University:
California State University, Northridge
Course:
ACCT 628 | Financial Statement Analysis and Valuation
Academic year:

2003
Views:

211

Pages:

23
Author:

Elias Hoffman

BALANCE SHEET INCOME STATEMENT Cumulative over Jime BALANCE SHEET (Statement of Financial Position) FIGURE 3-1 The Robinson Company, Inc., Balance Sheet, June 30, 1994. (to 57, Rigga) Assets (Owned) Current assets Cash Accounts receivable Inventory Prepaids $6,233 40,525 23,270 1,950 →Total current assets Investments Property and equipment Intangibles Total assets $77,978 18,250 56,825 6,675 $159,728 Liabilities and Owners' Equity (Owed) Current liabilities Accounts payable $13,375 Salaries and employee benefits payable 6,201 Taxes payable Notes payable within one year 4,637 →Total current liabilities 12,500 $36,713 Long-term debt 37,500 Owners' equity Invested capital 37,500 Retained earnings 48,015 85,515 Total owners' equity Total liabilities and owners' equity $159,728 INCOME STATEMENT (Statement of Profit and Loss) Closer to the Balance thet at the conclusiors of the fiscal year FIGURE 4-1 The Robinson Company, Inc., Income Statement (first half 1994) Period January 1, 1994 through June 30, 1994. (p 77, Rigga) Sales, Gross $291,025 less: Returns and Allowances 7,688 Net Sales $283,337 Cost of Goods Sold 196,708 Gross Profit 86.629 Operating Expenses Selling and Promotion 45,013 General and Administration 22,275 Total Operating Expenses 67,288 Operating Profit 19,341 Other Income and Expense Interest and Dividend Income 908 less: Interest Expense 2,293 1,385 Income before Taxes 17,956 Taxes on Income 7,650 Net Income $10,306 Explaine changes to Retained Earnings ow the Balance Stue Income Statement Accounta Revenues and Expenses REVENUES: INCREASE Retained Earnings Nominal Balance is CREDIT EXPENSES: DECREASE Retained Earnings Nominal Balance is DEBIT Earned Income Determination THE ACCRUAL CONCEPT Revenue Recognition when goods delivered or services rendered regardless of when ordered or paid for Expense Recognition when goods/services received regardless of when ordered or paid for Revenue and Expense Accrual Conventions (p88, Riggo) FIGURE 4-3 Accrual Entries Under Alternative Cash Flow Conditions Transaction Cash Transaction now with Future Cash Payment Neutralizes Prepayment Simultaneous With Transaction Revenue: Debit to Customer Advances (liability) Debit to Cash Debit to Accounts Receivable (asset) Merchandise or service delivered this period Credit to Sales Credit to Sales Credit to Sales Expense: Debit to Expense Debit to Expense Debit to Expense Incurred this period (service or benefits received this period) Credits to Prepaid expense (asset) Credit to Cash Credit to Accounts Payable (liability) sccrual concept is primary source of confusion and disagreements page 68, # 3.10: Classify the following into assets (fixed or current), liabilities (current or noncurrent), and owner's equity. a) A loan for $10,000, payable as a lump sum in three years Noncurrent Liability c) Prepaid rent for the next two years One year is a Current Asset The second year is a Noncurrent Asset e) Money owed to a supplier for raw materials payable in 30 days Current Liability i) Overpayment of income taxes, to be used as a tax credit in the next fiscal year Noncurrent Asset page 69, #3.1: Prepare the T-account entries (in double-entry format) for the following transactions: b) Paid a $600 principal payment on a loan CASH LOANS PAYABLE Debit Credit | $600 Debit $600 | Credit d) Delivered $1250 of finished goods to customers FINISHED GOODS INVENTORY COST OF GOODS SOLD Debit Credit | $1,250 Debit $1,250 | Credit page 73, #3.15: In certain countries, the typical balance sheet is presented in such a manner that the left-hand-side of the accounting equation reads (instead of simply "assets"): Working capital + noncurrent assets How would the right-hand-side of the equation read? By definition, Working Capital = Current Assets - Current Liabilities This means that the Current Liabilities are accounted for on the left-hand-side of the equation. Thus, the right-hand-side need have only Noncurrent Liabilities + Owners' Equities page 93, #4.1: Classify the following into income and expenses, and separate expenses into cost of goods sold, selling expenses, general and administrative expenses, and miscellaneous income and expenses. b) Purchase of postal supplies for $240 EXPENSE; usually General and Administrative i) Dividends of $100 received on stock owned in a publicly traded company INCOME; Miscellaneous Income

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