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juggernaut Module 1 If you always do what you always did,

you’ll always get what you always got.

“But I think that there’s no magic to evaluating any financial asset. A financial asset means, by definition, that you lay out money now to get money back in the future. If every financial asset were valued properly, they would all sell at a price that reflected all of the cash that would be received from them forever until Judgment Day, discounted back to the present at the same interest rate.”

Warren Buffett

So what we will be doing

And what it takes to be successful in this class (and in life)

Always F________, E________

Operating A________ The L_____(Urban Meyer)

Treat the class like you would treat your girlfriend or boyfriend, give it a little a____________________________________.

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The Pedagogy

What your brains wants above all else is to ________________!

Your Brain

Front Brain Back Brain Decisions What we know Consequences Long-term memory Predicting Emotions related to experiences Creating Language

Tomorrow! Yesterday!

Learning depends on experience, but it also requires reflection, developing abstractions, and active testing of our abstractions. Often we will almost skip the reflective stage, and try a shortcut to an idea or even an action. AoCtB

-Sensory input goes primarily to the back half of the brain. It is where long-term memory is. It is about the past.

-The front integrative cortex is about the future. It is where we develop ideas and abstract hypotheses. Things are weighted here. It is where we take charge. AoCtB

How do I learn? I grope.

A. Einstein

Cognition requires:

Works or doesn’t (Modify Knowledge)

Try it Matches (Or Create Structures)

What if? (Hypothesis)

And we have such a challenge because what you know now, you _________________________. Only you can _____________________________.

AoCtB refers to The Art of Changing the Brain, James Zull, Stylus Publishing 2002

Ohhhh -about asking questions--- Neils Bohr

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We start……………………..

Accounting Equation:

Assets = Liabilities + Owners’ Equity

We are going to start a corporation to sell hot dogs in a cart on the corner of Court and Union. We form a corporation, Hot Dogs, Inc. and you, and everyone in the class invests $100 and we each get one share of stock for that $100. Assume there are 20 of us. We elect a Board of Directors, a COO and start to do business. First we borrow $10,000 from the bank and buy a new cart for that amount. Next we buy 1,000 dogs and 1,000 buns. Dogs cost .15 and buns are .05 each. For our first month, we sell 900 dogs for $2 each. We pay our worker $600 and our other expenses are $300. How did we do? Are we rich yet? Was it a good investment?

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We are going to start a corporation to sell hot dogs in a cart on the corner of Court and Union. We form a corporation, Hot Dogs, Inc. and you, and everyone in the class invests $100 and we each get one share of stock for that $100. Assume there are 20 of us. We elect a Board of Directors, a COO and start to do business. First we borrow $10,000 from the bank and buy a new cart for that amount. Next we buy 1,000 dogs and 1,000 buns. Dogs cost .15 and buns are .05 each. For our first month, we sell 900 dogs for $2 each. We pay our worker $600 and our other expenses are $300. How did we do? Are we rich yet? Was it a good investment?

Assets = Liabilities +Owners' Equity

CASH

+ -- -- + -- +

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Earnings Per Share

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The matching concept is: Expenses must be _______________________________________________

_______________________________________________.

How would the Hot Dog Inc. financials have changed if we owed our worker $100 at the end of January for work she did the last week of the month?

Seems appropriate------ The last thing Osama bin Laden saw on this earth was an American soldier with a gun.

Professional Tip: First Rule of the negotiator F_________ and S__________

Professional Tip: Be D_________. Both in speech and in action

Push through the discomfort

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No elephants in the room here!!

Homework Module 1

You have decided to start a business selling widgets. You form a corporation, Widgets, Inc. You paid $10 per share for 1,000 shares of stock on January 1, 2016. Next the company borrowed $30,000 from your Aunt Susie. For the $30,000 borrowed from your aunt, the company agrees to pay back that amount on December 31, 2021 and to pay interest at 10% at the end of each year. On January 1, 2016, the company bought 6 widgets for $3,000 each. During the year it sold 4 widgets for $8,000 each. The company also paid a security deposit of $1,000, advertising expense of $2,000, and 12 months of rent, $12,000. Widgets, Inc. bought a delivery van on December 31st that cost $20,000, putting $5,000 down on the van and agreeing to pay the balance next year. On December 31 the company paid the first year’s interest to Aunt Susie of $3,000. the tax rate is 30% of income before taxes and the taxes will be paid in 2017.

Prepare T accounts, an income statement, statement of owners’ equity and a balance sheet.

epiphany Module #2 When mom’s on a diet,redoubt everyone’s on a diet.

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From the following information for Mater, Inc., prepare the financial statements for the year ending December 31, 2015.

Cash 58,000 Common Stock 50,000Accounts Receivable 15,000 Retained Earnings 324,000Inventory 80,000 Sales 410,000Building 200,000 Cost of Goods Sold 200,000Equipment 100,000 Salary Expense 50,000Accumulated Depreciation 20,000 Rent Expense 36,000Security Deposit 3,000 Depreciation Expense 10,000Accounts Payable 12,000 Office Expense 10,000Salaries Payable 4,000 Interest Revenue 1,000Taxes Payable 6,000 Interest Expense 5,000Note Payable, Long-Term 40,000 Income Tax Expense 30,000

Mater Inc. declared and paid a $5,000 dividend in 2015. The beginning Common Stock was $40,000 and beginning Retained Earnings was $259,000. There were 800 shares outstanding at the beginning of the year and 1,000 shares outstanding at the end. The company sold 200 shares on June 30th, 2015.

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From the following information for 2015 for CoJo, Inc. prepare Financial Statements. Assume a

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December 31 year end.

Accounts Payable 200,000Accounts Receivable 80,000Accumulated Depreciation 46,000Advertising Expense 19,000Building 300,000Cash 172,000Common Stock ($1 Par) 1,000Capital in Excess of Par 299,000Cost of Goods Sold 500,000Depreciation Expense 20,000Equipment 140,000Interest Expense 5,000Inventory 120,000Notes Payable, Long-Term 100,000Patent 50,000Rent Expense 96,000Retained Earnings 201,000Sales 900,000Salaries Payable 6,000Salary Expense 160,000Tax Expense 30,000Taxes Payable 9,000

Cojo, Inc. issued 200 shares of common stock on June 30, 2015. There were 800 shares of common stock outstanding at the end of 2014. The company declared and paid a $10,000 dividend during 2015. The beginning Capital in Excess of Par was $240,000 and the beginning Retained Earnings was $111,000. The long-term debt is payable at $10,000 per year.

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There are two levels of EPS

B_____________

D_____________

Types of Income Statements

1) C___________________ or multi-step

2) S___________ S_________

What is Working Capital?

Net Working Capital

So…..

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An Income Statement is _________________________________________________________________

Revenues are ________________________________________________________________

Expenses are _________________________________________________________________

Another name for the Income Statement is the ____ & _____ or ______________& ___________.

And the phrase ___________ _____ ___ ______ ___________ ________ comes from this.

A Balance Sheet is _____________________________________________________________________

We classify the Balance Sheet into sections or categories. Usually this segregation is done

according to L_____________________ on the Asset side and when they ______________ b__ p________ on the liability side.

An Asset is ___________________________________________________________________________

On the Asset side we have C ____________ A_____________ and other categories such as

F_____________ A____________ and O___________ A___________

A Liability is _________________________________________________________________________

And on the Liability side of the Balance Sheet we have

C___________________ L___________________

L___________________ L___________________

and maybe O___________________ L___________________

Owners’ Equity is _________________________________

Two types of capital C_____________________________ and E_____________________ which is termed R___________ E___________ in a corporation

A dividend is _______________________________________________________________.

Rule of the Professional: Second Rule of the Successful executive

Be ________________________________ (It is ok to fake it!!----------------, but

-never, never, ever be w__________ W____________!!)

Module #2 Homework

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I was taught that the way of progress is neither swift nor easy. Madame Marie Curie

Problem 1

From the following information for McStuffin Co. for the year ended 12/31/15, prepare the Financial Statements. There were 100 shares of common stock issued on April 1, 2015 and a dividend of $5,000 was paid on November 30, 2015. Beginning Common Stock was $9,000 and beginning Retained Earnings was $57,500.

Advertising Expense $ 1,000 Rent Expense 12,000Cash 47,000 Retained Earnings 63,000Common Stock (1,000 shares) 10,000 Sales 85,000Cost of Sales 40,000 Tax Expense 4,500Inventory 25,000 Utilities Expense 2,000Note Payable, Long-term 20,000 Wage Expense 10,000Interest Expense 5,000 Land 20,000Goodwill 10,000 Wages Payable 1,000 Accounts Payable 8,000

Problem 2

From the following information for John & Debbie’s Production Company for the year ended 12/31/15, prepare Financial Statements. The company issued 1,000 new shares of common stock for $10,000 on May 1, 2015 and declared and paid dividends of $2,000 in 2015. Beginning Common Stock was $90,000 and the beginning Retained Earnings was $90,600.

Accounts Payable 50,000 Interest Expense 8,000Accounts Receivable 40,000 Note Payable, Long-Term 80,000Advertising Expense 5,000 Rent Expense 36,000Cash 50,000 Retained Earnings 134,000Common Stock (10,000 Shares) 100,000 Sales 200,000Cost of Sales 72,000 Tax Expense 18,600Inventory 60,000 Utilities Expense 5,000Land 200,000 Wage Expense 10,000Patent 20,000 Wages Payable 6,000

Read & study pages 15 - 22

ONLY THOSE WHO HAVE THE PATIENCE TO DO SIMPLE THINGS PERFECTLY WILL ACQUIRE THE SKILLS TO DO DIFFICULT THINGS EASILY

Frederick Schiller

Debits, Credits and Related Enigmas

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Christine E. KirchDavid P. Kirch

The BasicsDebit and credit are simply a way of keeping track of what happens in a business. It is the

quintessential element of what is known as double entry bookkeeping. For this class you do not really need to understand everything about bookkeeping, you just need to be able to create enough rules for yourself that you can get by.

Each business transaction is recorded using specific rules. These rules fall under the general category we call “Debit and Credit”. Using these rules we keep track of the financial transactions that affect the business.

First, we will review the stuff we talked about earlier when we introduced accounting. Remember the basic accounting equation for keeping track of transactions is:

ASSETS = LIABILITIES + OWNERS’ EQUITY

A lot of beginning textbooks like to say that the assets equal claims against those assets. In other words, if you put $20,000 of your own money in a business, then you increase cash by $20,000 and you have a claim against that $20,000.

ASSETS = LIABILITIES + OWNERS’ EQUITY 20,000 = 20,000

But now we are going to modify this by saying that we divide each category or account into two sections as follows:

Assets = Liabilities + Owners’ Equity + - - + - +

Notice that we “plus” the assets on the left side and “minus” them on the right and that we “plus” the liabilities and owners’ equity on the right side and “minus” them on the left. In this way our equation of A = L + O/E is always in balance because our right side always equals our left side. Huh? Consider the transaction where you started the business. (We call these T-accounts for obvious reasons!)

Assets = Liabilities + Owners’ Equity + - - + - + 20,000 20,000

Instead of saying plus and minus, we are going to use the words debit and credit. The word debit simply refers to the left side of an account. The word credit simply refers to the right side of an account. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~So we can now say that assets are increased by debits and decreased by credits. Liabilities and owners’ equities are increased by credits and decreased by debits.

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If all we wanted to keep track of was the totals of the assets and the liabilities and the owners’ equity, the above method would suffice. While this works, simply having just the three totals doesn’t provide enough information to be useful for decision-making. We probably will want or need to know how much of the assets is in cash and how much is in inventory. Therefore, we want to break the assets down into categories or “accounts”. Further, we will break down our main categories of Assets, Liabilities and Owners’ Equity into more descriptive sub-categories.

ASSETS = LIABILITIES + OWNERS’ EQUITY

Cash Owners’ Investment Debit Credit Debit Credit 20,000 = 20,000

Now assume your new company borrows $10,000 from the bank. You have an increase in the asset cash of $10,000 and an increase in the liability (or claim against assets) bank loan payable of $10,000.

ASSETS = LIABILITIES + OWNERS’ EQUITY Cash Bank Loan Payable Owners’ Investment Debit Credit Debit Credit Debit Credit20,000 = 20,00010,000 = 10,000 _________________30,000 = 10,000 + 20,000

Next, your company spends $15,000 for inventory. ASSETS = LIABILITIES + OWNERS’ EQUITY

Cash Inventory = Bank Loan Owners’ Investment Debit Credit Debit Credit Debit Credit Debit Credit20,000 = 20,00010,000 = 10,000 15,000 15,000 ______________ 15,000 15,000 = 10,000 20,000

Notice that we credited cash $15,000 and debited $15,000 to inventory. We used one asset (cash) to purchase another type of asset (inventory). Note also that the $15,000 balance in cash is the $30,000 debit total minus the $15,000 credit total.

As a final step to this stage of the accounting process, we introduce the process of journalizing or, preparing journal entries. Journal entries are simply a written record of the transaction. For instance, when we started the business above, our journal entry would have been:

DR CRCash 20,000 The debit Owners’ Investment 20,000 The creditTo record initial receipt of cash from the owner. The explanation of what the

journal entry is recording.

Note that we usually put the debit account name first and the debited account names are indented to the left. Debits are abbreviated dr. We then put the amount in the dr column, which is the left column. Next we put in the credit account name, indented to the right and the amount in the credit column, which is the column on the right. (Credits are abbreviated cr). After the journal entry, we write a short description or explanation of the transaction the journal entry is recording.

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Now let’s try and put all this together.

PROBLEM:It is January 1, 2016. You and I have decided to go into the business of selling DVDs. I

heard from a friend that there is an excellent teacher at Ohio University who explains debit and credit so anyone can understand it. And she does it in exactly two hours. I have arranged with a studio near the University to tape her lecture. They will then produce the videos and sell them to us for $10 each. We will be the exclusive distributor of the DVD- Debit for Dummies. The studio which tapes the lecture will take care of paying the prof a royalty and has the equipment to make all the DVDs we want. We have decided to operate as a corporation- Our DVD Company. I will put $9,000 in the business for 9,000 shares of stock. You are a little short right now so you will put only $1,000 in the business for 1,000 shares of stock. You will run everything and give me monthly financial statements. You will receive a salary of $3,000 per month. The following things happened in January. Remember, you must keep track of everything and report to me monthly.

First we will start by writing down what happened. We write this down in a special form or what we call journalizing the transaction. You know that assets must equal liabilities + owners’ equity. For this transaction we increase our assets by $10,000 and increase owners’ equity by $10,000. The journal entry to record the above transaction would look like:

Dr. Cr.(1) Cash 10,000

Common Stock 10,000 To record issuing capital stock in exchange for cash. The next step in the recording process is to post the amounts to their respective accounts. This recording process, the taking of the numbers from the journal to the T-Accounts is called posting. After posting, the T-Accounts would look like:

Cash Common Stock Dr. Cr. Dr. Cr.(1) 10,000 10,000 (1)

January 1: While we were at the bank we borrowed $6,000 which we agreed to repay in two years. The loan carries interest at 12% which we will pay at the end of each year.

Dr. Cr.(2) Cash 6,000

Note Payable-Bank 6,000 To record the loan from the bank.

Our T-accounts look like: Cash Note Payable-Bank Common Stock Dr. Cr. Dr. Cr. Dr. Cr.(1) 10,000 6,000 (2) 10,000 (1)(2) 6,000 _________ 16,000January 5: We purchased 1,250 DVDs with cash.

Dr. Cr.

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(3) Merchandise Inventory 12,500 Cash 12,500

To record purchase of inventory 1,250@$10.

The T-accounts will look like:

Merchandise Note Payable Cash Inventory Bank Common Stock Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.(1)10,000 12,500 (3) (3) 12,500 6,000 (2) 10,000 (1)(2) 6,000 _______ 16,000 12,500 3,500

January 31: We sold 900 DVDs for $20 each during the month of January. We paid your salary of $3,000, rent of $1,000, utilities of $350 and advertising of $250.

Dr. Cr.(4) Cash 18,000

Sales 18,000 To record January sales.

(5) Cost of Goods Sold 9,000 Merchandise Inventory 9,000

To record the cost of the sales for January.

(6) Salary Expense 3,000 (These could have Rent Expense 1,000 been have been Utilities Expense 350 recorded as separate Advertising Expense 250 journal entries. This

Cash 4,600 is what is known as To record expenses paid with a compound journal

cash in January. e ntry .)

Sales and expenses are special accounts in the owners’ equity section of the balance sheet. Revenues (sales) increase owners’ equity and expenses decrease owners’ equity. (We will go into the why of this later). Expenses are increased by debits and revenues, or sales, are

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increased by credits. Cash Merchandise Inventory Note Payable-Bank Common Stock Dr. + Cr. - Dr. + Cr. - Dr. - Cr. + Dr. - Cr. +(1) 10,000 12,500 (3) (3) 12,500 6,000 (2) 10,000 (1)(2) 6,000 9,000 (5)(4) 18,000 ____________ 4,600 (6) 12,500 9,000 34,000 17,100 3,500 16,900 Sales Cost of Goods Sold Dr. - Cr. + Dr. + Cr. - 18,000(4) (5) 9,000

Salary Expense Rent Expense Dr. + Cr. - Dr. + Cr. - (6) 3,000 (3) 1,000

Utilities Expense Advertising Expense Dr. + Cr. - Dr. + Cr. - (6) 350 (6) 250

Some final notes concerning T-Accounts and Journal Entries. All accounts that eventually wind up on the balance sheet (Cash, Merchandise Inventory, Note Payable - Bank and Common Stock are termed real accounts. All the accounts that end up on the income statement are called temporary accounts. At the end of each year, the temporary accounts are closed to a balance sheet account called Retained Earnings. This closing process allows us to keep track of only the current year’s sales and expenses. This allows the data to be much more relevant to decision makers. If we assume that the above transactions were for the whole year instead of just of the month, then our closing entry would be:

(7) Sales 18,000 COGS 9,000 Salary Expense 3,000 Rent Expense 1,000 Utilities Expense 350 Advert Expense 250 Retained Earnings 4,400To close the temporary accounts for the year

Retained Earnings is an owners’ equity account where we accumulate the earnings for each year. Note that after you post the above entry, all the temporary accounts (Sales, Cost of Goods Sold, Salary Expense, Rent Expense, Utilities Expense and Advertising Expense) would now have -0- balances. They are ready to begin accumulating the data for the next year.

From these balances now, can you construct an Income Statement, Statement of Owners’ Equity and Balance Sheet? (Try it and then check the next page)

Our DVD, Inc. Income Statement

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For the Month Ended January 31, 2016

Sales $ 18,000 Cost of Goods Sold 9,000Gross Margin 9,000 Operating Expenses:

Salary Expense $ 3,000 Rent Expense 1,000 Utilities Expense 350 Advertising Expense 250

Total Operating Expenses 4,600 Net Income $ 4,400

Earnings Per Share $ 0.44

Our DVD, Inc. Statement of Owners’ Equity

For the Month Ended January 31, 2016

Common Stock Retained Earnings Totals Beginning Balances, January 1, 2016 $ 0 $ 0 $ 0Common Stock Issued 10,000 10,000Net Income 4,400 4,400Less: Dividends Declared < 0> < 0>Ending Balances, January 31, 2016 $ 10,000 $ 4,400 $ 14,400

Our DVD, Inc. Balance Sheet

January 31, 2016

Assets LiabilitiesCurrent Assets Current Liabilities Cash $16,900 None Merchandise Inventory 3,500 Total Current Liabilities $ -0- Total Current Assets 20,400 Long-Term Liabilities Note Payable-Bank 6,000 Fixed Assets Total Liabilities 6,000 None 0 Owners’ Equity

Common Stock $10,000 Other Assets Retained Earnings 4,400 None 0 Total Owners’ Equity 14,400 Total Liabilities and Total Assets $ 20,400 Owners’ Equity $ 20,400 (Note the only time that Retained Earnings and Net Income will be the same is after the first year of operations).

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_________________________________________________________________________EPS for Bella (Problem on next page)

100,000/ 2/12 X 6,000 + 3/12 X 8,000 + 1/12 X 12,000 + 6/12 X 16,000

= 100,000/12,000

= $8.33Calculating Weighted Average Earnings Per Share

Earnings Per Share (EPS)

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Types of EPS Basic Diluted

EPS = Net Income Weighted Average Number of Shares Outstanding

Weighted Average EPS

Greges Corporation had net income for 2014 of $100,000. At the beginning of the year they had 10,000 shares of common stock outstanding. On April 1 they sold 4,000 shares to the public. On October 1, they sold 3,000 more shares. At December 31st, they had total assets of $1,000,000 and total Liabilities of $600,000. Calculate the EPS.

$100,000 1 (3/12 X 10,000)+ (6/12 X 14,000) + (3/12 X 17,000)

= 7.27

For 2014, Bella Company earned $100,000. The company had 6,000 shares outstanding on January 1, sold 2,000 shares on March 1 and sold 4,000 shares on June 1 and another 4,000 on July 1. Calculate the EPS for Bella. (Answer is on previous page.)

Hobson’s Choice Module #3 Friends come and go,exacerbate but enemies accumulate.

(Thomas F. Jones, Jr.)Earnings per Share

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Primary and diluted

Convertible bonds, stock options and so forth

As if….

The Formula for Basic

Samsun Company earned $100,000 last year. The company had 5,000 shares of common stock outstanding on January 1, sold 8,000 shares on April 1 and sold 4,000 shares on October 1. Calculate the EPS for Samsun.

Ryan Corporation had 100,000 shares outstanding at the beginning of the year. On April 1, they issued 12,000 shares, on June 30, they issued 16,000 shares and on October 1, they issued 8,000 shares. The Company earned $300,000 for the year. What was the EPS?

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Debits and CreditsThe Hot Dog Stand …

January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone received ten shares of $1 par value

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stock for that $100 investment. There are 48 of us. We elected a Board of Directors, a COO and we start to do business. After we start, we immediately sell 10 shares of $1,000, 6% convertible preferred stock to a venture capitalist. Each share of the preferred is convertible into 5 shares of stock. We borrowed $10,000 from the bank at 8% interest. The loan is repayable in five years. We bought a new cart for $10,000. During the year we bought 15,000 dogs and 15,000 buns. Dogs cost .15 and buns are .05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600 and $800 for interest. On September 30 we sold 20 more shares for $300 each. On December 31, we paid the preferred dividend of $600. At the end of the year we owed our worker $100. The tax rate is 30% and we will pay our taxes next year. How did we do?

The issuance of the stock Par Value is:

You can also have No Par Value Stock and Stated Value Stock

What is Preferred Stock?

Types C_______________________________________

C_______________________________________

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P______________________________________ not so much

Plus anything ____________

Diluted EPS

Ace Company had Net Income $100,000 last year and has 10,000 shares of common stock outstanding. Ace had an issue of preferred stock. The preferred stock has a $100,000 face (Par) value and was issued with a 4% dividend rate. The dividend is cumulative. The preferred is convertible into 1,000 shares of common stock. Calculate Ace’s basic and diluted earnings per share.

Basic Diluted

Net Income $ 100,000 $ 100,000

EPS $ 9.60 $ 9.09

Numerator 100,000 - 4,000 100,000Denominator 10,000 11,000

Lisa Company had operating income of $100,000 last year. She has two bonds outstanding. One bond is a straight $100,000, 6% interest bond that is due in six years. The other bond is a $100,000 4%, bond that is due in 8 years and that is convertible into 1,000 shares of common stock. Lisa has 10,000 shares of stock outstanding and a 30% tax rate. Calculate Lisa’s basic and diluted earnings per share.

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Lowry Locomotion earns a net profit of $200,000, and it has 5,000,000 common shares outstanding that sell on the open market for an average of $12 per share. In addition, there are 300,000 options outstanding that can be converted to Lowry’s common stock at $10 each.

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http://www.accountingtools.com/diluted-earnings-per-share-for

Now we go to work----

We need to break the process down into simple steps.

Create a Ledger-----Create a Journal,---------- Write it down----- Post it ----

Create a Trial Balance------ Make Financial Statements

(When we say record transactions and Prepare Financial Statements, this is what we mean)First we write out in “accountanteze” what happened. This is done in a journal entry.

Rules of the Journal Entry: Journal entries are always numbered. Debits are to the left. Credits are to the right. The journal entry is always followed by an explanation. A blank line is left between journal entries.

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CASH

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Finally, we total and summarize what happened in a usable form- First a Trial Balance and then the financial statements.

The Trial Balance

Trial BalanceRef Adjustments

Ref Balance Sheet Income Statement

Dr Cr Dr Cr Dr Cr Dr Cr

Cash 28,20

0

Inventory 20

0

Cart 10,00

0

Wages Payable 10

0

Taxes Payable 4,05

0Note Payable 10,00

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0

Common Stock 50

0Paid In Capital- C/S

4,900

Preferred Stock 10,00

0Retained Earnings 600

Sales 28,00

0

Cost of Sales 2,80

0

Wage Expense 7,30

0

Other Expenses 3,60

0

Interest Expense 80

0

Tax Expense 4,05

0 57,55

0 57,55

0

A Chart of Accounts is ______________________________________________________

We will do the Income Statement first (Statement of Income, Statement of Earnings, P&L, Statement of Profit & Loss)

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Balance Sheet (Statement of Financial Position, Statement of Financial Condition, Statement of Assets, Liabilities & Owners’ Equity)

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Statement of Owners’ Equity (Statement of Shareholders’ Equity, Statement of Stockholders’ Equity, Statement of Retained Earnings)

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Continued on page 38

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Coffee, Continued from page 36

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BBBB, Inc. Balance Sheet

December 31, 2014 Assets Liabilities

Current Assets Current Liabilities Cash $ 151,000 Taxes Payable $ 18,600 Merchandise Inventory 8,000 Note Payable-Land 28,000Total Current Assets 159,000 Total Current Liabilities 46,600

Fixed Assets Long-Term Liabi l i t ies Land 30,000 Note Payable-Bank 100,000

Total Liabilities 146,600 Other Assets Security Deposit 6,000 Owners’ Equity

Common Stock ($1 Par) $ 500 Paid In Capital 4,500

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Retained Earnings 43,400 Total Owners’ Equity 48,400 Total Liabil i t ies and Total Assets $ 195,000 Owners’ Equity $195,000

During 2015 the companyPurchased 15,000 biffs at $8 each. Paid $100,000 cash and will pay $20,000 next year.Sold 11,000 biffs at $20 eachPaid the $28,000 note on the land plus $2,000 interestPaid 11 months’ rent of $11,000Paid salaries of $36,000Issued 100 shares of common stock for $10,000 on June 1st.On December 31, bought a truck for $40,000, cash.On December 31, paid $50,000 on the note payable to bank and $10,000 interest.Paid 2014 taxes payableTax rate is 30% and paid ½ of 2015 taxes in 2015. The rest will be paid in 2016.

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CASH

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Professional tips When eating, the napkin goes _____ your ____. When you leave the table temporarily, it goes on your ____________, and when you are done, it goes on the r_______ side. Silverware is used from the ________________ in. Never push __ _____ ________ _________. Most important person is to your _________. And that silly little spoon or fork at the top is ____ _________.

#2 A leader takes r___________________ and follows through

There is nothing more scary, or dangerous, than ignorance in action.

Module #3 Homework

Finish BBB

Read page 47

JohnBoy Company had operating income of $500,000 last year. He has two bonds outstanding. One bond is a convertible $500,000, 6% interest bond that is due in six years. The bond is convertible into 30,000 shares of stock. The other bond is a $200,000 4%, bond that is due in 8 years and that is convertible into 8,000 shares of common stock. JohnBoy has 80,000 shares of stock outstanding and a 30% tax rate. Additionally JohnBoy’s stock sells on the open market for an average of $15 per share. In addition, there are 5,000 options outstanding that can be converted to Lowry’s common stock at $12 each.

Calculate JohnBoy’s basic and diluted earnings per share. (When calculating the diluted EPS, you must do each bond separately to make sure it is dilutive.)

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DepreciationWhen a company buys a fixed asset (accountanteze for buildings, machines, furniture, trucks and so forth) the cost of the asset, except land, must be allocated over the period the asset helps the company generate revenues. The period over which the asset is useful to the company in generating revenues is called its economic or useful life. Therefore, a definition of depreciation expense is the allocation of the cost of a fixed asset over its estimated useful life. To figure the amount of the expense for each year under the straight-line method of depreciation, we use the following formula:

Cost - Estimated Salvage ValueDepreciation Expense per year = Estimated Life of the Asset

Suppose we bought a truck to deliver our product. The truck cost us $30,000 and we estimate that we will use it for 3 years before it becomes too expensive to keep it going. We further estimate that at the end of the three years we will be able to sell it for $3,000. This $3,000 is the estimated salvage value (also termed the residual value).

Accumulated Depreciation is an enigmatic account for many students. It is a valuation account. It is also a contra account. Now let’s see what it really is. The truck account will remain the same, $30,000, until we sell or trade in the truck. The amount of depreciation we take on the truck will accumulate over the years we own it in the Accumulated Depreciation account. The cost minus the accumulated depreciation of any fixed asset is known as its book value. Consider the P & L and the Balance Sheet for each of the following years:

P&L Year 1 Year 2 Year 3 Sales

Cost of Good Sold

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Gross MarginOperating Expenses: Xxxxx Expense Xxxxx Expense Depreciation Expense 9,000 9,000 9,000

Balance SheetCurrent Assets Xxxxxxx Xxxxxxx XxxxxxxTotal Current Assets

Fixed AssetsTruck 30,000 30,000 30,000Less: Accumulated

Depreciation < 9,000> <18,000> <27,000>Net Fixed Assets 21,000 12,000 3,000

If we originally purchased the truck at a point in the year other than the beginning, we would adjust our depreciation for the period we used it. Many companies have special rules for these situations. A common one is that the company takes 1/2 of a year’s depreciation in the year they buy the asset, no matter when in the year that occurs, and they take 1/2 of a year’s depreciation in the year they sell the asset, again, no matter when in the year that occurs.

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Module 4 What built this country over time is tens of thousands of people who want to live better tomorrow than they did today and go to work on it.

Warren Buffett

DepreciationWhat it is, is

You bought a new truck to use to deliver the Whatevers that you sell. The truck cost $30,000, will last for 4 years. At the end of 4 years, you figure you could sell it for $2,000.

Formula for Straight-Line Depreciation:

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Goes on the Balance Sheet

InventoriesWe began the year with 2 markers that cost us $10 each

During the year we purchased 2 more for $12 each

During the year we sold 3 for $20 each

Cost of Goods Sold??

Specific Identification

Weighted Average

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LIFO _____________________________________

(Not used much anymore because of the I______________.)

FIFO means ___________ ___, __________ _____.

Inventory “turn”

and taking that one step further,

gives us the A____________ days __________ _____ _____________

And “Working Capital” is

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“Net Working Capital”

Prepaid Expenses and Accruals

(remember the matching principal is __________________________________________

____________________________________________________________________________)

You started the year with a beginning balance in Rent Payable of $2,000.You paid 15 months’ rent of $15,000. Record the journal entry.

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You started the year with a beginning balance in Prepaid Rent of $2,000.You paid 8 months of rent of $16,000. Record the journal entry.

You started the year with $3,000 in Wages Payable. You paid $40,000 to your worker. You owed her $ 7,000 at the end of the year. Record the journal entries.

You started the year with $1,200 in Prepaid Insurance. This was for the final two years of a three year policy. What is the journal entry you would prepare at the end of the year to recognize the insurance expense for the year.

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The concept of future value:

If you have $100 today and put it in a bank, how much will you have in the future?

|------------------------------------------------------------------------------------|

In order to put this concept to practical work, I need to know

1) when in the future are you talking2) ____________________________3) ____________________________

a) So you have $100 today, the bank pays annual interest of 10%, how much will you have in one year?

b) Two years?

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c) One year and the bank pays interest at 10% compounded semi-annually?Interest is normally stated on an _________________ basis.

d) If you have $1,000 today, how much will you have in 2 years, 12% interest, compounded quarterly?

The formula for FV is

The n is the number of ________________________________________________________.

If I put $100 in the bank today, the bank pays interest semi-annually at 8% how much will I have in one year?

If I put $100 in the bank today, the bank pays interest quarterly at 12%, how much will I have in one year?

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Before the homework--- Bubble Guppies---- current portion of long-term debt

And what about the dividend????

Module 4 HomeworkProblem 1 Bubble Guppies, Inc.

Listed below are the accounts for Bubble Guppies, Inc. at December 31, 2016 and their balances.

Accounts Payable $ 40,000Accounts Receivable 143,000Accumulated Depreciation 85,000Advertising Expense 8,000Building 200,000Cash 185,000Common Stock 210,000Cost of Goods Sold 440,000Equipment 100,000Interest ExpenseInsurance Expense

8,000 3,000

Inventory 62,000Depreciation Expense 46,000Note PayablePrepaid Rent

100,000 4,000

Rent Expense 36,000Retained Earnings 272,000

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Sales 880,000Salaries PayableSalary Expense

8,000 200,000

Security Deposit 40,000Tax Expense 38,000Taxes Payable 19,000Utilities Expense 12,000

Bubble Guppies’s beginning balance (12/31/15) in Retained Earnings was $193,000 and the beginning Common Stock balance was $60,000. The company had 6,000 shares of common stock outstanding at the beginning of the year. The corporation issued 4,000 shares of common stock on April 1, 2016. The Note Payable requires annual payments of $20,000 on principal plus interest at 8% on December 31st. During the year the company paid a $10,000 dividend.

Prepare financials statements (3) for Bubble Guppies’s

There are more problems on the next page

Problem 2If I deposit $500 in the bank today and the bank pays interest of 6% compounded annually, how much will I have 3 years from today?

Problem 3If I deposited $2,000 in the bank today at 5%, how much would I have 8 years from today?

Problem 4If Mary deposits $200 in an account that pays interest annually at 12%, how much will she have in 2 years?

Problem 5If Mary deposits $200 in an account at12% that pays interest semi-annually, how much will she have in 2 years?

Problem 6 Jane will save for three years. The bank pays interest at 10% compounded semi-annually. How much will she have in three years if she deposits $1,000 today?

Problem 7 For Jane (6), what if the bank paid interest annually?

Problem 8 How much will you have in three years if you put $100 in the bank today and the bank pays

A) 8% compounded annually?B) 16% compounded quarterly?C) 12% compounded semi-annually?D) 24% compounded quarterly?

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Problem 9 How much do I need to deposit in the bank today at 8% compounded quarterly so that I will have $100,000 one year from today?

Problem 10How much do I need to invest today at 4% compounded annually in order to have $1,000,000 five years from today?

Problem 11How much do I need to put in the bank today in order to have $10,000 two years from today if interest is 8% compounded semi-annually?

Problem 12The Arsen Co. earned $500,000 last year. The company had 100,000 shares outstanding on January 1, sold 6,000 shares on July 1 and sold 6,000 shares on October 1. The Arsen Co. stock sells for $50 per share. Calculate the EPS.

Extra Prepaid/Accrual ProblemsYou started the year with a beginning balance in Prepaid Rent of $2,000. You paid 13 months’ rent of $26,000. Record the journal entry.


You started the year with $4,000 in Wages Payable. You paid $40,000 to your worker. You owed her $ 3,000 at the end of the year. Record the journal entry(s).

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You started the year with $1,000 in Prepaid Insurance. This was six months of insurance on a policy that expires this year. On June 30, you purchased a two year policy for $3,000. Record the journal entries.

You started the year with a beginning balance in Rent Payable of $1,000.You paid 14 months’ rent of $14,000. Record the journal entry.


You started the year with $5,000 in Wages Payable. You paid $50,000 to your worker. You owed her $ 10,000 at the end of the year. Record the journal entries.

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You started the year with $ 750 in Prepaid Insurance. This was four months of insurance on a policy that expires this year. On May 1, you purchased a two year policy for $4,800. Record the journal entries.

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Module 5Time Value of Money

You have a choice- $100 today, $107 in one year or $115 in two years. You do not need money today and the money is safe if you decide to take it later. How would you make this decision?

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The idea of Opportunity Cost ________________________________________________________________

_______________________________________________________________

Present valueFirst, back to an easy future value problem, how much will you have in one year if you put $100 in the bank today and the bank pays interest compounded annually at 10%?

How much do you need to put in the bank today to have $110 in one year if the bank pays interest at 10%, compounded annually?

What if you wanted to have $100 in one year, bank pays interest at 10% compounded annually?

The formula for present value

Using the Calculator

How much will I have in 3 years if I put $1,000 in a bank which pays interest at 10% compounded annually?

2nd CLR TVM 1000 PV

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3 N 10 I/Y CPT FV

How much will I have in 6 years if I put $1,000 in a bank which pays interest at 10% compounded quarterly?

2nd CLR TVM 1000 PV 24 N

2.5 I/Y CPT FV

How much do I need to put in the bank today if I want to have $1,000 in 3 years, the banks pays interest at 10% compounded annually?

2nd CLR TVM 1000 FV

3 N 10 I/Y CPT PV

How much do I need to put in the bank today if I want to have $1,000 in 3 years, the banks pays interest at 10% compounded semi-annually?

2nd CLR TVM 1000 FV

3 X 2= N 10÷2= I/Y

CPT PV

How about wanting $50,000 in 10 years bank pays interest 16% payable quarterly?

Or 2nd CLR TVM 50000 FV

10 X 4= N16÷4= I/Y CPT PV

The tutorials and instruction book for your calculator make some easy calculations very difficult. If you do one or two additional steps, it all becomes easy.First, some basics The third line of the calculator is the one we will be using the most.

N is the number of compounding periodsI/Y is the interest rate per compounding periodPV is the present value

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PMT is the payment per periodFV is the future value

To set your decimal points2nd Format (bottom middle key)

Enter number of decimal points you want to use.Enter (top line second key)

Future Value Problems

How much will I have in the bank in 1 year if I put $100 in today, bank pays interest at 10% compounded annually?

1) 2nd clr tvm2) 100 PV 3) 1 N4) 10 I/Y 5) CPT FV FV = -110.00

How much will I have in the bank in 1 year if I put $100 in today, bank pays interest at 10% compounded semi-annually?

1) 2nd clr tvm2) 100 PV 3) 2 N4) 5 I/Y5) CPT FV FV = -110.25

Present Value Problems What is the present value of $1,000 to be paid to me in 2 years, bank pays interest annually at 10%.

2nd CLR TVM1000 FV2 N10 I/YCpt PV -826.45

What is the present value of $1,000 to be paid to me in 2 years, bank pays interest of 10% semi-annually?

2nd CLR TVM1,000 FV4 N5 I/YCpt PV -822.70 Payments

You want to buy a new car. The cost is $50,000. You make 5 equal annual payments which include interest at 10%. How much are the payments?

2nd CLR TVM50,000 PV5 N

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10 I/YCpt PMT -13,189.87

What would the payments be if they were monthly? 2nd CLR TVM

50,000 PV5X12 = N10/12 = I/YCpt PMT -1,062.35

Differential InterestBob will sell you a DooDad for $10,000 payable in 3 equal annual payments which include interest at 2%. The bank would charge you 10% for the same loan. How much are you really paying for the DooDad?

2nd CLR TVM10,000 PV3 N2 I/YCpt PMT 10 I/YCpt PV 8,623.28

How much would you pay for a 10 year, 100,000 bond, 10% interest payable annually, to earn 8% interest?

2nd CLR TVM100,000 FV10 N.10 X 100,000 = PMT8 I/YCpt PV 113,420.16

You are buying a 10 year, $100,000 Note issued 5 years ago. The Note is being paid in equal annual payments which included interest at 10%. Current interest rates are 12%. The Note has exactly 5 years of payments left and you will get the first in 1 year. How much do you pay to earn 12%?

2nd CLR TVM100,000 PV10 N10 I/Y Cpt PMT5 N12 I/YCpt PV 58,666.07

Problems

1) How much do you need to put in the bank if you want to have $1,000,000 in 5 years, bank pays interest at 4% compounded annually?

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2) Compounded semi-annually?

3) How much if you want to have $100,000 in 15 years, the bank pays interest at 8% compounded annually?

4) What if you want $1,000,000 in 20 years at 12% compounded semi-annually?

5) Problem 4 compounded quarterly?

Annuities 1) How much do you need to put in the bank today so you can take out $100 per year

for each of the next two years? The bank pays interest at 12% compounded annually. You will make your first withdrawal exactly one year from today.

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2) How about $1,000 per year for next 4 years, bank pays interest at 10% compounded annually?

3) How much do you need to put in the bank today so you can take out $10,000 per year for the next five years? The bank pays interest at 8% compounded annually.

4) How about $100 for 10 years, same bank and interest?

5) How about $500 per year for the next 30 years, bank pays interest at 8%, compounded annually?

Module 5 Homework

Problem 5-1If I deposit $500 in the bank today and the bank pays interest of 6% compounded annually, how much will I have 3 years from today?

Problem 5-2

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If I deposited $2,000 in the bank today at 5%, how much would I have 8 years from today?

Problems 5-3If Mary deposits $200 in an account that pays interest annually at 12%, how much will she have in 2 years?

Problem 5-4If Mary deposits $200 in an account at12% that pays interest semi-annually, how much will she have in 2 years?

ONLY THOSE WHO HAVE THE PATIENCE TO DO SIMPLE THINGS PERFECTLY WILL ACQUIRE THE SKILLS TO DO DIFFICULT THINGS EASILY

Frederick Schiller Module 6

What built this country over time is tens of thousands of people who want to live better tomorrow than they did today and go to work on it.

Warren Buffett

Payments and amortizations

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You are buying a Mercedes for $65,000. You pay $5,000 down and will pay the rest in five annual payments of $15,027.39 beginning one year from today. The payments include interest at 8%. Prepare an amortization schedule.

How did I get the payment amount?

Now Amortize the loan Ending or Unpaid

Applied to Principal Periods Payments Interest 8% Principal Balance

Total Cost 65,000.00

Down Payment 5,000.00 5,000.00 60,000.00

1 15,027.39_______________________________________________

2 ________________________________________________________

3 ________________________________________________________

4 ________________________________________________________

5 ________________________________________________________

Go back to the Mercedes- how would we do monthly payments?.......

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Now Amortize the loan Ending or Unpaid


Total Cost 65,000.00

Down Payment 5,000.00 5,000.00 60,000.00

1 _______________________________________________________

2 ________________________________________________________

3 ________________________________________________________

4 ________________________________________________________

5 ________________________________________________________

6 ________________________________________________________

Sharon wants to buy a new red dress (which her dad and uncle think is way too short and too tight). The cost is $600, 10% down and the rest in 3 equal annual payments which include interest at 8%. How much are the payments? Prepare an amortization schedule.

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You want to buy a cow. Price is $10,000 to be paid $1,000 down and the rest in three equal annual installments which include interest at 10%. How much are the payments? Prepare an amortization schedule.

You have just purchased a new car for $40,000. You pay no money down and will make 60 equal monthly payments starting next month. The interest rate is 12% per year. Amortize the first three months of your loan. (Did you get $889.78 as your payments?)

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Professional tip # 1 Honor the ____________________________.

#2 Business lunches are not for e_________________!! Decide what you want

B___________ you g____ t______.

# 3 At the restaurant- show some ________________.

Don’t c___________ the _____________!!

If you can’t a_______________ t__ b__ t__________, DON’T G___!

And never, ever, take home ______________________________!!Module 6 Homework

Problem 1

John wants to buy a new gas Barbeque. The cost is $659.98. He will have to pay for it with10% down and 5 equal annual payments that include interest at 10%. Calculate the

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payments. Amortize the payments.

Problem 2

You, on the other hand, want a new Jeep. The cost is $ 29,000. You pay 5% down and the rest in five equal annual payments which include interest at 8%. Calculate the payments. Amortize the payments.

Problem 3

Megan has just purchased a new goat. The cost was $ 1,000. She paid 10% down and will pay the rest in 4 equal annual installments which include interest at 6%. Calculate her payments and prepare an amortization schedule

Problem 4You want to buy a bus. The cost is $769,000. You pay $69,000 down and the rest in five equal annual payments which include interest at 8%. Calculate the payments. Amortize the payments.

Without data, you are just another person with an opinion.Extra Calculator Problems

Eric wants to buy a new Mercedes. The cost is $80,000. Eric will put 10% down and pay the rest in 5 equal annual payments which include interest at 8%. How much are the payments?

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If Eric amortizes the above loan correctly, what would be the interest expense for the second year?

If Eric amortizes the loan correctly, what would be the principal balance after the third payment?

If Eric made 60 monthly payments (deal still the same, 10% down and 8% interest), what would be the amount of the each payment?

Still on monthly payments, what would be the interest expense for the second month?

Suzie wants to have $1,000,000 in the bank in thirty years. If the bank pays interest at 6% compounded semi-annually, how much does she need to deposit today to reach her goal?

Cindy wants to withdraw $1,000 per month for the next 5 years. She will withdraw her first amount in one month. The bank pays interest at 12% compounded monthly. How much does she need to deposit today to do this?

Heather hit the lottery!! She has the option of taking 560,000 today or 100,000 per year for the next 8 years, or $1,000,000 in ten years. If she can deposit her money at 8%, ignoring taxes, which deal should she take?

Extra Extra Calculator Problems

Bob wants to buy a new Harley. The cost is $60,000. Bob will put 10% down and pay the rest in 3 equal annual payments which include interest at 8%. How much are the payments?

Amortize the loan

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If Bob made 60 monthly payments (deal still the same, 10% down and 8% interest), what would be the amount of the each payment?

Still on monthly payments, what would be the interest expense for the second month?

Suzie wants to have $10,000,000 in the bank in thirty years. If the bank pays interest at 8% compounded semi-annually, how much does she need to deposit today to reach her goal?

vicarious Module #7 Happiness is different from pleasure. Cash Flows Happiness has something to do with

struggling and enduring and accomplishing.

George SheehanTwo Types __________________ and __________________

First we will do the Indirect

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Format for the Indirect Cash Flow Statement

Company NameStatement of Cash Flows

For the (Period) Ending (Date)

Operating ActivitiesNet Income $ xx,xxxAdd: Depreciation Expense x,xxxAdd: Amortization Expense x,xxxAdd: Loss on Sale of Fixed Asset(s) x,xxxLess: Gain on Sale of Fixed Asset(s) <x,xxx>Increase in (current asset account name) < x,xxx>Decrease in (current asset account name) x,xxxDecrease in (current asset account name) x,xxxIncrease in (current liability account name) x,xxxDecrease in (current liability account name) < x,xxx>

Increase in (current liability account name) x,xxx Cash Provided By Operating Activities -or-Cash Used For Operating Activities xx,xxx or <xx,xxx> Investing Activities

Purchase(s) of (fixed asset account name) <$ xx,xxx>Purchase(s) of (fixed asset account name) < xx,xxx>Sale(s) of (fixed asset account name) x,xxxPayment of Security Deposit < x,xxx>Refund of Security Deposit x,xxx

Cash Provided By Investing Activities -or- Cash Used For Investing Activities xx,xxx or <x,xxx>

Financing ActivitiesNew Borrowing(s) xx,xxxPayment(s) on (description of debt) < x,xxx>Issuance(s) of Common Stock x,xxxPurchase(s) of Treasury Stock < x,xxx>Payment of Dividends < x,xxx>Issuance(s) of Bonds x,xxxRedemption of Bonds < xx,xxx>

Cash Provided By Financing Activities -or- Cash Used for Investing Activities xx,xxx or <xx,xxx>Increase in Cash -or- Decrease in Cash xx,xxx or <xx,xxx>Beginning Cash, (Date) xx,xxxEnding Cash, (Date) $ xx,xxx

Supplemental Cash Flow Information Cash payments for income taxes $ x,xxx Cash payments for interest x,xxx Noncash investing and financing activities

(Description of transaction) x,xxx(Description of transaction) x,xxx

Bobcat Bob, Inc. Bobcat Bob, Inc. Income Statement Balance Sheet

For the Year Ended December 31, 2015 December 31,

Sales $ 48,000 2015 2014Cost of Goods Sold 24,000 Assets Gross Margin 24,000 Current AssetsOperating Expenses Cash $ 38,880 $ 26,800 Salary Expense 12,700 Accounts Receivable 5,000 8,000 Insurance Expense 1,200 Inventory 2,000 1,000

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Depreciation Expense 2,400 Prepaid Insurance _ 100 _____ Total Operating Expenses 16,300 Total Current Assets 45,980 35,800 Operating Income 7,700 Property and EquipmentOther Revenues & <Expenses> Furniture & Fixtures 26,000 12,000 Interest Expense ( 300) Less: Accumulated Taxable Income 7,400 Depreciation (3,400) (1,000) Tax Expense 2,960 Net Property & Equipment 22,600 11,000 Net Income $ 4,440 Other Assets

Patents 500 100 Earnings Per Share $ 4.04 Total Assets $69,080 $ 46,900

Liabilities

Current Liabilities Accounts Payable $ 7,000 $ 5,000 Salaries Payable 1,000 Taxes Payable 2,960 3,120 Advertising Payable _____ 100

Total Current Liabilities 10,960 8,220 Long-Term Debt

Note Payable-Bank 15,000 4,000 Total Long-Term Debt 15,000 4,000

Total Liabilities 25,960 12,220 Owners’ Equity Common Stock 34,000 30,000

Retained Earnings 9,120 4,680 Total Owners’ Equity 43,120 34,680

Total Liabilities & Owners’ Equity $ 69,080 $ 46,900

The Note Payable-Bank is interest only at 6% with the principal balance due December 31, 2020. During the year the company purchased a piece of office furniture worth $2,500 by issuing 500 shares of common stock for it.

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When you’re on the phone with the man, you’re all alone.

The Las Vegas BookieNow you do one -

The following balances are for Misty Company at December 31,

2015 2014Cash 30,000 10,000Accounts Receivable 50,000 40,000Inventory 60,000 80,000Prepaid Rent 3,000 6,000

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Equipment 210,000 180,000 Accumulated Depreciation-Equipment 60,000 50,000Security Deposit 9,000 8,000Accounts Payable 50,000 40,000Salaries Payable -0- 10,000 Interest Payable 5,000 -0-Taxes Payable ______? -0-Note Payable 70,000 100,000 Common Stock ($1 Par) 5,000 1,000 Additional Paid In Capital 45,000 9,000Retained Earnings 124,000 114,000

Sales 200,000Cost of Goods Sold 100,000Salary Expense 40,000Rent Expense 24,000Interest Expense 6,000Depreciation Expense 10,000Tax Expense ______?

The common stock outstanding was 10,000 shares on January 1, 2015. On April 1, 2015, Misty issued 1,000 shares of common stock in exchange for $10,000 of equipment. On July 1, 2014, Misty sold an additional 30,000 shares of common stock. During 2015, the company paid a dividend of _____________. No equipment was sold during the year. The tax rate is 30% and 1/2 of 2015 taxes were paid in 2015, the rest will be paid in 2016.

On the next page, prepare a Statement of Cash flows using the indirect Method in good form using the indirect method.

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"When it becomes more difficult to suffer than to change... you will change."-- Dr. Robert Anthony

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The Direct Method

Bobcat Bob, Inc. Bobcat Bob, Inc. Income Statement Balance Sheet


Sales $ 48,000 2015 2014Cost of Goods Sold 24,000 Assets Gross Margin 24,000 Current AssetsOperating Expenses Cash $ 38,880 $ 26,800 Salary Expense 12,700 Accounts Receivable 5,000 8,000 Insurance Expense 1,200 Inventory 2,000 1,000 Depreciation Expense 2,400 Prepaid Insurance _ 100 _____ Total Operating Expenses 16,300 Total Current Assets 45,980 35,800 Operating Income 7,700 Property and EquipmentOther Revenues & <Expenses> Furniture & Fixtures 26,000 12,000 Interest Expense ( 300) Less: Accumulated Taxable Income 7,400 Depreciation (3,400) (1,000) Tax Expense 2,960 Net Property & Equipment 22,600

11,000Net Income $ 4,440 Other Assets

Patents 500 100 Earnings Per Share $ 4.04 Total Assets $69,080 $ 46,900

Liabilities

Current Liabilities Accounts Payable $ 7,000 $ 5,000 Salaries Payable 1,000 Taxes Payable 2,960 3,120 Advertising Payable _____ 100



Total Liabilities 25,960 12,220 Owners’ Equity Common Stock 34,000 30,000



The Note Payable-Bank is interest only at 6% with the principal balance due December 31, 2020. During the year the company purchased a piece of office furniture worth $2,500 by issuing 500 shares of common stock for it.

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The following balances are for Misty Company at December 31,

2015 2014Cash 30,000 10,000Accounts Receivable 50,000 40,000Inventory 60,000 80,000Prepaid Rent 3,000 6,000Equipment 210,000 180,000 Accumulated Depreciation-Equipment 60,000 50,000Security Deposit 9,000 8,000Accounts Payable 50,000 40,000Salaries Payable -0- 10,000 Interest Payable 5,000 -0-Taxes Payable ______? -0-Note Payable 70,000 100,000 Common Stock ($1 Par) 5,000 1,000 Additional Paid In Capital 45,000 9,000Retained Earnings 124,000 114,000

Sales 200,000Cost of Goods Sold 100,000Salary Expense 40,000Rent Expense 24,000Interest Expense 6,000Depreciation Expense 10,000Tax Expense ______?

The common stock outstanding was 10,000 shares on January 1, 2015. On April 1, 2015, Misty issued 1,000 shares of common stock in exchange for $10,000 of equipment. On July 1, 2014, Misty sold an additional 30,000 shares of common stock. During 2015, the company paid a dividend of _____________. No equipment was sold during the year. The tax rate is 30% and 1/2 of 2015 taxes were paid in 2015, the rest will be paid in 2016.

On the next page, prepare a Statement of Cash flows using the Direct Method in good form.

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Sale of equipment

84

Debbie, Inc. Debbie, Inc. Income Statement Balance Sheet


Sales $ 480,000 2015 2014Cost of Goods Sold 240,000 Assets Gross Margin 240,000 Current AssetsOperating Expenses Cash $ 26,200 $ 16,800 Salary Expense $124,000 Accounts Receivable 45,000 38,000 Insurance Expense 12,000 Allowance for Bad Debt Expense 300 Doubtful Accounts 1,200 1,000 Depreciation Expense 2,400 Net Accounts Receivable 43,800 37,000 Total Operating Expenses 138,700 Inventory 10,000 11,000 Operating Income 101,300 Prepaid Insurance _ 100 ______ Other Revenues & <Expenses> Total Current Assets 80,100 64,800 Interest Expense (4,200) Property and Equipment Gain on sale of Equipment 500 Furniture & Fixtures 186,000 130,000 Net Other Revenue (Expense) (3,700) Less: AccumulatedTaxable Income 97,600 Depreciation (19,400) (20,000) Tax Expense 29, 280 Net Property and Equipment 166,600 110,000 Net Income $68,320 Other Assets

Patents 500 100

Earnings Per Share $22.57 Total Assets $247,200 $174,900

Liabilities Current Liabilities Accounts Payable $ 17,000 $ 2,000 Salaries Payable 1,000 Taxes Payable 12,100 13,120 Advertising Payable 100

Current Portion of Long-term Debt 10,000 10,000



Total Liabilities 90,100 85,220 Owners’ Equity Common Stock ($1 par) 3,100 3,000

Capital in Excess Par 30,000 21,000 Retained Earnings 124,000 65,680

Total Owners’ Equity 157,100 89,680 Total Liabilities

& Owners’ Equity $247,200 $174,900

On June 30, the company sold a piece of equipment which had cost $3,500, had accumulated depreciation of $3,000 for $1,000. The Note Payable-Bank is payable at $10,000 per year plus interest at 6% on December 31 of each year. The company wrote off one account which owed $100 during the year. The company paid a dividend during the year. On June 30, the company exchanges 10 shares of stock for equipment worth $1,000. The additional common stock, other that traded for equipment was sold on October 1, 2015 for cash. The additional equipment, other than that exchanged for stock, was purchased for cash.

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(This is a tough one.)

The Biz Business The Biz Business Statement of Income Balance Sheet


Sales $ 600,000 2015 2014Cost of Goods Sold 300,000 Assets Gross Margin 300,000 Current Assets

Cash $ 160,000 $ 100,000Operating Expenses Accounts Receivable 80,000 50,000 Wage Expense $ 55,000 Inventory 70,000 90,000 Rent Expense 24,000 Total Current Assets 310,000 240,000 Depreciation Expense 10,000 Utilities Expense 6,000 Property and EquipmentTotal Operating Expenses 95,000 Equipment 320,000 200,000Income from Operations 205,000 Vehicles 40,000Other Revenues & <Expenses> Less: Accumulated Interest Revenue 5,000 Depreciation < 50,000> < 40,000> Interest Expense < 10,000> Net Property & Equipment 310,000 160,000 Total Other Revenues & <Expenses < 5,000> Other Assets Income Before Taxes 200,000 Security Deposits 1,000 2,000Tax Expense 60,000 Total Assets $ 621,000 $ 402,000 Net Income $ 140,000

LiabilitiesEarnings Per Share $ 2.55 Current Liabilities

Accounts Payable $ 9,000 $ 5,000 Wages Payable 8,500 10,000 Taxes Payable 48,000 62,000 Interest Payable 7,500 5,000 Current Portion of Long-

Term Debt 26,086 20,000 Total Current Liabilities 99,086 102,000

Long-Term Debt Contract Payable 28,914

Note Payable 130,000 80,000 Total Long-Term Debt 158,914 80,000Total Liabilities 258,000 182,000 Owners’ Equity Common Stock ($1 each) 60,000 50,000



The company purchased a vehicle on December 31, 2015 for $40,000. The company made a down payment of $5,000 and financed the balance at 7% payable in five equal annual payments including interest of $8,536.17. The note payable is payable at $20,000 plus interest at 10% on June 30th of each year. During the year, the company exchanged 8,000 shares of common stock worth $8,000 for a piece of equipment.

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Cindy wants to withdraw $10,000 per month for the next 5 years. She will withdraw her first amount in one month. The bank pays interest at 12% compounded monthly. How much does she need to deposit today to do this?

Chris hit the lottery!! She has the option of taking $520,000 today or $90,000 per year for the next 8 years, or $85,000 per year for the next nine years or $1,000,000 in ten years. If she can deposit her money at 6%, ignoring taxes, which deal should she take?

And a note to the ladies............ “Before you meet the handsome prince you really have to kiss a lot of toads.”

Professional tip Men communicate to __________, woman communicate to ______________. Cite: “You Just Don’t Understand”, Deborah Tannen

#2 Hands to face, in men, is a sign of ___________.

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Hand, fingers right under nose is a sign of i________________________.

Some fun stuff

Comparative Balance Sheets for Darby’s Doodles, Inc. are listed below:

December 31, 2014 2015

Cash 400 650Accounts Receivable 600 800Inventory 1,000 1,300Plant and Equipment 1,000 1,050Accumulated Depreciation 325 600Accounts Payable 600 640Common Stock 1,000 1,000Retained Earnings 900 1,560

The following data relate to 2015:a) collections from credit customers, $30,000, cash sales $6,000b) payments to suppliers of merchandise $ 40,000c) purchases of equipment for cash, $50d) dividends paid to shareholders $500e) no plant and equipment was retired or sold during the year

1) For Darby, the Depreciation Expense for 2015 was

2) For Darby, the Sales Revenue for 2015 was

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3) For Darby, the Net Income for 2015 was

4) The Cost of Goods Sold for 2015 was

More Professional Tips Look them in _______ _________!

Guys, save that other stuff for ____ _________!

And people who will not look people in the eye are perceived as weak, wishy washy!! The greatest gift you can give is the purity of your a_______________!

So let the d______ phone _________!

Don’t answer with a b_________________ s__________.

As a common courtesy, introduce yourself- save embarrassment

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Module 7 HomeworkProblem 1 From the following information for Kevin’s Kennels, prepare a Statement of Cash Flows for the year ended December 31, 2015 using both the indirect method.

The land was acquired on March 31, 2015 by exchanging 60,000 shares of common stock worth $60,000 and cash for the balance of the purchase price. The additional common stock (other than that issued for the purchase of the land) was sold on September 30, 2015 for $1 per share. The company did not sell any equipment during the year. All equipment purchased during the year was purchased for cash. The retained earnings balance for both years is after all closing entries have been made. The Note Payable requires payments of $20,000 principal plus interest at 10% on June 30th of each year. Current stock price (12/31/15) is $4.00 per share.

Balance 12/31/15

Balance 12/31/14

Cash 71,900 18,900Accounts Receivable 78,000 45,000Inventory 70,000 90,000Prepaid Insurance 3,600 2,600Equipment 340,000 290,000Accumulated Depreciation 80,000 20,000Land 120,000Security Deposits 12,000 10,000Accounts Payable 35,000 30,000Wages Payable 6,000 10,000Rent Payable 8,000 4,000Interest Payable 6,500 7,500Taxes Payable 10,000 5,000Note Payable 130,000 150,000Common Stock ($1 each) 300,000 160,000Retained Earnings 120,000 70,000Sales 1,200,000Cost of Goods Sold 700,000Wage Expense 220,000Rent Expense 48,000Office Expenses 46,000Depreciation Expense 60,000Utilities Expense 15,000Insurance Expense 6,000Interest Expense 15,000Income Tax Expense 27,000

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Problem 2 From the following information for Molly’s Munchies, prepare a Statement of Cash Flows for the year ended December 31, 2014 using the both the direct and the indirect method.

Balance Balance 12/31/15 12/31/14

Cash 93,575 20,000Accounts Receivable 68,000 35,000Inventory 70,000 90,000Prepaid Insurance 500 3,000 Equipment 440,000 270,000Accumulated Depreciation 65,000 20,000Land 40,000

Security Deposits 12,000 10,000 Accounts Payable 35,000 30,000

Wages Payable 6,500 10,000Rent Payable 7,500 6,000Interest Payable 6,000 7,000Taxes Payable 3,000 5,000Contract Payable 41,075Note Payable 120,000 140,000Common Stock ($1 each) 60,000 32,000Paid In Capital 240,000 128,000Retained Earnings 140,000 50,000Sales 1,200,000Cost of Goods Sold 575,000Wage Expense 260,000Rent Expense 24,000Office Expenses 70,000Depreciation Expense 60,000Advertising Expense 9,650Insurance Expense 9,000Interest Expense 15,350Loss on Sale of Equipment (4,000)Income Tax Expense 52,000

$50,000 of the equipment was acquired on June 30, 2015 by paying by putting $5,000 down and signing a contract to pay the rest in 10 equal semi-annual payments which include interest at 6% (annual rate). The first payment was made on December 31, 2015. A piece of equipment was sold during the year that had an original cost of $20,000 and accumulated depreciation of $15,000. The rest of the equipment purchased was purchased for cash. The land was purchased by issuing 5,000 shares of stock and paying $15,000 cash. The additional common stock was sold on June 30, 2014. All the rest of the equipment and the land purchased during the year was purchased for cash. The retained earnings balance for both years is after all closing entries have been made. The Note Payable requires payments of $20,000 principal plus interest at 10% on June 30th of each year.

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$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

Accounts ReceivableControlling and Subsidiary Accounts

Most sales of businesses, especially business to business sales, are on credit. When a business sells something, we debit accounts receivable and credit sales. The Accounts Receivable account is what is known as a controlling account. If we sell $100 worth of goods on credit to Jack and $150 worth of goods to Jill, also on credit, up to now, our two journal entries would look like this:

Accounts Receivable 100Sales 100

To record sale1

Accounts Receivable 150 Sales 150

To record sale

Note that we have put all of the sales in the same receivable account. That is not really how a business handles these transactions. Actually, in a real business, the journal entries for the sales would be:

Accounts Receivable- Jack 100Sales 100

To record sale

Accounts Receivable- Jill 150 Sales 150

To record sale

Note that each customer has their own accounts receivable account. This makes sense as we want to keep track of collections and sales by customer. These individual accounts are called subsidiary accounts. Whenever we debit or credit accounts receivable, we debit and credit both the controlling and the subsidiary accounts. Thus, at any time, the balance in the controlling account is exactly equal to the total of the balances of all the subsidiary accounts.

Let’s go back to Jack and Jill. Assume that Jack buys $100 and Jill $150 as above. The next week Jill buys another $100 worth of stuff. During that week, Jack comes in the store and pays $50 on his bill. Prepare journal entries for all these transactions and prepare “T” accounts for both the controlling account and the subsidiary accounts.

1For all the illustrations in this section, we are assuming that theappropriate entries to record the cost of goods sold would also be made.

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Notice that each time an entry is made to the control account, an entry is also made to the appropriate subsidiary account(s) and that the ending balance in the control account (300), equals the total of all the ending balances in the subsidiary accounts (50 + 250).

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

When you pay for your purchase using a national credit card such as Master Card, the retail store you are buying the merchandise from, books the sale as a cash sale not as a credit sale. They deposit your Master Card slip in the bank just like they deposit the cash from sales. The bank deducts a collection fee- usually from 2-3%, and credits the net amount to the store’s account immediately. If the store has followed proper procedure in accepting the credit card, then any losses from bad debts or fraud belong to the bank, not the retail store.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Bad Debt ExpenseBusinesses that sell on credit will have bad debts (customers who do not pay). If they do not, they

might not be good business people-why?Now if we have people who do not pay us, two questions arise. When is the nonpayment

recognized? And is it an expense or a reduction in revenue?

Think about these questions then look at the next the page.

Answers:It should be recognized as an expense during the year the sale was made. Many times this is

impossible because it is much later that we find out the bum is not going to pay us. Businesses treat them as expenses because they are considered a normal cost of doing business. Secondly, they are treated as an

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expense to allow users of the financial statements to clearly see how much is being written off by the company.

So how do we decide how much the expense is? If we knew who wasn’t going to pay, we wouldn’t have sold to them! What companies do in these situations is make an estimate of how much of the current accounts receivable will ultimately be uncollected. They recognize this amount as an expense for the period. A problem arises as to what to credit. We credit a contra account which we call Allowance for Doubtful Accounts.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

A contra account is also known as a valuation account. You have already encountered another valuation account - remember accumulated depreciation? A valuation account is an account which is used to adjust the balance of another account to which it is directly related. Contra accounts have a balance opposite to the account to which they are attached. Because Accounts Receivable has a debit balance, the Allowance for Doubtful Accounts will have a credit balance.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

In the instance at hand, we create an account called Allowance for Doubtful Accounts which is used to reduce the total Accounts Receivable to the amount we eventually expect to collect. Let’s work out an example.

At December 31, 2014, our company had a balance of $400,000 in Accounts Receivable and $12,000 in the Allowance for Doubtful Accounts. The allowance account was a normal balance. (A “normal balance” is one which is as expected. Thus, the normal balance for cash would be a debit balance. A normal balance for the Allowance for Doubtful Accounts would be a credit balance). During the year, we sold $1,200,000 worth of merchandise on account. (“On account” means that we sold the merchandise on credit). On May 1, 2015 we got notice that one of our customers, Mr. Redhawk, had gone bankrupt. Mr. Redhawk owed us $8,000 at the time of his bankruptcy. Additionally, the bill we sent to Mrs. Herd on July 1, 2015 had been returned marked “not at this address, no forwarding address available” so we wrote off the balance. The bill to Mrs. Herd had been for $500.00. On October 17, Mrs. Herd sent us a letter from Phoenix with a check that paid her bill in full. During the year we collected $1,250,000 from our credit customers. At December 31, 2015, we estimated that 3% of our receivables will never be collected. Prepare the journal entries to record all these transactions. (Record both the write off and the subsequent payment of Mrs. Herd). Prepare “T” accounts to record the transactions.

A) Accounts Receivable 1,200,000Sales 1,200,000

To record sales for the year

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B) Cash 1,250,000Accounts Receivable 1,250,000

To record collections on accounts receivable during the year.

May 1, 2015 Allowance for Doubtful Accounts 8,000Accounts Receivable-Redhawk 8,000

To write off Mr. Redhawks’s receivable

July1, 2015 Allowance for Doubtful Accounts 500Accounts Receivable- Herd 500

To write off Mrs. Herd

Oct 17, 2015 Accounts Receivable-Herd 500Allowance for doubtful accounts 500

To reverse write off of Mrs. Herd’s account

Cash 500Accounts Receivable-Herd 500

To record Mrs. Herd’s paying of her account

Dec 31, 2015 Bad Debt Expense 6,245Allowance for Doubtful Accounts

6,245 To adjust ADA to 3% of ending Accounts Receivable balance.

(ADA= Allowance for Doubtful Accounts)

Accounts Receivable Allowance for Doubtful Accounts BB 400,000 1,250,000 (B 5/1 8,000 12,000 BB A) 1,200,000 8,000 5/1 7/1 500 500 10/17 10/17 500 500 7/1 8,500 12,500 500 10/17 4,000 1,600,500 1,259,000 6,245 12/31 341,500 10,245

341,500 * .03 = 10,245 amount needed as ending balance in ADA

gonzo Module 8 The race is not always to the swift,bifurcate nor the battle to the strongest,

but that’s the best way to win. Daniel Runyon

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(as told to the Las Vegas Bookie)Accounts Receivable Controlling and subsidiary accounts

Slammin’ Sammy had $600,000 in Accounts Receivable at the beginning of the year. He also had $12,000 in the Allowance for Doubtful Accounts. Allowance for Doubtful Accounts is

and the Balance Sheet looks like

2014 - Simms had total sales of $300,000. All of the company’s sales are on credit with terms of 2/10, net 30. At the beginning of the year, the company had a balance in Accounts Receivable of $26,000 and an Allowance for Doubtful Accounts of $1,000. At the end of the year, Accounts Receivable had a balance of $37,000 and an Allowance for Doubtful Accounts of $2,000.

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First as to terms- 2/10 n/30 means

and costs

so why do?

now as to the receivable turn

Which tells us

and dividing the turn into 365

gives us A__________________ C___________________ P___________________.

Also known as D___________ S________________ O____________________.

What is an aging schedule?

Total Receivable Current 30-60 60-90 over 90

Able Co. 60,000.0 60,000.0

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0 0

Acme Corp 40,000.0

0 38,000.0

0 2,000.

00

Baker Co 20,000.0

0 12,000.0

0 4,000.

00 4,000.

00

Zollar Co 80,250.0

0 60,250.0

0 20,000.0

0

Totals

236,965,374.87

223,885,462.25

9,000,486.57

3,236,582.95

842,843.10

“The difference between the right word and the almost right word is the like the difference between lightning and a lightning bug.” Mark Twain

Once upon a time….

Once upon a time…..Suzie had just graduated from medical school and was set to begin a five year ENT internship at a hospital in Pontiac Michigan. Interns earn comparatively little and Suzie was a little apprehensive about her money situation. When she arrived in Michigan, the housing market was such that she could buy a really nice condo for a really good price. The payments on

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the condo would be less than rent payments. The problem was the down payment and the furnishing. She decided that if she could borrow $100,000, she would be set. After her internship, her first year pay would be about $400,000 per year and she figured she could pay off the loan easily. Debbie, her sister was flush with cash and so Suzie approached her for a possible loan. Debbie’s money was currently sitting in the bank earning 2%. Suzie asked the bank what they would charge for a six year, interest only loan and they told her 10% per year. Debbie offered to loan her the money at 8%. The terms were that Suzie would pay 8% on December 31st of each year. Then with the sixth interest payment, Suzie would repay the $100,000. The note was signed and Suzie got her money and bought her house.

Time has passed, three interest payments have been made by Suzie on time. (The note would now be considered seasoned.) Debbie is about to have her fourth child, Colton, and wants to move. A new house would deplete her savings and so she decided to sell the Suzie note. She had just received the third payment of interest yesterday. Debbie called a loan broker, a company that specializes in selling debt such as this. They told her that notes such as hers currently earn 12%. So if Debbie sells the note so that it earns 12%, how much will she get?

Kirch’s Third Law of the Universe You ______ ___________ ______ ________!

Amortize the deal

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How about if you wanted to earn 8%? Amortize it.

What if the Suzie/ Debbie note was for 100,000 payable in six equal annual payments which included interest at 8% and you purchased it to yield 8%. How much would you pay?

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Amortize it.

Same problem, but now interest rates have changed and you purchase it to yield 12%. How much would you pay? Amortize it.

Sally wants to sell you a note. It is a $100,000, 12% note she bought at par (for face value) last year. The note was originally for seven years, is seasoned, and has four years to run, pays interest only annually and the principal due with the last payment in four years. She received last year’s interest on time yesterday. Current interest rate on this quality of note is 8%. If you buy the note to yield 8%, how much will you pay Sally?

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Amortize your purchase of the Sally note.

How much would you pay Sally if current interest rates are 14%? Amortize it.

How do you handle Accounts Receivable for the cash flow??

Professional tipGroups are fine, but

A leader takes r_____________________________ and f____________ t____________!

You can’t do everything at once, but you can do one thing at once.” Calvin Coolidge

Module 8 Homework

Problem 1

Sally sold $300,000 worth of stuff last year. Her beginning balance in Accounts Receivable was $200,000 and her beginning credit balance in Allowance for Doubtful Accounts was $6,000. During the year she collected $280,000 on her receivables, and wrote off $9,000. She estimates that 3% of her receivables at any one time will not be collectable.

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How much is her charge to Bad Debt Expense?

Problem 2

What is Sally’s average collection period?

Problem 3

At December 31, 2015 Makenna’s balance in Accounts Receivable was $200,000 and the balance in Allowance for Doubtful Accounts was $4,000. During 2016 she had credit sales of $1,000,000. She collected $850,000 on her accounts receivable during 2016. She wrote off $3,000 of accounts receivable during 2016. Makenna estimates that 2% of her receivables will never be collected. How much would the charge to Bad Debt Expense be for 2016. Show how this information will appear on the financial statements and calculate the accounts receivable turn and the average collection period.

An Extra Cash Flow Problem

CoJo’s Colts, Inc. Balance Balance

12/31/15 12/31/14Cash 97,600 88,900

Accounts Receivable 90,000 50,000Allowance for Doubtful Accounts 3,600 2,000

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Inventory 40,000 120,000Prepaid Insurance 3,600 2,900Prepaid Rent 3,000 -0-Equipment 220,000 320,000Accumulated Depreciation 20,000 50,000Land 100,000

Security Deposits 10,000 8,000 Accounts Payable 30,000 35,000

Salaries Payable 10,000 6,000Rent Payable -0- 3,000Interest Payable 10,000 9,000Taxes Payable 5,000 10,000Note Payable 200,000 180,000Common Stock ($1 each) 50,000 160,000Retained Earnings 88,500 281,900Sales 1,400,000Cost of Goods Sold 700,000Salary Expense 185,000Rent Expense 36,000Advertising Expense 85,000Office Expenses 27,000Depreciation Expense 30,000Utilities Expense 12,000Bad Debt Expense 6,500Insurance Expense 6,000Miscellaneous Expense 3,000Interest Expense 9,500Income Tax Expense 90,000

The land was acquired on June 30, 2014 by exchanging 80,000 shares of common stock worth $80,000 and cash for the balance of the purchase price. The additional common stock (other than that issued for the purchase of the land) was sold on September 30, 2014 for $1 per share. The company did not sell any equipment during the year. All equipment purchased during the year was purchased for cash. The balance in retained earnings for each year is after all closing entries have been made. The Note Payable requires payments of $20,000 principal plus interest at 10% on June 30th of each year.

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visceral Module 9 Don’t tell me how rough

onomatopoeia the seas are son, just bring the darn ship in.

Rules, Leases and Goodwill Lou Holtz

Rules of the Game

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Rules from where?GAAP

G______________ A_____________ A_______________P________________

Who sets GAAP? FASB

F____________ A_______________ S________________ B________________

General Principals

Assets and Liabilities measured in H_________________ C_____________ Exceptions

DepreciationADA

Measureable in D_______________________

G_____ C_______________ (Unlimited Life)

Disclosure and Measurement Puzzlements

Contingent Liabilities

Gift Cards

GAAP vs Non-GAAP???

http://www.youtube.com/watch?v=7P2-vEtXSug

(IFRS????)

Internal control....... another illusion the shoe store, estimated inventory and perpetual?????

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Parking (Channel Stuffing)

Forensic Accounting

Cindy’s Best Buy Company had a fire. We know that her beginning inventory was $250,000. We also know that she purchased $400,000 worth of goods prior to the fire. Her gross margin averaged 40% of sales. Sales to the date of the fire, as best can be estimated, were $500,000. How much inventory did Cindy lose in the fire?

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Estimating Inventory- (a forensic accounting tool)First a detailed Cost of Goods Sold Section

Mike K’s Golf Business (he left the CPAing to Terri and the staff) had a fire. Beginning inventory was $100,000. During the period up to the fire he had sales of $1,000,000. By calling all his vendors, he was able to establish that he purchased about $750,000 in merchandise prior to the fire. Assume that his average mark-up is 50%, how much inventory did he lose in the fire?

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Leases - Two types O___________________________ and C_________________.

Operating is the U-__________.

Capital is when you are really _____________________ ____ _____________.

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For instance……. You want to buy Copeland Hall. The cost is $30,000,000 to be paid in 360 monthly payments that include interest at 4.6%.

As an alternative to the purchase, you have been offered the chase to lease the building for $153,794 per month. At the end of the lease you can buy Copeland for $1.

What’s up with that??

What your momma told you…

How do we know which is which? Accountants have their ways!!!!

And IFRS is changing everything!!

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http://www.bdointernational.com/Services/Audit/IFRS/IFRS at a Glance/Documents/IAS 17.pdf

http://www.bdointernational.com/Services/Audit/IFRS/IFRS%20at%20a%20Glance/Documents/IAS%2017.pdf

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Now some lease problems…

You are trying to decide whether to buy or lease a truck. The following information is available to you:

The manufacturer’s suggested retail price is $26,459.00.You can actually buy it for $22,880.00.The current bank interest rate for truck loans is 9% and you will put 10% down and pay

the balance over 36 months starting one month from signing.It is raining while you make the deal.You can lease the truck for $700.00 per month for 36 months. The lease requires a

down payment of $1,200 due at signing. You can purchase the truck at the end of the lease for $2,000.

You would rather have a Lexus.

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You are trying to decide whether to buy or lease a new machine. The machine costs $700,000.

1) You can buy it, borrowing money from the bank. If you borrow from the bank, the interest rate will be 10%.

You can also- 2) lease it for five years, $10,000 down and five annual payments of $179,000. At the end of

the 5th year you can buy the equipment for $5,000.

3) Lease it for seven years, $20,000 down and seven payments of $133,300 After making the last payment, you may purchase the equipment for $50,000.

What should you do?

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Goodwill is The excess paid when one company buys another company of the purchase price over the

fair market value of the assets acquired less the fair market value of the liabilities assumed.

Freeland Company wants to enter the Athens market. Freeland is one of the largest distributors of greeting cards in Ohio. They have been looking at Garven Distributing, a smaller greeting card company that services the Athens area. The following is a summary of Garven’s balance sheet.

Accounts Receivables $ 50,000 Accounts Payable 60,000Inventory 60,000 Note Payable 150,000Fixed Assets $500,000 Owners’ Equity 200,000Accum Deprec 200,000 300,000

$410,000 $410,000 Garven’s Net Income for the last twelve months was $100,000. Freeland offers to buy Garvin for $500,000.

Assume that Garven’s accepts the offer. Freeland goes through the Balance Sheet carefully and determines that the Accounts Receivable are worth about $40,000 because?_____________________), that the Inventory is worth $75,000 and the Fixed Assets are worth $375,000. Everything else is worth its book value. Prepare the journal entry to record the purchase on Freeland’s books.

When and how do you write off goodwill? Each year you must test for I_______________.

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Impairment of GoodwillIf there is an indication that the book value of goodwill is greater than the recoverable value of net assets, an assessment of the recoverable value is made, and if the suspicion is correct, then an impairment expense is recorded. Goodwill's value on the balance sheet is reported at net of accumulated impairment loss, a contra asset account; the current impairment loss is reported on the income statement.An impairment cost must be included under expenses when the carrying value of a non-current asset on the balance sheet exceeds the asset's market valuesubtracted by any transaction costs (recoverable amount). The impairment cost is calculated as follows: carrying value - recoverable amount.

The carrying amount is defined as the value of the asset as it is displayed on the balance sheet. The recoverable amount is the higher of either the asset's future value for the company or the amount it can be sold for, minus any transaction cost.

According IAS 36, reversal of goodwill impairment losses are not allowed.

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And the Journal Entry is

And goes on the income statement

Another Case: JD’s Tractor Company

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Accounts Receivable $400,000 Accounts Payable 50,000Inventory 175,000 Note Payable 450,000Fixed Assets $800,000 Common Stock 300,000 Accum Deprec 200,000 600,000 Retained Earnings 375,000

Your company will buy this company for $3,000,000. You estimate that the receivables are worth about $375,000, the inventory is worth $150,000 (how could that be?) and the fixed assets are worth $500,000. Everything else is worth its book value. How much of the purchase price is Goodwill?

Go back to the previous problem (JD’s Tractor Company). Assume the Note Payable is interest only at 8% with exactly five years left before the principal is due. Current interest rates are 12%. Redo the goodwill calculation using this information.

Other AssetsIntangible Assets

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Other Intangibles:

Organization Costs

Patents, Trademarks and Copyrights

Franchises Research and Development (R&D)???

and a consolidated statement is _________________________________________________.

Professional tips Dress for the _____________ _____ ____________,

not the ________________ ____ ________. (It is always better to be _______ ____________)

Guys remember the __________. Ladies remember the ______________.

One ___________ per ______ and one _________ per _______. (Earrings should be ______________________________________).

How you dress and carry yourself accounts for ____% of others assessment of you!

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Module 9 Homework

Problem 1 Consider Dezie’s Company

Accounts Receivables $300,000 Accounts Payable 150,000Inventory 200,000 Note Payable 400,000Fixed Assets $900,000 Owners’ Equity Accum Deprec 100,000 800,000 Common Stock 400,000

Retained Earnings 350,000

Hayley’s Company will buy this company (Dezie’s) for $1,000,000. Hayley estimates that the Accounts Receivables are worth $290,000, the Inventory is worth $220,000 and the Fixed Assets are worth $750,000. The Note Payable is interest only at 10% with exactly ten years left before the principle is due. Current interest rates are 8%. Everything else is worth its book value. How much is the charge to goodwill on Hayley’s books?

Problem 2

Consider the case:

Below is financial information from John’s Company

Accounts Receivables $100,000 Accounts Payable 50,000Inventory 200,000 Note Payable 500,000Fixed Assets $900,000 Owners’ Equity Accum Deprec 100,000 800,000 Common Stock 200,000

Retained Earnings 350,000

Debbie’s Company will buy John’s Company for $1,500,000. You estimate that the Inventory is worth $175,000 and the Fixed Assets are worth $700,000. The Note Payable is interest only at 8% with exactly ten years left before the principal is due. Current interest rates are 10%. Everything else is worth its book value. How much does Debbie charge to Goodwill when she records the purchase of John’s?

Problem 3

On January 1, Joey, Inc. buys equipment for $10,000. Terms are 10% down the rest in 3 equal annual payments which include interest at 12%. The payments start December 31. Prepare an amortization schedule.

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Problem 4Baker Company needs to decide whether to buy or lease office equipment. Baker can buy the office equipment for $250,000 today, which would require that they borrow the funds from the bank. The bank will charge them 8% and require equal monthly payments over 4 years. They also have the option of leasing the office equipment for either 3 years or 5 years. If they choose to lease for 3 years, they will have to put $10,000 down today and make monthly lease payments of $7,500 and they can purchase the office equipment after the last payment for $5,000. If they opt for the 5-year lease, they need to put $6,000 down today and make monthly payments of $5,000 and they can purchase the office equipment after the last payment for $3,000. Which option is best? Explain with numerical analysis.

Problem 5 Suzie’s Gymnastic Supply Company had a flood. Her ending inventory last year was $300,000. Her average markup is 140% of the cost of an item. Her sales to the date of the flood were 600,000. She had purchased $400,000 in inventory prior to the flood. How much inventory did she lose? Show your calculations.

Problem 6Gracie’s Gobbers, Inc. was robbed! She needs to file a claim for the loss with her insurance company. She knows that last year she ended the year with $475,000 in inventory and after going through her invoices she finds she had purchased $350,000 in inventory this year up to the date of the robbery. Her sales so far this year were $1,200,000. She estimates that her gross margin averages 45%. How much inventory did she lose in the robbery? Show your calculations

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Module 10Differential InterestSam will sell you a Bopper for $8,000. No money down and 5% per year for five years. At the end of the fifth year, you send him both that year’s interest and the $8,000. You send him the 5% each year. How much are you really paying for the Bopper? (The bank would charge you 10% interest for a loan of this type).

Kirch’s 2nd Law of the Universe:

T___________________________________________________

and it___________________________________________________!

Amortize it. Ending or Unpaid


BB

1 _______________________________________________________

2 ________________________________________________________

3 ________________________________________________________

4 ________________________________________________________

5 ________________________________________________________

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What if the Sam deal had been for five equal payments that included interest at 5%? Current rate for similar loans is 10%

Amortize it. Ending


BB

1 _______________________________________________________

2 ________________________________________________________

3 ________________________________________________________

4 ________________________________________________________

5 ________________________________________________________

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What a deal!! Buddy will sell you an airplane for $250,000. $50,000 down and the rest in five equal easy payments which include interest at 5%. A realistic interest rate would be 10%. How much are you really paying? Record the purchase and prepare the amortization schedule. (How do you handle the down payment ____________________________________)

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Buddy wants to sell you a car. $20,000, no money down and you pay interest of only 4% for one year. At the end of the year along with your 4% interest, you pay Buddy $20,000 for the car. You think this is a heck of a deal because if you borrowed the money from a bank it would cost you 12%. What a deal? Or,.. how much are you really paying for the car? And Sam has offered you the same car for $18,000 cash - what to do, what to do............

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Nick also wants to sell you a thing-a-ma-jig for $100,000! He tells you that you can pay in three equal annual payments which start in one year and include interest at 5%. You have seen the same item on sale for $85,000. If you bought the item for $85,000, you would have to borrow the money from the bank at 12%. Which is the better deal?

Buddy will sell you some carpet. $20,000. No money down and only 1% interest per year for two years. (You send him the 1% at the end of each year). At the end of the 2nd year, you send him the $20,000 along with the interest. If you borrowed from the bank you would have to pay 12%- a heck of a deal... or is it? (How much are you really paying for the carpet?)

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You want to buy a motorcycle from JD. The cost is $20,000, $2,000 down and the rest in three equal annual payment beginning one year from today. Interest is included in the payments at 10%. How much are the payments? Amortize the loan.

Professional Tips

#1 The Effective Leader is D________________ without being D____________________.

(The latter is a sign of weakness)

#2 The Effective leaders makes s__________________, does not generally ask q____________.

And seldom ap_______________ as this is perceived as weakness.

Module 10 Homework

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Problem 1Colton wants to sell you a Bubble Guppie $89,000! He tells you that you can pay in three equal annual payments which start in one year and include interest at 5%. You have seen the same item on sale for $79,000. If you bought the item for $79,000, you would have to borrow the money from the bank at 8%. Which is the better deal?

Problem 2 Ryan will sell you a Thing for $30,000. No money down and only 1% interest per year for two years. (You send him the 1% at the end of each year). At the end of the 2nd year, you send him the $30,000 along with the interest. If you borrowed from the bank you would have to pay 6%- a heck of a deal... or is it? (How much are you really paying for the Thing?)

Problem 3What if the original Sally note (around page 59) had called for seven equal payments including interest at 12% and now has four more years left to run. How much would you be willing to pay Sally if you wanted to earn

A) 8%? Amortize it.B) 14%? Amortize it.

Problem 4Doozer wants to sell you a note with a face value of $1,000,000. The face rate on the note is 10% and is payable in 4 equal payments which include interest at 10%. The note has four years left to run and is seasoned.

A. How much would you pay for the note to earn 12%? Amortize it.

B. How much would you pay for the note to earn 8%? Amortize it.

Problem 5You want to buy a motorcycle from JD. The cost is $20,000, $2,000 down and the rest in three equal annual payment beginning one year from today. Interest is included in the payments at 10%. How much are the payments? Amortize the loan.

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Surfeit Module 11 Our most important thoughts are

131

Hubris those that contradict our emotions. cornucopia Valarie

BondsWhat is a bond?

The bond agreement is full of c________________.

The coupon is

Bonds can have S______________. (Convertibility, security, extra covenants)

On January 1, 2016, Lucky Company of Las Vegas, Nevada, issues $100,000 of 8% bonds for par. The bonds pay interest annually and mature in three years. Interest is to be paid on December 31 of each year. (First interest is to be paid 12/31/16)

How much does Lucky receive?

On January 1, 2016, Lucky Company of Las Vegas, Nevada, issues $100,000 of 8% bonds. At the time of the issue, interest rates had risen to 10%. The bonds pay interest annually and mature in

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three years. Interest is to be paid on December 31 of each year. (First interest is to be paid 12/31/16)

How much does Lucky receive?

Bonds issued for less than the face are said to be issued at d__________.

Amortize the bond

Show how the Bond Accounts appear on the Balance Sheet for each year.

What if the current interest rate was 6%?(Calculate issuance amount and amortize the bond)

133

Bonds sold for an amount higher than the face are said to sell at a p________________.

Show how the Bond Accounts will appear on the Balance Sheet for each year.

What if the original Lucky note called for equal payments- everything else is the same.

134

How much would you pay to earn 8%

Amortize it

How much would you pay to earn 6%?

Amortize it

Still lucky equal payments, How much would you pay to earn 6%

135

Amortize it

136

A Zero Coupon bond is

137

Also called a D________ D_____________ B________

Why issue/buy?

Clarence Co. issues a $100,000 zero on 12/31/16, interest rate 10% per annum, bond is due in three years. How much do they get? Amortize it

How will the bonds appear on the Balance Sheet each year?

138

Professional Tips:

#1 In negotiating, go B_______ then S_________.

#2 When you are late, just say ___ s_______, lets get t___ w____.

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Module 11 Homework

140

Problem 1Darby Company issues a $100,000 on 12/31/16, 15%, bond that matures in 5 years. Interest is paid on December 31st of each year. What would be the amount they receive given the following interest rates:

10% 15% 20%

Problem 2

Still Darby Company - How about an 8% zero issued on 12/31/16 due in 3 years, face amount of $100,000. How much would you pay? Amortize it.

Problem 3

Ryan Company issues a $100,000 zero coupon bond on 12/31/16. The face interest rate is 10% and the bond that matures in 4 years. How much would you pay to yield*:

8% 10% 14%

Amortize all three bonds

*is the face interest rate relevant?

Obdurate The Purpose of the Course

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Everyone has a strategy until they get punched in the mouth.Mike Tyson

Your education is for ………………………………

Back to what makes a leader

What is your real style????

A Leader

Takes r________________

And f________U__

Is D___________________

Always s______________ even when you are not

Makes st___________________

Limited q_________________

Talks straight forward, not generally

Now….. signaling

When you are talking, sitting working………………………..

Not something you can turn off and on

October, Seattle and Dan Wilson

So always be the h______________ w__________ P_________ I__ the R_______

Can you change??? The past is o________________ but you can.

Do you judge others on their actions and judge yourself on your intentions?

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Tuesday, October 17, 1995 5:08, KingdomeAttendance: 58,489, Time of Game: 2:54

Indians4 at Mariners

0W: Dennis Martinez (1-1)L: Randy Johnson (2-1)

1 2 3 4 5 6 7 8 9 R H E

- - - - - - - - - - - -

Indians 0 0 0 0 1 0 0 3 0 4 8 0

Mariners 0 0 0 0 0 0 0 0 0 0 4 1

Top of the 8th, Indians Batting, Ahead 1-0, Mariners' Randy Johnson facing 9-1-2Felix Fermin replaces Luis Sojo playing SS batting 8th

t8 1-0 0 --- 1,(0-0) CLE T. Pena R. Johnson 7% 80% Double to RF (Line Drive to Deep CF-RF)Ruben Amaro pinch runs for Tony Pena (C) batting 9th

t8 1-0 0 -2- 2,(0-1) CLE K. Lofton R. Johnson 6% 86% Single to P (Bunt to P's Right); Amaro to 3Bt8 1-0 0 1-3 1,(0-0) CLE O. Vizquel R. Johnson 1% 87% Lofton Steals 2Bt8 1-0 0 -23 3,(2-0) RR CLE O. Vizquel R. Johnson 5% 92% Passed Ball; Amaro Scores; Lofton Scorest8 3-0 0 --- 6,(3-2) O CLE O. Vizquel R. Johnson -1% 91% Lineout: LF (Deep LF)t8 3-0 1 --- 4,(2-1) R CLE C. Baerga R. Johnson 4% 95% Home Run (Fly Ball)

Norm Charlton replaces Randy Johnson pitchingt8 4-0 1 --- 6,(2-2) O CLE A. Belle N. Charlton -0% 95% Popfly: 2B (Deep SS-2B)t8 4-0 2 --- 7,(3-2) O CLE E. Murray N. Charlton -0% 95% Popfly: 2B (Deep 2B-1B)

3 runs, 3 hits, 0 errors, 0 LOB. Indians 4, Mariners 0.

http://www.baseball-reference.com/teams/SEA/1995.shtml

http://www.baseball-reference.com/teams/CLE/1995.shtml

http://www.baseball-reference.com/players/j/johnsra05.shtml

http://www.baseball-reference.com/players/m/martide01.shtml

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Module 12 taciturn Owners’ Equity1 Courage is not the absence of fear, but rather the judgment that something is more important than fear.

From the Princess Diaries

Types of Business Organizations

And the difference is primarily in the O_____________ E_____________ The rest of the accounting is the same

The Sole Proprietorship Owners’ Equity

The Partnership Owners’ Equity

The Corporation Owners’ Equity

Common Stock

Paid In Capital

Retained Earnings

Advantages of the _____________________________________

144

What about liability?

Your own corporation

Don’t ever give ___________________ ___________________

Always have a __________/ ______________ before you __________________!!!

How about disputes?

Partnership always have a _______________ _______________ before you start!!

Corporation always _____________________ itself back.

Differences in accounting for the different types relate mainly to O___________ E_________

We already covered common stock and Par Value

Go to Home Depot. We will talk about Capital.

145

Two types

1) _______________________________ 2) _________________________________

Back to controlling accounts

Dividends

146

Cash

Annabella Co., declares a $.10 per share dividend on September 1, payable on October 1 to shareholders of record September 15

|------------------------------------------------------------|----------------------------------------------------------|

date of _____________

date of _____________

date of _____________

Good luck comes to the saucy and the bold. (Welsh Proverb)

Stock Dividends are

147

Types Small are distributions of _____________________________________________

Large are distributions of _____________________________________________

So why issue?

What happens to the stock price??? Company issue 10% stock dividend. Current stock price is $100 and there are 100,000 shares outstanding.

On date of declaration

But

The purpose of management is…………………………………………………..

Horse Puckey!!!

148

Signaling and information theories

Average leaders have quotes. Good Leaders have a plan.

Exceptional leaders have a system. Urban Meyer

149

Applecore, Inc. has 100,000 shares of $10 par value stock outstanding. On June 30 th, it declares a 10% (30%) stock dividend payable on August 1 to shareholders of record on July 15 th. On June 30th the stock is selling for $50 per share.

date of _____________

date of _____________

date of _____________

150

and Stock S_____________

And what are Stock Warrants

And “A” and “B” class stock

And……..and……….and

151

Darby Co. began operations by issuing 10,000 shares of $1 par value stock on January 1 for $10 per share. On March 31, they declared a 5% stock dividend, record date April 15 and payable May 1. On June 30 they declared a $.03 per share dividend, record date July 15 and payable August 1. The market price of the stock on March 31 was $12; on April 15, $13; May 1, $15; June 30, $14; July 15, $16; and August 1, $18. Prepare journal entries to record these transactions.

152

Other Contributed Capital

the Saturn Plant

153

Finishing the Owners’ Equity Section

Treasury stock is

On January 1 the company bought back 1,000 shares of its own stock for $10 per share.Prepare the journal entry and post the T-accounts related to Treasury Stock.

On February 1 the company resold 100 of the shares purchased on January 1 for $12 per share. Prepare the journal entry and post the T-accounts related to Treasury Stock.

On March 1 the company resold 200 of the shares purchased on January 1 for $9 per share. Prepare the journal entry and post the T-accounts related to Treasury Stock.

154

On April 1 the company resold another 100 shares of the Treasury Stock purchased onJanuary 1 for $8 per share. Prepare the journal entries and post the T-accounts related toTreasury Stock. What is the ending balance in Additional Paid-in Capital-Treasury Stock Transactions before this transaction? What will this transaction do to this account?

1The Additional Paid in Capital-Treasury Stock Transactions cannot go below ______________. If you need it to, you debit _________________________________________.

And Treasury Stock goes __________________________________

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A Couple of Miscellaneous PV Items

Annuity DueYou are leasing a new car. The deal calls for 36 payments of $747.35 per month. You can, and intend to, buy the car at the end of the lease for $24,000. The first payment is due today. What is the present value of the lease?

Deferred AnnuityYou are planning on retiring in 30 years. You figure you will need about $200,000 per year to

live on. If you plan to live 40 years after you retire, how much do you need to deposit today, if you put it in a mutual fund with an 8% annual return?

Go back to the last problem. How much do you need to put in per year to get to your goal?

Professional tip #12 In negotiating, go ___________ then ________________.

Module 12 HomeworkProblem 12-1 Prepare Journal Entries for all of the following transactions:On January 1, 2015, B. Sills Corporation (a subsidiary of the famed PWC Corporation) began operations by selling 200,000 shares of $1 par value stock to the public for $5 per share. On March 1, the city of Athens gave them enough land to build their building, The land had a fair market value as of this date of $100,000. On June 30, they sold 50,000 more shares at $6 per share. On July 1, they declared a dividend of $.25 per share, payable on July 30 to shareholders of record on July 15. On July 30 they paid the dividend. On August 1, they bought back 10,000 shares of the company’s stock for $6 per share. On September 30, they sold 5,000 shares of the treasury stock for $9 per share. On December 1, they sold the rest of the stock in the treasury for $8 per share.

Problem 12-2 Tiffany Corporation began the year with 200,000 shares of common stock outstanding. These shares were originally issued with a par value of $50 for $75 per share. On December 1, 2016, the board of directors declared a 5% stock dividend payable on December 20, 2016 to shareholders of record on December 10, 2016. The stock price on December 1 was $85.00; on December 10, $88.00 and on December 20, $90.00.Prepare all necessary journal entries related to the stock dividend.

Problem 12-3 Brad Company has 100,000 shares of $10 par value common stock outstanding that wasoriginally issued for $15 per share. What would the journal entry have been at the date of issuance?

Problem 12-4Brad Company (continued from 11-3) declares a $0.50 per share dividend on October 1st, payable November 1st to stockholders of record on October 15th. Record all necessary entries for the dividend.

Problem 12-5 On January 1 ABC Company began operations by issuing 10,000 shares of $1 par value stock for $10 per share. On June 30th they declared a $0.10 per share dividend to shareholders of record on July 15th, payable July 30th. On October 1st, they declared a 10% stock dividend to shareholders of record on October 15th, payable on November 1st. Market price per share was $15 on October 1, $17 per share on October 15, and $20 per share on November 1. Prepare all journal entries for the above transactions

Problem 12-61On January 1, 2016, Acme Company had 100,000 shares of $10 par stock outstanding which it originally issued for $15 per share. On April 30th it bought back 2,000 shares at $27 per share. On October 1, Acme Company sold 500 shares of the Treasury Stock on the open market at $30 per share. On November 30th the Company sold 1,000 shares of Treasury Stock at $25 per share. On December 31, Acme sold the last 500 shares for $35 per share. At December 31, 2016, the Retained Earnings was $450,000. Prepare journal entries for the treasury stock transactions and post the treasury stock T-accounts.

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Problem 12-7 You have just had your first child. The grandparents want to pay for the child’s education at Ohio University. The child will enter OU in exactly eighteen years. The cost per year then is estimated at $60,000. The amount must be paid at the beginning of each of the four years. How much do the grandparents need to deposit today in an account paying 9% to accomplish the goal?

What if the grandparents are not wealthy and so want to make annual deposits. They will make the first one today. How much do the annual deposits need to be.

What if they wanted to make monthly deposits, again, first one today, into an account paying 9%?

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Module 13

Revenue Recognition

158

Revenue Recognition- other than just selling things! Basics

Revenue is Recognized When Delivery has occurred or services have been rendered

Price is fixed or determinable

Collectability is reasonably assured

Your Company sells a $100 gift certificate.

And when it is used to buy a pair of pants that cost you $40.

On October 31, you purchased a three year subscription to a monthly magazine- “College Today”. You send them $180 and your subscription starts with the November issue. Here is the accounting on the books of “College Today” books.

159

October 31st

November 30

December 31st

Presentation on Financial Statements

Consignment

160

Zhang Company makes a new special sandal called Flumbos. They cost $12.00 to manufacture and sell wholesale for $18.00. The retail price is $30 per pair. Zhang is having trouble finding stores to carry the sandal so they have agreed to put 1,000 pairs in Guber’s Goods Store on consignment.

Consignment is

Types

What about the risk

“In-substance Consignment” vs. regular consignment

161

Zhang Company makes a new special sandal called Flumbos. They cost $12.00 to manufacture and sell wholesale for $18.00. The retail price is $30 per pair. Zhang is having trouble finding stores to carry the sandal so they have agreed to put 1,000 pairs in Guber’s Goods Store on consignment.

On Zhang’s Books On Guber’s Books

Guber sold 500 pairs and remitted the money to Zhang

On Zhang’s Books On Guber’s Books

Construction

162

Recognizing profits

Percentage of Completion can be used

163

Steven’s Construction Company contracted on June 30, 2014 to build a new high rise apartment building for Gabrielle Properties. The construction is expected to take three years. The contract price is $4,500,000. The contract included a retainage clause of 10% which will be paid on completion, and Gabrielle’s acceptance of the building. The following is a summary of the of the costs, billings and cash receipts for each year:

2015 2016 2017Costs To Date 1,000,000 2,916,000 4,050,000Estimated Cost to Complete 3,000,000 1,134,000 -0-Billings During Year 900,000 2,400,000 1,200,000 Cash Collections During Year 750,000 1,750,000 2,000,000

% of Completion

164

Losses, Changes in Estimates

165

Go back to Stevens-Steven’s Construction Company contracted on January 1, 2015 to build a new high rise apartment building for Gabrielle Properties. . The construction is expected to take three years. The contract price is $4,500,000. The contract included a retainage clause of 10% which will be paid on completion, and Gabrielle’s acceptance of the building.

Now assume that 2015 goes as planned, but in 2016 you hit a snag. The actual costs to date are $2,000,000 and you still estimate that after that year, you will have $3,000,000 in costs to finish the project.

2015 2016 2017Costs To Date 1,000,000 2,000,000 3,000,000Estimated Cost to Complete 3,000,000 3,000,000 -0-Billings During Year 900,000 2,400,000 1,200,000 Cash Collections During Year 750,000 1,750,000 2,000,000

166

Completed Contract

167

When ____________________________________________________168

What is this Zero Profit method??

169

Installment SaleOn January 1, 2015, General Development Corporation acquired 100 acres of land in Florida for $10,000. They put $30,000 in infrastructure (roads and so forth) on the property. They broke the property into 400 quarter acre lots which they advertised for sale to at $2,600 per lot. During 2015 they sold 25 lots at an average price of $2,600. The terms were $100 down and the rest in 120 equal annual monthly payments of $27.76 which include interest at 6%. The Sales people get 10% of the sales price regardless of whether the buyer ultimately makes all the payments. Assume all purchasers made 6 payments during 2015. Assume this qualifies to be accounted for as an installment sale. Prepare all related journal entries for 2015.

170

Cost Recovery-

171

Colton Company sold stuff that cost $160,000 for $300,000 on January 1, 2015.

Cash collections were as follows

2015 $ 100,000

2016 $ 150,000

2017 $ 50,000

Prepare the Journal entries for the transaction and for the subsequent cash collections.

And just because I didn’t know where else to put it…

Deferred Annuity

172

You are planning on retiring in 30 years. You figure you will need about $200,000 per year to live on. If you plan to live 40 years after you retire, how much do you need to deposit today, if you put it in a mutual fund with an 8% annual return?

Go back to the last problem. How much do you need to put in per year to get to your goal?

Making the payments in installments

Homework 13

173

Problem 1 You are building a building and accounting for the profit using the percentage of completion method. The contract is for $3,000,000. The total estimated costs are $2,400,000. In year 1, your costs were $600,000 and your billings were $900,000. In year two, your costs were $1,200,000 and the billings were $1,500,000. In year 3, costs were $600,000 and billings were $600,000.

Prepare journal entries for these transactions.

Problem 2 You have just had your first child. The grandparents want to pay for the child’s education at Ohio University. The child will enter OU in exactly eighteen years. The cost per year then is estimated at $60,000. The amount must be paid at the beginning of each of the four years. How much do the grandparents need to deposit today in an account paying 9% to accomplish the goal?

What if the grandparents are not wealthy and so want to make annual deposits. They will make the first one today. How much do the annual deposits need to be.

What if they wanted to make monthly deposits, again, first one today, into an account paying 9%?

Module 14

174

Deferred TaxesDifferences between Net Income and Taxable Income

T_________________________________ (could also be termed timing)

Such as

P________________________________

Such as

Deferred tax liabilitiesDeferred tax liabilities generally arise where tax relief is provided in advance of an accounting expense/unpaid liabilities, or income is accrued but not taxed until received. Examples of such situations include:

a company claims tax depreciation at an accelerated rate relative to accounting depreciation

a company makes pension contributions for which tax relief is provided on a paid basis, whereas accounting entries are determined in accordance with actuarial valuations

Deferred tax assetsDeferred tax assets generally arise where tax relief is provided after an expense is deducted for accounting purposes.Examples of such situations include:

a company may accrue an accounting expense in relation to a provision such as bad debts, but tax relief may not be obtained until the provision is utilized

a company may incur tax losses and be able to "carry forward" losses to reduce taxable income in future years..

An asset on a company's balance sheet that may be used to reduce any subsequent period's income tax expense. Deferred tax assets can arise due to net loss carryovers, which are only recorded as assets if it is deemed more likely than not that the asset will be realized.

MACRS

175

M_______________ A_________________ C_________ R_____________ S___________

MACRS has the half year convention built into the tables. For all our problems we will assume that, for financial reporting, the company depreciates assets a full year during the year of acquisition and none in the year of disposition, unless the problem states otherwise.

Acme, Inc. purchased new computer software on January 1, 2016. The cost of the software was $84,000. It is expected that the software will last 4 years and then be worthless. The company uses straight-line depreciation for reporting purposes. The software is three-year property for tax purposes. Assume that Acme makes $510,000 annually before depreciation and taxes and that this is the only fixed asset the company has. Included in the $510,000 is $10,000 of municipal bond interest that the company receives each the year. Prepare the journal entries as they relate to depreciation and taxes for each of the years and post the deferred tax T accounts for each of the years. The corporate tax rate is 30%.

Accounting Tax

Income before Depreciation and Taxes $ 510,000 $ 510,000

Depreciation Expense

Income before Permanent Differences & Taxes

Permanent Differences

Taxable Income

Tax Expense

Journal Entry for 2016

Now prepare the journal entries for the next three years. Assume the same earnings and permanent differences.

176

MACRS GDS Property (General Depreciation System)

177

Property Class Personal Property (all property except real-estate)

3-year propertySpecial handling devices for food and beverage manufacture.

Special tools for the manufacture of finished plastic products, fabricated metal products, and motor vehicles

5-year property

Information Systems; Computers / Peripherals

Aircraft and parts (of non-air-transport companies)

Computers

Petroleum drilling equipment

Property with ADR class life of more than 4 years and less than 10 years

Certain geothermal, solar, and wind energy properties.

7-year property

All other property not assigned to another class

Office furniture, fixtures, and equipment

Property with ADR class life of more than 10 years and less than 16 years

10-year property

Assets used in petroleum refining and certain food products

Vessels and water transportation equipment

Property with ADR class life of 16 years or more and less than 20 years

15-year property

Telephone distribution plants

Municipal sewage treatment plants

Property with ADR class life of 20 years or more and less than 25 years

20-year propertyMunicipal sewers

Property with ADR class life of 25 years or more

Property Class Real Property (real estate)

27.5-year property Residential rental property (does not include hotels and motels)

39-year property Non-residential real property

Year

Depreciation Rate in % for Recovery Period3-year 5-year 7-year 10-year 15-year 20-year

1 33.33 20.00 14.29 10.00 5.00 3.7502 44.45 32.00 24.49 18.00 9.50 7.219

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Year

Depreciation Rate in % for Recovery Period3-year 5-year 7-year 10-year 15-year 20-year

3 14.81 19.20 17.49 14.40 8.55 6.6774 7.41 11.52 12.49 11.52 7.70 6.1775 11.52 8.93 9.22 6.93 5.7136 5.76 8.92 7.37 6.23 5.2857 8.93 6.55 5.90 4.8888 4.46 6.55 5.90 4.5229 6.56 5.91 4.462

10 6.55 5.90 4.46111 3.28 5.91 4.46212 5.90 4.46113 5.91 4.46214 5.90 4.46115 5.91 4.46216 2.95 4.46117 4.46218 4.46119 4.46220 4.46121 2.231

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180For 2016, Kylie Company had income before taxes and depreciation last year of $500,000. Included in the other revenue section was $5,000 in municipal bond interest she received on Athens Municipal Bonds which the company owned. On January 1, 2016 she purchased a new goomahochie for $60,000. She estimates it will last two years and then be worthless. (For the uninformed, a goomachochie is used to produce goomies and is three-year property according to the IRS). She used straight-line depreciation to depreciate the goomahochie. During 2016 she paid fines of $20,000 for speeding. Her Bad Debt Expense for the year was $7,000. She actually wrote off $4,000 in accounts that she will never collect. In 2017, her fines were $6,000, her bad debt expense was 6,000 and she wrote off $7,000. She had municipal bond interest of $2,000. In 2018, her fines were $7,000, bad debt expense was $5,000, she wrote off ($7,000) and she had no municipal bond interest. In 2019, her bad debt expense was the same as her write offs, she had no fines or municipal bond interest. Prepare the journal entries for all of the years that relate to taxes. (Assume the same earnings each year before depreciation and a 30% tax rate and all taxes are accrued and then paid the following year.)

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Ruth just bought a new airplane - cost $600,000. She will use it to deliver stuffs for the next five years. At the end of the fifth year she expects it will be worthless. Ruth’s net income before depreciation and taxes for the year was $4,000,000. Her tax rate is 30%. Ruth uses the straight line method (half-year convention) when calculating depreciation for accounting purposes. For IRS purposes, the plane is considered five-year property. Assume the same earnings before depreciation and taxes for the next six years. Prepare all journal entries relating to depreciation and taxes for all five years.

What happens when tax rates change?

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Module 13 Revenue Recognition

Revenue Recognition- other than just selling things! Basics

When Delivery has occurred or services have been renderedPrice is fixed or determinableCollectability is reasonably assured

Your Company sells a $100 gift certificate.

And when it is used to buy a pair of pants that cost you $40.

On October 31, you purchased a three year subscription to a monthly magazine- “College Today”. You send them $180 and your subscription starts with the November issue. Here is the accounting on the books of “College Today” books.

October 31st

November 30

December 31st

Presentation on Financial Statements

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188

Revenue recognition considerations

Ongoing??

Done??? Rights of Return??

Certainty of collection

Construction

Steven’s Construction Company contracted on June 30, 2014 to build a new high rise apartment building for Gabrielle Properties. The construction is expected to take three years. The contract price is $50,000,000. Gabrielle pays Steven’s $1,000,000 on the day the contract was signed. The contract included a retainage clause of 10% which will be paid on completion, and Gabrielle’s acceptance of the building. The following is a summary of the of the builGabrielle will and costs, billings and cash receipts are expected to be as follows: (in millions)

2015 2016 2017 2018 Costs 17 10 8 5 Billings 20 10 10 10 Cash Collections* 22 10 8 10*includes 1,000,000 on day of signing

% of Completion

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Go back to Stevens-Steven’s Construction Company contracted on June 30, 2014 to build a new high rise apartment building for Gabrielle Properties. The construction is expected to take three years. The contract price is $50,000,000. Gabrielle pays Steven’s $1,000,000 on the day the contract was signed. The contract included a retainage clause of 10% which will be paid on completion, and Gabrielle’s acceptance of the building. The following is a summary of the of the builGabrielle will and costs, billings and cash receipts are expected to be as follows: (in millions)

2015 2016 2017 2018 Costs 17 10 8 5 Billings 20 20 10 10 Cash Collections* 22 10 8 10*includes 1,000,000 on day of signing

Now assume that 2015 and 2016 go as planned, but in 2017 you hit a snag. The actual costs are $20,000,000 and you still estimate that after that year, you will have $10,000,000 in costs to finish the project.

191

Completed Contract193

194Installment SaleOn January 1, 2015, General Development Corporation acquired 100 acres of land in Florida for $10,000. They put $30,000 in infrastructure (roads and so forth) on the property. They broke the property into 400 quarter acre lots which they advertised for sale to at $2,600 per lot. During 2015 they sold 25 lots at an average price of $2,600. The terms were $100 down and the rest in 120 equal annual monthly payments of $27.76 which include interest at 6%. The Sales people get 10% of the sales price regardless of whether the buyer ultimately makes all the payments. Assume all purchasers made 6 payments during 2015. Assume this qualifies to be accounted for as an installment sale. Prepare all related journal entries for 2015.

Cost Recovery-

redo the last problem using the cost recovery accounting

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Homework

Problem 1

You are building a building and accounting for the profit using the percentage of completion method. The contract is for $3,000,000. The total estimated costs are $2,400,000. In year 1, your costs were $600,000 and your billings were $900,000. In year two, your costs were $1,200,000 and the billings were $1,500,000. In year 3, costs were $600,000 and billings were $600,000.

Prepare journal entries for these transactions.

Problem 2

Hardhat Construction Company has a contract to construct a $5,000,000 bridge at an estimated cost of $4,000,000. The contract is to start in July 2016. And the bridge is to be completed in October 2018. The following data pertain to the construction period.

2016 2017 2018

Contract Price $5,000,000 $5,000,000 $5,000,000

Costs To Date 800,000 2,900,000 4,200,000Estimated Cost to Complete 3,200,000 1,300,000 -0-Billings During Year 700,000 2,800,000 1,500,000 Cash Collections During Year 600,000 2,000,000 2,400,000

Prepare the Journal Entries and post the T accounts for all years assuming the % of completion method.

Show how the pertinent items would appear on the balance sheet for each year.

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Put Bond Here

Refreshing on Present Value, Payments and Amortization

You have found a camel you really just must have! Which is the best deal? Why? Amortize all the deals.

Deal #1. Cost is $20,000, four equal payments which include interest at 4%. Payments begin one year from today. (Realistic rate is 12% for all the deals)

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204Deal #2 The camel costs $25,000, BUT you pay interest only at 4% for six years. With the

last interest payment, you also pay the $25,000.

Deal #3 The camel is $30,000, NO INTEREST for five years and then you pay the 30,000.

Deal #4 $17,000 cash.

Certainties are arrived at only on foot.

You have seen an ad for a used Mercedes in the Athens Messenger. The car is for sale for $40,000. You believe you could make a buck by renting the car out. You figure you could rent the car to the semi-rich on a daily basis for three years. You think you could rent the car for $100 per day for the first year and $80 per day the second year and $60 per day for the third year. You expect that the car will be rented out about 70% of the time for each year. At the end of the third year, you figure you can sell the car for $20,000. You estimate that the repairs and maintenance on the car will be about $1,000 for the first year, $2,000 the second year and $3,000 the third year. Licenses and fees will run $2,000 per year for all three years. You will pay a rental company 10% of the gross rents you receive each year to take care of all the paper work and the renting of the car to the students. How much can you pay for the car today and make 20% on your investment?

205

207

Mercedes

Year 1 Year 2 Year 3

Rents 25,550

Cash Expenditures:

Repairs & Maintenance

Licenses & Fees

Rental Company Fees

Total Cash Expenditures

Net Cash Flow

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The IRR What rate of return are you earning?

Use excel for instance =IRR(c15:f15)

The critical assumption

Professional Tip #1 In negotiating, use s__________ a__________________.

Professional Tip #2 Beware of S__________________ people-you cannot change them!!!

And speaking of this…. Never try to I________________ someone. There are enough other people in the world!

It never works and trying injures your s__________.

And the leaders does not seek a_____________________

struthious Module 12 Lazy people aresycophant Financial Statement Analysis always anxiouspugnacious to be doing something.

Marquis De Vauvenargues

Hermi’s Bumbles, Inc.

Hermi’s Bumbles is a company that has been in business for three years. The company is a wholesaler of Bumbles. Bumbles are bulbs which grow into beautiful, sweet smelling plant-trees. They are a cross between a hyacinth and a buckeye. They are refrigerated and must be planted within one year of when they are harvested. Hermi buys the bumbles from a grower when they are one month old. Hermi has one location in Columbus, Ohio. It has three refrigerated trucks which deliver the Bumbles throughout Ohio. The financial statements on the previous page summarize Hermi’s operations for its first three years.

Hermi began operations with individuals investing $120,000 for 12,000 shares of common stock and a small business loan of $200,000 from the bank. The loan carries interest at 12%. Hermi must pay the interest plus $10,000 on the principal on January 1 of each year. Hermi sells using terms of 2/10 n/30. The latest sale of stock between individuals was yesterday at $85.00 per share. There are more shares available from the other investors for this amount. The tax rate is 30%.

209

Analyzing Hermi’s

Current Ratio

Which tells us?

Calculate the Current Ratio for 2012 and 2013

The Quick or “Acid Test” Ratio

211

212

“Occam’s Razor”

Calculate the Accounts Receivable Turn for 2012 and 2013

And the average collection period for the two years

Calculate the Inventory Turn

Calculate the Average Days Sales In Inventory

Calculate Book Value Per Share

Return on Assets ROA

Which tells us?

Return on Equity ROE

Which tells us?

213

214

Leverage What causes the difference between the ROA and the ROE??

Debt Ratio

Debt to Equity

Which tells us?

Use of Leverage

You have decided to open a hot dog stand at the corner of Court and Union. The following is your opening balance sheet. You own the only 50,000 shares of stock outstanding for your company. You sell the dogs for $2.00 each. You pay your worker a fixed salary of $20,000 plus $.10 for each dog she sells.

AssetsCash 5,000Inventory 10,000Cart 35,000 Total 50,000

Liabilities -0-

Owners’ EquityCommon Stock 50,000Retained Earnings -0- Total 50,000

Expand using Expand using Stock Loan

For the First Year Sales 60,000 Cost of Sales 12,000 Gross Margin 48,000

215

216 Operating Expenses Wages 23,000 Other 10,000 Total Operating Expenses 33,000 Operating Income 15,000

Net Income Before Taxes ______ Tax Expense Net Income .

EPS .

You paid all your income out as a dividend. You want to expand to Oxford. You will need to invest a total of $60,000. You expect your sales and cogs to double with the new operation. Your wage expense for Oxford will be based the same as it is in Athens. Your other expenses will increase to $12,000. Your tax rate is 30%. You can either sell 60,000 shares of stock for $1 each or you can borrow the money from the bank. The bank will charge you 8% interest on the loan. Prepare the income statement for next year if you do the deal under each of the alternatives. Assume the deal is done on January 1st.

Window Dressing

Cash $300,000 Accounts Payable $200,000 Accounts Rec 100,000 Other payables 200,000 Inventory 100,000 Total Current Assets 500,000 Total Current Liabilities 400,000

Current Ratio is

Now pay off the Accounts Payable

The Current Ratio is

The probability of someone watching you is proportional

to the stupidity of your action.

Professional tip # 1 In negotiations use time ____ a t____________.

# 2 Create an issue……Then you can t_______ it a_________.

(no winners or losers here!!!) Module 12 Homework

Problem 1Calculate all the ratios you have learned for both Kevin’s Kennels and Molly’s Muchies (Cash Flow Homework). Compare and contrast the two companies using the ratios you have learned. Use a market price per share of $5 for Kevin’s and $4 per share for Molly’s.

217

Explanations and Calculations of the RatiosSusanne Freeland

Current Ratio = Working Capital RatioCurrent AssetsCurrent Liabilities

Measure of liquidity – a company has sufficient liquid assets to cover its current obligations.

The higher the ratio the better able a company can meet its current obligations.

Return on Assets = Net Income Ave. Total Assets

Measure of how well a company uses its assets to create profits.

The company wants to create a return that satisfies its shareholders (owners).

Investors use this ratio to evaluate company leadership.

219

220Return on Equity = Net Income Ave. Equity

Measures the success of company’s financing, investing and operating activities.

A company that generates a high return relative to its shareholders equity is considered a sound investment. The original investors will be repaid with the proceeds from business operations.

Debt Ratio = Total Liabilities Total Liabilities + Total Owners’ Equity

= Total Liabilities Total Assets

Debt to Equity Ratio = Total Liabilities Total Owners’ Equity

The more outstanding debt a company has, the more its earnings must go to making the payments on this debt load. This limits the amount of capital available to grow the business or pay dividends to the shareholders.

The more debt a company carries, the more risk is being taken by the creditors as opposed to the shareholders.

Inventory Cost of Goods SoldTurnover Average Inventory

Average Inventory = Inventory @ BOY + Inventory @ EOY/2

Measures the success a company has in converting (turning) its investment in inventory into sales.The number of times a company sells and replaces its inventory during a given period.

Average Days = __ 365_____ Sales in Inventory Inventory Turn

The number of days sales, on average, that a firm carries in inventory.

Acid Test Ratio = Quick RatioCurrent Assets - Inventory

Current Liabilities

A stringent test that indicates whether a company has enough current assets to cover immediate liabilities without selling inventory.

Accounts Receivable Turnover

Sales / Average Net Accounts Receivable

The number of times the accounts receivable are turned over or are collected during the period.

Average Collection Period

365 days per year / Accounts Receivable Turn

The number of days it takes on average to collect an account receivable.

Earnings Per Share

Net IncomeWeighted Average number of shares of common stock

The dollar amount of earnings that is associated with each share of stock.

Book Value per Share

Assets – Liabilities Number of shares of common stock at the end of the year

The dollar amount of equity that is associated with each share of stock.

Price Earnings Ratio

221

222 Market Price per share Earnings per share

This tells you how expensive a share of stock is in relation to its earnings.

A Look At Whether Ford Is Firing On All CylindersOctober 10, 2011 | 13 comments | about: F, includes: GM, TMDisclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.Shares of US Automaker Ford (F) have fallen nearly 43% from its 52-week high reached at the beginning of this year. With it's new dealsigned with the UAW, the company has essentially started a new era with its workers, but it's too early to tell how it will all work out. With those labor negotiations now in the rear view mirror, I wonder if the company is doing all that it currently can. Let's take a look at some products first, and then we'll take a look at the financials.The problem I see with Ford right now in terms of products is that they are lesser quality for a higher price. I'll use the example of the Ford Fusion (manual) versus the Hyundai (HYMLF.PK)Sonata (manual). If you'd like to do the same comparison, click here. Both manuals are the base models. The MSRP and "comparably equipped pricing" have the Fusion about $200 more with no incentives. The Sonata has an extra 23 horsepower, a lower turning radius, and more interior space and room for occupants. And the gas mileage: Sonata gets 24/35 while the Fusion gets 22/32. And the Sonata's gas tank is a gallon bigger so you can go even further.According to Consumer Reports, the Sonata also has better crash test ratings, better acceleration, better braking, and a better warranty. So I'll sum everything up. The Sonata is a much better car, will cost you less in fuel and maintenance, and is safer. And you can get it for the same price. That's a no brainer to me. For those of you who may question this example, I also observed both of these cars at the New York International Auto Show earlier this year. I was more impressed with the Sonata.That's just one example based on similar cars. I provided that comparison just to show you the one main thing Ford needs to do: build a better quality car at a better price. That may be easier said than done. However, if you look at the competitors page on Yahoo Finance, you will notice that Ford has

higher margins than both Toyota (TM) and General Motors (GM). Good for them. They need to keep it going though, and right now, there is a ton of competition. So my main point is that Ford will be a winner if they can control their costs and increase quality. We'll see how this deal with the UAW works out. But for now, why not focus on how Ford has done recently. Here's some selected financial data over the past eight quarters.Selected Financial Data ($B)

3Q 2009

4Q 2009

1Q 2010

2Q 2010

3Q 2010

4Q 2010

1Q 2011

2Q 2011

Revenues

$30,892

$35,449

$31,566

$35,067

$29,893

$32,428

$33,114

$35,527

Gross Profit

$5,716

$5,717

$6,427

$7,239

$5,660

$5,177

$6,338

$6,274

Net Income

$997 $868 $2,085

$2,599

$1,687 $190 $2,55

1$2,398

Current Assets

$62,222

$55,865

$59,456

$53,787

$59,371

$48,875

$51,279

$50,030

Total Assets

$203,106

$194,850

$191,968

$179,750

$177,078

$164,687

$167,391

$168,086

Current Liabilities

$70,360

$61,193

$60,056

$59,674

$61,100

$60,206

$62,076

$62,686

Total Liabilities

$210,376

$201,365

$197,405

$183,291

$178,818

$165,329

$164,926

$162,736

As you can see, the company has done fairly well, and has reduced the size of its balance sheet quite a bit over the past 2 years. So let's look at some financial metrics, and we'll focus on profitability first.

Profitability

3Q 2009

4Q 2009

1Q 2010

2Q 2010

3Q 2010

4Q 2010

1Q 2011

2Q 2011

Gross Margin

18.50%

16.13%

20.36%

20.64%

18.93%

15.96%

19.14%

17.66%

Operating Margin

2.89%

2.14%

5.32%

7.41%

5.26%

2.50%

7.50%

6.25%

Profit Margin

3.23%

2.45%

6.61%

7.41%

5.64%

0.59%

7.70%

6.75%

Return on Assets

0.49%

0.44%

1.08%

1.40%

0.95%

0.11%

1.54%

1.43%

Gross margins have come down in the year over year numbers, but operating margins have been quite decent despite those declines. Profit margins have also faired fairly well, as well as the return on assets ratio. I excluded the return on equity ratio from this analysis because the company has had a negative shareholder's equity book balance for seven of the past nine quarters, so the numbers look a bit distorted. We'll look at liquidity and coverage next.

223

224Liquidity

3Q 2009

4Q 2009

1Q 2010

2Q 2010

3Q 2010

4Q 2010

1Q 2011

2Q 2011

Current Ratio 0.88 0.91 0.99 0.90 0.97 0.81 0.83 0.80

Quick Ratio 0.79 0.82 0.89 0.80 0.86 0.71 0.71 0.69

Working Capital ($B)

($8.14)

($5.33)

($0.60)

($5.89)

($1.73)

($11.33)

($10.80)

($12.66)

Coverage

3Q 2009

4Q 2009

1Q 2010

2Q 2010

3Q 2010

4Q 2010

1Q 2011

2Q 2011

Debt Ratio

103.58%

103.34%

102.83%

101.97%

100.98%

100.39%

98.53%

96.82%

Cash Debt Coverage

7.44% 7.79% 1.35% 3.39% 5.65% 0.72% 1.51%

3.80%

Both the current and quick ratio have come down from last year's levels, but have stayed fairly even over the past couple of quarters. I don't like how the working capital number has gotten worse, but as I said before, the company has reduced the size of its balance sheet. Also, I'm not as concerned with the short term numbers getting worse, because the long term numbers have gotten better.

The debt ratio, or liabilities to asset ratio, has improved every quarter. Ford has essentially reduced its long term liabilties, shifting some of them to short term liabilities in the process. I like what it is doing here, and I hope it can keep it going. The final check will be some activity ratios.

Activity 3Q 2009

4Q 2009

1Q 2010

2Q 2010

3Q 2010

4Q 2010

1Q 2011

2Q 2011

Receivables Turnover 4.43 4.76 4.35 4.70 3.66 4.12 4.04 3.85

Inventory Turnover 3.83 4.95 4.28 4.50 3.75 4.27 4.02 4.05

Asset Turnover 0.15 0.18 0.16 0.19 0.17 0.19 0.20 0.21

The receivables turnover has declined a little, meaning that Ford's accounts receivable are growing faster than its revenues. It's not a problem yet, but if the number starts moving closer to 3 it might bring up a little concern. The inventory turnover has remained fairly strong, which is a good sign that it is getting its products out there and sold. Their asset turnover has definitely improved, meaning they are doing more with less. I'd like to see this improvement continue.

So, where is Ford going from here? Well, it is projected for 14% revenue growth in 2011 and 7% revenue growth in 2012. Unfortunately, it doesn't look like it will be translating that growth to the bottom line. EPS estimates call for only 1% growth this year, and about an 8% decline next year. Like I've said before, it needs to control its costs. At a forward P/E of 6, it is trading at a premium to GM's forward P/E of 5. Ford has a slight advantage in revenue growth expectations, while GM has the advantage in EPS growth. And right now, the analysts like GM a little better, but say Ford has more upside.

So what's my overall opinion now? I would rate Ford a short term hold with a medium to long term buy. Ford just reached an agreement with the UAW, and it remains to be seen how that will work out. Also,

despite gas prices being down about 25 cents in the past month, they are still up 60 cents year over year. Ford has been pushing its more fuel efficient cars lately, but it still trails some of its international counterparts in fuel economy.

I like the balance sheet work it has done, and I like the profitability, but it needs to continue. But right now, I'm not sold on the US economy and the unemployment picture. In my opinion, that will probably pressure the shares for the next couple of months. However, I think this is a great stock for a period of economic improvement. Remember, it did go from under $2 to $19 after we climbed out of the recession. For now, it needs to get those long term liabilities under control, keep costs in check, and improve quality.

Module 13 Valuing

Part IThe P/E Ratio

225

226

The inverse of the P/E actually tells us……………………….

And our formula for the return on an investment is:

So differences in P/E ratios implies……………………………

Operations for profit should be based not on optimism but on arithmetic.

Benjamin Graham

Kirch’s First Law of the Universe

The financial worth ______________________________________

________________________________________________________

Now we go back to the apartment building

Once upon a time the following add appeared in the Athens newspaper-

For Sale: Apartment Building 30 UnitsAverage Rent for 2014 is expected to be $600 per month per unit2 years oldPrice __________

Upon investigation you found that it would require little or no work on your part. There was a rental agency which would keep the books, rent apartments, do evictions and other administrative tasks for 10% of the rent. Your investigation showed that the apartments stayed about 95% occupied and that occupancy rate is likely to continue. Additionally, the rental agency told you that you can expect rents to increase about 5% per year after 2014 year for the following three years (2015, 2016, and 2017) because the building is new. The repairs and maintenance costs are about $800 per month for 2014, 2015, 2016, and 2017. You want to earn at least 20% on your investment. You figure you will hold on to the apartment for four years and then sell it for $600,000 (on Dec 31, 2017). All other cash expenses run $1,000 per month and will rise at 5% per year after 2014. Assume it is Jan 1, 2014- what is the price you would pay for the apartment? Ignore taxes.

Apartment2014 2015 2016 2017

Rents

Cash Expenditures: Rental Company Fees Repairs & Maintenance Other Cash ExpensesTotal Cash Expenditures

Net Cash Flow

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Module 14Risk and Terminal Value

The concept of terminal valueAnd if we expected the investment to last forever, how would we value it?

229

Apartment2014 2015 2016 2017

Rents 30(95%)(600)(12) 205,200 194,400 + 194,400(5%) 215,460 204,120 + 204,120(5%) 226,233 214,326 + 214,326(5%) 237,545

Cash Expenditures: Rental Company Fees 20,520 21,546 22,623 23,754 Repairs & Maintenance 9,600 9,600 9,600 9,600 Other Cash Expenses 12,000 12,600 13,230 13,892Total Cash Expenditures 42,120 43,746 45,453 47,246

Net Cash Flow 163,080 171,714 180,780 190,299

231

232

PV of Net Cash Flows @ 20% 135,900 119,246 104,618 91,772 = 451,536

Can you actually beat the markets?First As to Market Efficiency (Shiller vs. Fama)

233

234

George Soros 29% for 37 yearsEddie Lampert 29% for 18 yearsPeter lynch 29% for 18 YearsDavid Tepper 27% for 15 yearsWarren Buffett 21% for 40 years

Risk and ReturnI would like to take time to describe another aspect of investing-

risk versus return.

Say you have the option of putting your money in a federally insured bank earning less than 1%. This is our starting point and carries no risk. From this ultra-safe extreme we move up the investment spectrum. At the other end of the spectrum,

Lower Level of Risk Higher

Low

er

R

etur

n

High

er

Federally US Insured Bank wins World Cup

Systemic risk unsystematic (idiosyncratic) risk (market) (individual stock or investment risk)

Variability

Sharpe Ratio

235

236

CapM

the Capital Asset Pricing Model (CAPM).

where:

is the expected return on the capital asset

is the risk-free rate of interest such as interest arising from government bonds

(the beta) is the sensitivity of the expected excess asset returns to the expected excess market returns, or

also ,

is the expected return of the market

is sometimes known as the market premium (the difference between the expected market rate of return and the risk-free rate of return).

is also known as the risk premium

Restated, in terms of risk premium, we find that:

which states that the individual risk premium equals the market premium times β.

238

TimingIt is far from certain that the typical investor should regularly hold off buying until low market levels appear, because this may involve a long wait, very likely the loss of income, and the possible missing of investment opportunities. On the whole it may be better for the investor to do his stock buying whenever he has money to put in stocks, except when the general market level is much higher than can be justified by well-established standards of value. If he wants to be shrewd he can look for the ever-present bargain opportunities in individual securities. (Benjamin Graham)

If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume. (Benjamin Graham)

Professional Tip Find the one with power by w______________ the e________!

Module 15 Valuation- Part IIYou and Your Money

Stocks or Mutual Funds??

Remember 5% do!!!

Mutual Funds

Load vs. No-Load

243

244

Do expense ratios matter?

Manager tenure

Finding a Mutual Fund using a screener

Professional Tip

When You apologize, do not t_________________ the ______________________! The best way to get in the last word is to say “I’m sorry”!!

Module 16Managerial Part I

temerity Concentration comes out of a combination of confidence

and hunger. (Arnold Palmer)

We have been studying Financial Accounting

Which deals with ___________________________________________

Managerial accounting is __________________________________________________

Cost BehaviorWe sell Tasteys. They cost $90 to make and sell for $ 300 each. Our only other expenses are the rent of $400 per month and a $10 per unit sales commission we pay to the salespeople.

Fixed Costs are

Variable Costs are

245

246

The relevant range

Calculating Break-even

Target Profit

Break-even using Contribution Margin %

Now go back to the Hot Dog Stand

You have decided to open a hot dog stand at the corner of Court and Union. The following is your opening balance sheet. You own the only 50,000 shares of stock outstanding for your company. You sell the dogs for $2.00 each. You pay your worker a fixed salary of $20,000 plus $.10 for each dog she sells. (Dogs cost $.40 each- how do I know that?)

AssetsCash 5,000Inventory 10,000Cart 35,000 Total 50,000

Liabilities -0-

Owners’ EquityCommon Stock 50,000Retained Earnings -0- Total 50,000

Income Statement Using For the First Year Contribution Margin Format Sales 60,000 Sales Cost of Sales 12,000 Gross Margin 48,000 Operating Expenses Wages 23,000 Other 10,000 Total Operating Expenses 33,000 Operating Income 15,000

How many hot dogs do you need to sell to break-even Per Year

Per Month Per Week Per Day Per Hour

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248

Gracie Company sells Dodds. The following is an income statement for a recent month.

Sales $250,000 Cost of goods sold 150,000 Gross Margin 100,000 Operating Expenses Salaries and commissions $42,000 Rent 18,000 Utilities 7,000 Other 3,000 70,000

Net Income $30,000

Gracie sells one product, Dodds at $20 each. Cost of goods sold is variable. A 10% sales commission, included in salaries and commissions, is the only other variable cost. Gracie tells you that the income statement is not helpful, for she cannot determine such things as the break-even point.

Redo the statement using the contribution margin format.

What is the breakeven in units and dollars

Acme Company sells anvils and the following is per anvil

Unit Selling Price $20Variable Costs 12

Total fixed costs $ 400,000

Total volume 100,000 units

Prepare an income statement using the contribution margin format

What is Acme’s Break Even point in units

In $

Using the contribution margin % to calculate Break-even in dollars

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Now assume that Acme wants to make $1,000,000 per year. How many anvils does the company need to sell to accomplish this (in units and dollars).

The CFO of Laurel Company provides the following per-unit analysis, based on a volume of 100,000 units

Selling Price $30Variable Costs $12

Fixed Costs 9 Total Costs 21 Profit per unit $ 9

Answer each of the following questions independent of your answers to the other questions

1) What total profit does Laurel expect to earn?

2) What would be the total profit at 110,000 units?

3) What is the break-even point in units?

4) Laurel’s managers think they can increase volume to 120,000 units by spending an additional $ 60,000 on salespeople. What total profit would they earn if they make this move?

Ryan, Inc. manufactures lamps and expects to sell 350,000 units in 2015 at $21 per unit. Planned per- unit manufacturing costs at that level of production are as follows:

Variable manufacturing costs $9Fixed manufacturing costs $5

Early in 2015, a new customer approaches Ryan offering to buy 15,000 lamps at $11 each. Ryan can produce the additional units with no change in fixed manufacturing costs or per-unit variable costs. The only additional fixed cost for this order is for packing and shipping, estimate at $3,800, Accept?

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Professional tip In negotiating, go ___________ then ________________.

` Module 16 Homework Problem 1. Salmon Company makes Things. Things sell for $30 each and cost $10 each to make. Fixed costs are estimated to be $1,500,000 next year.

What is the breakeven point for Salmon based on the above information

How many Things must Salmon sell to make $1,200,000 next year?

Problem 2 Billy Bob’s has given you the following income statement for June 2013.

Sales $ 500,000Cost of goods sold 300,000

Gross margin 200,000

Operating expenses: Salaries and commissions $ 80,000 Utilities 20,000 Rent 22,000

Other 18,000 Total operating expenses 140,000 Income 60,000

Billy Bob sells one product, a running shoe for $100 per pair. A 10% sales commission, included in Salaries and commissions is the only other variable cost. The manager tells you that this financial statement is not very helpful to her.

Redo the income statement using the contribution margin format.

For Billy Bob’s determine the break-even in sales dollars and units

Module 17struthious Managerial Lazy people are always anxious sycophant Part 2 to be doing something. pugnacious Marquis De Vauvenargues

Susie is the new manager of Acme Clothing. The controller has given her the following information based on expected operations for the coming year.

Shirts Pants PulloversSelling Price $ 20 $ 30 $ 60Variable Costs 10 12 15Contribution Margin 10 18 45

Sales mix percentage, in dollar sales 50% 30% 20%

Total fixed costs are $1,189,000

What is the weighted average contribution margin?

What is the break-even in sales?

At the break-even point, how many of each item will be sold?

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The CEO wants a profit of $800,000. Determine the sales needed to achieve this goal?

The sales manager believes she can increase the sales of any of the three products by 20% by spending $25,000 in advertising on that product. Which product should she choose for the promotion?

Cleveland Cliffs produces three models of gel pens, regular, silver and gold. Price and costs of the three are as follows

Regular Silver GoldSelling Price $ 20 $ 30 $60Variable Costs 12 15 21

Monthly fixed costs are $600,000

Suppose the sales mix is Regular 50%, Silver 30% and Gold 20% What is the breakeven in sales dollars?

How much must the sales volume be to make $300,000 per month?

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Freeland Company makes three products, Alpha, Beta, and Gamma

Below are the income statement for a recent month:

May Sales $160,000

Costs 120,000 Net Income 40,000

Selling price and cost data by product are as follows.Alpha Beta Gamma

Selling Price $40 $20 $10Variable costs 16 6 6Contribution margin 24 14 4

Sales mix (in dollars) 40% 40% 20%

1) Determine the break-even point in dollars*

2) Which product is most profitable per unit sold?

3) Which product is most profitable per dollar of sales?

4) What sales dollars are needed to earn $70,000 per month, and how many units of each product will be sold at that sales level if the usual mix is maintained?

5) The sales manager believes that he could increase sales of Gamma by 10,000 units per month if more attention were devoted to is and less to Beta. Sales of Beta would fall by 2,000 units per month. What change in income would occur if this action were taken?

6) June sales were $200,000 with a mix of 40% Alpha, 30% Beta and 30% Gamma. What was the income?

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7) Suppose the company is currently selling 12,000 units of Gamma. Because this is the least profitable product, management believes it should be dropped from the mix. If Gamma is dropped, it is expected that sales of Beta would remain the same and those of Alpha would rise. By how much would sales of Alpha have to rise to maintain the same total income?

(Did you figure out that the fixed costs were $56,000? If yes, you are really good. If no, use the $56,000 as fixed costs anyway).

Professional Tip #1 The urge to talk is the urge to r______________ c_____________.

#2 The second rule of the negotiator: Never get down to _______ _________. If necessary, ____________ __________!!

Module 17 HomeworkProblem 1. Jenkins company sells three different laundry baskets. The controller has prepared the following estimates for next year

A B CSelling Price $12 $20 $30Variable Costs 4 5 8

Estimated sales mix 60% 30% 10%

Estimated Fixed Costs $1,590,000

What is the weighted average contribution margin?

How many of each of the laundry baskets does Jenkins have to sell for the company to make $1,590,000?

Problem 2

Aisha Exterminating Company performs a wide variety of pest control services. Aisha, the owner, has been examining the following forecasts for 2013.

Type of Service Expected $ volume Contribution Margin %

Termites $480,000 60% Lawn Pests 360,000 50 Interior Pests 360,000 70

1) What is the weighted average contribution margin?

2) If Fixed Costs are $560,000, what profit does Aisha expect?

3) The actual sales mix turned out to be 20% termites, 30% lawn pests and 50% interior pests. Total actual sales were $1,200,000 and total fixed costs were $560,000. Determine the actual weighted-average contribution margin and the net income.

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Module 18Managerial Part 3

Cost Allocation

Kreutzer’s Klutz Company sells backpacks, tote-bags and book-bags. The cost structure is as follows:

Backpacks Tote-bags Book-bagsSelling Price $40 $32 $40Variable Costs 24 8 20

Sales Mix 60% 10% 30%

Additionally, the company spends $4,000 per year advertising Backpacks, $1,000 per year advertising Tote-bags, and $3,000 to advertise book-bags. All other administrative costs equal $112,000. Sales are $400,000.

Prepare the contribution margin format income statement

Backpacks Tote-bags Book-bags Total

Sales

Variable Costs

Contribution Margin

Fixed Costs Direct CommonTotal

Net Income

Direct Fixed Costs are

Common Costs are

What is the breakeven?

Module 19 That was talking, this is doing.

Doing is different than talking. Curly Sue

Capital Budgeting Kreutzer Industries is introducing a new product expected to sell for $14 and to have variable costs of $7. The managers expect to sell 20,000 per year for 10 years. Making the product requires machinery that costs $400,000. Will last for 10 years, and will increase annual fixed operating costs by $30,000. The machinery will be depreciated using the straight-line method. The tax rate is 30% and the required return is 12%Evaluate the feasibility of the project.

What is the expected increase in after-tax cash flows for the project?

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The Net Present Value

Payback

IRR

Using Excel

Colton Company makes high-quality workshoes. Its managers believe the company can increase productivity by acquiring some new machinery but are unsure whether it would be profitable. The machinery costs $ 1,000,000, has a five-year life with no salvage value, and should save about $ 400,000 in operating costs annually. The company uses straight-line depreciation and has a 40% income tax rate and a 12% cost of capital.


Calculate the NPV of the project

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What is the Payback?

What is the IRR?

JD Company has the opportunity to introduce a new radio with the following expected results.Annual unit sales volume 300,000 Selling price per unit $60Annual cash fixed costs $ 4,200,000 Variable cost per unit $35

The product requires equipment costing $8,000,000 and having a four-year life with no salvage value. The company has a 12% hurdle rate. The tax rate is 40% and the company uses straight line depreciation.


What is the NPV of the project?

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What is the Payback?

What is the IRR of the project?

Stowe Company has the following three investment opportunities.

A B CCost $70,000 $70,000 $70,000

Cash inflow by year

Year 1 $35,000 $35,000 $4,000Year 2 35,000 10,000 8,000Year 3 - 45,000 10,000Year 4 5,000 20,000 98,000Total 75,000 110,000 120,000

Rank the investment opportunities in order of desirability using (a) payback, (b) NPV and, (c) irr.For the NPV, use a hurdle rate of 16%.

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Gabriel company currently makes 200,000 large strawberry jars per year at a variable cost of $9.75. Equipment is available for $500,000 that will reduce the variable cost to $7.50 while increase cash fixed costs by $200,000. The equipment will have not salvage value at the end of its four-year life and will be depreciated using the straight-line method. Gabriel has a 30% tax rate and a 12% hurdle rate. Do it????

Debbie Stickle owns a driving range. She present pays several high school students $.8 a bucket to pick up the golf balls that his customers hit. A salesperson has shown her a machine that will pick up balls at an a cash cost of $6,600 plus $.05 per bucket. The machine costs $10,000 and has a five year life. Debbie would us straight line depreciation. Volume for the driving range is 21,000 buckets per year. Debbie’s combined state and federal tax rate is 30%. She believes the appropriate discount rate is 16%.

Do it? Other factors??

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Module 20Budgeting Part 1

Use the following data for Doozer Company, prepare a budgeted income statement and a purchases budget in units and dollars for January 2015.

Budgeted sales for January 5,000 units at $20 $100,000Budgeted sales for February 6,000 units at $20 $120,000

Cost Data: Purchase price of product $5 per unit Commission to salespeople 10% of sales Depreciation $2,000 per month Other operating expenses $40,000 per month plus 5% of sales

Doozer’s policy is to maintain inventory at 150% of the coming month’s sales requirements, Inventory at December 31, 2014, is $30,000 (6,000 units at $5), which is less than budgeted.

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The following data relate to the operations of Jarrett Company, a retail store.

January $200,000February 240,000March 150,000

April 160,000

Cost of sales is 40% of sales. Other variable costs are 30% of salesInventory is maintained at twice the budgeted sales requirements for the following month.

The beginning inventory is $160,000.Fixed costs are $50,000 per month.

a) Prepare a budgeted income statement of the first three months of 2015.b) Prepare a purchase budget, by month for the first quarter.

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Banana City is a wholesaler of bananas and nuts. Mr. George Jones, the company’s president, has asked for your assistance in preparing budgets for fiscal year 2015, which begins on September 1, 2015. He has gathered the following information for your use.

a) Sales are expected to be $8,800,000 for the year, of which bananas are expected to be 50%, nuts, 50%.

b) Sales are somewhat seasonal, Banana sales are expected to be 770,000 in November, with the rest spread evenly over the remaining eleven months. Sales of nuts are expected to be $400,000 per month except in October and May, when they are expected to be $350,000 per month.

c) Cost of sales, the only variable cost, is 40% of both products.d) Inventory of bananas is generally kept equal to a one-month supply. Inventory of nuts is usually

held at a two-month supply.e) Income taxes are 30% of income before taxesf) Annual fixed costs, all incurred evenly throughout the year, are expected to be as follows:

Rent $240,000 Depreciation $ 360,000Insurance $120,000 Interest $ 60,000Wages and salaries $1,200,000 Other fixed costs $1,560,000

g) Inventories expected at August 31, 2015, are bananas. $143,000 and nuts, $275,000.h) The company expects to sell some land that it purchased several years ago for $80,000. The

sale is expected to occur in October at a price of $60,000.

Required1) Prepare a budgeted income statement for the fiscal year ending August 31, 2016.2) Prepare a budgeted income statement for each month of the first quarter of the fiscal year and for

the quarter as a whole.3) Prepare a purchases budget by product for each month of the first quarter of the fiscal year and

for the quarter as a whole.

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Module 21Budgeting Part 2

Still working on Doozer Co. (budgeting Part 1) Using the following additional data, prepare a cash budget for January 2015 and a pro forma balance sheet for January 31, 2015. Prepare a supporting budgets for cash receipts and cash disbursements.

Doozer Co. Balance Sheet

Assets Liabilities Cash $20,000 Accounts Payable $12,000 Acct Rec 30,000 Owners’ Equity Inventory (6,000 units) 30,000 Common Stock 200,000 Building and Equip- net 200,000 Retained Earnings 68,000

Total Assets $280,000 Total Liabilities and Owners’ Equity $280,000

A) Sales are collected 40% in the month of sale, 60% in the following month.B) Purchase are paid 40% in the month of purchase, 60% in the following month.C) All other expenses requiring cash are paid in the month incurred.D) The board of directors plans to declare a $3,000 dividend on January 10, payable January 31.E) The following is from Budget Day 1 for Doozer.

January FebruarySales $ 100,000 $ 120,000

InventoryCogs 25,000Target Inventory 45,000Inventory Needed 70,000Less Beg Inventory (35,000)Required Purchases 35,000

Income StatementSales $ 100,000Variable Costs Cost of Sales 25,000 Commission 10,000 Other 5,000Total Variable Costs 40,000

Contribution Margin 60,000Fixed Costs Depreciation 2,000 Other 40,000Total Fixed 42,000Net Income $ 18,000

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Continuation of Jarrett Company from Budget Part 1Jarrett pays for its purchases 40% in the month of purchase and 60% in the following month. Accounts Payable at December 31, 2014, were $18,000. The company collects 60% of its sales in the month of sale and 40% in the following month. Receivables at December 31, 2014 to be collected in January, were $30,000. All of its fixed costs require cash disbursements and are paid as incurred. Its cash balance at December 31, 2014, was $20,000.

Required1) Prepare a cash budget for the first three months of 2015.

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Continuation of Banana City. The following additional information about Banana City is available

A) Sales of bananas are for cash only. Sales of nuts are on credit and are collected two months after sale.

B) Banana City’s suppliers give terms of 30 days for payments of accounts payable. Banana City takes full advantage of the 30-day payments. (Assume all months have 30 days).

C) The Company mys make quarterly payments on its income taxes. The payment for the first quarter of fiscal year 2015 is due on January 15, 2015. The liability shown on the balance sheet below is to be paid on October 15.

D) Fixed expenses that require cash disbursement are paid as incurred with the follow exceptions:a) Insurance premiums are all paid on November 1 in advance for the next 12 months

and b) b) interest payments are all made on January 1. The $156,000 “other fixed

expenses” in the income statement require cash disbursements evenly on the year.

E) Sales expected in the last part of fiscal year 2015 are as follows:

June July August Bananas $31,000 $34,000 $32,500

Nuts 37,000 41,000 34,000

F) The company to pay a dividend of $12,000 in October.G) The Balance Sheet at August 31, 2015 is as follows:

Cash $15,000 Accounts Payable (merchandise) $26,000Accounts Rec 75,000 Taxes Payable 31,000Inventories 41,800 Accrued Interest 4,000Prepaid Insurance 2,000 Long-term Debt, 6% 100,000Land 8,000 Common Stock 150,000Equipment (net) 210,000 Retained Earnings 40,800

Total $ 351,800 Total $ 351,800

Required:A) Prepare a cash budget for the first three months of fiscal year 2016 and for the quarter

as a whole.

B) Prepare a pro forma balance sheet for November 30, 2015.

1The following page is a copy of a purchase agreement for a Dr. Kirch’s car. The second page has data for leasing the same car. Dr. Kirch financed the car at 2.9% over 60 months. Under these terms, was it better for him to purchase the car or should he have leased it? Support your answer with figures.

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Dear Dave:

Here is a lease based on an in stock car that is within $175 of the price of the car you have on order. We did this because it is considerably simpler with the particular software that we employ to quote an in stock car. I have also attached your partial payment receipt. Thanks again for your business.

MSRP: $48,980.00

Sale price: $46,702.00

Use tax financed in lease: $1,513.89

Acquisition fee in lease: $1,095.00

36 months/15,000 miles $665.00

Due at signing $0

Purchase option at lease end $28,898.00 plus applicable sales tax

.25 (cents) per mile penalty for each mile over 45,000 (assuming vehicle is returned)

Turn in (disposition fee) : $595.00

Mit freundlichen Grüßen / with kind regards,

Stephen F.H. Revard

Master Certified Mercedes-Benz Representative

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ipse dixit Learning Module #19 You get more cooperation (Being the last module) with a smile and a gun than

Internal Control and Fraud you do with a smile alone. (Al Capone)

Let’s do the car first

As to change….. create ________________________________________________.

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Internal control

the three requirements of the thief1)

2)

3)

so where should the bank statement go?

The illusion of Internal Control

the sign “all returns must be accompanied by a receipt”

The z total

oh and what should you do with a returned check?

The rule of 78s, Simple Interest and other nefarious interest scams

A Ponzi Scheme is

The Cookies

A woman was waiting at an airport one night, With several long hours before her flight. She hunted for a book in the airport shops. Bought a bag of cookies and found a place to drop. She was engrossed in her book but happened to see, That the man sitting beside her, as bold as could be. Grabbed a cookie or two from the bag in between, Which she tried to ignore to avoid a scene. So she munched the cookies and watched the clock. As the gutsy cookie thief diminished her stock. She was getting more irritated as the minutes ticked by, Thinking, "If I wasn't so nice, I would blacken his eye." With each cookie she took, he took one too, When only one was left, she wondered what he would do. With a smile on his face, and a nervous laugh, He took the last cookie and broke it in half. He offered her half, as he ate the other, She snatched it from him and thought... oooh, brother. This guy has some nerve and he's also rude, Why he didn't even show any gratitude! She had never known when she had been so galled, And sighed with relief when her flight was called. She gathered her belongings and headed to the gate, Refusing to look back at the thieving ingrate.

#1 P____________ is an active NOUN !!!! Be slow to A______ and to A_______ The other 90% rule

90% of the time your ____________________________________________!!!

#2 When you are ___________, you are __________!!! Or, get your free floor mats here.

#3 Ethics are not hard, just D___ the r________ t_________. (has a period like the first law!

And the most important professional tip

#4 -- True evil is _____________________ until _____ ____________!!! (Andrew Vachss)

You've got to promise me if . . . you ever get to the point in your life where you are so puzzled, confused and frightened that you feel the only way out is to abuse or molest a little kid, well then, you have got to kill yourself. You have got to lean into the strike zone and take one for the team." (Dennis Miller).

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