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