Fin Stat Analysis Horizontal analysis is comparing period to period while Vertical analysis is comparing everything in a single period known as common size also is percentages used to compare businesses FORMULAS EPS NET INCOME PREFFERED DIVD AVG OF COMMN SHARES OUTSTANDING CURRENT RATIO CURRENT ASSESTS CURRENT LIABILITIES QUICK RATIO Cash Short trm invest net receive Current Liabilities Inventory Turnover COGS AVG INVENTORY DAYS INVENTORY OUTSTANDING DIO 365 INVENTORY TURNOVER ACCTS RECIEVE TURNOVER NET SALES AVG NET ACT RECEIVE AVG NET ACCTS RECEIVE BEGIN NET AR END NET A R 2 DAYS SALE OUTSTANDING DSO ABG BET RECEIVE ONE DAY S SALES ACCTS PAY TURNOVER COGS AVG ACCTS PAY DAYS PAY OUTSTANDING DPO 365 AP TURNOVER CASH CONVERSION CYCLE DIO DSO DPO Dividends Payable 22 000 Cash 22 000 Paid the Cash Dividend CLiabilities Accts Pay Current portion of Bonds Pay Interest Pay LTLiabilities Notes pay LT Bonds Pay LESS Disct on Bonds Pay 2000 issued at 77 5 155 500 200 000 7775 Retained Earnings 22 000 Dividends Payable 22 000 Declared a cash dividend VOCAB Discounting is process of calculating present value which is less than future value Unrealized gains and losses from available for sale investments arise from changes in the markt value of the investment If treasury stock is sold at a price greater than its reacquisition costs the difference is CREDITED TO PAID IN CAPITAL FROM TREASURY STOCK The effect of the declaration of a cash dividend is an INCREASE TO LIABILITIES AND A DECREASE TO AN STOCKHOLDERS EQUITY The date when a cash dividend becomes a legal obligation is the DECLERATION DATE If a corporation declares a 100 000 cash dividend the account to be debited on the date of declaration is RETAINED EARNINGS DEBIT RE EARN CREDIT DIV PAY When preferred stock is cumulative preferred dividends not paid in a year are called DIVIDENDS IN THE ARREARS Before a company can pay dividends to the common stockholders the owners of cumulative preferred stock must receive ALL DIVIDENDS IN ARREARS PLUS THE CURRENT YEAR S DIVIDENDS If stock is issued for an asset other than cash the asset should be recorded on the books of the cooperation at fair market value When 100 share of 1 par value common stock are issued at 25 per share paid in capital in excess of par value common stock will increase 2 400 25 1 100 2400 Wolverine corp issued 5000 shares of its 5 par value common stock in payment for attorney services of 40 000 Wolverine stock has been actively trading at 20 per share This transaction would include a DEBIT TO LEGAL EXPENSE 40 000 AND A CREDIT TO PAID IN CAPITAL EXCESS OF PAR 15 000 CEO Chairperson of board of directors If a corporation has only one class of stock it is understood to be COMMON STOCK Management Responsibility 1 Issues report on and declares resp for internal control over financial reporting 2 States it has conducted an assessment of internal controls based on developed frameworks To be effective and audited by outside auditors Auditors report cpa examine statements must comply with GAAP audit adds credibility SECURITIES AND EXCHANGE COMMISSION required companies issuing publicly traded stock to have their financial statements audited by an external auditor A prior period adjustment corrects income of a prior period requires an entry to retained earnings PPA can inc dec RE The statement of cash flows will not report the of checks not written at the end of the period The statement of cash flows is designed to fulfill all the following purposes EXCEPT to ASSESS THE COLLECTABILTY OF ACCTS RECIEV A gain on sale of equipment is subtracted from net income when determines cash provided by ops under indirect method TRUE TRUE FALSE On the maturity date of the bond the bondholder will receive the bond s present value FALSE PRESENT VALUE is what it is worth today while MATURITY VALUSE is in the future The process of determining the present value is called discounting because the present value is more than the future value FALSE The PRINCIPAL is the amount borrowed or invested TRUE Current maturities of long term debt are reported separately from long term liabilities TRUE A current liability must be paid out of current profits FALSE paid from cash Purchasing merchandise inventory on account results in a liability TRUE The account Discount on Bonds Payable increase a company s liabilities FALSE If the market interest rate is greater than the stated interest rate the bonds will sell at a discount TRUE If the market interest rate is 6 a 10 000 7 5 year bond that pays interest semiannually would sell at an amount greater than face value A debit balance in Retained Earnings indicates that a company s lifetime earnings exceed its lifetime losses and dividends issued FALSE The total stockholders equity remains the same before and after a stock split TRUE Publicly traded companies have the option to produce audited financial statements FALSE An audit report is addressed to the board of directors and stockholders of the company TRUE An unqualified opinion by independent auditors indicates the fairness of the company s financial statements and the effectiveness of its internal control TRUE Vertical analysis highlights changes in financial statement balances from period to period FALSE Horizontal analysis compares financial statement items in the current period with other items in the current period FALSE Horizontal analysis is performed on the IS BS statement of RE Casey s Computers purchased 4 000 shares of its own 10 per value common stock for 92 000 As a result of this transaction Casey s Stockholders Equity decreased 92 000
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