Managerial Accounting Chapter 1 & 2 Homework Help
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chapter_2_ppts.ppt
Primary Objective of
Financial Reporting
Invest??
Borrow $$??
Sell stocks or bonds??
Start new business??
Loan $$??
Extend credit $$??
LO1
Provide information for decision making
2
2
Secondary Objectives of
Financial Reporting
Reflect prospective
cash receipts to
investors and creditors
Reflect prospective
cash flows to
the company
Reflect the
company’s
resources
and claims to its
resources
Assets = Liabilities + OE
2
2
Qualitative Characteristics
Understandability –
Relevance –
Reliability –
LO2
Represents what
it purports
Has capacity to
make a difference
To those willing to take
the time to understand it
3
3
3
Qualitative Characteristics
From one period to the next
Consistency
between companies
Comparability
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4
3
Qualitative Characteristics
Materiality
Conservatism
Will it make a difference
To the decision maker?
All else equal, choose
Least optimistic estimate
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5
3
Basic Structure of a
Classified Balance Sheet
Current assets
+ Noncurrent (long-term) assets
Total assets
LO3
Current liabilities
+ Noncurrent (long-term) liabilities
+ Stockholders’ equity
Total liabilities and stockholders’ equity
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7
5
The Operating Cycle
Inventory
Accounts
Receivable
Cash
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7
5
Dixon Sporting Goods
Balance Sheet
Assets
A
A = L + SE
Current assets
Cash $ 5,000
Marketable securities 11,000
Accounts receivable 23,000
Merchandise inventory 73,500
Prepaid insurance 4,800
Supplies 700
Total current assets $118,000
Investments
Land held for future office site 150,000
Property, plant, and equipment
Land $100,000
Buildings $150,000
Less: Accumulated depreciation (60,000) 90,000
Store furniture and fixtures $ 42,000
Less: Accumulated depreciation (12,600) 29,400
Total property, plant and equipment 219,400
Intangible assets
Franchise agreement 55,000
Total assets $542,400
Realized, sold, or consumed in
one year or operating cycle
Current liabilities
Accounts payable $ 15,700
Salaries and wages payable 9,500
Income taxes payable 7,200
Interest payable 2,500
Bank loan payable 25,000
Total current liabilities $ 59,900
Long-term debt
Notes payable $ 120,000
Total liabilities $179,900
Liabilities and Stockholders’ Equity
Contributed capital
Capital stock, $10 par, 5,000 shares
issued and outstanding $ 50,000
Paid-in capital in excess of par value 25,000
Total contributed capital $ 75,000
Retained earnings 287,500
Total stockholders' equity $ 362,500
Total liabilities and stockholders’ equity $542,400
= L
+ SE
A = L + SE
Dixon Sporting Goods
Balance Sheet
Satisfied within one
year or operating cycle
Analysis of Liquidity
Of particular interest
to bankers and other
creditors
Working
Capital
Ability of
company to
pay debts
as they
become due
LO4
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8
7
Dixon Sporting Goods’ Liquidity
Current assets $2,000
Current liabilities 1,600
Current = Current Assets
Ratio Current Liabilities 1.97:1
What's the
trend??
Working = Current Assets
Capital (Current Liabilities) $58,100
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8
Single-Step
Income Statement
Revenues $$
Less: expenses ($$)
Net income $$
LO5
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Sales
– Cost of Goods Sold
= Gross Profit
Operating expenses:
– General and
administrative expenses
– Selling expenses
= Income from operations
+/– Other revenues and expenses
= Income before taxes
– Income tax expense
= Net income
Four
important
subtotals
Multiple-Step
Income Statement
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13
6
Sales $357,500
Cost of Goods Sold 218,300
Gross Profit $139,200
Operating expenses:
Selling expenses
Depreciation on store furniture and fixtures $ 4,200
Advertising 13,750
Salaries and wages 22,000
Total selling expenses $ 39,950
General and administrative expenses
Depreciation of buildings and amortization
of trademark $ 6,000
Salaries and wages 15,000
Insurance 3,600
Supplies 1,050
Total general and administrative expenses 25,650
Total operating expenses 65,600
Income from operations $ 73,600
Other revenues and expenses:
Interest revenue $ 1,500
Interest expense 16,900
Excess of other revenues over other expenses 15,400
Income before taxes $ 58,200
Income tax expense 17,200
Net income $ 41,000
Dixon Sporting Goods
Multiple Step - Income Statement
For the Year Ended December 31, 2012
Analysis of Profitability
Profit
Margin %
Of
particular
interest
to current and
potential
investors
LO6
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14
Dixon Sporting Goods
Profit Margin
Profit Margin % = Net Income
Operating Revenues
Profit Margin % = $41,000 = 11% $357,500
(The amount of every sales dollar that
results in income)
Statement of
Retained Earnings
Explains changes in the components of owners’ equity during a period
Net income (net loss) and Dividends
Provides an important link between the
income statement and the balance sheet
LO7
Statement of Retained Earnings
Beginning retained earnings
Add: Net income
Deduct: Dividends
Equal Ending retained earnings
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19
Dixon Sporting Goods
Statement of Retained Earnings
for the year ended December 31, 2012
Retained Earnings, Jan 1, 2012 $271,500
Add: Net Income for 2012 41,000
$312,500
Less: Dividends declared and paid
in 2012 (25,500)
Retained Earnings, Dec 31, 2012 $287,500
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Cash flows from operating activities:
$$
Cash flows from investing activities:
$$
Cash flows from financing activities:
$$
Net increase in cash $$
Cash at beginning of year $$
Cash at end of year $$
Basic Format of the
Statement of Cash Flows
Reconciles change
in cash for
the period
LO8
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20
Cash flows from operating activities:
$$
Cash flows from investing activities:
$$
Cash flows from financing activities:
$$
Net increase in cash $$
Cash at beginning of year $$
Cash at end of year $$
Basic Format for the
Statement of Cash Flows
Involves the purchase and sale
of products or services
Involves the acquisition and sale
of long-term or noncurrent assets
Involves the issuance and repayment
of long-term liabilities and stock
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Financial Statements
for a Real Company:
General Mills
LO9
Current = Current Assets
Ratio Current Liabilities
(How many $ of current assets for
every $ of current liabilities)
General Mills’s Liquidity
(in millions) 2010 2009
Current assets $ 3,480.0 $ 3,534.9
Current liabilities 3,769.1 3,606.0
Working capital $ ( 289.1) $( 71.1)
Current ratio = 0.92:1 0.98:1
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Profit Margin % = Net Income
Sales
(How many cents on every dollar of sales are left
over after covering all expenses)
(in million’s) 2010 2009 2008
Net sales $14,796.5 $14,691.3 $13,652.1
Net income $ 1,530.5 $ 1,304.4 $ 1,294.7
General Mills’s Profitability
Profit margin % = 10.3% 8.9% 9.5%
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Letter to stockholders
Description of company’s products and markets
Financial statements
Notes to financial statements
Report of independent accountants
Management discussion and analysis
Summary of significant accounting policies
Other Elements of an
Annual Report
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21
End of Chapter 2
