Chapter 3 & 4 Intermediate Accounting Wiley

In this example we have a case in which years 89, 90 and 91 net income is less than net cash provided by operating activities. One of the major reasons for this appears to have been depreciating high cost of equipment. The depreciation is trending downward over the three-year period indicating less long-term assets are being purchased/capitalized to run operations. While depreciation does not involve cash, it does impact net income. In addition, account payables have been decreasing over the last two years and significant cash has been used in the last year to pay the liability. In 1990 there are significant costs associated with restructuring activities. There

Problem 15-9: Capital Structure Analysis Present situation (50% debt): WACC = wd rd(1-T) + wcers = (0.5)(10%)(1-0.15) + (0.5)(14%) = 11.25%. V = FCF/WACC = (EBIT)(1 − T)/WACC = ($13.24)(1 0.15)/ 0.1125 = $100million 70 percent debt: WACC = wd rd(1-T) + wcers = (0.7)(12%)(1-0.15) + (0.3)(16%) = 11.94%. V = FCF/WACC = (EBIT)(1 − T)/WACC = ($13.24)(1 0.15)/ 0.1194 = $94.26million 30 percent debt: WACC = wd rd(1-T) + wcers = (0.3)(8%)(1-0.15) + (0.7)(13%) = 11.14%. V = FCF/WACC = (EBIT)(1 − T)/WACC = ($13.24)(1 0.15)/ 0.1114 = $101.2million

2) In 2013, Firm A paid $50,000 cash to purchase a tangible business asset. In 2013 and 2014, it deducted $3,140 and $7,200 depreciation with respect to the asset. Firm A’s marginal tax rate in both years was 35 percent. Compute Firm A’s adjusted basis in the asset at the end of each year. (part b)

3. The Garners ' take-home pay is over $4,500 a month. Yet, after all expenses are paid, there is only a $220 surplus each month. Based on the information presented in this case, what expenses, if any, seem out of line and could be reduced to increase the surplus at the end of each month?

. . . . . . . . 17 . . . . . . . . . . . . . 18 Retirement plans, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 . . . . . . . . . . . . . 19 Employee benefit programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 . . . . . . . . . . . . . 20 Other deductions (attach statement) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 760,000 . . . . . 20 . . . 21 Total deductions. Add the amounts shown in the far right column for lines 9 through 20 . . . . . . 21 . . . . 3,648,000 . . . . . . . . . 22 Ordinary business income (loss). Subtract line 21 from line 8 . . . . . . . . . . . . . . . .22 . . . .1,152,000. . . . . . . . .

Utilities are fixed at $7,000 each month. We don’t have to consider Depreciation in the Cash Budget because depreciation is not a cash outlay. The problem states that Insurance is prepaid so we know that for this problem it will not appear on the Cash Budget just like depreciation wont (but remember that both Depreciation and Insurance will show up as expenses to be matched against revenue when we do the Income Statement later). The problem states that Dividends are paid at $15,000 per quarter in the first month of each quarter, so that means April (but not May or June) will have $15,000 for Dividends pay out in the Cash Budget. The problem also states that equipment will be purchased in May at $16,000 and in June at 40,000 (but not in April, so we can ignore the cash outlay for equipment when calculating April Total Disbursements (which are therefore $630,000.)

| (TCO B) Adjusting Entries: Prepaid rent at 1/1/10 was $30,000. During 2010 rent payments of $100,000 were made and charged to "rent expense." The 2010 income statement shows as a general expense the item "rent expense" in the amount of $130,000. You are to prepare the missing adjusting entry that must have been made, assuming reversing entries are not made. For each journal entry write Dr. for debit and Cr. for credit.

Name: ________________________________ Date: _________________ [1]BASIC BANK01 - BAT 003 Which of the following statements is true? A. An asset account is increased by a credit B. An expense account is increase by a credit C. A revenue account is decreased by a credit D. An equity account is decreased by a debit [2]BASIC BANK02 - BAT 010 The Income Summary account contains: A. Total revenues and total expenses for the year B. Total assets and total liabilities at year end C. Total revenues, expenses, assets, and liabilities

Tracy Madding is an attorney opening her own office on March 1, 2010. She operates her business as a sole proprietorship. The office is located at 1345 Main Street, Lodi, CA 95240. The owner of the building, Apex Business Management, signed Tracy to a one-year lease for $800 per month. The IRS issued her an employer identification number of 15-6789545. Tracy called the local telephone company, Pacific Bell, and arranged for two lines: telephone 209-555-9899; fax 209-555-3211.

During the past month of March, I’ve spent much of my time in the front desk of D’ Sanchez Salon. This beauty salon has belonged to my mom for the past 8 years. She’s run the business on her own, creating her own budget and calculating her revenue by hand each month. She has no business degree and has never been to college, so after I shared this project with her, she was excited to see what accounting could do to her business.

2016. Post the adjusting entries to an unadjusted trial balance and prepare the adjusted trial balance.

Our 2009 total assets we will have total of $57,459.99 and our total liabilities will equal $24,000, and this will result in a net worth of $33,459.99. Our owner’s equity section of our balance sheet consists of the large

YEAR 0 2009 1 2010 2 2011 3 2012 4 2013 5 2014 6 2015 7 2016 8 2017 9 2018 10 Initial Investment Gross Revenue 2 COGS 3 Add'l revenue Less: COGS Loan down payment 4 Loan repayment Depreciation Additional workers Land square required Moving cost 5 Operating Expenses Total Expenses Net Income Before Tax Income Tax Net Income After Tax After Tax Cash Flow ATCF Cummulative ATCF NPV through Year N

2. At the end of its first year of operations, Matlocke Company has total assets of $2,000,000 and total liabilities of $1,200,000. The owner originally invested $200,000 in the business, but has not made any further investments or taken any withdrawals. What is the first year 's net income for Matlocke Company?

I have included the firm's original income statement and balance sheet without the purchase and then with the machine purchase. I have assumed that the firm would use the $218,000 to reduce the bank loans balance for each year. This reduction of the bank loan balance will lower their three restrictive financial ratios.