Liabilities
Where is bonds payable located on the balance sheet?
Long-Term Liabilities
Name one of the liquidity measures
Working Capital, Current Ratio, or Acid-Test Ratio
What is the normal balance of Additional Paid in Capital?
Credit
What type of account is Treasury Stock?
Contra-Equity
What are the two preferences of preferred stock?
1) Right to dividends first
2) Get distribution of assets before common stock shareholders if company dissolves
What is an advantage of debt financing?
Interest is tax deductible
What does a current ratio of <1.0 mean?
You have less current assets than current liabilities. You do not have enough in current assets to pay your current liabilities.
A company issues 50,000 shares of $1 par value common stock for $6 per share. What is the journal entry?
Dr. Cash 300,000
Cr. Common Stock 50,000
Cr. APIC 250,000
A company has net income of $67,000. Current year stockholders' equity is $450,000 and prior year stockholders' equity is $400,000. What is the return on equity (round to two decimal places)?
15.76%
67,000/ ((450,000 + 400,000)/2)
Laptops R Us offers 1 year warranties for all laptop sales. During January Laptops R Us received customer claims for warranties worth $12,000. What journal entry should Laptops R Us record in January?
Dr. Warranty Liability $12,000
Cr. Cash $12,000
On January 1, Yellowjackets Inc. borrows $250k from the bank signing a 3%, 1-year note. Interest is due at maturity. What is the journal entry on January 1?
Dr. Cash 250,000
Cr. Notes Payable 250,000
Given the following information: cash $1,000,000; A/R $800,000; inventory, net $500,000; goodwill $2,000,000; A/P $1,750,000; bonds payable $450,000. What is the current ratio (round to two decimal places)?
1.31
(1,000,000+800,000+500,000)/1,750,000
A company issues 15,000 shares of $5 par value preferred stock for $7 per share. What is the journal entry?
Dr. Cash 105,000
Cr. Preferred Stock 75,000
Cr. APIC 30,000
A company has revenue of $100,000 and expenses of $50,000. Their stock price is $5.00 per share. They have average shares of common stock outstanding of 2,000,000. What is EPS (round to two decimal places)?
$0.03
50,000 / 2,000,000
Keyboard Inc. has a lawsuit against them for unfair labor practices. The former employees have not estimated how much in wages they are owed. However, management believes they are not likely to have to pay any amount. Is management required to record a liability, disclose the lawsuit, or do nothing?
Do Nothing. Disclosure not required if amount of payment is not reasonably estimable and likelihood of payment is remote.
On June 1, Spider Inc. issues bonds paying 4.5% interest for $1,000,000. The bonds are due in 10 years and interest is paid annually on December 31.What is the journal entry on December 31?
Dr. Interest Expense 26,250
Cr. Cash 26,250
(1,000,000 x .045 x 7/12)
Given the following information: cash $1,000,000; A/R $800,000; prepaid expenses $500,000; A/P $35,000; notes payable $30,000; current portion of long-term debt $100,000; long-term debt $1,500,000; common stock $5,000; APIC $50,000; retained earnings $580,000. What is the debt to equity ratio (round to two decimal places)?
2.57
(30,000 + 100,000 + 1,500,000)/(5,000 + 50,000 + 580,000)
A company issues 100,000 shares of $1 par value common stock for $5 per share. Then they buy back 20,000 shares at $2 per share. Subsequently, they resell 10,000 shares at $1 per share. What is the journal entry for the resell of the shares?
Dr. Cash 10,000
Dr. APIC 10,000
Cr. Treasury Stock 20,000
A company has beginning retained earnings of $40,000. They had revenue of $100,000, COGS of $40,000, and other operating expenses of $10,000. They issued $15,000 of cash dividends during the year. What is ending retained earnings?
75,000
40,000 + (100,000 - 40,000 - 10,000) - 15,000
A company has revenue of $350,000, COGS of $125,000, and tax expenses of $70,000. Their stock price is $13.60 per share. They have weighted average shares of common stock outstanding of 31,000. What is Price-Earnings ratio (round to two decimal places)?
2.72
(350,000-125,000-70,000)/31,000 = 5
13.60/5
Power Inc. has $850,000 in cell phone sales in December. Power offers a 6 month warranty on cell phones. Based on historical experience, they estimate warranty costs will be 6% of sales. Customers send in warranty claims for $50,000. What amount should Power report as a liability at the end of the year?
$1,000
(850,000 x .06 = 51,000) - 50,000 = 1,000
Blue Hats has a times interest earned ratio of 5, net income of $75,000, tax expense of $5,000. What is the interest expense for Blue Hats?
$20,000
(75,000 + x + 5,000) / x = 5
80,000 + x = 5x
x = 20,000
A company has 500,000 shares of common stock authorized. They issue 75,000 shares of $1 par value common stock for $4 per share. Then they buy back 30,000 shares at $2 per share. Subsequently, they resell 15,000 shares at $3 per share. How many shares of common stock are outstanding?
60,000
75,000 -15,000
A company has 300,000 shares of common stock authorized. They issue 100,000 shares of $1 par value common stock for $5 per share. They buy back 30,000 shares at $3 per share. Then they resell 10,000 shares at $3 per share. They declare a $0.50 dividend per share and pay the dividend on the same date. What is the journal entry for the dividends?
Dr. Dividends 40,000
Cr. Cash 40,000
(100,000 - 20,000) x 0.50
What do companies usually do in the final stage to obtain equity financing?
Go Public!
Initial Public Offering (IPO)