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ACCT 504 Case Study 1 (Gordon Construction)
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www.acct504mart.comCase Study 1 (Part A)Analyze the impact of business transactions on accounts; record (journalize and post) transactions in the books; construct and use a trial balance) During the first month of operation of Gordon Construction, Inc., completed the following transactions:June2Gordon received $55,000 cash and issued common stock to the stockholders. Capstone Discussion Question: Post your response to the following:
Think back over what you have studied and learned in this course. Do you have a new perception of or appreciation for the field of accounting and how it contributes to business? Explain.
To be perfectly honest with you I truly had no clue what accounting did for a company and how important it was. I always thought that accounting only dealt with payroll. In fact accounting does much more that just payroll and monitor company supplies (coffee, paper, pens & pencils). The accounting sets budgets for the entire company, monitors outflow and inflow of profits, plans budgets for each department, and much more. When I first begun this class I was really nervous, I truly thought that I was going to have a hard time understanding the accounting but I happy to say that I was wrong. I understood every part of this course.
On a personal note I would like to thank you Jess. If it wasn't for your pep talk I probably would had gave up. You are truly a great instructor. I wish you all the best! God Bless
Another response
Accounting has taken a whole new meaning to me in my vocabulary. Prior to this course, I just took accounting as a calculator and crunching numbers. I now have a new respect for accounting and all the aspects that are involved. I never once took into consideration profit, sales, revenue, and balance sheets also being included with accounting. There is so much more involved with accounting, and had I not taken this course I would have never known. Accounting is a very important part of running a business. I feel that it is imperative to all people thinking of opening a business should take some type of accounting class to become more aware of how to run the accounting part of a business.
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ACCT 504 Case Study 2 (Williams Oil)
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www.acct504mart.comCase study (Learning Objectives 2, 4: Explain the components of internal control; evaluate internal controls) Each of the following situations reveals an internal control weakness:
Business Plan
By
Kamilah T. Crooms
The name of my business is called DestinyWear. DestinyWear is a urban fashion clothing company for woman, men and youth. DestinyWear specializes in making clothing for every occasion. My name is Kamilah Crooms and I am the owner and CEO of DestinyWear.My goal is to ensure that my company will be succesfull in all areas and in each department. In order for me to make sure that the company was going to begin in the right direction I had to priortize what was most important in establishing my business plan. The main priority is that I had to first choose the appropriate business structure, a high demanding product, and most of all an outstanding accounting team.
Business Structure
Upon establishing DestinyWear I had to decide which business struture that I felt was best for me to pursue. I decided that as a Entreprenuer the best choice for me abd the direction of the company
would be for me to be sole proprietorship. Sole proprietorship allowed me to be the sole owner of DestinyWear. The first and most important reason that I wanted sole proprietorship is because it is much easier to start a business as sole proprietorships. Sole proprietorship takes all the profit that and doesn't have to split it between any other owners or corporations. I also want the power to make and change decisions along the way without having to first consult anyone else.
DestinyWear Products
DestinyWear products will range from jeans, shirts, accessories and shoes. The company will first start off with its most profitable product and that will be the DestinyWear designer jeans line. The jeans line has over twenty different jeans designs
from straight leg, baggy, cargo, overalls, shorts and much more. The jeans line will provide services within the United States and Canada and will eventually service International customers. The DestinyWear jeans line will have its own building. In this building the bottom floor will consist of the factory and the top floor will have the different departments such as management, marketing and most importantly the accounting department.
DestinyWear Accounting Department
The accounting plays a major role in establishing my company DestinyWear. The accounting department does more than managing and reporting the company’s financial documents it is the greatest tool in establishing my business. The key to a powerful accounting department here at DestinyWear is applying the principles of internal control. These principles consist of establishment of responsibilities, segregation of responsibilities, documentation procedures, Physical, mechanical, and electronic controls, Independent internal verification and other controls such as Bonding of employees. In order to ensure that this business plan works DestinyWear has to hire nothing but the best qualified employees.
DestinyWear Accounting Staff
DestinyWear accounting team of fine employees will all be hired through the company. There are several requirements that have to be met in order for myself as the owner and Human Resource department to even consider the applicant for accounting. We looked for characteristics, education and work history experience. The first and far most important qualifying requirements are education. The applicant has to have a Bachelor BA/BS in accounting degree a plus if he or she has a master’s.
The second requirement is experience. The applicant must have the minimum of five years of experience working in accounting. He or She
must have knowledge and employment experience of working with financial statements, cash management and internal control. Employees must be experienced in Invest idle cash, planning the timing of major expenditures, delay payment of liabilities keeping inventory levels low, and increasing the speed of collection on receivables. In the category of experience we had to hire applicants according to the position that had to be filled in accounting. For example, if a position in accounting such as management or supervisory needed to be filled, then we would look for years of experience in management or supervisory positions. I personally prefer that every employee have some type of management experience.
Last but not least, the employees characteristics. It is a must that every accounting staff member has and applies professionalism, great ethic and moral skills, accuracy, and most importantly punctuality, and reaching company deadlines. These characteristics are very important to have at DestinyWear.
DestinyWear Accounting Management Team
The DestinyWear accounting management team will be reporting to me and to the other head staff each week to report updates and any new changes. The management team is responsible to have all the different types of budgeting reports that includes Sales, Labor, etc. Management must follow the responsibility reporting system for each department. The managers will use the company’s financial information to predict outcomes of the business. I require a report from each responsibility center, cost center, profit center and investment center to be reported each month. Management is responsible to ensure that the company does not
over or under budget and if any changes it must be reported immediately.
Conclusion
DestinyWear will be a very successful team not only because of the products that we produce but because of having a great accounting team. With the help of accounting team I DestinyWear products will be in every wardrobe in America.
REFERENCES
//http:yourdictionary.com /CVP.org Retrieved 3/20/2010 Thomas, Y. 2005-08-27 “Accounting 101 pg. 52 Statements.
March 19, 2010 Drucker, P. Managing in the next society 2002. retrieved march
19,2010 --------------------------------------
ACCT 504 Case Study 3 (Wang Appliance Store)
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Construct and use a cash budget) Nathan Farmer, chief financial officer of Wang Appliance Store, is responsible for the company?s budgeting process. Farmer?s staff is preparing the Wang cash budget for 2014. A key input to the budgeting process is last year?s statement of cash flows, which follows (amounts in thousands): Wang
Costco Wholesale Corporation
If we look at the financial statements of the company we can find that the company is financially strong. Its strength are:
1. It has enough amount of current asset to repay its current liability. The current ratio of the company 8.18 indicates that the company has $8.18 liquid asset to repay its $1 of current liability.
2. The operating cost of the company is increasing because the company is able to reduce its expenses.
3. Cash from operating activity has increased for the company. Apart from this strength the company also has some weakness in its financial statement:
(i) Increasing inventory indicates that the company inventory conversion period is increasing.
(ii) The cash from investing activity shows that the company cash outflow is more in the short term investment i.e. in non operating activity.
(iii) The overall has for the year 2008 has declined for the company.
Net Income:
2006 2007 2008$950,000
$1,000,000
$1,050,000
$1,100,000
$1,150,000
$1,200,000
$1,250,000
$1,300,000
Net Income
Net Income
If we look at the trend in net income of the company we can find that the company net income looks fluctuating but it has improved it net income in 2008 as compared to 2007.
Debt ratio as a percentage of total assets:
2007 200854.90%
55.00%
55.10%
55.20%
55.30%
55.40%
55.50%
55.60%
55.70%
55.80%
Debt ratio as percent of total asset
Debt ratio as percent of to-tal asset
If we look at the debt ratio as percent of total asset we can find that the debt ratio is declining in 2008 as compared to 2007 i.e. the company is increasing equity to finance debt.
Debt as a percentage of total equity:
2007 2008122.50%
123.00%
123.50%
124.00%
124.50%
125.00%
125.50%
126.00%
126.50%
127.00%
Debt as percent of total equity
Debt as percent of total equity
As we can see that the debt as percent of total equity is declining in 2008 as compared to 2007 i.e. the company is increasing equity in its capital structure.
As we can see that there is nothing negative in 2008 for the company and this is the reason it has positive trend as compared to 2007. Hence there is no need to correct anything for the company.
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ACCT 504 Course Project Analysis of Nike, Inc. and Under Armour, Inc.
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www.acct504mart.comCourse Project: A Financial Statement Analysis A Comparative Analysis of Nike, Inc. and Under Armour, Inc. Below is the link for the financial statements for Nike, Inc. for the fiscal year ending 2014. First, select 2014using the drop-down arrow labeled Year, and then select Annual Filings using the drop-down arrow labeled All. You
should select the 10k dated 7/15/2014,and choose to download in PDF, Word, or Excel format. Week 1 DQ 1Due Tuesday, Day 2
Go to the U.S. Securities and Exchange Commission’s Web site at http://www.sec.gov and the Financial Accounting Standards Board’s Web site athttp://www.fasb.org. Identify the mission and main activities of each organization. Then, analyze the similarities and differences between the roles of each entity. Which entity has more influence over financial statement reporting? Explain your answer.
According to the SEC website their mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. The SEC also requires public companies to disclose meaningful financial and other information to the public. This provides a common pool of knowledge for all investors to use to judge for themselves whether to buy, sell, or hold a particular security. The SEC is concerned primarily with promoting the disclosure of important market-related information, maintaining fair dealing, and protecting against fraud.
According to the FASB website the mission of the FASB is to establish and improve standards of financial accounting and reporting that foster financial reporting by nongovernmental entities that provides decision-useful information to investors and other users of financial reports. Since 1973, the Financial Accounting Standards Board (FASB) has been the designated organization in the private sector for establishing standards of financial accounting that govern the preparation of financial reports by nongovernmental entities
The major difference in the SEC and the FASB is that the SEC deals with reporting of financial statements for all industries while the FASB deals mainly with the private nongovernmental entities. Both are concerned with the fairness of financial reports and work in the interest of the public. I believe that the SEC has more influence over financial statement reporting because they can bring civil action against companies and individuals for violations of securities laws. Although according to the FASB website, “the Commission’s policy has been to rely on the private sector for this function to the extent that the private sector demonstrates ability to fulfill the responsibility in the public interest.
Response 2
Go to the U.S. Securities and Exchange Commission’s Web site at http://www.sec.gov and the Financial Accounting Standards Board’s Web site athttp://www.fasb.org. Identify the mission and main activities of each organization. Then, analyze the similarities and differences between the roles of each entity. Which entity has more influence over financial statement reporting? Explain your answer.
U.S. Securities and Exchange Commission (SEC)
According to the SEC’s website “The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation”(U.S. Securities and Exchange Commission, 2010, Para. 1).
The main activities of the SEC are to interpret federal securities laws; issue new rules and amend existing rules; oversee the inspection of securities firms, brokers, investment advisers, and ratings agencies; oversee private regulatory organizations in the securities, accounting, and auditing fields; and coordinate U.S. securities regulation with federal, state, and foreign authorities. (U.S. Securities and Exchange Commission, 2010)
Financial Accounting Standards Board (FASB)
According to the FASB’s website “The mission of the FASB is to establish and improve standards of financial accounting and reporting that foster financial reporting by nongovernmental entities that provides decision-useful information to investors and other users of financial reports. That mission is accomplished through a comprehensive and independent process that encourages broad participation, objectively considers all stakeholder views, and is subject to oversight by the Financial Accounting Foundation’s Board of Trustees” (Financial Accounting Standards Board, n.d., Para. 3).
The main activities of the FASB are to identify financial reporting issues based on requests/recommendations from stakeholders or through other means. The FASB Chairman decides whether to add a project to the technical agenda, after consultation with FASB Members and others as appropriate, and subject to oversight by the Foundation's Board of Trustees. The Board deliberates at one or more public meetings the various reporting issues identified and analyzed by the staff. The Board issues an Exposure Draft to solicit broad stakeholder input. (In some projects, the Board may issue a Discussion Paper to obtain input in the early stages of a project) The Board holds a public roundtable meeting on the Exposure Draft, if necessary. The staff analyzes comment letters, public roundtable
discussion, and any other information obtained through due process activities. The Board redeliberates the proposed provisions, carefully considering the stakeholder input received, at one or more public meetings. The Board issues an Accounting Standards Update describing amendments to the Accounting Standards Codification (Financial Accounting Standards Board, n.d.).
Both the SEC and the FASB have the same goals of fairness, accuracy, and understandability of financial accounting and reporting. Both agenecys accomplish these goals in the best interest of the overall public.
The differences between the SEC and the FASB is that the FASB regulates financial reporting in the private sector of businesses (but are subject to the rules and regulations of the SEC) and the SEC deals with regulating the financial reporting of publicly held corporations.
I believe that the SEC has the greatest influence over financial statements reporting because they have the final approval on all changes of the rules and regulations. The Sec can also bring civil or administrative enforcement actions against individuals and companies in violation of the securities laws.
References
Financial Accounting Standards Board. (n.d.). Facts about FASB. Retrieved July 15, 2010, from Financial Accounting Standards Board:http://www.fasb.org/facts/index.shtml#mission
U.S. Securities and Exchange Commission. (2010, May 3). The Investors Advocate: How the SEC Protects Investors, Maintains Market Integrity, and Facilitates Capital Formation. Retrieved July 15,
2010, from U.S. Securities and Exchange Commission: http://www.sec.gov/about/whatwedo.shtml
Week 1 DQ 2Due Thursday, Day 4
Search the Internet or the Online Library for information about the Sarbanes-Oxley Act. A useful guide to some of these provisions is located at http://www.soxlaw.com. Summarize at least two provisions of the law, and discuss your interpretation of these provisions with your classmates. Do you think this law will make financial statements more reliable? Also, discuss how Sarbanes-Oxley establishes boundaries to ensure ethical practices. What does the law allow or prohibit, and why?
The Sarbanes-Oxley act has many provisions to give companies guidelines for responsible, and ethical financial reporting. One of those provisions is listed in Section 302 of the act. The provision is that periodic statutory financial reports be certified that signing officers have reviewed the reports, the report does not contain any untrue, or misleading information. The financial statements fairly
present the financial condition. The signing officers are responsible for internal controls. A list of all deficiencies in internal controls, and a list of fraud involving employees, and anything that could negatively affect the internal controls.
Another provision pertains to the "management assessment of internal controls". This provision ensures that information is published in annual reports regarding the adequacy of internal controls, structure and procedures.
The Sarbanes-Oxley act is designed to help companies promote ethical accounting procedures. The act gives guidelines as to how financial statements are reported. The act requires verification that officers within the company have checked the information in the reports for accuracy and true. The act also requires that the companies have internal controls in place to ensure ethical reporting practices. The main thing that the Sarbanes-Oxley promotes is transparency in reporting.
Response 2
Section 802 of the Sarbanes-Oxley Law defines the penalties that may be assessed against individuals who failed to comply with the Act. An individual could be subject to 20 years in jail for altering, destroying, mutilating, concealing, falsifying records, documents or tangible objects. Guilt is define by the intent to impede a legal investigation. This part of the law gets to the heart of how Arthur Anderson reacted by destroying documents important to Worldcom. The law further defines that any accountant who knowingly violates their ethics by wilfully violates the requirements of maintenance of all audit or
review papers. These papers are subject to review up to five years.
The second Section that I reviewed was the Section 302. This actually is my favorite part of the law because it directly holds the officers and directors accountable for the accuracy of reporting in their financial statements. It defines that the management must review and understand the financial statements and sign that they are true and accurate. It also holds the management accountable for the internal controls, requiring any deficiencies to be reported. In the past directors of companies relied heavily on the internal officers, management, to report the company performance without questioning the accuracy or taking their role on oversight committees seriously. They could hide behind a veil of trust of the key leaders. This Section clearly puts the responsibility for the Board to remain independent of the executives and function more effectively on the respective oversight committees they serve. The example I would share is what happened in WorldCom. The company leaders shared what they wanted to with the Board, who trusted implicitly the top leaders. Had they questioned their legal representation or auditors, they potentially could have uncovered the fraud that was committed by the creation of shell companies, with WorldCom employees as stockholders.
I would love to think this law would protect the investing community. Financial reporting has improved to some extent. Unfortunately the scams still continue. Example would be Barney Madoff or what happened in the financial mortgage industry. These unethical practices were conducted after Sarbanes Oxley was implemented. Madoff was able to provide false financial information to investors. Financial industry was allowed to get to aggressive in underwriting and product suite. Fines and penalties are deterrents. Ethics still
must be inherent in an individual and company. Laws and requirements are a guide. There will never be enough auditors, inspectors or oversight boards to catch all of the fraud in the corporate community.
The law prohibits falsifying information, failing to notify of material changes, and destruction of records.
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ACCT 504 Course Project Oracle and Microsoft Corporation (Devry)
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www.acct504mart.comCourse Project Financial Statement Analysis Project -- A Comparative Analysis of Oracle Corporation and Microsoft Corporation
Here is the link for the financial statements for Oracle Corporation for the fiscal year ending 2007. First, select 2007 using the drop-down arrow labeled for Year on the right-hand side of the page, and then select Annual Reports using the drop-down arrow labeled Filing Type on the left-hand side of the page. Lucent Technologies
Axia College of University of Phoenix
Lucent Technologies is a company based on networking for service providers, government, and enterprises worldwide (Lucent Technologies, n.d., Para 1). The products and services they work with are separated into three categories; service and maintenance, wireless mobility networking, and wire line networking. Lucent Technologies is backed by Bell Labs, which does research and development in networking technologies.
During the years of 2001 to 2003 this company has experienced a decrease in demand because of other companies’ loss or capital used toward spending. This is mainly due to a downturn in the economy. As an investor this information is necessary to know because it explains the decrease or increase in sections of the balance sheet. In order to compare the growth or decline of the company’s profit, an investor must change a balance sheet into a common-size balance sheet. First when looking at the balance sheet an investor will see that the amount of paid in capital has increased from the year of 2003 to 2004, the assets have increased, but the liabilities have decreased. When running a debt/asset ratio it is noticed that this ratio drops from 1.2 in 2003 to 1.0 in 2004. This shows the company’s risk is low when concerning financial leverage, usually when the debt ratio is less than one percent it is financed mainly by company equity, so this company is close to being debt free from creditors.
After changing the balance sheet to a common-size balance sheet there are several factors an investor will look at. The current assets have dropped to .48 from .49 in 2004. This does not show harm to the company because only the accounts receivable dropped while the rest of the current assets increased. This means the company is not in as much danger of default on money owed to it. It does have a rise in marketable securities. The one concern in the assets is the increase of prepaid cost of pensions and goodwill. Goodwill can be used for tax breaks but prepaid pensions cannot benefit the company.
When looking at the liabilities section an investor will see a drop in pension and liabilities and an increase in long term debt, both of these could be affected because of the drop in the economy. Long term
liabilities are often increased to help a company control interest rate increases so as an investor cutting back on pension liabilities cuts back cost to the company and watching interest rate increase show the company is concerned with its earning and investors. This would be encouraging or an investor. The stockholders deficit shows a drop in accumulated deficits from -1.43 to -1.22 and total deficits of -.26 to -.08. This shows the company is working to control any money loss and turning it to the company’s advantage. Overall it shows the company is still earning a profit although small. With an increase of assets and a drop in liabilities the company is showing it is working in a low risk capital.
After reviewing this information, a creditor or investor must be able to compare this company to the industry totals. By comparing how this company compares to other companies similar to it, a person can see if it is competitive and worth taking a risk. Running ratios will also show if the company is capable of paying off any debts it has or if it can acquire the needed cash in case of emergencies. Overall as an investor, I would say this company would be worth investing in.
Reference
Axia College. (2007). Understanding Financial Statements. Retrieved May 10, 2010 from Axia College, Week 2 Assignment, ACC/230.--------------------------------------
ACCT 504 Entire Course (Devry)
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www.acct504mart.comACCT 504 Week 1-7 All Discussion Questions ACCT 504 Week 3 Case Study 1 Flower Landscaping Corporation ACCT 504 Week 4 Midterm Exam Set 1
Differentiating Depreciation Methods
There is one main difference between straight line depreciation and accelerated depreciation. Straight line is decided by taking the cost of the assets, figuring out the salvage cost when the use of the asset is finished and how many years of use the asset has. A person then takes the cost minus salvage and divides the remainder by the number of years of use. This amount is the depreciation expense subtracted each year from the cost. The accelerated depreciation does not have the same amount of deprecation subtracted each year. It does have the cost minus salvage value to figure out the amount to use but is then divided out differently. A person takes the sum of the years of a product’s useful life, such as three years is 3 + 2 + 1 = 6, then a person would divide the depreciation amount by 3/6 the first year, 2/6 the second and finally 1/6 for the final year. So the amount of depreciation expense is larger to smaller with accelerated and equal amounts for straight line.
The advantages of straight line method are it is easier and faster to figure. The advantage of accelerated method is it is more accurate when figuring depreciation expense. The accelerated method has an advantage and disadvantage concerning taxes. A company can use
the accelerated method to take advantage of bigger tax breaks at the beginning of an assets life, but since this amount drops during the lifespan if the company needs added tax breaks it will not receive them from these assets in the future. With the straight line method the amount of tax breaks are even through the life of the product. Most companies choose this form of depreciation for reporting purpose on taxes but will use the accelerated method to figure taxable income.
As mentioned before the advantage of straight line depreciation is it is easier to figure and uses the same total each year for deduction of depreciation expense but the disadvantage is that if use for taxable income and reporting a company does not get a bigger tax break at the beginning of the assets life when they have just put out the cost for the item and may need a bigger tax break.--------------------------------------
ACCT 504 Final Exam (3 different finals) (Devry)
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www.acct504mart.com1. (TCO A) Which one of the following is an advantage of corporations relative to partnerships and sole proprietorships? (Points : 5)
Preparing an Income Statement
The companies’ net income is profitable when the sales exceed the cost of goods sold. In this, the gross profit is $761k. This is beneficial to the company. Though we took the cost of goods away from the net sales there are still other areas which need to take a piece of the pie. For this company, once the SG&A and depreciation are taken out, the company still contains a profit of $290k. But the buck does not stop there. Once the interest income and interest expense are adjusted the balance before earnings and taxes is $290k. After taxes are taken out, the company is left with a net profit of $174k.
In this case I think the company has achieved success with a net profit of $174k. If the company were unable to be profitable, the company would eventually go out of business. We would be able to tell if the company was not profitable by looking at each section individually. The cost of goods sold is what stands out for me. If we pay more to
make the product then we are actually selling it for, there is no profit to be made. So, I think it should all start there.
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ACCT 504 Midterm Exam (4 Sets, 2017)
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www.acct504mart.comThis Tutorial contains 4 Set of Midterm Exam 1. Question : (TCOs A and E) Your friend, Ellen, has hired you to evaluate the following internal control procedures. Explain to your friend whether each of the numbered items below is an internal control strength or weakness. You must also state which internal control procedure relates to each of the internal controls. For the weaknesses, you also need to state a recommendation for improvement. (1) The cashier counts the total receipts and reconciles the receipts with the cash register total. (2) Electronic documents are Week 3 DQ 1Due Tuesday, Day 2
Post your answer to Problem 3.5 on p. 109 (Ch. 3). How might the information contained within the stockholder equity statement be used for management and investor decision-making? Provide specific examples of situations in which the stockholder equity information might be used.
The statement of stockholders’ equity provides the changes in the equity accounts during the accounting period more in depth than the
balance sheet. The information found on the statement of stockholders’ equity includes retained earnings, common and preferred stock, and additional paid in capital. Management uses the statement of stockholders’ equity to ensure they are reaching their goal of maximizing shareholder's equity. The use of market ratios help with the analysis of the statement of stockholders’ equity, such as earnings per share, price-to-earnings, dividend payout, and dividend yield. These ratios will help both management and investors in analyzing the company. For example, if I were looking to invest in a company’s stocks I would utilize all of the financial ratios, as well as the market ratios. The earnings per share ratio is calculated before the price to earnings ratio, P/E, because the earnings per share ratio is used in the second. If a company pays dividends, the dividend payout ratio will come in handy. It tells us “The percentage of earnings paid to shareholders in dividends” (Investopedia, 2010, p. 1).
References
Investopedia. (2010). Dividend Payout Ratio. Retrieved August 3, 2010, from Investopedia:http://www.investopedia.com/terms/d/dividendpayoutratio.asp
Response 2
Explain what can be found on a statement of stockholders’ equity.
The major elements of stockholders' equity include capital stock, paid-in capital, retained earnings, treasury stock, unrealized loss on long-term investments, and foreign currency translation gains and losses.
How might the information contained within the stockholder equity statement be used for management and investor decision-making? Provide specific examples of situations in which the stockholder equity information might be used.
Management may look at the stockholder’s equity statement retained earnings section to determine if company should borrow money for capital investments or finance it through various forms of equity. It may also be used by the stockholder to evaluate the compensation paid to the company officers. Investors may also look at the statement for cumulative net unrealized gains and losses before purchasing stock in the company. Investors are also interested in the paid in capital because they can compare it to the additional paid in capital and the difference between the two values will equal the premium paid by investors over and above the par value of the shares.
DQ 2
Week 3 DQ 2Due Thursday, Day 4
Provide an example from the text or the Internet that demonstrates a situation in which a company’s net profits appeared good in the statements, but the gross or operating profits presented a different picture. Discuss how this might have occurred. Respond to the following question, addressed in Problem 3.6 on p. 109 (Ch. 3): “Why is the bottom-line figure, net income, not necessarily a good indicator of a firm’s financial success?” Look for indicators like liquidity or solvency to answer this discussion question.
An example that demonstrates the situation is Enron. Enron’s financial statements did not show all the expenses and costs. Instead of showing them on the income statement they made entries so the cost and expenses would post in the balance sheet. The same was done with the revenues. This way it would be less expenses and the net profit appeared good. Many debts and losses were not reported in the financial statements. From the third quarter of 2000 through the third quarter of 2001, the directors fraudulently used reserve accounts within Enron Wholesale to mask the extent and volatility of its windfall trading profits, particularly its profits from theCalifornia energy markets; avoid reporting large losses in other areas of its business; and preserve the earnings for use in later quarters. By early 2001, Enron Wholesale's undisclosed reserve accounts contained over $1 billion in earnings. The head of the company improperly used hundreds of millions of dollars of these
reserves to ensure that analysts' expectations were met. In addition, Skilling and others improperly used the reserves to conceal hundreds of millions of dollars in losses within Enron's EES business unit from the investing public.This would show the creditors that Enron was making profits and its position was solid.
The net income is not necessarily a good indicator of a firm’s financial success because the income statement only shows the profit or loss at a period of time and does not show the whole picture of the company. The Balance Sheet, Statement of cash flow, Statement of shareholders’ equity and the Income Statement all together give the real picture of the business. Each one of them shows different aspects of the business. These statements show where the income is actually coming from; is it from sales or from loans the company is borrowing? If the company is selling a building or any other asset but that does not mean that it is selling more products and making profit. Looking at the Income Statements the company might be making profit but at the same time it is extremely leveraged.
Response 2
A company’s net income is not the whole picture, just part of it. There are lots of things that contribute to the net income that may not be significative to the company’s success. If the value of a dollar has a sudden change that can affect the bottom line if the company happens to hold the medium of exchange that can benefit by the change that might occur. The company can falsely inflate the bottom line. A company’s net income is coupled with liabilities, cash flow,
and selects financial ratios. Looking at it this way is a much better way of seeing what the company’s success is like. A company can change up many things to make it look like their income is better. These things that can be changed are single sales events, cash infusion, or false financial statements. Some things like debt that a company has, the company’s cash on hand, their capital assets conditions, or even their sales trends. To figure the success of the company, you must look at the whole picture. One thing cannot tell you all the facts of the company’s affairs. You cannot tell the net income of the company just from the bottom line. Look at all the financial records.
Response 3
Provide an example from the text or the Internet that demonstrates a situation in which a company’s net profits appeared good in the statements, but the gross or operating profits presented a different picture. Discuss how this might have occurred. Respond to the following question, addressed in Problem 3.6 on p. 109 (Ch. 3): “Why is the bottom-line figure, net income, not necessarily a good indicator of a firm’s financial success?” Look for indicators like liquidity or solvency to answer this discussion question.
Net income is not necessarily a good indicator of a firm’s financial success because they have ways to manipulate it by increasing their revenues or hiding some of their expenses. For investors trying to decide where to invest their money, they need to look more into assessing how the company came up with the numbers they presented.
An example of this situation is when Laribee Wire Manufacturing Co. exaggerated in recording their inventory value which allowed them in acquiring loans from six banks totaling to about $130 million using it as collateral. At the same time, they reported $3 million in net income for the period, but in actuality they lost $6.5 million.
This company showed a higher net income by reporting fake inventory in which its value was overstated and transferred over to their income statement. When the banks assessed their financial statements, it was enough to sway them into lending the loans they needed.
Reference:
Investopedia. (2010). Spotting Creative Accounting On The Balance Sheet. Retrieved fromhttp://www.investopedia.com/search/searchresults.aspx?q=Spotting+Creative+Accounting+On+The+Balance+Sheet&submit=Search
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ACCT 504 Week 1-7 All Discussion Questions (Devry)
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www.acct504mart.comWeek 1DQ 1 - Financial Reporting Environment and GAAPWeek 1DQ 2 - Details of Financial Statements and RatiosWeek 2DQ 1 - Accounting EquationAccounting CycleWeek 2DQ 2 - Accrual Accounting and Adjusting Entries
STOCK DIVIDEND
Stock Split
University of Phoenix
Stock Dividend
In the present time, the stock dividend has become important concept. When dividend is given in form of stock, it is called stock dividend. In this form of dividend, the cash does not use. It is important, when the corporation declares stock dividend, the market value of the share decreases because the number of stock increases. The many companies prefer stock dividend due to the tax benefit. If the individual gets stock dividend, he does not pay any tax on stock dividend. Thus the stock dividend reduces tax burden. On the other hand, the ownership of investors also spurs up in the company because the number of holding share increases. There is also disadvantage of stock dividend. The market value of the share decreases, so the market value of holding also decreases (Kennon, 2009).
The ABC Company is leading company in its industry. The number of outstanding share of the company is one million. On the other hand, the number of investors is five millions. The value of market capitalization is $100 million. The management declares 20% stock dividend. Thus the 200000 shares will be distributed as a stock dividend. The number of outstanding share will be increased by 200000 and the new total number of outstanding stock will be 1.2 million. On the other hand, the new value per share in the market will be $83.33 (100 million/1.2 million). This example is taken from below mentioned link:
Stock Split
The stock split is also an important concept. When the management wants to increases number of shares, the management follows this method. In this method, the face value of the share is split and number of share gets increased. Due to increment in number of outstanding share, the market value of per share also gets affected but the total market capitalization of the company does not affect. Both stock split and stock dividend increase number of outstanding shares but both are different due to the accounting treatment. In the stock split, the investors do not get any real benefit. It is also known as non-cash distribution of dividend. The motto behind stock split is to increase trading of the shares in the market (Baker, 2009)
For example, the face value of per share is $100 and the total outstanding shares are 100 million. If the management of the company announces stock split in ratio of 1:2, the total outstanding shares will be increased by 100 million, thus the new total number of the share will be 200 million. On the other hand, the face value of the share will reduce by 50%. So the new face value of the share will be $50. Due to effect of stock split, the holding share of the investor will also increase in the prorate basis. If the investor has 10 shares, now he will have 20 shares. It is important thing that the total issued capital will not be changed. The illustration of stock split has been got from following link:
Reverse Stock Split
The reverse stock split is just opposite of stock split. In this process, the management reduces the number of outstanding shares. The company increase face value of the share. In this method corporation decides a ratio such as 2:1. Thus the company accumulates two shares in one share. In this method, the total market value of company does not change. Due to reverse stock split, the earning per share and face value of per share rises. Thus the reverse stock split provides just opposite result from stock split. It is important question, why company selects this method. When the management seems that the face value of the share is less as compared to competitors then the company goes for this method to make its share value to equal to competitor’s share’s face value. It is also a sound strategy to increase treading of
shares. If the face value of share is too cheap in comparison to competitors, the investors will be discouraged for investment. For increasing the confidence of investors, the management uses this method (Mladjenovic, 2009).
For example, an investor holds 100 shares of XYZ Company and the face value per share is $50. If the management go for reverse stock split option and declares one share for 10 shares then the holding of the individual will reduce 9 shares for every 10 shares. Thus the new holding of the investor will be 10 (100/10) shares but the face value per share will be $500. It is also important that the total market capitalization will remain as same as before reverse split. The example of the reverse split is take form below mentioned link: http://www.sec.gov/answers/reversesplit.htm.
References
Baker, H. K. (2009). Dividends and Dividend Policy. John Wiley and Sons.
Kennon, J. (2009). All About Dividends. Retrieved May 31, 2010, from http://beginnersinvest.about.com/od/dividendsdrips1/a/aa040904_2.htm
Mladjenovic, P. (2009). Stock Investing for Dummies. Dummies. --------------------------------------
ACCT 504 Week 2 Homework (E2-17A, E2-18A, E3-22A, E3-23A)
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www.acct504mart.comThis Tutorial contains Excel Files which can be used to solve for any values (your Question may have different company name or values, but that can be solved using Excel file) E2-17A Dr Anna Grayson opened a medical practice specializing in physical therapy. During the first month of operation (May), the business, titled
Analyzing an Income Statement
The net income of Kodak has decreased a bit; it appears that the company is more profitable. By conducting a side by side analysis from 2004 to 2003 the company has increased in current assets and decreased in total assets. It appears that the company went down in property, plant and equipment net as well as discontinued operations. So, despite the decrease in total assets it looks like the company has made a good decision.
The company has also decreased its total liabilities by about 4%. I believe this to be good because the short term borrowings and long term debt has decreased. To me, this means that the company is tightening their belt and paying off old debt.
Total shareholders’ equity has down a little bit in dollars, but on the percentage level the company’s percentage has gone up. I believe this is because the company issued $104k more shares in 2004 than in 2003. The company has the same amount of shares outstanding in 2004 that it did in 2003 as well. Retained earnings on the stock have gone up in 2004 as well. I believe this is contributed by the more shares that have been issued.
I believe the profitability of the company is under good standings. They appear to be making the necessary adjustments in the company to stay with in a profitable income.
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ACCT 504 Week 3 Case Study 1 (Melvin Plumbing Corporation) **New**
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www.acct504mart.comMAKE SURE TO COMPLETE ALL REQUIREMENTS WHICH ARE LISTED BELOW. There are 10 sheets in the Workbook, including this one. All of the information that you need for the project is located in this Workbook. Requirement #1: During its first month of operation, the Melvin Plumbing Corporation, which specializes in residential plumbing, completed the following transactions. Analysis of Scenarios:
Debt Scenario would increase the debt ratios from to 50%. Equity Scenario would reduce the debt ratio to 40%. With Debt option, earnings per share would be higher. Interest declines to 2.86 times with the Debt option while times interest earned increases to 3.75 times with the Equity option. Either option exhibits a good use of financial leverage because for both, the financial leverage index being greater than 1. However, it is higher using the Debt option.
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ACCT 504 Week 3 Case Study 1 Flower Landscaping Corporation (Devry)
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www.acct504mart.com
The Entire Case Study is due Sunday at Midnight Mountain time at the end of Week 3.This Case Study is worth 100 points or 10% of your final course grade.Cash Flow Statement Analysis
Cash Flow Statement Analysis
The cash flow statement is important financial statement of the corporation. The cash flow statement states from where cash has come and where cash has been gone. Thus the cash flow statement makes a relationship between beginning balance and ending balance of cash. The cash flow statement is prepaid on the basis of income statement and balance sheet of the company. The Little Bit Inc’s beginning cash balance including marketable securities was $24000. On the other hand, the ending cash balance including marketable securities of the company was $40000 (Weygandt, Kimmel & Kieso, 2009).
The net income of the company was $5500 during 2009. The company generated cash inflow from operating activity is less as compared cash out flow from operating activities. The company generated $9000 negative cash balance in operating activity section of the cash flow statement. On the other hand, in the investment section, the firm has also negative cash balance. The firm has $7000 negative balance in investment section of the cash flow statement. The Little Bit Inc made investment during the year instead of selling of assets. Last section of the cash flow statement is financing activity section. In which, all finance related activities come. The corporation sold some shares and borrowed some money from outside lenders therefore the company has positive case balance by $32000 in financing activity section.
Reference
Weygandt, J.J.,Kimmel, P.D. & Kieso, D.E. (2009). Managerial Accounting: Tools for Business Decision Making. John Wiley and Sons.
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ACCT 504 Week 3 Quiz
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www.acct504mart.comQ -1 Other comprehensive income A. includes extraordinary gains and losses. B. affects earnings per share. C. includes unrealized gains and losses on available-for-sale investments. D. has no effect on income tax Week 5 DQ 1Due Tuesday, Day 2
In what ways does the statement of cash flows relate to the balance sheet and income statement?
It is important to understand what we are doing with the numbers and the results these numbers give us because the result is the information that will be available to us from financial statements. Although some want to see the income statement and ignore the other statements we need to use them together to see the total picture of what is happening to our business. The relationship between the numbers on the financial statements shows us everything we need to know about the business.
The income statement shows income and expenses for a period of time and if we are making or loosing money. The balance sheet compares the assets to liabilities and shows how much money the business would have if everything is sold today.
The statement of cash flow might be the most critical statement because there is plenty of information we can gain form it. This statement relates with the income statement on operating activities to see if they are generating cash or not. It is related to the balance sheet on how much cash is used in investing activities. In relationship with the balance sheet the cash flow statement shows what cash is provided or used by financing activities. It will tell us how much debt has been paid and will indicated if we are using more debt or have paid down the credit line.
When the business makes a sale or receives payment for a sale on credit that is an inflow. A sale shows up as income on the profit and loss statement and as an inflow on the cash flow statement. It also shows up either as cash or accounts receivable on the balance sheet. Also, how quickly we can collect on accounts receivable will play a big role in the cash flow. When the business spends money, it shows up as an expense in the profit and loss statement and as an outflow on the cash flow statement. It also shows up on the balance sheet as a
decrease in cash, or an increase or decrease in liabilities, depending on what the expense represents.
Response 2
In what ways does the statement of cash flows relate to the balance sheet and income statement?
The cash flow statement relates to the income statement and balance sheet. The net income from the income statement is listed on the statement of cash flows. Operating activities are analyzed on the statement of cash flows; this section of the statement reconciles the net income to the actual cash the company received from or used during operations. The second section of the statement of cash Flows is the cash flow from investing activities which include purchase or sale of assets. The last section in the Statement of Cash Flows is the cash flows from financing activities that includes raising cash by selling stocks/bonds or borrowing from backs; or cash out flows from paying back loans. The balance sheet shows the different account balances at the end of the accounting period. The statement of cash flows reflects changes in the accounts listed on the balance sheet between accounting periods. The net cash from operating, financing, and investing activities are added up to calculate the net change in cash.
Week 5 DQ 2Due Thursday, Day 4
Discuss how the statement of cash flows is utilized by investors. If you were an investor reviewing a statement of cash flows, what section might interest you most? Why? Discuss the circumstances in which other sections of the statement might be important to an investor.
Prior to making an investment in a company, one would want to understand the decisions the owners are making to fund the operations of the company daily. Maintaining sufficient cash to acquire new product, pay overhead, and satisfy generated sales would be the predominant need of the company. Second need would be for the company to have sufficient cash to remain competitive. This may require cash to invest in research and development, increase inventory as new product introduction, improve efficiency in plant and equipment, or cash to satisfy prior borrowing obligations. By reviewing the statement of cash flow, the investor can determine if the company is generating sufficient cash internally to fund operations or are they requiring outside injection of cash to finance the short fall in cash needed to operate the company. Last, the investor can review the statement of cash flow to better understand the leverage of the company and the requirement for repayment of debt, or dividends to reward prior investments.
Response 2
Discuss how the statement of cash flows is utilized by investors. If you were an investor reviewing a statement of cash flows, what section
might interest you most? Why? Discuss the circumstances in which other sections of the statement might be important to an investor.
The statement of cash flow is utilized by investors because it has all information integrated from the balance sheet and the income statement. The statement of cash flow is used by an investor to see if the operating activities are greater than the net income to have earnings that are called “high quality”. If operating activities are less, then a red flag will be raised as to why the net income is not becoming cash. Another reason would be investors believe cash is the best. The statement shows all cash coming and going from the business. If the company generates additional cash than what is being used, then the company can reduce their debt, acquire another business, or buy some of the stock back. The last reason why would be that financial models are based upon the statement of cash flow.
If I was an investor reviewing a statement of cash flows the section that might interest me the most would be the operating activities. I would like to know how the company was doing and what areas need to be improved to have more cash generated in the business. All the sections are important to an investor so they can see the complete big picture of their investment.
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ACCT 504 Week 4 Quiz
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Q -1 Anderson Company had the following information in 20142014. Accounts receivable 12/31/14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,000 Allowance for uncollectible account 12/31/14 (before adjustment). . . . . . . 850 Credit sales during 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,000
Candela Corporation
Axia College of University of Phoenix
Candela Corporation
Candela Corporation and Subsidiaries have been working for over 34 years developing and commercialize aesthetic laser systems that allow physicians and personal care providers to treat a variety of cosmetic and medical conditions such as removal of spider veins, scars, stretch marks, warts, as well as hair removal and age spots, freckles and tattoos. Other skin treatments such as psoriasis and acne and acne scars are also treated. (Axia College, 2007)
Going from top to bottom on The Candela Corporation and Subsidiaries Consolidated Statement of Cash Flows; for the operating activities, 2002 shows an alarming loss in the net income while 2003 and 2004 for the company are showing a significant and steady climb in the net income. In 2004 there was a new category added called Provision for the disposal of discontinued operations and the category has caused an increased the account for 2004. Loss from discontinued operations grew from 2002 to 2003 but had a significant decline for 2004. Depreciation has increased over the last 3 years as well. Provision for bad debts increased significantly too, but an increase in bad dept is expected as revenue increases. The
provision for deferred taxes shows the company went from a loss in 2002 and 2003 to show there was no tax loss in 2004. The tax benefit from exercised stock options has practically doubled sense 2003. The changes in assets and liabilities for the last 3 years have been up and down. Receivables have increased, notes receivable decreased, and inventories have increased. Other current assets, other assets have also increased. Accounts payable has made a significant decrease in the last 3 years as well as accrued payroll expenses. The accrued payroll decreasing could mean that the amount of employees over the years has decreased as well. The accrued warranty costs have increased as well; this could mean that the company renewed equipment warranties. The net cash provided by operating activities looks to have gone from a loss in 2002 to a large profit in 2003 and then a decrease, yet still a profit for 2004. It appears on the operations level that management needs to do more to regulate the company’s finances so there is not an up and down variance each year.
The cash flow from investing activities shows me that in the last three years they had large amount of investments in 2002 and 2003 but now they are letting them decrease.
The cash flow from financing activities states that the proceeds from issuance of common stock have increased significantly from 2002 to 2003 and rose a little more in 2004. The repurchases of stock has not happened sense 2002 and the principle payment of long-term debt grew in 2003 from 2002 and shows no activity for 2004. Same goes for the net borrowing on line of credit; it appears that Candela Corporation is current on payments to line of credit. So, the net cash from financial activities looks great for 2004. The cash and cash equivalents for each year have increased steadily.
After reviewing the consolidated statement of cash flows for Candela Corporation, I believe the company is making a profit, but perhaps need some control over their operating activities.
Reference
Axia College. (2007). Statement of Cash Flows. Retrieved June 14, 2010 from Axia
College, Week Six, ACC 230.
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ACCT 504 Week 5 Case Study 2 Internal Control - LJB Company (Devry)
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www.acct504mart.comCase Study 2 - Internal Control- Due by Sunday of week 5
LJB Company, a local distributor, has asked your accounting firm to evaluate their system of internal controls because they are planning to go public in the future. Week 5 DQ 1Due Tuesday, Day 2
In what ways does the statement of cash flows relate to the balance sheet and income statement?
It is important to understand what we are doing with the numbers and the results these numbers give us because the result is the information that will be available to us from financial statements. Although some want to see the income statement and ignore the other statements we need to use them together to see the total picture of what is happening to our business. The relationship between the numbers on the
financial statements shows us everything we need to know about the business.
The income statement shows income and expenses for a period of time and if we are making or loosing money. The balance sheet compares the assets to liabilities and shows how much money the business would have if everything is sold today.
The statement of cash flow might be the most critical statement because there is plenty of information we can gain form it. This statement relates with the income statement on operating activities to see if they are generating cash or not. It is related to the balance sheet on how much cash is used in investing activities. In relationship with the balance sheet the cash flow statement shows what cash is provided or used by financing activities. It will tell us how much debt has been paid and will indicated if we are using more debt or have paid down the credit line.
When the business makes a sale or receives payment for a sale on credit that is an inflow. A sale shows up as income on the profit and loss statement and as an inflow on the cash flow statement. It also shows up either as cash or accounts receivable on the balance sheet. Also, how quickly we can collect on accounts receivable will play a big role in the cash flow. When the business spends money, it shows up as an expense in the profit and loss statement and as an outflow on the cash flow statement. It also shows up on the balance sheet as a decrease in cash, or an increase or decrease in liabilities, depending on what the expense represents.
Response 2
In what ways does the statement of cash flows relate to the balance sheet and income statement?
The cash flow statement relates to the income statement and balance sheet. The net income from the income statement is listed on the statement of cash flows. Operating activities are analyzed on the statement of cash flows; this section of the statement reconciles the net income to the actual cash the company received from or used during operations. The second section of the statement of cash Flows is the cash flow from investing activities which include purchase or sale of assets. The last section in the Statement of Cash Flows is the cash flows from financing activities that includes raising cash by selling stocks/bonds or borrowing from backs; or cash out flows from paying back loans. The balance sheet shows the different account balances at the end of the accounting period. The statement of cash flows reflects changes in the accounts listed on the balance sheet between accounting periods. The net cash from operating, financing, and investing activities are added up to calculate the net change in cash.
Week 5 DQ 2Due Thursday, Day 4
Discuss how the statement of cash flows is utilized by investors. If you were an investor reviewing a statement of cash flows, what section might interest you most? Why? Discuss the circumstances in which other sections of the statement might be important to an investor.
Prior to making an investment in a company, one would want to understand the decisions the owners are making to fund the operations of the company daily. Maintaining sufficient cash to acquire new product, pay overhead, and satisfy generated sales would
be the predominant need of the company. Second need would be for the company to have sufficient cash to remain competitive. This may require cash to invest in research and development, increase inventory as new product introduction, improve efficiency in plant and equipment, or cash to satisfy prior borrowing obligations. By reviewing the statement of cash flow, the investor can determine if the company is generating sufficient cash internally to fund operations or are they requiring outside injection of cash to finance the short fall in cash needed to operate the company. Last, the investor can review the statement of cash flow to better understand the leverage of the company and the requirement for repayment of debt, or dividends to reward prior investments.
Response 2
Discuss how the statement of cash flows is utilized by investors. If you were an investor reviewing a statement of cash flows, what section might interest you most? Why? Discuss the circumstances in which other sections of the statement might be important to an investor.
The statement of cash flow is utilized by investors because it has all information integrated from the balance sheet and the income statement. The statement of cash flow is used by an investor to see if the operating activities are greater than the net income to have earnings that are called “high quality”. If operating activities are less, then a red flag will be raised as to why the net income is not becoming cash. Another reason would be investors believe cash is the best. The statement shows all cash coming and going from the business. If the company generates additional cash than what is being used, then the company can reduce their debt, acquire another business, or buy some of the stock back. The last reason why would be that financial models are based upon the statement of cash flow.
If I was an investor reviewing a statement of cash flows the section that might interest me the most would be the operating activities. I
would like to know how the company was doing and what areas need to be improved to have more cash generated in the business. All the sections are important to an investor so they can see the complete big picture of their investment. --------------------------------------
ACCT 504 Week 5 Course Project Draft Spreadsheet (Devry)
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www.acct504mart.comACCT 504 Week 5 Course Project Draft Spreadsheet (Devry)
Candela Corporation
Axia College of University of Phoenix
Candela Corporation
Candela Corporation and Subsidiaries have been working for over 34 years developing and commercialize aesthetic laser systems that allow physicians and personal care providers to treat a variety of cosmetic and medical conditions such as removal of spider veins, scars, stretch marks, warts, as well as hair removal and age spots, freckles and tattoos. Other skin treatments such as psoriasis and acne and acne scars are also treated. (Axia College, 2007)
Going from top to bottom on The Candela Corporation and Subsidiaries Consolidated Statement of Cash Flows; for the operating activities, 2002 shows an alarming loss in the net income while 2003 and 2004 for the company are showing a significant and steady climb
in the net income. In 2004 there was a new category added called Provision for the disposal of discontinued operations and the category has caused an increased the account for 2004. Loss from discontinued operations grew from 2002 to 2003 but had a significant decline for 2004. Depreciation has increased over the last 3 years as well. Provision for bad debts increased significantly too, but an increase in bad dept is expected as revenue increases. The provision for deferred taxes shows the company went from a loss in 2002 and 2003 to show there was no tax loss in 2004. The tax benefit from exercised stock options has practically doubled sense 2003. The changes in assets and liabilities for the last 3 years have been up and down. Receivables have increased, notes receivable decreased, and inventories have increased. Other current assets, other assets have also increased. Accounts payable has made a significant decrease in the last 3 years as well as accrued payroll expenses. The accrued payroll decreasing could mean that the amount of employees over the years has decreased as well. The accrued warranty costs have increased as well; this could mean that the company renewed equipment warranties. The net cash provided by operating activities looks to have gone from a loss in 2002 to a large profit in 2003 and then a decrease, yet still a profit for 2004. It appears on the operations level that management needs to do more to regulate the company’s finances so there is not an up and down variance each year.
The cash flow from investing activities shows me that in the last three years they had large amount of investments in 2002 and 2003 but now they are letting them decrease.
The cash flow from financing activities states that the proceeds from issuance of common stock have increased significantly from 2002 to 2003 and rose a little more in 2004. The repurchases of stock has not happened sense 2002 and the principle payment of long-term debt grew in 2003 from 2002 and shows no activity for 2004. Same goes for the net borrowing on line of credit; it appears that Candela Corporation is current on payments to line of credit. So, the net cash from financial activities looks great for 2004. The cash and cash equivalents for each year have increased steadily.
After reviewing the consolidated statement of cash flows for Candela Corporation, I believe the company is making a profit, but perhaps need some control over their operating activities.
Reference
Axia College. (2007). Statement of Cash Flows. Retrieved June 14, 2010 from Axia College, Week Six, ACC 230.--------------------------------------
ACCT 504 Week 5 Homework (E7-15A, E7-19A, E8-20A,
E9-23A, E9-29A)
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www.acct504mart.comThe units-of-production method tracks the wear and tear on the van most closely. Requirement 3. Which method would Tasteful's prefer to use for income tax purposes? Explain in detail why Tasteful's prefers this method.
Analyzing Statements of Cash Flows
4.8. Research Problem
Choose five companies from different industries and locate their statements of cash flows
for the most recent year.
(a) Create a table to compare the dollars provided or used by operating, investing, and financing activities, as well as the overall increase or decrease in cash.
(b) Create a second table for each company comparing this same information for each of the three years presented in that company’s statement of cash flows. Include an additional column that looks at the combined cash flows for all three years.
(c) Write a short analysis of the information gathered. Your discussion should address, among other things, whether cash flow from operating activities is large enough to cover investing and financing activities, and if not, how the company is financing its activities. Discuss differences and similarities between the companies you have chosen.
(a) Create a table to compare the dollars provided or used by operating, investing, and financing activities, as well as the overall increase or decrease in cash.
STATEMENT OF CASH FLOW ANALYSIS
STARBUCKS
HARELY DAVIDSON RITE AID
2008 2008 2008
NET INCOME / STARTING LINE
$ 315.5
$ -
$ (1,079.0)
OPERATING ACTIVITIES
$ 1,258.7
$ (684.7)
$ 79.4
INVESTING ACTIVITES
$ (1,086.6)
$ (393.3)
$ (2,933.7)
FINANCING ACTIVITIES
$ (184.5)
$ 1,293.4
$ 2,904.0
CASH $ (11.5)
$ 190.7
$ 49.9
(b) Create a second table for each company comparing this same information for each of the three years presented in that company’s statement of cash flows. Include an additional column that looks at the combined cash flows for all three years.
STARBUCKS
2008 2007 2006
Net Income/Starting Line 315.5 672.64 564.26
Cash from Operating Activities1258.70 1331.22
1131.63
Cash from Investing Activities
-1086.60
-1201.95 -841.04
Cash from Financing Activities -184.50 -171.89 -155.33
Net Change in Cash -11.50 -31.35 138.80
Net Cash - Beginning Balance 281.30 312.61 173.81
Net Cash - Ending Balance 269.80 281.26 312.61
HARLEY DAVIDSON
2008 2007 2006
Net Income/Starting Line 0 933.84
1043.15
Cash from Operating Activities
-684.65 798.15 761.78
Cash from Investing Activities
-393.25 391.21 -35.26
Cash from Financing Activities
1293.39
-1037.80
-637.02
Net Change in Cash 190.70 164.46 97.42
Net Cash - Beginning Balance 402.85 238.40 140.98
Net Cash - Ending Balance 593.56 402.85 238.4
RITE AID
2008 2007 2006
Net Income/Starting Line
-1078.99 26.83
1273.01
Cash from Operating 79.37 309.1 417.17
Activities 5
Cash from Investing Activities
-2933.74
-312.78
-231.08
Cash from Financing Activities
2903.99 33.72
-272.84
Net Change in Cash 49.61 30.08 -86.75
Net Cash - Beginning Balance 106.15 76.07 162.82
Net Cash - Ending Balance 155.76
106.15 76.07
(c) Write a short analysis of the information gathered. Your discussion should address, among other things, whether cash flow from operating activities is large enough to cover investing and financing activities, and if not, how the company is financing its activities. Discuss differences and similarities between the companies you have chosen.
Starbucks operating cash flow has gone up in 2007 and decreased a little in 2008. The net change in cash for Starbucks looks a on the down side but previously was doing well. The net loss in cash at end of year is decreasing from the previous year. This could mean that this year there can be a gain.
Harley Davidson's operating cash flow has significantly decreased from 2007. It appears the company was on an upward cycle from 2006. The decrease in cash from operating activities is probable from the lack of information supplied for net income. With the economy the way it is and not many people buying at this point could have an effect on why the net income is decreasing. With a bounced back economy in the coming year could reflect a positive gain.
Rite Aid's operating cash flow has taken a significant decrease as well from previous years. Although, after taking in cash from investing and cash from financing, the net change in cash is better than it has been in previous years. Rite Aid’s net gain in cash could be from the ever growing needs in medical supplies. This also could reflect the expansion of the company.
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ACCT 504 Week 6 Case Study 3 - Cash Budgeting - LBJ Company (Devry)
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www.acct504mart.comACCT504 Case Study 3 on Cash BudgetingThe cash budget was covered during Week 4 when we covered TCO D and you read Chapter 7. There is also a practice case study to work on. Your Professor will provide the solution to the practice case study at the end of Week 5. Findwhat.com Case - CheckPoint
ACC 230
Findwhat.com has recorded the 135 percent increase in the revenue which is mainly due to the business acquired of Espotting during the year. The different accounting policies are present for the acquiring firm and the acquired firm. The company has recorded certain premature revenues for the amount which advertisers had made only the advance deposit. As result, the company is recognizing the vendor financing as revenue. In some places, the gross revenue has been recognized while in another, the net revenue has been recognized. The network click revenue is recognized at gross level while the private level revenue is taken at net level. Some of the revenue expenditures have been recognized as the capital expenditures.
Revenue for set up network fee is treated as deferred revenue and is recognized over a period of time. The company is very inconsistent with regards to its accounting policies in terms of recognition of revenue. The provision and treatment of amount for doubtful debt is also not satisfactory. When a customer clicks on a sponsored advertisement, the whole of the revenue due to him is recognized. The company is having a very high amount of doubtful debt balance at the end of the year ending December 31, 2004.
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ACCT 504 Week 6 Homework (E10-19A, E10-25A, E12-
16A, E12-20A)
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www.acct504mart.comThis Tutorial contains Excel Files which can be used to solve for any values (your Question may have different company name or values, but that can be solved using Excel file) E10-19A Army Navy Sporting Goods is authorized to issue 10,000 shares of common stock. During a two-month period, Army Navy completed these stock-issuance transactions: Week 7 DQ 1Due Tuesday, Day 2
Post your answer to Study Question 5.2 on p. 180 (Ch. 5). As you read your classmates’ responses, consider the following scenario: If you compared two different companies that utilized two different valuation methods, how might the quality of the results differ? Also, comment on the difficulty of making comparisons between two firms that use different valuation methods.
Understanding the different inventory methods is crucial. First the person that establishes the inventory needs to determine which method to use. LIFO, or FIFO. LIFO means Last in First Out. This means that when a purchase is made, and sales are recorded the newest product is used first. So if I bought 10 combs at $2 on December 1st, and then I buy 5 combs at $2.50 on December 10th. When sales are made I am going to record sales using the $2.50 until I sell through the 5 combs that were
purchased on the 10th, and then the cost will go to the previous purchase price of $2 until those 10 combs are sold through. FIFO is just the opposite. Meaning that goods are used in the order that they are received. The first items ordered, are the first items sold. Either method will pass an audit. It is important to note though that managers can't switch back and forth between the two methods. Profit will vary depending on which method is being used. Say you sold only 6 combs at $3 each. Using the LIFO method this would equal $3.50 profit. If you used the FIFO method, this would result in a $6.00 profit.
Response 2
Post your answer to Study Question 5.2 on p. 180 (Ch. 5). As you read your classmates’ responses, consider the following scenario: If you compared two different companies that utilized two different valuation methods, how might the quality of the results differ? Also, comment on the difficulty of making comparisons between two firms that use different valuation methods.
It is very important to understand which inventory valuation method is being used to determine the profit numbers quality. The balance sheet, statement of cash flow and income statement can be directly impacted by the valuation method that used to determine the costs of inventory. The three methods that are used are FIFO, LIFO and Average Cost. The valuation ratios can be dramatically affected depending on the inventory valuation that is being used over a long-term period; especially because prices are likely to rise. When using FIFO you can increase net income, but then at the same time raise the amount taxes that business is obligated to pay. When using LIFO the inventory can be obsolete because they are old this will result in lower net revenue because the products pricing is higher. The Average Cost results usually fall between LIFO and FIFO. The bottom line can be affected mainly by the inventory analysis and the ratio results that are formed from that analysis. It is easier to compare
companies that are in the same line of business, so I believe that quality of results would differ tremendously if different valuation methods were used. If you use LIFO that company may seem unattractive but they are performing well, as for FIFO it may look good as for profit, but may not be performing well.
DQ 2
Week 7 DQ 2Due Thursday, Day 4
Post your answer to Study Question 5.6 on p. 180 (Ch. 5). Discuss the consequences of poor quality reporting. What has the U.S. government done to improve the quality of reporting after recent financial scandals such as Enron?
I think that the significance is that the analysts only see this one HUGE transaction. The events that actually led up to this large transaction actually took place over a 2 year period. These items should have been written off as they occurred. Wall Street would not have known that the executives refused to write off these accounts when they should have. Wall Street only see's the one large transaction. If the company would have been more honest in their reporting they would have seen (more than likely) that there were many accounts over a two year period that should have been written off at different periods. So the analysts
would not have seen a pattern of recurring write-offs. If the analysts only see the one transaction they are less likely to be able to paint an accurate picture of the financial standing of the business for investors, or potential investors. If the investors could see that there were many accounts that had to be written off maybe their investing decisions would have been different. The regulation of the accounting field has grown by leaps and bounds since the Enron scandal. The government has implemented several agencies and regulations to ensure honesty in accounting practices. SOX is one example of an agency that has been put into place to ensure honesty in accounting. SOX implements things like internal controls, and accountability for CEO's and CFO's.
Response 2
I believe the impact and importance of this write-off event is a very big matter. It is obvious how they handled it that it was a scandal from the start. I think that everyone involved had a big role in how things played out. To me I think of the investors as a really big hit to this but also feel that audit committees have to be held responsible as well. It has been shown over many examples that adit oversights are happening to financial reporting. Although I do feel they are getting better and tighter due to conforming tightly with the GAAP requests. I feel over time the accounts receivable should have been written off in smaller increments and not all taken by $405 million at once. Maybe that isn't correct but it would have been easier I would think to take the receivables over time.
Response 3
Wall Street should have read the footnotes and seen that the write off was for accounts receivables and should have been reported in the allowance for doubtful accounts. Every company that allow sales on credit
face doubtful accounts; therefore, the write off may reoccur. The significance of this transaction is that WorldCom want to cover up the $405 million dollars that it was unable to collect from its customers, but WorldCom wrote off a large sum of money rather recording the write-off as needed and the analyst over looked it. Depending on how the company policy is for writing off accounts, from 1998 to the 3rd quarter in 2000 is 11 quarters. If the company wrote off bad accounts quarterly it should have wrote off 36,818,181.82 per quarter. Investors would not want to continue to invest into a company that has poor collection skills, or poor management. Unusual items are simply for those items that are not recurring operating expenses. Bad debts do not fall under this category. Since the Enron and WorldCom scandals many rules and regulations have been put in place by the government such as SOX. More people are being held accountable for their actions and consequences follow poor quality reporting such as fudging the books.
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ACCT 504 Week 7 Course Project JCP Kohls (Devry)
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www.acct504mart.comACCT 504 Week 7 Course Project JCP Kohls (Devry)
Presenting to Stakeholders
Axia College of University of Phoenix
Presenting to Stakeholders
“Financial statements provide insight into the company’s current status and lead to the development of policies and strategies for the future” (Axia, 2007). Financial statements and notes to the financial statements should be used to analyze the company. For instance, what do the financial statements reveal about why the company has requested a loan or purchased items on credit? What is the firm’s capital structure and what does the firm have outstanding? How well can the company pay back debt? What recourses are used to pay debt? What is the company’s performance record and are there any future expansions? What are the expected returns and how successful is the company compared to industry averages? Which areas of operations contributed to the company’s success, and what are the strengths and weaknesses of the company? What changes can be made to improve the future performance of the company?
Key financial ratios will assist in determining the information requested. Liquid ratios measure a firm’s ability to meet cash needs as they arise. The current ratio is a good tool to use because it measures the ability the firm has to pay debts when due. The current ratio for REC is at 2.4 times for 2007, although it is down from 2006 the company is still able to pay current debt when due. Cash flow ratio considers cash flow from operating activities has increased from 2006, and this indicates an improvement in short-run solvency. Average collection period has gone down 5 days within the last year. The cash conversion cycle gives in-site on why the cash flow has improved or decreased, in this case the conversion period for REC has improved by 26 days.
Activity ratios measure the liquidity of specific assets and the efficiency of managing assets. Accounts payable turnover is up seven times from the prior year and inventory turnover is also up .25 from last year. Accounts payable turnover is down 9.05 from 12.10 in 2006. This means that the company is taking longer to repay payables. The fixed asset turnover and total asset turnover ratios are used to assess management’s skills in generating sales from investments in assets. The fixed asset turnover has dropped slightly, but the total asset turnover has risen slightly. The increase in total asset turnover comes from improvements in inventory and accounts receivable turnover.
Leverage ratios measure the extent of a firm’s financings with debt relative to equity and its ability to cover interest and other fixed charges (Axia, 2007). Debt ratio, long-term debt to total capitalization and dept to equity have all raised slightly implying a slightly riskier capital structure. The times interest earned and the cash interest coverage have increased since 2006. The interest payments can be covered 7.4 times this year. The cash interest has improved due to the operating profits and cash from operations. The fixed coverage ratio is also important in cases where companies use operating leases. In this case, the fixed charges have increased slightly.
Profitability ratios are used to measure the overall performance of a firm and its efficiency in managing assets, liabilities, and equity. The ratios used are the gross profit margin, operating profit margin and net profit margin. All of which have improved for REC. As well as the cash flow margin, return on total assets, return on equity and cash return on assets. Over all the company seems to be in well financial standings and looking toward a profitable year.
