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
