exam 4 - part 2 Flashcards
Understand the benefits of stock financing compared to bond financing.
a.Interest must be paid on bonds
b.Dividends on common stock are paid when a company decides, not required
How to record sale of par value stock and no par stock
dr - cash
cr - paid-in capital in excess of pat
cr -common stock - at par value
dr- cash
cr -common stock - no par
understand the process of dividend declaration and payment
declaration - day that the company announces that dividends will be paid.
dr - dividends
cr - dividends payble
record - day the company decides who gets paid dividends and who doesn’t - NO ENTRY
Payment - dividends get paid out
Dr - dividends payable
cr- cash
Closing entry -
dr - Retained earning
cr - dividenfs
Entry for purchase of treasury stock and re-issuance
purchase -
dr - treasury stock
cr - cash
sale at higher price
dr- cash
cr -paid in capital from TST
cr -treasury stock
Sale at lower price
dr - cash
dr - paid in capital from tdt
cr - treasury stock
Way below
Dr - cash
Dr - Paid in capital fr TST
Dr - retained earning
Cr - treasuty stock
Retained earning formula
Beginning retained earning +/- net income - dividends
Purpose of cash flow statement
a - Predict future cash flows
b - Evaluate management
c - Predict the ability to pay debts and dividends
Difference between direct and indirect method
a - The indirect method starts with net income and adjusts it to net cash provided by operating activities
b. The Direct method uses different computations but reaches the same net operating activity.
understand the impact of a sale of fixed assets on the investing activities section.
proceeds from the sale will lead tp an increase in your cash flow.
Types and purpose of analysis of financial statements and what each indicates.
a.Horizontal, Vertical, Ratio analysis
Compare from year to year,
Look at just one year of the company’s financial statements and compare it with a competitor,
compare with the same industry as a whole.
Compute percentage change and dollar change using horizontal & vertical analysis.
verticle -
cost of sales / net sales revenues *100
horizontal
change / prior years total *100
comparison year - bsae year / base year * 100
current ratio formula
current assets/ current liabilities
A/R turnover
net credit sales (revenues) / avergae accounts receivable
working capital
current assets - current liabilities
gross profit percentage
net credit sales ( revenues ) - cost of goods sold/ net credit sales
debt ratio
liabilities / assets
