Chapter 4 - Adjustments, Financial Statements, and the Quality of Earnings Flashcards
The Sanjeev family paid Johnson’s $3,960 on November 1 (30 days ago) to store its sailboat for the winter until May 1 of the next fiscal year. Johnson’s credited the full amount to Unearned Storage Revenue on November 1. - What do we know?
- We recorded 3960 as a unearned revenue liability 30 days ago.
- This is a deferred revenue meaning during the adjusting period we will credit (-L) liabilities and debit revenues and stockholders equity (+R, +SE)
- 660 is the amount earned in the last 30 days
- (660) (-L), 660 (+R), 660 (+SE) => Increase to revenue, decrease to unearned income, increase to Net Income
Deferred Revenue is ___ and does __
- Deferred Revenue is unearned revenue paid before work is done
- During the adjusting period: -L (Credit), +R (Debit), +SE (Debit)
What do debits/credits do for assets
Debits on the left decrease assets, Credits on the right increase assets
What do debits/credits do for liabilities
Debits on the left increase liabilities, Credits on the right decrease liabilities
What’s the equation for Assets/Liabilities/Revenues/Expenses/Net Income
Assets (+D, -C) - Liabilities (-D, +C) = Revenues (-D, +C) - Expenses (+D, -C) = Net Income
Johnson’s used boat-lifting equipment that cost $210,000; $21,000 was the estimated depreciation for the current year. - What do we know?
- Depreciation represents a deferred expense
- during the adjustment period for deferred expenses we we debit (-A) assets credit expenses (+E) and debit Stockholders Equity (-SE)
Boat repair supplies on hand at the beginning of the current year totaled $17,400. Repair supplies purchased and debited to Supplies during the year amounted to $47,800. The year-end count showed $12,300 of the supplies on hand. - what do we know?
- The total supplies used was 47800 + 17400 - 12300 = 52900
- 52900 is an deferred expense, and in the adjusting period we make adjustments for accrued expenses by debiting expenses (+E) and debiting stockholders equity (-SE) and crediting liabilities (+L)
On October 1, Johnson’s paid $1,200 to the local newspaper for an advertisement to run every Thursday for 12 weeks. All ads have been run except for three Thursdays in December to complete the 12-week contract. - What do we know?
- At the adjustment period we have deferred expenses of 1200, +1200 on the books as a prepaid revenue asset, -1200 in cash, +1200 as Stockholders Equity
- The adjustment will decrease prepaid expenses by 900 (D, -A), increase expenses by 900 (D, +900) and decrease stockholders equity by 900 (D, -SE)
Johnson’s borrowed $222,000 at a(n) 8 percent annual interest rate on April 1 of the current year to expand its boat storage facility. The loan requires Johnson’s to pay the interest quarterly until the note is repaid in three years. Johnson’s paid quarterly interest on July 1 and October 1. - What do we know?
- At time of adjustment we have on the books 222K as Cash (C, +A), 222K as liability (D, +L)
- We have accrued expenses in the form of interest expenses of 222K * .08 * (6/12) for 2960
- An accrued expense requires (+L, +E, -SE) an adjustment that increases liabilities (C, +L), increases expenses (D, -E) and decreases stockholders equity (D, -SE)
Preparation of the cash flow statement requires analysis of…
Balance sheets that include short-term investments, long-term asset accounts. Property, plant, equipment, intangible assets, investments in securities
Property, Plant, and Equipment, Net is determined by…
Beginning, Depreciation, Sold, Purchased = Ending
Net Cash Flow from Investing Activities yields what value…
Net cash inflow (outflow) from investing activities
Capital Acquisitions Ratio formula is
Cash flow from Operating Activities/Cash Paid for Property, Plant, and Equipment
Free Cash Flow ratio is…
cash flow from operating activities - dividents - capital expenditures
