o the loan 2. the interest rate per period

what two factors determine if the contingent liability is reported in the balance sheet or in the footnotes

1. the probability of future economic sacrifice 2. ability of management to estimate the amount of the liability

examples of items that are not included in the computation of net income

1. unrealized holding gains or losses from certain types of debt securities 2. foreign currency translation gains and losses

present value formula

1/(1+i)^n x amount = present value i = rate n = number of periods

in the last 2 years, _____% of the data in the world was generated

90%

what is probable under IFRS

>50%

what is probable under GAAP

>70%

some recorded liabilities are based on...

ESTIMATES because the exact amount will not be known until a future date

how do accountants determine if a longer term lease should be recorded as a finance lease or operating lease

GAAP helps guide them through five criteria

what is the present value of $15,000 to be paid SEMIANNUALLY for 5 years when the annual market rate of interest is 4%? N = ______, I = _______

N = 10, I = 2% 1. look at the present value annuity table to get 8.98259 2. $15,000 * 8.98259 = $134,739

Starbucks bought new coffee roasting equipment for $96,535 and agreed to pay the supplier $5,000 per year for four years and an additional $100,000 at the end of 4 years. the supplier charges 6% interest per year. compute the present value.

N = 4, I = 6% present value of the annuity: $5,000 * 3.46511 = $17,326 present value of the single payment: $100,000 * 0.79209 = $79,209 add two amounts together to determine present value: $17,326 + $79,209 = $96,535

what is the present value of $500,000 to be paid in 5 years when the annual market rate of interest is 3%? N = ______, I = _______

N = 5, I = 3% 1. look at present value table to get .86261 2. $500,000 * .86261 = $431,305

what is the present value of $30,000 to be paid ANNUALLY for 5 years when the annual market rate of interest is 4%? N = ______, I = _______

N = 5, I = 4% 1. look at the present value annuity table to get 4.45182 2. $30,000 * 4.45182 = $133,555

declared $10 dividends to be paid next year (O,I,F and increase or decrease)

NA - no cash paid, NA

according to the balance sheet equation with cash manipulation, any transaction that changes cash must be accompanies by...

a change in liabilities, stockholders' equity or non cash asset

can long term debt be reclassified

a company must reclassify its long term debt as a current liability within a year of its maturity date

when a liability is first recorded, how is it measured

in terms of its current cash equivalent

perform the analysis

a histogram or scatterplot might be used to help evaluate journal entries that are excessively big or excessively small or negative with the testing of internal controls regression analysis might be used to evaluatate cost behavior by segregating total costs into fixed and variable cost components an internal rate of return or net present value analysis might be used to evaluate capital investments made by the firm or equity investments made by a potential investor a what-if goal seek analysis might be used to perform an analysis of how changing costs and other factors affect the break even

three benefits owners of common stock receive

a voice in management, dividends, residual claim

three types of accounting data sources

accounting, tax and non accounting data

operating assets and liabilities

accounts payable, accounts receivable, accrued expenses, inventories, prepaid expenses

seasoned offerings

additional sales of new stock to the public after initial public offering

OCI

adjust AFS debt securities to fair value (unrealized gains/loses)

unsecured debt

agreement in which the bank relies primarily on the borrower's integrity and general earning power to repay the loan

why would you buy common stock over preferred stock

although you don't know if you'll get a dividend or you know it could be lower, it could also potentially be higher since there's no cap

interest

an expense incurred when companies borrow money

who is the statement of comprehensive income for

analysts, it is not tied into any other financial statement

shares that are retired resume a status of being ________, but not ________

authorized; issued

statement of comprehensive income

both he FASB and IASB require an additional statement entitled the statement of comprehensive income, which can be presented separately or in combination with the income statement

present value

based on the time value of money, money received today is worth more than money received one year from today because it can be used to earn interest

if a company needs more capital than any single creditor can provide, the company may issue __________

bonds

long term loan with a single payment

calculate the present value of the loan, record this amount as the original loan balance

for statement of cash flows, what is the balance sheet used for

calculating the cash flows from all activities (operating, investing, financing)

master the data

can the data answer/adress the question? does theta exhibit data integrity consistent? does the data have errors? is data missing? is the data biased? cost of squiring vs. benefit of using the data who owns the data? is the data hard to access? type of data: categorical vs. numerical what type of analysis does the data allow us to do

no par value stock

capital stock that has not been assigned a value in the corporate charter

most sales of stock to the public are ________ transactions

cash

recording the reissuing of stock at a lower amount than repurchased (reissuing 10,000 shares for $130 per share when repurchased for $140 per share)

cash (+A) $1,300,000 (debit) additional paid in capital (-SE) $100,000 (debit) treasury stock (-XSE, +SE) $1,400,000 (credit)

stock awards

grant shares of stock to employees that vest on future dates

common stock

held by investors who are the "owners" of a corporation

recording the reissuing of stock at a higher amount than repurchased (reissuing 10,000 shares for $150 per share when repurchased for $140 per share)

cash (+A) $1,500,000 (debit) treasury stock (-XSE, +SE) $1,400,000 (credit) additional paid in capital (+SE) $100,000 (credit)

recording an account where the company borrowed $100,000 cash with 12% interest

cash (+A) $100,000 (debit) notes payable (+L) $100,000 (credit)

journal entry for borrowing transaction of $190,000 (SHORT TERM NOTES PAYABLE)

cash (+A) $190,000 (debit) notes payable (+L) $190,000 (credit)

recording if the company sold 1 million shares of its 0.00000625 par value stock for $220 per share

cash (+A) $220,000,000 (debit) common stock (+SE) $6 (credit) additional paid-in capital (+SE) $219,999,994 (credit)

balance sheet equation with cash manipulation

cash = liabilities + stockholders' equity - non cash assets

current cash equivalent

cash amount a creditor would accept to settle the liability immediately

cash flows from investing activities

cash inflows and outflows related to the purchase and disposal of long lived productive assets and investments in the securities of other companies (PP&E, investments)

cash flows from operating activities

cash inflows and outflows that relate directly to revenues and expenses reported on the income statement (plus cash received or paid for interest)

cash outflows from investing activities

cash paid for: purchase of investments, purchase of long-term assets, purchase of investments in securities

cash outflows from financing activities

cash paid for: repayment of principal to creditors, repurchasing stock from owners, dividends to owners

cash inflows from financing activities

cash received from: borrowing on notes, mortgages, bonds, etc. from creditors, and issuing stock to owners

cash inflows from investing activities

cash received from: sale or disposal of property plant and equipment, sale or maturity of investments in securities

bonds

certificates of debt that carry a promise to buy back the bonds at a higher price

the statement of stockholders' equity explains the...

change in each stockholders' equity account

foreign currency translation gains and losses

changes in exchange rates from year to year result in foreign currency translation gains and losses. these gains and losses are included in comprehensive income

purpose of computerization in data analytics

changing the role of accountants as information providers

the journal entries required to record the issuance and repurchase of preferred stock are the same as _________________

common stock

analytic tool software

commonly used analytic tools tableau, powerBI, altered, idea/ACL, R, python, excel

leasing an asset

company enters into a contractural agreement with he owner of the asset

par value

company may be required to have par value, is a nominal value per share established in the corporate charter, has no relationship to market value of stock and purpose was to protect creditors by specifying a permanent amount of capital (really small value)

too little working capital

company runs the risk of not being able to meet its obligations

for statement of cash flows, what is additional details used for

concerning selected accounts where the total change in an account balance during the year doe snot reveal the underlying nature of the cash flows

what type of account is treasury stock

contra equity account, shows up as a negative on balance sheet

note payable

contract specifies the amount borrowed, the date by which it must be repaid, and the interest rate associated with the borrowing

why are contingent liabilities estimated

cost of providing future repair work must be estimated and recorded as a liability in the period in which the product is SOLD

dividends in arrears

cumulative, unpaid dividends on cumulative preferred stock

when to add or subtract the change in the current asset and current liability accounts

current ASSETS + account balance INCREASED from the previous period = subtract the change current ASSETS + account balance DECREASED from the previous period = add the change current LIABILITIES + account balance INCREASED from the previous period = add the change current LIABILITIES + account balance DECREASED from the pervious period = subtract the change

working capital formula

current assets - current liabilities = working capital

dividend yield

how much a company pays out in dividends each year relative to its share price

dividends

if a company pays dividends, you receive a proportional share of the distribution of profits

when do analysts say a company has liquidity

if it has the ability to meet its current obligations

for short term liabilities we can ignore...

ignore present value, the cash equivalent for short term loans is amount borrowed + unpaid interest

ex-dividend date

data one business day before the date of record, established by the stock exchanges to account for the fact that it takes time to officially transfer stock from a seller to a buyer

secured debt

debt that includes a legal obligation by the borrower to repay the debt personally if the business is unable to make its scheduled debt payment

over time, as customers return defective equipment what will a company do in terms of the warranty

decrease the warranty payable account and either refund the customer cash, fix or return it

ask the question

descriptive questions: what happened? what is happening? diagnostic questions: why did it happen? what are the causes of past results? predictive questions: will it happen in the future? what is the probability something will happen? is it forecastable? prescriptive questions: what should we do, based on what we expect to happen?

compensation packages

developed to reward employees for meeting goals that are important to stockholders

net cash provided by operating activities

difference between inflows and outflows

net cash provided by investing activities

difference between these cash inflows and outflows

probable event occurs + amount cannot be reasonably estimated

disclose in footnotes

reasonable possible event occurs + amount can be reasonably estimated

disclose in footnotes

reasonable possible event occurs + amount cannot be reasonably estimated

disclose in footnotes

remote possibility event occurs + amount can be reasonably estimated

disclosure not required

remote possibility event occurs + amount cannot be reasonably estimated

disclosure not required

recording the date of payment of the liability of $3,886,000,000

dividends payable (-L) $3,886,000,000 (debit) cash (-A) $3,886,000,000 (credit)

dividend yield formula

dividends per share/market price per share = dividend yield

computers in data analytics

do basic accounting tasks such as preparing journal entries, posting to accounts, preparing trial balances and financial statements

short term loan with a single payment

do not calculate the present value of the loan, just record the amount borrowed as the original loan balance

does a company record short term leases

does NOT record a lease asset or lease liability when it signs a short term lease

if there is no par value where do the proceeds go

entire proceeds from the sale will be entered in the common stock account

record the purchase of equipment for $214,334 not yet paid for (NON-BEARING NOTE)

equipment (+A) $214,834 (debit) note payable (+L) $214,334 (credit)

current liabilities

expected to be paid with current assets within the current operating cycle of the business or within one year of the balance sheet date, whichever is longer

any cash paid to shareholders by dividends is a _______ cash flow activity

financing

issued new shares of stock for $50 (O,I,F and increase or decrease)

financing, increase

if the present value of $500,000 to be paid in 5 years when the annual market rate of interest is 3% is equal to $431,305 what does the difference between $500,000 - $431,305 represent

five years of interest

journal entry for the note and the interest of $190,000 at 6% interest for 7 months after it has been 4 months (SHORT TERM NOTES PAYABLE)

interest expense (+E, -SE) $3,800 (debit) note payable (-L) $190,000 (debit) interest payable (-L) $2850 (debit) cash (-A) $196,650 (credit)

record the interest of $20,000 incurred on a note payable of $270,000 and the payoff of the note (NON-BEARING NOTE)

interest expense (+E, SE) $20,000 (debit) note payable (+L) $20,000 (credit) note payable (-L) $270,000 (debit) cash (-A) $270,000 (credit)

(loan with a SINGLE payment) on january 1, 2022 starbucks bought new delivery trucks that cost $159,438 by signing a note and agreeing to pay $200,000 on december 31, 2023. what are the interest expense for the first and second year

interest expense for the first year: $159,438 * 12% = $19,133 interest expense for the second year: ($159,438 + $19,133) * 12% = $21,429 $159,438 + $19,133 + $31,429 = $200,000

(loan with annuity payments) starbucks purchased equipment that cost $399,999 with a note payable to be paid off in three end-of-year payments of $163,685. each payment includes principle plus 11% interest on any unpaid balance. what are the interest expense for the first, second and third year

interest expense for the first year: $400,000 * 11% = $44,000 399,999 - 44,000 - 163,685 = 280,314 interest expense for the second year: $280,315 * 11% = $30,835 280,315 - 30,835 - 163,685 = 147,464 interest expense for the third year: $147,465 * 11% = $16,221 147,464 - 16,221 - 163,685 = 0

_________ and _________ sections are always presented in the same manner regardless of the format of the operating section

investing and financing

purchased equipment for $15 (O,I,F and increase or decrease)

investing, decrease

purchased investments for $8 (O,I,F and increase or decrease)

investing, decrease

sale of land for $40 (O,I,F and increase or decrease)

investing, increase

common stock is owned by ________

investors whoa re the owners of a corporation

initial public offering (IPO)

involves the very first sale of company's stock to the public

contingent liabilities

is created when a company offers a warranty with a product it sells

shares held as treasury stock are considered ______ shares, but not _______ shares

issued; outstanding

stockholders' equity increases when stock is ______ and decreases when stock is _________

issued; repurchased

dilutive effect

issuing too many stocks resulting in a dilute of existing stockholders' investments, repurchasing shares stops this

examples of common contingencies

lawsuits, warranties

companies often _______ assets rather than purchase them

lease

recording a LONG TERM lease of a new delivery truck after it's been determined the current cash equivalent of the lease is $250,000

lease asset (+A) $250,000 (debit) lease liability (+L) $250,000 (credit)

what do long term leases require the recognition of

lease asset and lease liability

recording a SHORT TERM lease that stipulates the company must pay $10,000 at the end of january

lease expense (+E, -SE) $10,000 (debit) cash (-A) $10,000 (credit)

short-term lease

lease for 12 months or less that does not contain a purchase option that the lessee is expected to exercise

if no short term lease asset or liability is recorded, what is

lessee records lease expense over the life of the lease

what happens to the liability balance on a loan with a single payment

liability balance increases throughout loan and then is paid off at maturity

what happens to the liability balance on a loan with annuity payments

liability balance is decreased with each payment (ex. car loan, mortgage loan)

loans with both annuity and single payment

loans with regular interest payments AND a large payment at maturity date

financing activities

long term debt, common stock, additional paid-in capital, retained earnings

finance leases or operating leases

longer term leases

most common lease

longer term leases

unrealized holding gains or losses from certain types of debt securities

under GAAP, gains and losses from holding certain types of debt securities are reported on the income statement only when the securities are sold. unrealized gains/losses that occur before the securities are sold are included in comprehensive income

when must the lease be recorded

upon signing the lease agreement

view 12.2

view 12.2

view 9.8

view 9.8

example of "share the story" (AMPS)

visualization, written, verbal, periodicity

recording an estimated $150,000 of warranty services to a customer when it is SOLD

warranty expense (+E, -SE) $150,000 (debit) warranty payable (+L) $150,000 (credit)

example for "ask the question" (AMPS)

what happened? why did it happen? will it happen in the future? what should we do?

share the story

what is the best way to communicate what we've found in our data analysis? static visualizations (reports, graphs, tables) dynamic visualizations (dashboards)

when is a liability recorded

when the debt is incurred and interest expense is recorded with the passage of time

companies record interest expense for a given period, regardless of...

when they actually pay the bank cash for interest

when do companies have to record the liability

when they meet the conditions of both estimable and probable, in any other situations they wouldn't

AMPS model

will help you develop an analytics mindset

do loan with annuity payments stay the same each period

yes, although the portion of the payment that represents principle and the amount of interest changes each period

a voice in management

you may vote in the stockholders' meeting on major issues concerning management of the corporation

residual claim

you will receive a proportional share of the distribution of remaining assets upon the liquidation of the company

after a company makes their last cash payment, what is the balance in the note payable account

zero