COMM 293 FINAL EXAM REVIEW SESSION BY: KATHY HUANG

Transcription

1 COMM 293 FINAL EXAM REVIEW SESSION BY: KATHY HUANG

2 TABLE OF CONTENT I. Tangible and Intangible Assets II. Short Term Liabilities III. Long Term Liabilities IV. Shareholder s Equity V. Cash Flow Statement VI. Financial Statement Analysis

3 Section I: Plant, Property and Equipment Provides long-term benefits to the company Cannot be turned quickly into cash Examples:,, Capitalize or Expense? How do we tell what to capitalize or what to expense? 1. Capitalize ANY costs incurred to 2. Once the asset is in use, only capitalize costs that 3. Costs incurred in maintaining, running, or working an asset is Depreciation This is displayed through Financial Statements through: : Depreciation Expense = depreciation for the year : Accumulated Depreciation = total depreciation to date

4 To calculate how much to depreciate, we need: Methods to Depreciation 1. Equal portion depreciated each year Net book values decreases by same amount each year until it reaches residual value Depreciation Expense per year =!"#$!!"#$%&'(!"#$%!"#$%&!"#$ 2. Asset is more efficient when it is new Amortization expense increases each year Net book value cannot fall below residual value Depreciation Expense per year =!"#!""#!"#$%!"#$%&!"#$ *2

5 3. Depreciation depends on use each year Dep. Exp per year =!"#$!!"#$%&'(!"#$%!"#.!"#$%!"#$%&'(#) (Actual Production) Sample Question: The Avo-Kale Juicery purchased a pulping machine for $5,000. The company planned to keep it for four years, after which it is expected to be sold for $500. a) Calculate the depreciation expense for each of the four years under double diminishing-balance method: b) Assuming Avo-Kale Juicery sold the table for $1,225 at the end of the third year, calculate any gain or loss on disposal under the double diminishing method.

6 Intangible Assets Recorded at cost Uses the term amortization instead of depreciation Examples: intangible assets: have a limited life o Patents o Copyrights o Research and Development costs intangible assets: have indefinite lives ( ) o Trademark o Franchise and licenses o Goodwill Section II: Short Term Liabilities Current Liabilities: obligations arising from past transactions that will be paid with assets/services within.

7 Examples:,, Sample Question: Lisa works for a monthly salary of $550 per week. Canada Pension Plan contributions are $27.23 each for the employee and the employer. Income tax is $ Employment insurance premiums are $9.79 for the employee and $13.12 for the employer. How would the employer record the journal entries? a) Employee portion of the contribution b) Employer portion of the contribution

8 Sample Question: Three Cheeses is a gourmet cheese shop in the Kerrisdale area. On April 1, 2016, the company paid for equipment with a $100,000, 5%, 1-year note-payable with interest payable at maturity. Prepare all journal entries pertaining to Three Cheeses assuming that the company has a December 31 year-end. Section III: Bonds : Amount owed when the bond matures. : Rate of interest in the market. : Interest paid to the bondholder.

9 Coupon rate = Effective Rate at Coupon rate < Effective Rate sold at Coupon rate > Effective Rate sold at *Semi-Annual: 2 x the periods, 1 2 the coupon rate, 1 2 the eff. int rate. Steps to Calculate the price of the bond: Step 1: Calculate present value of the face value = Face value x PV($1) (Effective interest %, # of Periods) Step 2: Calculate present value of the coupon payments = Face value x Coupon Rate x PVFA (Effective interest %, # of Periods) Step 3: Add PV of face value and PV of coupon payments together. Step 4: Complete journal entry to record the transaction.

10 Sample Question: On July 1, 2016, Blue Oasis Corp. issued $1 million, 10-year, 6% bond at a price to yield a market interest rate of 7%. The bonds pay semi annually on July 1 and Jan 1. Blue Oasis Corp. has a December 31 year-end. a) What is the price of the bond today? b) Record the issuance of the bond On Jul 1, 2016.

11 c) Record the journal entry for the accrual on Dec 31, 2016 and subsequent payment on Jan 1, d) Record the second payment of Jul 1, 2017.

12 Section IV: Shareholder s Equity Common Shares: Has of a company Preferred Shares: Have access to and before common shareholders Issuing Shares: DR. Cash CR. Common Shares/Preferred Shares Issuing Shares for non cash consideration: Ex: 2,500 shares of Palm Tree Plantation worth $3/share were issued for a parcel of land on Jan 20. On Jan 20, the land was appraised to be worth $42,000.

13 Cash Dividends: On December 1, 2015, directors declared a $0.50 per share cash dividend on company s $100,000, $2 preferred shares, payable on January 20 to shareholders of record on December 22. Prepare the journal entries on each of the three dates Dec 1 (Declaration Date): Dec 22 (Record Date): Jan 20 (Payment Date): Stock Dividends: Doggie Dos has 50,000 shares with a balance of $500,000 in Common Shares and $300,000 in retained earnings. On June 30, it declares a 10% stock dividend to shareholders of record at July 20, to be distributed to shareholders on August 5.

14 The share price on June 30 (declaration date) is $15 per share. The share price on July 20 (record date) is $16 per share. The share price on August 5 (distribution date) is $14 per share. The number of shares to be issued is. June 30 (Declaration Date): July 20 (Record Date): Aug 5 (Payment Date):

15 Stock Splits: Leaky Faucets has 100,000 shares trading at $20/share. It has $200,000 beginning balance in retained earnings. On Jan 1, the management team declares a 3:1 stock split. What will the effects on common shares be? Section V: Statement of Cash Flows Indirect Method: Always start with Then adjust for the non cash expenses on the And adjust for the changes in the balances on the Cash Flow Statement is separated into three main activities:,,

16 Doggie Donts Statement of Financial Position December Assets Cash $13,000 $5,000 Accounts Receivable 38,000 24,000 Merchandise Inventory 27,000 20,000 Propoerty, Plant and Equipment 80,000 78,000 Accumulated Depreciation (30,000) (24,000) Goodwill 5,000 16,000 Total Assets $133,000 $119,000 Liabilities and Shareholder's Equity Accounts Payable $17,000 $15,000 Salaries Payable 1,900 2,100 Income Tax Payable 1,000 4,000 Bank Loan Payable 34,100 50,650 Common Shares 18,000 14,000 Retained Earnings 56,000 28,250 Accumulated OCI 5,000 5,000 Total Liabilities and Shareholder's Equity 133, ,000 Income Statement Sales $256,000 Cost of Goods Sold 140,000 Gross Profit 116,000 Operating Expenses 78,250 Profit from Operations 37,750 Interest Expense 4,000 Profit before income tax 33,750 Income tax expense 6,000 Profit 27,750

17 Additional Info: 1. Equipment was sold during the year for $8,500 cash. The equipment originally cost $12,000 and has a carrying amount of $8,500 at the time of the sale. 2. Equipment costing $14,000 was purchased in exchange for $4,000 cash and a $10,000 long-term bank loan. 3. Some of the bank loan was repaid during the year 4. Operating expenses are composed of $9,500 depreciation expense, $7,750 of administrative expenses, $50,000 of salaries expense and an $11,000 impairment loss on goodwill.

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19 Section VI: Financial Statement Analysis Refer to Chapter 13 Notes for full list of formulas. : How profitable is the company = = =!"#$$!"#$%&!"#$%!"#!"#$%&!"#$%&#!"#$%!""#$"!"#!"#$%& =!"#$%&!"#$%#&%'!"!"##"$!!!"#!!"#$%&!"#$%&#!!!"#!!"#$!!!!"#$%&!"#$!!"#!"#$!%#!"##"$!!!"#$!"#$#%&'(&) : Firm s ability to meet short-term obligations = =!!""#$%!""#$"!"##$%&!"#$"%"&"'(!"#!!!/!!"##$%&!"#$"%"&"'(!"#$% =!"#$%&#!/! =!"#$ =!"#!"!"#$!"#$%&#!"#$"%&'(

20 : Firm s ability to meet long-term obligations. = =!"#$%&!"#$%"!"#$%$&#!"#!"#$%!"#$%$&#!"#$%!"#$"%"&"'(!"#$%!"#$%& General Tips: Understand the numerator and denominator Think about who the audience is and what they would want to know about the company Compare the ratio from year to year and look for unusual changes Company the ratio of that company to that of companies in the same industry Good Luck on your exam!