ACIS+3115+Ch05+Student+Fall+2010

ACIS+3115+Ch05+Student+Fall+2010 - CHAPTER 5 BALANCE SHEET...

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Unformatted text preview: CHAPTER 5 BALANCE SHEET AND BALANCE STATEMENT OF CASH FLOWS STATEMENT Intermediate Accounting 13th Edition Kieso, Weygandt, and Warfield Chapter 5 -1 Balance Sheet and Statement of Cash Flows Balance Sheet Statement of Cash Statement Flows Flows Purpose Content and format Preparation Usefulness Usefulness Limitations Classification Additional information Additional reported reported Techniques of Techniques disclosure disclosure Chapter 5 -2 Balance Sheet Usefulness of the Balance Sheet Evaluating thecapital structure . Asse risk and futurecash flows. ss Analyzethecom pany’s: Liquidity, S ncy, and olve Financial fle xibility. Chapter 5 -3 LO 1 Explain the uses and limitations of a balance sheet. Balance Sheet Limitations of the Balance Sheet Most asse and liabilitie arere ts s porte at historical cost. d Useof judgm nts and e ate e stim s. Many ite s of financial valueareom d. m itte Chapter 5 -4 LO 1 Explain the uses and limitations of a balance sheet. Balance Sheet Classification in the Balance Sheet Thre Ge ral C e ne lassifications Asse Liabilitie and S ts, s, tockholde Equity rs’ C panie furthe dividethe classifications: om s r se Illustration 5-1 Chapter 5 -5 LO 2 Identify the major classifications of the balance sheet. Balance Sheet Current Assets C and othe asse a com ash r ts pany e cts to conve into cash, se or xpe rt ll, consum e r in oneye or in theope e ithe ar rating cycle whiche r is , ve longe r. Illustration 5-2 Chapter 5 -6 LO 2 Identify the major classifications of the balance sheet. Balance Sheet – “Current Assets” Cash Ge rally any m s available“on de and.” ne onie m Cash equivalents - short-te highly liquid inve e that rm stm nts m aturewithin thre m e onths or le ss. Re strictions or com itm nts m bedisclose me ust d. Illustration 5-3 Chapter 5 -7 LO 2 Identify the major classifications of the balance sheet. Balance Sheet – “Current Assets” Short-Term Investments Portfolios He ld-to-Maturity Type De bt Valuation Am ortize C d ost Classification C nt or urre Noncurre nt C nt urre C nt or urre Noncurre nt Trading De or Equity bt Fair Value Available for-S ale De or Equity bt Fair Value Chapter 5 -8 LO 2 Identify the major classifications of the balance sheet. Balance Sheet – “Current Assets” Receivables C s he against custom rs and othe for m y, goods, or se s. laim ld e rs one rvice Accounts re ivable– oral prom s ce ise Note re ivable– writte prom s s ce n ise Major cate s of re ivable should beshown in thebalanceshe t or the gorie ce s e re d note late s. Chapter 5 -9 LO 2 Identify the major classifications of the balance sheet. Balance Sheet – “Current Assets” Accounts Receivable – Presentation Options 1 Current Assets: Cash Cash Accounts receivable Less allowance for doubtful accounts Less Inventory Inventory Total current assets Total Current Assets: Cash Cash Accounts receivable, net of $25 allowance Accounts net Inventory Total current assets Total $ 346 346 500 500 25 475 812 812 $1,633 $1,633 2 $ 346 346 475 812 812 $1,633 $1,633 Chapter 5-10 LO 2 Identify the major classifications of the balance sheet. Balance Sheet – “Current Assets” Inventories C pany disclose om s: Basis of valuation (e lowe .g., r-of-cost-or-m t). arke Me thod of pricing (e FI FO or LI FO). .g., Illustration 5-7 Illustration Chapter 5-11 LO 2 Identify the major classifications of the balance sheet. Balance Sheet – “Current Assets” Prepaid Expenses Paym nt of cash, that is re e corde as an asse be d t cause se rviceor be fit ne Paym will bere ive in thefuture ce d . will C Paym nt ash e BEFORE Expe Re nse corde d Pre paym nts ofte occur in re e n gard to: insurance supplie s adve rtising Chapter 5-12 re nt m ainte nanceon e quipm nt e LO 2 Identify the major classifications of the balance sheet. Balance Sheet – “Current Assets” Balance Current Assets - “Summary” C and othe asse a ash r ts com pany e cts to xpe conve into cash, rt se or ll, consum e e r in oneye or in the ithe ar ope rating cycle whiche r is , ve longe r. Chapter 5-13 Balance Sheet ( in t housands) Current asset s Cash ST I nvest ment s Account s r eceivable I nvent or y Pr epaid expenses T ot al cur r ent asset s I nvest ment s: I nvesment in ABC bonds I nvest ment in UC I nc. $ 285,000 140,000 777,000 402,000 170,000 1,774,000 321,657 253,980 LO 2 Identify the major classifications of the balance sheet. LO Balance Sheet – “Noncurrent Assets” Long-Term Investments Generally consists of four types: Securities Securities Fixed assets Fixed Special funds Nonconsolidated subsidiaries or affiliate d com panie s. Chapter 5-14 LO 2 Identify the major classifications of the balance sheet. Balance Sheet – “Noncurrent Assets” Long-Term Investments Securities bonds, stock, and long-te note rm s For m tablese arke curitie s, m anage e inte de rm s m nt’s nt te ine curre or noncurre classification. nt nt Chapter 5-15 Balance Sheet (in t housands) Current asset s Cash $ 285,000 I nvest ment s: I nvesment in ABC bonds I nvest ment in UC I nc. N ot es r eceivable Land held f or speculat ion Sinking f und Pension f und Cash sur r ender value I nvest ment in Uncon. Sub. T ot al invest ment s Propert y, Plant , and Equip. Building Land 321,657 253,980 150,000 550,000 225,000 653,798 84,321 457,836 2,696,592 1,375,778 9 75,000 LO 2 Identify the major classifications of the balance sheet. LO Balance Sheet – “Noncurrent Assets” Property, Plant, and Equipment Assets of a durable nature used in the regular operations of the business. Balance Sheet (in t housands) Current asset s Cash $ 285,000 Tot al invest ment s Propert y, Plant , and Equip. Building Land M achiner y and equipment Capit al leases Leasehold impr ovement s A ccumulat ed depr eciat ion T ot al PP&E I nt angibles Goodwill Pat ent s T r ademar ks Chapter 5-16 2,696,592 1,375,778 9 75,000 234,958 384,650 175,000 (975,000) 2,170,386 3,000,000 177,000 40,000 LO 2 Identify the major classifications of the balance sheet. LO Balance Sheet – “Noncurrent Assets” Intangibles Lack physical substance and are not financial instruments. Limited life intangibles amortized. Indefinite-life intangibles tested for impairment. Balance Sheet (in t housands) Current asset s Cash $ 285,000 Accumulat ed depr eciat ion T ot al PP&E I nt angibles Goodwill Pat ent s T r ademar k Fr anchises Copyr ight T ot al int angibles Ot her asset s Pr epaid pension cost s Def er r ed income t ax T ot al ot her (975,000) 2,170,386 2,000,000 177,000 40,000 125,000 55,000 2,397,000 133,000 40,000 173,000 Chapter 5-17 LO 2 Identify the major classifications of the balance sheet. LO Balance Sheet – “Noncurrent Assets” Other Assets This section should include only unusual items sufficiently different from assets in the other categories. Balance Sheet (in t housands) Current asset s Cash $ 285,000 I nt angibles Goodwill Pat ent s T r ademar k Fr anchises Copyr ight T ot al int angibles Ot her asset s Pr epaid pension cost s Def er r ed income t ax T ot al ot her T ot al Asset s 2,000,000 177,000 40,000 125,000 55,000 2,397,000 133,000 40,000 173,000 $ 9,210,978 Chapter 5-18 LO 2 Identify the major classifications of the balance sheet. LO Balance Sheet Current Liabilities “Obligations that a company reasonably expects to liquidate either through the use of current assets or the creation of other current liabilities.” Balance Sheet ( in t housands) Current liabilit ies Not es payable $ 233,450 Account s payable 131,800 Accr ued compensat ion 43,000 Unear ned r evenue 17,000 I ncome t ax payable 23,400 Cur r ent mat ur it ies LT debt 121,000 T ot al cur r ent liabilit ies 569,650 Long- t erm liabilit ies Long-t er m debt 979,500 Obligat ions capit al lease 345,800 Def er r ed income t axes 77,909 T ot al long-t er m liabilit ies 1,403,209 St ockholders' equit y Chapter 5-19 LO 2 Identify the major classifications of the balance sheet. Balance Sheet Long-Term Liabilities “Obligations that a company does not reasonably expect to liquidate within the normal operating cycle.” All covenants and restrictions must be disclosed. Chapter 5-20 Balance Sheet ( in t housands) Current liabilit ies Not es payable $ 233,450 Account s payable 131,800 Accr ued compensat ion 43,000 Unear ned r evenue 17,000 I ncome t ax payable 23,400 Cur r ent mat ur it ies LT debt 121,000 T ot al cur r ent liabilit ies 569,650 Long- t erm liabilit ies Long-t er m debt 979,500 Obligat ions capit al lease 345,800 Def er r ed income t axes 77,909 T ot al long-t er m liabilit ies 1,403,209 St ockholders' equit y LO 2 Identify the major classifications of the balance sheet. Balance Sheet Owners’ Equity Three parts, (1) C apital S tock, (2) Additional Paid-I n C apital, and (3) Re taine Earnings. d Illustration 5-15 Chapter 5-21 LO 2 Identify the major classifications of the balance sheet. Balance Sheet - Format Classified Balance Sheet Account form Re form port Accounting Trends and Techniques—2007 (Ne York: w AI C indicate that all of the600 com PA) s panie surve d usee r the s ye ithe “re form (524) or the“account form (76), som tim s colle ly port ” ” ee ctive re rre to as the“custom form fe d ary .” Chapter 5-22 LO 3 Prepare a classified balance sheet using the report and account formats. Illustration 5-16 Balance Sheet Balance -Format -Format Re Form port Chapter 5-23 LO 3 Additional Information Reported The arenorm four type of inform re ally s ation that are supple e to account title and am m ntal s ounts pre nte in the se d balanceshe t: e C ontinge s ncie Accounting Policie s C ontractual S ituations Fair Value s Chapter 5-24 LO 4 Determine which balance sheet information LO requires supplemental disclosure. requires Techniques of Disclosure Pare tical Explanations nthe Note s C ross-Re re and C fe nce ontra I te s m S upporting S dule che s Te inology rm Chapter 5-25 LO 5 Describe the major disclosure techniques for the balance sheet. Balance Sheet Review Thecorre orde to pre nt curre asse is ct r se nt ts a. b. c. d. C accounts re ivable pre ash, ce , paid ite s, m inve ntorie s. inve ite s. m ite ite s. m ite C accounts re ivable inve ash, ce , ntorie pre s, paid C inve ash, ntorie accounts re ivable pre s, ce , paid C inve ash, ntorie pre s, paid ite s, accounts re ivable m ce . re Chapter 5-26 LO 2 Identify the major classifications of the balance sheet. Balance Sheet – “Exercise” Intangibles (BE5-6): KC’s adjusted trial balancecontained thefollowing asset accounts at De m r 31, 2010: Pre ce be paid Re $12,000; Goodwill $50,000; Franchise nt Fe s Re ivable$2,000; Franchise $47,000; Pate $33,000; Trade arks $10,000. e ce s nts m Pre paretheintangibleasse se ts ction of thebalanceshe t. e Chapter 5-27 LO 2 Identify the major classifications of the balance sheet. Balance Sheet – “Exercise” Long-Term Liabilities (BE5-9): I ncluded in Adams Company’s December 31, 2010, trial balancearethefollowing accounts: Accounts Payable$220,000; Pe nsion Liability $375,000; Discount on Bonds Payable$29,000; Advance fromC s ustom rs e $41,000; Bonds Payable$400,000; Wage Payable$27,000; Inte st Payable$12,000; s re I ncom Taxe Payable$29,000. Pre e s parethelong-te liabilitie se rm s ction of thebalance she t. e Chapter 5-28 LO 2 Identify the major classifications of the balance sheet. Balance Sheet Classification Exercise Account (a) I nve e in pre rre stock stm nt fe d (b) Tre asury stock (c) C m stock om on (d) C divide payable ash nds (e Accum ) ulate de ciation d pre (f) I nte st payable re (g) De ficit (h) Trading se curitie s (i) Une d re nue arne ve Chapter 5-29 Classification LO 2 Identify the major classifications of the balance sheet. The Statement of Cash Flows Oneof thethre basic obje s of financial re e ctive porting is “assessing the amounts, timing, and uncertainty of cash flows.” Chapter 5-30 LO 6 Indicate the purpose of the statement of cash flows. The Statement of Cash Flows Purpose of the Statement of Cash Flows To providere vant inform le ation about thecash re ipts and cash ce paym nts of an e rpriseduring a pe e nte riod. Thestate e provide answe to thefollowing que m nt s rs stions: 1. Whe did thecash com from re e ? 2. What was thecash use for? d 3. What was thechangein thecash balance ? Chapter 5-31 LO 6 Indicate the purpose of the statement of cash flows. The Statement of Cash Flows Content and Format Thre diffe nt activitie e re s: Ope rating, Illustration 5-24 I nve sting, Financing Chapter 5-32 LO 7 Identify the content of the statement of cash flows. The Statement of Cash Flows Content and Format Operating C inflows and ash outflows from ope rations. Investing C inflows and ash outflows from non-curre asse nt ts. Financing C inflows and ash outflows from non-curre nt liabilitie and s e quity. Thestate e valueis that it he use e m nt’s lps rs valuateliquidity, solve ncy, and financial fle xibility. Chapter 5-33 LO 7 Identify the content of the statement of cash flows. The Statement of Cash Flows Illustration 5-25 Chapter 5-34 LO 7 Identify the content of the statement of cash flows. The Statement of Cash Flows Preparation I nform ation obtaine fromse ral source d ve s: (1) com parativebalanceshe ts, e (2) t hecurre incom state e and nt e m nt, (3) se cte transaction data. le d Chapter 5-35 LO 8 Prepare a statement of cash flows. The Statement of Cash Flows Preparing the Statement of Cash Flows Determine: 1. C provide by (or use in) ope ash d d rating activitie s. 2. C provide by or use in inve ash d d sting and financing activitie s. 3. De rm thechange(incre or de ase in cash during thepe te ine ase cre ) riod. Re concilethechangein cash with thebe ginning and thee nding cash balance s. Chapter 5-36 LO 8 Prepare a statement of cash flows. LO 8 The Statement of Cash Flows Significant Noncash Activities S ignificant financing and inve sting activitie that do not affe cash s ct arere porte in e r a se d ithe paratesche at thebottomof the dule state e of cash flows or in thenote m nt s. Exam s include ple : I ssuanceof com on stock to purchaseasse m ts. C rsion of bonds into com on stock. onve m I ssuanceof de to purchaseasse bt ts. Exchange on long-live asse s d ts. Chapter 5-37 LO 8 Prepare a statement of cash flows. Usefulness of the Statement of Cash Flows Without cash, a com pany will not survive . C flow fromOpe ash rations: High amount - com pany ableto ge ratesufficie cash to ne nt pay its bills. Low amount - com pany m haveto borrow or issuee ay quity se curitie to pay bills. s Chapter 5-38 LO 9 Understand the usefulness of the statement of cash flows. Usefulness of the Statement of Cash Flows Financial Liquidity Current Cash Debt Coverage Ratio Ne C Provide by t ash d = Ope rating Activitie s Ave C nt Liabilitie rage urre s Ratio indicate whe r thecom s the pany can pay off its curre nt liabilitie fromits ope s rations. A ratio ne 1:1 is good. ar Chapter 5-39 LO 9 Understand the usefulness of the statement of cash flows. Usefulness of the Statement of Cash Flows Financial Flexibility Cash Debt Coverage Ratio Ne C Provide by t ash d = Ope rating Activitie s Ave Total Liabilitie rage s This ratio indicate a com s pany’s ability to re its liabilitie from pay s ne cash provide by ope t d rating activitie without having to liquidate s, t heasse e ploye in its ope ts m d rations. Chapter 5-40 LO 9 Understand the usefulness of the statement of cash flows. Usefulness of the Statement of Cash Flows Free Cash Flow Illustration 5-35 Theam ount of discre tionary cash flow a com pany has for purchasing additional inve e re stm nts, tiring its de purchasing tre bt, asury stock, or sim adding to its liquidity. ply Chapter 5-41 LO 9 Understand the usefulness of the statement of cash flows. Usefulness of the Statement of Cash Flows Review Thecurre cash de cove ratio is ofte use to asse nt bt rage nd ss a. financial fle xibility. a. b. liquidity. b. c. profitability. c. d. solve ncy. d. Chapter 5-42 LO 9 Understand the usefulness of the statement of cash flows. The Statement of Cash Flows Review I n pre m nt In paring a state e of cash flows, which of thefollowing transactions would beconside d an inve re sting activity? would a. b. c. d. S of e ale quipm nt at book value e S of m rchandiseon cre ale e dit De claration of a cash divide nd De I ssuanceof bonds payableat a discount re ivable ce . Chapter 5-43 LO 8 Prepare a statement of cash flows. The Statement of Cash Flows Statement of Cash Flows (BE 5-12): Keyse Be rageCompany r ve re porte thefollowing ite s in them re nt ye d m ost ce ar. Activity Ne incom t e Divide paid nds I ncre in accounts re ivable ase ce I ncre in accounts payable ase Purchaseof e quipm nt e De ciation e nse pre xpe I ssueof note payable s Required: Pre a S m nt of C Flows pare tate e ash Chapter 5-44 $40,000 5,000 10,000 7,000 8,000 4,000 20,000 LO 8 Prepare a statement of cash flows. The Statement of Cash Flows Statement of Cash Flows: On January 1, 2010, in its first ye ar of ope rations, Te m ting I nc. issue 50,000 share of $1 par value le arke d s com on stock for $50,000 cash. Thecom m pany re d its officespace nte , f urniture and te com unications e , le m quipm nt and pe e rform d m ting e arke se s throughout thefirst ye I n June2010 thecom rvice ar. pany purchase land d f or $15,000. I llustration 5-26 shows thecom pany’s com parativebalance she ts at thebe e ginning and e of 2010. nd Chapter 5-45 LO 8 Prepare a statement of cash flows. The Statement of Cash Flows Illustration 5-26 Illustration 5-27 Chapter 5-46 LO 8 The Statement of Cash Flows Illustration 5-26 Illustration 5-27 Cash provided by operating activities Illustration 5-28 Chapter 5-47 S olution on note page s LO 8 Prepare a statement of cash flows. Illustration 5-26 Illustration 5-27 Illustration 5-29 The Statement The of Cash Flows of Next, the company determines its investing and financing activities. Chapter 5-48 S olution on note page s LO 8 Prepare a statement of cash flows. Using Ratios to Analyze Performance Analysts and othe inte ste partie can gathe qualitativeinform r re d s r ation from f inancial state e by e ining re m nts xam lationships be e ite s on the twe n m state e and ide m nts ntifying tre in the re nds se lationships. Chapter 5-49 LO 10 Identify the major types of financial ratios and what they measure. Using Ratios to Analyze Performance Illustration 5A-1 A S m of Financial Ratios um ary Chapter 5-50 LO 10 Identify the major types of financial ratios and what they measure. Using Ratios to Analyze Performance Illustration 5A-1 A S m of Financial Ratios um ary Chapter 5-51 LO 10 Identify the major types of financial ratios and what they measure. Using Ratios to Analyze Performance Illustration 5A-1 A S m of Financial Ratios um ary Chapter 5-52 LO 10 Identify the major types of financial ratios and what they measure. Chapter 5-53 Chapter 5-54 Chapter 5-55 Chapter 5-56 Chapter 5-57 Chapter 5-58 Chapter 5-59 iGAAP re quire that spe ite s bere s cific m porte on thebalanceshe t. No such ge ral d e ne standard e xists in U.S GAAP. . The arem sim re any ilaritie be e U.S and iGAAP re d to balanceshe t s twe n . late e pre ntation. For e ple se xam : I AS1 spe s m umnotedisclosure sim to U.S GAAP on accounting policie and cifie inim s, ilar . s judgm nts. e C parativeprior-pe inform om riod ation m bepre nte and financial state e m be ust se d m nts ust pre d annually. pare C nt/noncurre classification for asse and liabilitie is norm re urre nt ts s ally quire d. Chapter 5-60 Inte stingly, iGAAP state e m re prope plant, and e re m nts ay port rty, quipm nt first in the e balanceshe t. S ecom e om panie re thesubtotal “ne asse which e s port t ts,” quals total asse ts m total liabilitie inus s. Whiletheuseof thete “re rve is discourage in U.S GAAP, the is no such rm se ” d . re prohibition in iGAAP. Chapter 5-61 IFRS – Balance Sheet IAS IAS 1 requires information on assets, liabilities and equities and Does not require specific format Can classify as Can Current/non-current Current/non-current or Use liquidity presentation Requires one year of comparative information GAAP allows: Choice between classified or nonclassified Present assets and liabilities in order of liquidity No comparative information requirement Chapter 5-62 IFRS – Balance Sheet Major difference is value of PP&E allows them to be reported at cost or fair value IFRS Other difference is Minority Interest GAAP prohibits inclusion in equity IFRS requires inclusion in equity FASB is converging with IASB with issuance of FAS FASB 160 160 Chapter 5-63 IFRS – Cash Flow Major classification differences: Chapter 5-64 IFRS – Statement of Cash Flows Similarities: Allow Allow use of direct or indirect method of preparation preparation Chapter 5-65 IFRS – Cash Flow Other differences: IFRS includes bank overdrafts in cash category IFRS requires separate disclosure of interest and IFRS dividends paid, and income taxes dividends Similarities: Definition of cash and cash equivalents Allow use of direct or indirect method of Allow preparation preparation Chapter 5-66 ...
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This note was uploaded on 11/04/2010 for the course ACCT 2115 taught by Professor K during the Spring '10 term at Virginia College.

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