exam 4 Flashcards
Benefits of Stock financing compared to bond financing
1 - Dividends on common stock are paid when a company decides, it’s not required where as Interest/principle must be paid on bonds.
2 - Stocks offer an opportunity for higher long-term returns but that means taking a higher risk.
Journal entry for sale of park value stock
cash - dr
common stock - cr
Paid in Capital in excess of Par - cr
Journal entry for no par stock
cash - dr
common stock - cr
journal entry for stated value
cash - dr
Paid in Capital in excess of stated - common - cr
common stock - cr
Process of dividend deceleration
1 - Deceleration date - when a company declares they are paying dividends
dividends - dr
dividends payable - cr
2- date of record - when a company looks at their record to determine who gets dividends paid (no journal entry)
3 - Payment date - when dividends is paid to shareholders.
dividends payable - dr
cash - cr
4 - closing entry
retained earning - dr
dividends - cr
Retained earning formula
beginning retained earning + net income - dividends
Purpose of cash flow statement
1 - predict future cash flow
2 - shows business debt payments / payment potential
3 - provides information on cash in/ out flows
4 - shows good report card - evaluates management
differences in Indirect / direct method of cash flow statement
1 - indirect always starts with net income and adjusts it to net cash provides by operating activities
2 - Direct uses different computations but gets the same net operating activities as indirect method. Direst uses ACTUAL CASH inflows/outflows from the compmays operations.
types/analysis of financial statement and what each indicates
horizontal analysis - compares year to year performance of the company
verticle analysis - focuses on one period. can compare one company’s financial status to another
Ratio Analysis - a quantitative procedure of looking into a firm’s functional efficiency, liquidity, revenues, and profitability by analyzing its financial records and statements. Compare with same industry as a whole.
verticle analysis formula
cost of sales / net sales revenues
Horizontal analysis formula
change this year / prior years total *100
or current years total - prior years total (this is how change is calculated) / Prior years total *100
current ratio formula
current assets / current liabilities
Account receivable turnover formula
Revenues aka net credit sales / average account receivable
Working capital formula
current assets - current liabilities
gross profit percentage formula
revenue - cost of goods sold/ revenue
