Financial Accounting
5th Edition
ISBN: 9780134728643
Author: Robert Kemp; Jeffrey Waybright
Publisher: Pearson Education (US)
expand_more
expand_more
format_list_bulleted
Question
Chapter 4, Problem 1SBA
To determine
To ascertain the response to this client, find out whether the large inventory, purchase will have any effect on the income statement of client, explain the fact of making payment for the large cash purchase, ascertain whether it is good or bad for using large production of cash available for a purchase like this and say whether the client acted wisely or not.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Suppose you are the only owner of a chain of coffee shops near universities. Your current cafés are doing well, but you are interested in starting a
fine-dining restaurant. You decide to use the cash generated from your existing business to enter into a new business. Your accountant provides you
with the following data on your current financial performance:
Financial update as of June 15
• Your existing business generates $75,000 in EBIT.
• The corporate tax rate applicable to your business is 25%.
• The depreciation expense reported in the financial statements is $14,286.
• You don't need to spend any money for new equipment in your existing cafés; however, you do need $11,250 of additional cash.
• You also need to purchase $6,000 in additional supplies-such as tableclothes and napkins, and more formal tableware-on credit.
• It is also estimated that your accruals, including taxes and wages payable, will increase by $3,750.
Based on your evaluation you have
in free cash flow.
Suppose you are the only owner of a chain of coffee shops near universities. Your current cafés are doing well, but you are interested in starting a fine-dining restaurant. You decide to use the cash generated from your existing business to enter into a new business. Your accountant provides you with the following data on your current financial performance:
Financial update as of June 15
•
Your existing business generates $123,000 in EBIT.
•
The corporate tax rate applicable to your business is 25%.
•
The depreciation expense reported in the financial statements is $23,429.
•
You don’t need to spend any money for new equipment in your existing cafés; however, you do need $18,450 of additional cash.
•
You also need to purchase $9,840 in additional supplies—such as tableclothes and napkins, and more formal tableware—on credit.
•
It is also estimated that your accruals, including taxes and wages…
I need help filling out the excel template with this given information.
Kate has just completed her first year of Kate's Cards. She has been preparing monthly income statements and balance sheets, so she knows that her company has been profitable and that there is cash in the bank. She has not, however, prepared a statement of cash flows. Kate's provides you with the year-end income statement and balance sheet and asks that you construct an statement of cash flows for Kate's Cards.Additional information:1. There were no disposals of equipment during the year2. Dividends in the amount of $1,300 were paid in cash during the year.3. Prepaid expenses relate to operating expenses.Requireda. Construct an statement of cash flows for Kate's Cards for the year-ended August 31, 2019, using the indirect method. Hint: Since this was Kate's first year of operations, the beginning balance sheet account balances were zero.b. Construct an statement of cash flows for Kate's Cards for the year ended…
Chapter 4 Solutions
Financial Accounting
Ch. 4 - Prob. 1DQCh. 4 - What are some reasons why a merchandiser might...Ch. 4 - Why do businesses use subsidiary ledgers?Ch. 4 - Prob. 4DQCh. 4 - How many accounts are involved in recording the...Ch. 4 - Prob. 6DQCh. 4 - Prob. 7DQCh. 4 - Prob. 8DQCh. 4 - What is the difference between a single-step and...Ch. 4 - Prob. 10DQ
Ch. 4 - Which account does a merchandiser use that a...Ch. 4 - The two main inventory accounting systems are the...Ch. 4 - Prob. 3SCCh. 4 - Prob. 4SCCh. 4 - Prob. 5SCCh. 4 - Prob. 6SCCh. 4 - Prob. 7SCCh. 4 - Prob. 8SCCh. 4 - Prob. 9SCCh. 4 - Prob. 10SCCh. 4 - Prob. 11SCCh. 4 - Prob. 12SCCh. 4 - Inventory methods (Learning Objective 2) 5-10 min....Ch. 4 - Prob. 2SECh. 4 - Prob. 3SECh. 4 - Prob. 4SECh. 4 - Prob. 5SECh. 4 - Prob. 6SECh. 4 - Prob. 7SECh. 4 - Journalizing sales and return transactions...Ch. 4 - Prob. 9SECh. 4 - Prob. 10SECh. 4 - Prob. 11SECh. 4 - Prob. 12SECh. 4 - Calculating gross profit percentage and net income...Ch. 4 - Prob. 14AECh. 4 - Journalizing inventory purchases, returns, and...Ch. 4 - Prob. 16AECh. 4 - Prob. 17AECh. 4 - Prob. 18AECh. 4 - Prob. 19AECh. 4 - Prob. 20AECh. 4 - Prob. 21AECh. 4 - Preparing a single-step income statement (Learning...Ch. 4 - Prob. 23AECh. 4 - Prob. 24AECh. 4 - Prob. 25AECh. 4 - Prob. 26BECh. 4 - Prob. 27BECh. 4 - Prob. 28BECh. 4 - Prob. 29BECh. 4 - Prob. 30BECh. 4 - Journalizing inventory sales, returns, and freight...Ch. 4 - Prob. 32BECh. 4 - Prob. 33BECh. 4 - Prob. 34BECh. 4 - Prob. 35BECh. 4 - Prob. 36BECh. 4 - Prob. 37BECh. 4 - Journalizing inventory purchases, returns, and...Ch. 4 - Prob. 39APCh. 4 - Prob. 40APCh. 4 - Prob. 41APCh. 4 - Prob. 42APCh. 4 - Prob. 43APCh. 4 - Prob. 44APCh. 4 - Journalizing inventory purchases, returns, and...Ch. 4 - Prob. 46BPCh. 4 - Prob. 47BPCh. 4 - Journalizing inventory purchases, sales, returns,...Ch. 4 - Prob. 49BPCh. 4 - Prob. 50BPCh. 4 - Prob. 51BPCh. 4 - Prob. 1CECh. 4 - Continuing Problem In this problem, we continue...Ch. 4 - Continuing Financial Statement Analysis Problem...Ch. 4 - Prob. 1EIACh. 4 - Prob. 2EIACh. 4 - Prob. 1FACh. 4 - Prob. 1IACh. 4 - Prob. 1SBACh. 4 - Prob. 1WC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Shanice works in finance for a small manufacturing company and is working on next year’s budget. She has been doing research to compare the cost of outsourcing some upcoming jobs versus the cost of purchasing the equipment to keep the jobs in-house. In what step in financial planning is Shanice involved? Multiple Choice developing financial statements for outside investors forecasting short-term financial needs establishing financial controls and tax policy forecasting long-term financial needsarrow_forwardThis is an individual assignment. Everyone needs to work on the firm that your team chooses [prefer simple business] for your industry analysis. Follow my class video, do the following: 1. compute your company's free cash flow for the past 3 years. This requires you to compute each of the components in the FCF. Compare your FCF for the most recent year to that reported from the barchart website. Are you close? Explain why you cannot get close to it. Note for MSFT that I did in class, deferred tax is a big deal, it may not be a problem for you. NOPAT = EBIT - tax. Either find the line for tax, or do tax = EBT-NI. Also check their cash flow statement and that should give you a clue of what to include. 2. do a free cash flow model to value your stock for next year. Is your price close to the current stock price? If not, what could be the reason? 3. do a sensitivity table by varying terminal growth g and the WACC. Upload your excel file with a sheet explaining your results. Always…arrow_forwardYou work as an accountant for a small land development company that desperately needs additionalfinancing to continue in business. The president of your company is meeting with the manager of alocal bank at the end of the month to try to obtain this financing. The president has approached youwith two ideas to improve the company’s reported financial position. First, he claims that because abig part of the company’s value comes from its knowledgeable and dedicated employees, you shouldreport their “Intellectual Abilities” as an asset on the balance sheet. Second, he claims that by reporting the company’s land on the balance sheet at its cost, rather than the much higher amount that realestate appraisers say it’s really worth, the company is understating the true value of its assets.Required:1. Thinking back to Chapter 1, why do you think the president is so concerned with the amountof assets reported on the balance sheet?2. What accounting concept introduced in Chapter 2 relates to the…arrow_forward
- Determine whether the following business objectives are FINANCIAL or NONFINANCIAL 1. To have a 5% increase in the number of bank clients acquiring a credit card 2. To have 30% of the viewers as subscribers to the entity’s YouTube channel 3. To have all regular tax associates attend at least 15 CPD units sponsored by the accounting firm during the current year. 4. To have lower write-offs by 20% compared to the previous year. 5. To have a times interest earned of 8.arrow_forwardYou have recently been employed as a young Finance Director of Cloud 9 Ltd which is in the production of farm equipment and as part of the company's annual exercise to review the growth of the company, you are expected to write a recommendation letter to advise Managing Director and entire management on the future of the business operations. The financials below are to assist you in the best possible way with critical analytical tools to make an informed suggestion to the team. CLOUD 9 LTD STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31 2020 2019 2018 Turnover 373,578 424,486 456,300 Cost of sales (253,604) (254,210) (198,900) Gross profit 119,974 170,276 257,400 Impairment of financial assets (2,477) (1,800) Distribution costs (87,036) (91,309) Administrative expenses (32,556) (50,656) Other operating income 2,369 10,039 Operating profit 274 36,550 Finance income 2,594 4,949 Finance costs (2,069) (2,765) Profit before income tax 799 38,734 Income tax expense (285)…arrow_forwardScenario: Matthew Mulatto and his brother John Mulatto plans to open a business. The major decision they face is how to organize the business. They expect to generate a massive profit during the first year. Although they have enough to start the business now as a partnership, they believe cash flow may be an issue as they grow. They believe that the corporate form of operation will be best option. They have hired you as a consultant and seek your advice. Requirements: Answer the following questions for the Mulatto brothers. d) Which characteristic of a corporation limits a stockholder's loss to the amount of his or her investment in the stock of the corporation? e) What does the term par value of stock mean?arrow_forward
- Scenario: Matthew Mulatto and his brother John Mulatto plans to open a business. The major decision they face is how to organize the business. They expect to generate a massive profit during the first year. Although they have enough to start the business now as a partnership, they believe cash flow may be an issue as they grow. They believe that the corporate form of operation will be best option. They have hired you as a consultant and seek your advice. Requirements: Answer the following questions for the Mulatto brothers. How are paid-in-capital and retained earnings: Similar? Different? What are the main categories of paid-in capital? When does a company declare a cash dividend? Which characteristic of a corporation limits a stockholder's loss to the amount of his or her investment in the stock of the corporation? What does the term par value of stock mean? The owners are desirous of comparing serval financial transactions and possible outcomes to assist…arrow_forwardScenario: Matthew Mulatto and his brother John Mulatto plans to open a business. The major decision they face is how to organize the business. They expect to generate a massive profit during the first year. Although they have enough to start the business now as a partnership, they believe cash flow may be an issue as they grow. They believe that the corporate form of operation will be best option. They have hired you as a consultant and seek your advice. Requirements: Answer the following questions for the Mulatto brothers. a) How are paid-in-capital and retained earnings: Similar? Different? b) What are the main categories of paid-in capital? c) When does a company declare a cash dividend? d) Which characteristic of a corporation limits a stockholder's loss to the amount of his or her investment in the stock of the corporation? e) What does the term par value of stock mean?arrow_forwardScenario: Matthew Mulatto and his brother John Mulatto plans to open a business. The major decision they face is how to organize the business. They expect to generate a massive profit during the first year. Although they have enough to start the business now as a partnership, they believe cash flow may be an issue as they grow. They believe that the corporate form of operation will be best option. They have hired you as a consultant and seek your advice. Requirements: Answer the following questions for the Mulatto brothers. How are paid-in-capital and retained earnings: Similar? Different? What are the main categories of paid-in capital? When does a company declare a cash dividend? Which characteristic of a corporation limits a stockholder's loss to the amount of his or her investment in the stock of the corporation? What does the term par value of stock mean? The owners are desirous of comparing serval financial transactions and possible outcomes to assist…arrow_forward
- Scenario: Steve Osbourne is considering opening a business, but the major decision faced is how to organize the business. Steve anticipates generating a massive profit during the first year and that the following years should be relatively profitable. Although he has enough to start the business now as a partnership, he believes cash flow may be an issue as the company grows. Steve believes that the corporate form of operation will be his best option and have hired you as a consultant and seek your advice. Requirements: Answer the following questions for Steve. Explain the corporate characteristic termed “no mutual agency” Explain the corporate characteristic termed limited liability. Explain the term outstanding stock.arrow_forwardScenario: Matthew Mulatto and his brother John Mulatto plans to open a business. The major decision they face is how to organize the business. They expect to generate a massive profit during the first year. Although they have enough to start the business now as a partnership, they believe cash flow may be an issue as they grow. They believe that the corporate form of operation will be best option. They have hired you as a consultant and seek your advice. Requirements: Answer the following questions for the Mulatto brothers. How are paid-in-capital and retained earnings: Similar? Different? 2. What are the main categories of paid-in capital? 3. When does a company declare a cash dividend? 4. Which characteristic of a corporation limits a stockholder's loss to the amount of his or her investment in the stock of the corporation? 5. What does the term par value of stock mean?arrow_forwardScenario: Steve Osbourne is considering opening a business, but the major decision faced is how to organize the business. Steve anticipates generating a massive profit during the first year and that the following years should be relatively profitable. Although he has enough to start the business now as a partnership, he believes cash flow may be an issue as the company grows. Steve believes that the corporate form of operation will be his best option and have hired you as a consultant and seek your advice. Requirements: Answer the following questions for Steve. Is it true or false that corporations muse issue common stock, but may or may not decide to issue preferred stock? Is it true or false that all forms and classes of stock carry voting rights? Is it true of false that stock sold for amounts in excess of par value results in a gain reported on the income statement?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Excel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Cengage Learning
Ethical Decision Making in Management; Author: GreggU;https://www.youtube.com/watch?v=6UrBO-cL27Q;License: Standard Youtube License