Financial Accounting Ch.10, 11, 12, 13
Effects of Stock Dividends
-Changes the composition of stockholders' equity. -Total stockholders' equity remains the same. -No effect on the par or stated value per share. Increases the number of shares outstanding
How to record issuance of interest bearing note
(amount of assets it receives generally equals note's face value) cash notes payable
times interst earned ratio
(net income + interest expense + income tax expense)/ interest expense
Authorized stock
-Charter indicates the amount of stock that a corporation is authorized to sell. -Number of authorized shares is often reported in the stockholders' equity section.
Characteristics that distinguish corporations from proprietorships and partnerships (disadvantages)
-Corporation Management -Government Regulations -Additional Taxes
A corporation records bond transactions when it
-Issues (sells) or redeems (buys back) bonds and -when bondholders convert bonds into common stock
long-term notes payable
-May be secured by a mortgage that pledges title to specific assets as security for a loan. -Typically, the terms require the borrower to make installment payments over the term of the loan. Each payment consists of 1.interest on the unpaid balance of the loan and 2.a reduction of loan principal. -Companies initially record mortgage notes payable at face value.
Leasing
-Off-balance-sheet financing is an intentional effort by a company to structure its financing arrangements so as to avoid showing liabilities on its balance sheet. -One common type of off-balance-sheet financing results from leasing. ►Operating lease. -Capital leases are treated like a debt-financed purchase—increasing both assets and liabilities.
Par and No-Par Value Stocks
-Par value stock is capital stock that has been assigned a value per share. -Years ago, par value determined the legal capital per share that a company must retain in the business for the protection of corporate creditors. -Many states do not require a par value. -No-par value stock is fairly common. -In many states the board of directors assigns a stated value to no-par shares.
changes in accounting principle
-Principle used in the current year is different from one used in the preceding year. -Example - change from FIFO to average cost. -Permissible when management can show new principle is preferable. -Most changes are reported retroactively.
stock dividends
-Pro rata distribution of the corporation's own stock. -Results in decrease in retained earnings and increase in paid-in capital. Reasons why corporations issue stock dividends: 1.Satisfy stockholders' dividend expectations without spending cash. 2.Increase the marketability of the corporation's stock. 3.Emphasize that a portion of stockholders' equity has been permanently reinvested in the business.
Sales Taxes payable
-Sales taxes are expressed as a stated percentage of the sales price. -Selling company ►collects tax from the customer. ►remits the collections to the state's department of revenue.
Characteristics that distinguish corporations from proprietorships and partnerships (advantages)
-Separate Legal Existence -Limited Liability of Stockholders -Transferable Ownership Rights -Ability to Acquire Capital -Continuous Life
Notes payable
-Written promissory note. -Usually require the borrower to pay interest. -Frequently issued to meet short-term financing needs. -Issued for varying periods of time. -Those due for payment within one year of the balance sheet date are usually classified as current liabilities.
Bonds
-a form of interest-bearing notes payable issued by corporations, universities, and governmental agencies. Sold in small denominations (usually $1,000 or multiples of $1,000). -When a corporation issues bonds, it is borrowing money. The person who buys the bonds (the bondholder) is investing in bonds.
Net income must be converted to net cash
-add back non cash expenses (ex. depreciation expense, amortization, depletion) -deduct from net income increases in current asset accounts, and add to net income decreases in current asset accounts (ex. accounts receivable, inventory, prepaid expenses)- subtract increases/ add decreases -deduct gains and losses that resulted from investing and financing activities (subtract gains, add losses) -analyze changes to noncash current asset and current liability accounts (subtract decrease to current liabilities, add increase to current liabilites)
solvency ratios
-debt to assets ratio: total liabilities/ total assets -times interest earned: net income + interest expense + income tax expense/ interest expense -free cash flow: net cash provided by operating activities-capital expenditures-cash dividends
profitability ratios
-earnings per share: net income- preferred dividends/ weighted-average common shares outstanding -price-earnings ratio: market price per share/ earnings per share -gross profit rate: gross profit/ net sales -profit margin: net income/ net sales -return on assets: net income/ average total assets -asset turnover: net sales/ average total assets -payout ratio: cash dividends declared on common stock/ net income -return on common stockholders' equity: net income-preferred dividends/ average common stockholders' equity
Forming a Corporation
-file application with the secretary of state -state grants charter -corporation develops by-laws (corporations engaged in interstate commerce must obtain a license from each state in which they do business.
Liquidity Ratios
-working capital: current assets-current liabilities -current ratio: current assets/ current liabilities -Inventory turnover: cost of goods sold/average inventory -days in inventory: 365/ inventory turnover -accounts receivable turnover: net credit sales/ average net accounts receivable -average collection period: 365/ accounts receivable turnover
types of dividends
1. cash dividends 2. property dividends 3. stock dividends 4. scrip (promissory note) Dividends expressed: as a percentage of the par/ stated value, or as a dollar amount per share
significant noncash activities
1. direct issuance of common stock to purchase assets 2. conversion of bonds into common stock 3. direct issuance of debt to purchase assets 4. exchanges of plant assets
companies favor the indirect method for two reasons
1.Easier and less costly to prepare. 2.Focuses on differences between net income and net cash flow from operating activities.
for a corporation to pay a cash dividend, it must have
1.Retained earnings - Payment of dividends from retained earnings is legal in all states. 2.Adequate cash. 3.Declaration by the Board of Directors
When a company retires bonds before maturity, it is necessary to:
1.eliminate the carrying value of the bonds at the redemption date; 2.record the cash paid; and 3.recognize the gain or loss on redemption.
current market price (present value) of a bond is a function of three factors:
1.the dollar amounts to be received, 2.the length of time until the amounts are received, and 3.the market rate of interest. (process of finding the present value is referred to as discounting the future amounts)
Dehesa, Inc. has 8,000 shares of 5%, $50 par, cumulative preferred stock and 50,000 shares of $3 par common stock outstanding. No dividends were declared last year, However, the board of directors has just declared a $50,000 dividend this year to be paid in 10 days. What amount of the total dividend will be paid to common stockholders?
10,000 total dividend = 80,000x.05x50=20,000/yr. preferred dividends in arrears for one year: 20,000 preferred for current year: 20,000 total dividends to preferred stockholders: 40,000 total dividends available: 50,000 dividends available to common stockholders: 10,000
Using vertical analysis, what percentage is assigned to net sales?
100%
If Year 1 equals $700, Year 2 equals $798, and Year 3 equals $900, the percentage to be assigned for Year 2 in a trend analysis, assuming that Year 1 is the base year, is
114% $798 / $700 = 114%
A cash register tape shows cash sales of $8500 and sales taxes of $425. The journal entry to record this information is
Cash 8925(debit) Sales Revenue 8500(credit) Sales Taxes Payable 425(credit)
Metlock, Inc. issues 6000 shares of $10 par value common stock at $14 per share. When the transaction is recorded, credits are made to:
Common Stock $60000 and Paid-in Capital in Excess of Par Value $24000
Culver Corporation began business in 2017 by issuing 80000 shares of $5 par common stock for $6 per share and 20000 shares of 9%, $10 par preferred stock for par. At year end, the common stock had a market value of $10. On its December 31, 2017 balance sheet, Culver would report
Common Stock of $400000
Holden Packaging Corporation began business in 2014 by issuing 80,000 shares of $5 par common stock for $8 per share and 20,000 shares of 6%, $10 par preferred stock for par. At year end, the common stock had a market value of $10. On its December 31, 2014 balance sheet, Holden Packaging would report
Common stock of 400,000 (80,000x5=400,000)
classification of cash flows
Operating activities-income statement items, investing activities-changes in investments and long-term assets, financing activities-changes in long-term liabilities and stockholders' equity
If Norben Company issues 4,000 shares of $5 par value common stock for $140,000, the account
Paid in capital in excess of par value will be credited for 120,000 (4,000x5=20,000, 140,000-20,000=120,000)
If Blossom Company issues 4500 shares of $5 par value common stock for $227500, the account
Paid-in Capital in Excess of Par Value will be credited for $205000
accounting for common stock
Primary Objectives: 1. Identify the specific sources of paid-in capital. 2. Maintain the distinction between paid-in capital and retained earnings. Other than consideration received, the issuance of common stock affects only paid-in capital accounts.
Usefulness of the statement of cash flows
Provides info to help assess: 1. The entity's ability to generate future cash flows 2. The entity's ability to pay dividends and meet obligations 3. The reasons for the difference between net income and net cash provided by operating activities 4. The cash investing and financing transactions during the period
example of a cash flow from an investing activity?
Receipt of cash from the sale of equipment
what liquidity ratios measure
a company's ability to pay debt obligations and its margin of safety
Treasury stock is
a corporation's own stock, which has been reacquired and held for future use
If the contractual rate of interest is lower than the market rate of interest, bonds will sell at:
a discount
dividend
a distribution to stockholders on a pro rata (proportional to ownership) basis
Under IFRS, interest paid can be reported as
a financing element or an operating element
which of the following is not a current liability on December 31, 2014
a lawsuit judgement to be decided on Jan. 10, 2015
in preparing a statement of cash flows, a conversion of bonds into common stock will be reported in
a separate schedule or note to the financial statements
presentation of comprehensive income must be reported under IFRS in
a statement of comprehensive income
when using the indirect method to compute cash provided by operating activities -decreases in inventory are subtracted from net income -income taxes paid may be ignored -increases in accounts receivable are added to net income -amortization expense is added to net income
amortization expense is added to net income
major characteristics of a corporation
an entity separate and distinct from its owners
which of the following is not necessary in order for a corporation to pay a cash dividend? -retained earnings -adequate cash -approval of stockholders -declared dividends
approval of stockholders
unsecured bonds
are issued against the general credit of the borrower. (riskier, higher interest)
Vertical analysis is a technique that expresses each item in a financial statement
as a percent of a base amount
the amount of stock that may be issued according to the corporation's charter is referred to as the
authorized stock
IFRS requires that noncash items
be disclosed in the notes to the financial statements
Issuing procedures of bonds
bond certificate -issued to investor -provides name of company issuing bonds, face value, maturity date, contractual (stated) interest rate face value - principal due at the maturity date maturity date - date final payment is due contractual interest rate - rate to determine cash interest paid, contractual rate is stated as an annual rate
Amortizing a bond discount:
bond discount / number of interest periods = bond discount amortization -discount credited, premium debited
How is the market value of a bond issuance determined
by adding the present value of the principal amount to the present value of the interest payments
convertible bonds
can be converted into common stock at the bondholder's option.
callable bonds
can be redeemed (bought back), by the issuing company, at a stated dollar amount prior to maturity.
Johnson Company issued 900 shares of no-par common stock for $15,300. Which of the following journal entries would be made if the stock has no stated value?
cash 15,300 common stock-no-par value 15,300
Moss County Bank agrees to lend the Sadowski Brick Company $300,000 on January 1. Sadowski Brick Company signs a $300,000, 6%, 9-month note. The entry made by Sadowski Brick Co. on Jan. 1 to record the proceeds and issuance of the note is:
cash 300,000 notes payable 300,000
Two sisters operate a bed and breakfast on the coast of Maine. As customers make reservations they are required to pay cash in advance equal to one-half of the rate for their stay. How should the sisters account for the cash received as reservations are made?
cash debited unearned service revenue credited
declaration date entry
cash dividends dividends payable
the category that is generally considered to be the best measure of a company's ability to continue as a going concern is
cash flows from operating activities
if a company has both an inflow and outflow of cash related to property, plant, and equipment, the _________ in the investing activities section
cash inflow and cash outflow must be reported separately
operating activities cash inflow/ outflow
cash inflow: from sale of goods/services, from interest received and dividends received cash outflow: to suppliers for inventory, to employees for wages, to government for taxes, to lenders for interest, to others for expenses
financing activities cash inflows/ outflows
cash inflows: from sale of common stock, from issuance of debt(bonds and notes), cash outflows: to stockholders as dividends, to redeem long-term debt or reacquire capital stock (treasury stock)
A company receives 261, of which 21 is for sales tax. The journal entry to record the sale would include a
debit to cash for 261, credit to sales revenue 240, credit to sales taxes payable for 21
Yanik Corporation issues 4,000, 10-year, 8%, $1,000 bonds dated January 1, 2014, at 97. The journal entry to record the issuance will show a
debit to discount on bonds payable for 120,000 (4,000x1,000x(1-.97) debit cash 3,880,000 debit discount on bonds payable 120,000 credit bonds payable 4,000,000
Purchase of treasury stock
debit treasury stock for the price paid. treasury stock is a contra stockholder's equity account, not an asset -treasury stock decreases by the same amount when the company later sells the shares
Dividends require information concerning three dates:
declaration date, record date, payment date
Use the statement of cash flows to evaluate a company
impact of product life cycle on cash flows
market interest rate
is the rate investors demand for loaning funds
Par value
is the value assigned per share in the corporate charter.
what is the effect of amortizing a bond discount?
it increases the carrying value of the books, because as the discount is reduced, the net amount, or carrying value increases
The current ratio is a
liquidity ratio
The present value of a bond is also known as its
market price
Solvency Ratios
measure the ability of the company to survive over a long period of time ex.) debt to assets ratio, times interest earned
payout ratio
measures the percentage of earnings a company distributes in the form of cash dividends = cash dividends declared on common stock/ net income
return on common stockholders' equity ratio
shows how many dollars of net income a company earned for each dollar of common stockholders' equity
the statement of cash flows
summarizes the operating, financing, and investing activities of an entity
The discontinued operations section of the income statement refers to
the disposal of a significant component of a business
Windsor, Inc. issued 17200 shares of $1 par common stock for $40 per share during 2017. The company paid dividends of $41000 and issued long-term notes payable of $378000 during the year. What amount of cash flows from financing activities will be reported on the statement of cash flows?
$1025000 net cash inflow (17200x40=688000) (688000-41000=647000) (647000+378000=1025000)
discontinued operations
(a)Disposal of a significant component of a business. (b)Income statement should report a gain (or loss) from discontinued operations, net of tax (after tax accounted for).
Nash's Trading Post, LLC had the following transactions during 2017: 1. Issued $185000 of par value common stock for cash. 2. Recorded and paid wages expense of $88800. 3. Acquired land by issuing common stock of par value $74000. 4. Declared and paid a cash dividend of $14800. 5. Sold a long-term investment (cost $4440) for cash of $4440. 6. Recorded cash sales of $592000. 7. Bought inventory for cash of $236800. 8. Acquired an investment in Zynga stock for cash of $31080. 9. Converted bonds payable to common stock in the amount of $740000. 10. Repaid a 6-year note payable in the amount of $325600. What is the net cash provided by operating activities?
$266400 operating activities include: cash sales, inventory bought in cash, paid wages expense
Cheyenne Corp. issued common stock for proceeds of $491000 during 2017. The company paid dividends of $87000 and issued a long-term note payable for $330000 in exchange for equipment during the year. The company also purchased treasury stock that had a cost of $71000. The financing section of the statement of cash flows will report net cash inflows of
$333000 (491000-87000=404000) (404000-71000=333000) don't include long-term note payable because it is for equipment, not cash, so noncash investing. since note-payable, financing
Swifty Corporation had the following transactions during 2017: 1. Issued $257500 of par value common stock for cash. 2. Recorded and paid wages expense of $123600. 3. Acquired land by issuing common stock of par value $103000. 4. Declared and paid a cash dividend of $20600. 5. Sold a long-term investment (cost $6180) for cash of $6180. 6. Recorded cash sales of $824000. 7. Bought inventory for cash of $329600. 8. Acquired an investment in Zynga stock for cash of $43260. 9. Converted bonds payable to common stock in the amount of $1030000. 10. Repaid a 6-year note payable in the amount of $453200. What is the net cash provided by investing activities?
($37080) -used not provided -investing activities include: sale of long-term investment, aqcuired an investment in Zynga stock for cash
Riverbed Corp reported net sales of $632640, $735000, and $790800 in the years 2016, 2017, and 2018, respectively. If 2016 is the base year, what percentage do 2018 sales represent of the base?
125% $790800 ÷ $632640 = $125%
The current assets of Splish Brothers Inc. are $350000. The current liabilities are $152000. The current ratio expressed as a proportion is
2.30:1 350000/152000 current assets/current liabilities
2018 $986000 2017 881000 2016 704000 If 2016 is the base year, what is the percentage increase in sales from 2016 to 2017?
25% (881000-704000)/ 704000
how to find amount issued based on common stock par and the amount of money ex.) common stock, par $10(authorized 30,000 shares) 250,000 how many shares of common stock issued?
250,000/10=25,000
The following data is available for Tamarisk, Inc. at December 31, 2017: Common stock, par $10 (authorized 32000 shares) $256000 Treasury stock (at cost $15 per share) $825 how many shares of common stock are outstanding
25545 (outstanding=common stock issued-treasury stock) (stocks issued= combination of stock outstanding and treasury stock)
If a corporation issues 1,000 shares of $3 par common stock for $7 a share, how much is the legal capital?
3,000 the legal capital is the par value per share(3) times the number of shares issued (1,000). This will be equal to the total reported in the stock account
Splish Brothers Inc. had net credit sales of $9022000 and cost of goods sold of $4569600 for the year. The average inventory for the year amounted to $1428000. The inventory turnover for the year is
3.2 times $4569600 / $1428000 = 3.2 COGS/average inventory
Bonds with a face value of $300,000 and a quoted price of 102¼ have a selling price of
306,750 (300,000x1.0225=306,750)
free cash flow
= net cash provided by operating activities - capital expenditures - cash dividends (measures how much cash a business generates after accounting for capital expenditures such as buildings or equipment)
quality of earnings
A company that has a high quality of earnings provides full and transparent information that will not confuse or mislead users of the financial statements. -Recent accounting scandals suggest that some companies are spending too much time managing their income and not enough time managing their business
Treasury Stock
A corporation's own stock that has been reacquired by the corporation and is being held for future use. Corporations purchase their outstanding stock: 1.To reissue shares to officers and employees under bonus and stock compensation plans. 2.To increase trading of the company's stock in the securities market. 3.To have additional shares available for use in acquiring other companies. 4.To increase earnings per share. Another infrequent reason is to eliminate hostile shareholders.
Kant Corporation retires its $100,000 face value bonds at 105 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $103,745. Which of the following is part of the entry to record the bond redemption?
A debit of $3,745 to Premium on Bonds Payable (103,745-100,000) carrying value-retire price if carrying value of bond is more than redemption value, premium
What is a current liability
A debt that a company expects to pay -from existing current assets or through the creation of other current liabilities, and -within one year or the operating cycle, whichever is longer
vertical analysis
Also called common-size analysis, is a technique that expresses each financial statement item as a percent of a base amount. -Vertical analysis is commonly applied to the balance sheet and the income statement. (comparing out of total/ total sales)
horizontal analysis
Also called trend analysis, is a technique for evaluating a series of financial statement data over a period of time. -Purpose is to determine increase or decrease that has taken place. -Commonly applied to the balance sheet and income statement. (comparing between years)
employer payroll taxes do not include:
Federal income taxes
comprehensive income
Includes all changes in equity during the period, except those resulting from investments by owners and distributions to owners. certain gains and losses bypass net income and instead are reported as direct adjustments to stockholders' equity ex.) unrealized gain or loss on available-for-sale securities
West County Bank agrees to lend Drake Builders Company $200,000 on January 1. Drake Builders Company signs a $200,000, 6%, 6-month note. What is the adjusting entry required if Drake Builders Company prepares financial statements on March 30?
Interest Expense 3,000 Interest Payable 3,000
what solvency ratios measure
Measures of the ability of the company to survive over a long period of time.
what profitability ratios measure
Measures of the operating success of a company for a given period of time.
what Liquidity Ratios measure
Measures of the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash.
price earnings ratio
Reflects investors' assessment of a company's future earnings. -Will be higher if investors think that earnings will increase substantially in the future. -Will be lower when there is the belief that a company has poor-quality earnings. market price per share/earnings per share stock price per share/ earnings per share
Payroll and Payroll Taxes Payable
Salaries - managerial, administrative, and sales personnel (monthly or yearly rate). Wages - store clerks, factory employees, and manual laborers (rate per hour). Determining the payroll involves computing three amounts: (1) gross earnings, (2) payroll deductions, and (3) net pay.
investing activities cash inflow/ outflow
cash inflows: from sale of property, plant, equipment, from sale of investments in debt or equity securities of other entities, from collection of principal on loans to other entities Cash outflows: to purchase property, plant, equipment, to purchase investments in debt or equity securities of other entities, to make loans to other entities
which of the following activities would be classified as an investing activity? -cash received from interest revenue -cash paid(loaned) to a borrower as a loan -cash received from dividend revenue -cash paid to reacquire capital stock
cash paid(loaned) to a borrower as a loan
on the statement of cash flows, the cash flows from operating activities section would include -payments for the acquisition of investments -cash receipts from sales activities -receipts from the sale of investments -receipts from the issuance of capital stock
cash receipts from sales activities
The March 25 cash register readings for Cooley Grocery show sales of $10,000 and sales taxes of $600 (sales tax rate of 6%), the journal entry is:
cash-->10,600 sales revenue-->10,000 sales taxes payable-->600
investing activities include -collecting cash on loans made -obtaining cash from creditors -repaying money previously borrowed -obtaining capital from owners
collecting cash on loans made
comprehensive income format one
combined statement of income and comprehensive income
Alt Corp. issues 3,000 shares of $10 par value common stock at $14 per share. When the transaction is recorded, credits are made to:
common stock 30,000 and paid in capital in excess of par value 12,000 (common stock=issuedxpar value, paid in capital in excess of par value=cash amount-commonstock)
which of the following would not create a cash flow -purchase of a delivery truck -payment of a cash dividend -the company converts bonds into common stock -sale of equipment at book value
company converts bonds into common stock
the chief accounting officer in a company is known as the
controller
Issuance of Stock
corporation can issue common stock: directly to investors or indirectly through an investment banking firm Top 5 exchanges by value of shared traded: 1.New York Stock Exchange 2.Nasdaq stock market 3.London Stock Exchange 4.Tokyo Stock Exchange 5.Euronext
A company receives $280, of which $25 is for sales tax. The journal entry to record the sale would include a
credit to Sales Taxes Payable for $25
Julie Lambert has a large consulting practice. New clients are required to pay one-half of the consulting fees up front. The balance is paid at the conclusion of the consultation. How does Lambert account for the cash received at the end of the engagement?
debit cash debit unearned service revenue credit service revenue
The board of directors of Marigold Corp. declared a cash dividend of $2 per share on 34000 shares of common stock on July 15, 2017. The dividend is to be paid on August 15, 2017, to stockholders of record on July 31, 2017. The correct entry to be recorded on August 15, 2017, will include a
debit to Dividends Payable, credit to cash
ABC Corp. issues 1,000 shares of $10 par value common stock at $12 per share. When the transaction is recorded, credits are made to:
debit to cash 12,000, credit to common stock 10,000, credit to paid in capital in excess of par value 2,000
how to account for unrealized loss in stock
depends if stock is classified as trading security or available for-sale security trading security-unrealized gains and losses (income statement) available for-sale security-unrealized gains and losses (comprehensive income-stockholders' equity)
if the market rate for a bond is higher than the stated interest rate, the bond will sell at a
discount
payment date entry
dividends payable cash
Contingencies
events with uncertain outcomes that may represent potential liabilities common types: -lawsuits -product warranties -environmental cleanup obligations (disclose contingencies in the notes)
the value of the bond at maturity is also known as its
face value
Bonds may be issued at
face value, below face value (discount), or above face value (premium)
unrealized gains/losses
gains and losses resulting from changes in the value of investments - used in the mark-to-market adjustment if they would have sold something, they could have had gain. If they would've sold something, they could have had loss.
A disadvantage of the corporate form of business is
government regulation
secured bonds
have specific assets of the issuer pledged as collateral for the bonds (money will be payed back, interest lower; safer)
cumulative dividend
holders of preferred stock must be paid their annual dividend plus any dividends in arrears (payment that has not been paid by the expected date) before common stockholders receive dividends
unusual items
separately identified on the income statement -discontinued operations -other comprehensive income (irregular items reported net of income tax)
retained earnings
net income that a corporation retains for future use
Of the items below, the one that appears first on the statement of cash flows is -noncash investing and financing activities -net increase/ decrease in cash -cash at the end of the period -cash at the beginning of the period
net increase/ decrease in cash
record date entry
no entry
do the stockholders' of a corporation have unlimited liability?
no. liability of a stockholder is normally limited to their investment in the corporation
Current liabilities include
notes payable, accounts payable, unearned revenues, and accrued liabilities such as taxes, salaries and wages, and interest.
a corporation records a dividend-related liability
on the declaration date
The time period for classifying a liability as current is:
one year or the operating cycle, whichever is longer
To be classified as a current liability, a debt must be expected to be paid within
one year or the operating cycle, whichever is longer
Cash receipts from interest and dividends are classified as
operating activities
the order of presentation of activities on the statement of cash flows is
operating, investing, financing
the number of shares of issued stock equals
outstanding shares plus treasury shares (outstanding shares belong to stockholders, treasury is what company buys back from market)
two primary sources of equity
paid in capital and retained earnings
example of cash flow from operating activity
payment of cash to lenders for interest
which of the following is NOT a right of preferred stockholders? -priority to dividends, assets and voting rights -priority voting rights -priority to the assets in the event of liquidation -priority in relation to dividends
priority voting rights. preferred stockholders usually have no voting rights
The board of directors of Bosco Company declared a cash dividend on November 15, 2017, to be paid on December 15, 2017, to stockholders owning the stock on November 30, 2017. Given these facts, the date of November 30, 2017, is referred to as the
record date
Payroll Tax Expense
results from three taxes that governmental agencies levy on employers. These taxes are: -FICA tax -Federal unemployment tax -State unemployment tax
Unearned revenues
revenues received before goods are delivered or services are performed 1.Company increases (debits) Cash and increases (credits) a current liability account, Unearned Revenue. 2.When the company recognizes revenue, it decreases (debits) the unearned revenue account and increases (credits) a revenue account.
Stockholder rights
right to vote, right to receive dividends, right to keep the same percentage ownership when new shares of stock are issued (preemptive right), right to share in assets upon liquidation in proportion to their holdings (residual claim)
how to determine income from continuing operations under IFRS
sales revenue-cost of goods sold-operating expenses
comprehensive income format two
separate component of stockholders' equity
companies report noncash activities in either a
separate schedule (bottom of the statement) or separate note to the financial statements
In the future, it appears likely that
the income statement and balance sheet will have headings of operating, investing, and financing, much like the statement of cash flows
sustainable income
the most likely level of income to be obtained by a company in the future (that company will still be there - sustainable)
If everything else is held constant, what will cause earnings per share to increase?
the purchase of treasury stock
paid-in capital
the total amount of cash and other assets the corporation receives from its stockholders in exchange for its stock
for what reason might a company acquire treasury stock? -to increase profit -to increase the number of shares of stock outstanding -to reissue the shares to officers and employees under bonus and stock compensation plans -to signal to the stock market that management believes the stock is overpriced
to reissue the shares to officers and employees under bonus and stock compensation plans
how to find sales revenue if companies do not ring up sales separately on cash register
total receipts/(1+sales tax rate)
When a stock dividend is declared and issued, what happens to stockholders' equity?
total stockholders' equity does not change.
accounting for preferred stock
typically, preferred stockholders have a priority in relation to 1.dividends and 2.assets in the event of liquidation. However, they sometimes do not have voting rights. if company issues stock, always common stock, not always preferred. preferred gets dividends before common.
In developing the cash flows from operating activities, most companies in the United States
use the indirect method