BALANCE SHEET CLASSIFICATIONS
Long-Term Investments
Other Assets Intangible Assets Property, Plant, & Equipment
Long-Term Debt
Deferred Taxes
Treasury Stock Retained Earnings Additional Paid-In Capital
Capital Stock
Preferred Stock Common Stock Current Liabilities
= +
MAJOR BALANCE SHEET CLASSIFICATIONS
Probable future economic benefits obtained by or controlled by an entity as a result of past transactions or events.
Probable future sacrifices of economic benefits arising from present obligations of an entity to transfer assets or provide goods or services to other entities in the future as a result of past transactions or events.
Residual interest in the assets of an entity that remains after deducting its liabilities. In a business enterprise, equity is the ownership interest.
Current Assets
LIABILITIES OWNERS' EQUITY ASSETS
Copyright © 1998 John Wiley & Sons, Inc. Kieso/Intermediate 9e
CURRENT ASSET CLASSIFICATION
30
CURRENT ASSETS
1. Cash
2. Short-term investments 3. Receivables
4. Inventories
5. Prepaid expenses
CURRENT LIABILITIES
1. Short-term debt 2. Accounts payable
3. Advances from customers 4. Income taxes payable
5. Current portion of long-term debt.
WORKING CAPITAL =
Current assets – Current liabilities
Indication of entity's liquidity
Indication of flexibility in meeting financial demands of
THE OPERATING CYCLE Cash
Receivables Inventories
POST-BALANCE SHEET EVENTS (Subsequent Events)
POST-BALANCE SHEET (SUBSEQUENT) EVENTS
FINANCIAL STATEMENT PERIOD
Jan. 1
Adjust Financial Statements: Material conditions that existed as of the Balance Sheet date
Dec. 31 March 25
[Balance Sheet Date]
[Financial Statement Issue Date]
Disclose in Notes: Material conditions that did NOT exist as of the Balance Sheet date
No Adjustment or Disclosure: Immaterial conditions or nonaccounting events
SUBSEQUENT EVENTS PERIOD
Copyright © 1998 John Wiley & Sons, Inc. Kieso/Intermediate 9e
STATEMENT OF CASH FLOWS
32
CASH FLOWS
Investing Activities
Financing Activities Operating
Activities
Ending Cash and Cash Equivalent
Balance Beginning Cash
and Cash Equivalent
Balance
CASH OUTFLOWS
Change in Cash and Cash Equivalents for the Period
FORMULAS FOR ANALYZING NET CASH PROVIDED BY OPERATING ACTIVITIES
Current cash debt coverage ratio = Net cash provided by operating activities Average current liabilities
Cash debt coverage ratio = Net cash provided by operating activities Average total liabilities
Free cash flow = Net cash provided by operating activities – (capital expenditures + dividends)
Copyright © 1998 John Wiley & Sons, Inc. Kieso/Intermediate 9e
RATIOS
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RATIO
A. Liquidity
1. Current ratio Measures short-term debt-paying
ability
2. Quick or acid-test Measures immediate short-term
ratio liquidity
3. Current cash debt Measures a company's ability to
ratio pay off its current liabilities in a
given year out of its operations
B. Activity
4. Receivable turnover Measures liquidity of receivables
5. Inventory turnover Measures liquidity of inventory
6. Asset turnover Measures how efficiently assets
are used to generate sales
C. Probability
7. Profit margin on Measures net income generated
sales by each dollar of sales
8. Rate of return on Measures overall profitability of
assets assets
9. Rate of return on Measures profitability of owner's
common stock investment
equity
10. Earnings per share Measures net income earned on
each share of common stock
11. Price earnings ratio Measures the ratio of the market
price per share to earnings per share
12. Payout ratio Measures percentage of earnings
distributed in the form of cash dividends
D. Coverage
13. Debt to total assets Measures the percentage of total
assets provided by creditors
14. Times interest Measures ability to meet interest
earned payments as they come due
15. Cash debt coverage Measures a company's ability to
ratio repay its total liabilities in a given
year out of its operations
16. Book value Measures the amount each share
per share would receive if the company
were liquidated Current assets
Current liabilities Cash, marketable securities,
and receivables (net) Current liabilities Net cash provided by
operating activities Average current liabilities
Net sales
Average trade receivables (net) Cost of goods sold
Average inventory Net sales Average total assets
Net income Net sales Net income Average total assets
Net income minus preferred dividends Average common stockholders' equity
Net income minus preferred dividends Weighted shares outstanding
Market price of stock Earnings per share
Cash dividends Net income
Total debt Total assets or equities
Income before interest charges and taxes
Interest charges Net cash provided by
operating activities Average total liabilities Common stockholders' equity
Outstanding shares
FORMULA PURPOSE OR USE
QUESTIONS COVERING THE FINANCIAL STATEMENTS OF INTEL CORPORATION
Examine the financial statements and accompanying notes for Intel Corporation, in Appendix 5-B. Answer the following questions (for 1995 only, unless
otherwise specified).
1. What are the ending dates of the 1993, 1994, and 1995 statements?
2. Is the income statement presented in a multiple- step format or single-step format?
3. Where is the information for the statement of retained earnings located?
4. Were there any accounting changes in 1993, 1994, or 1995?
5. Were there any prior period adjustments in 1993, 1994, or 1995?
6. What major subclassifications were used for assets? For liabilities? For shareholders' equity?
7. Were there any extraordinary items in 1993, 1994, or 1995?
8. What was the amount of the allowance for doubtful accounts?
9. What basis was used for valuing inventories?
10. What was the primary depreciation method used?
11. Where does it explain what the $400 million of
long-term debt consists of?
Copyright © 1998 John Wiley & Sons, Inc. Kieso/Intermediate 9e 36
13. How much was 1995 earnings per share? How was it computed?
14. What was the company's effective tax rate for 1995?
15. What percentage of total 1995 sales was attributable to foreign sales?
16. What interest rate was used to determine the present value of projected benefits under the retirement plans for employees?
17. Were there any restrictions or appropriations of retained earnings during 1993, 1994, or 1995?
18. What is the par value per share of common stock?
19. What was the number of common shares authorized, issued, and outstanding at December 31, 1995?
20. What was the amount of cash dividends declared in 1995?
21. Was any unamortized bond premium or discount reported?
22. What types of contingent liabilities were disclosed?
23. Were any subsequent events disclosed?
24. Do the financial statements contain any examples of intraperiod tax allocation?
25. Did the auditor's report express any reservations about the financial statements?
26. What was the range of stock prices at
December 31, 1995?
ANSWERS TO QUESTIONS ABOUT THE FINANCIAL STATEMENTS OF INTEL CORPORATION
1. The financial statements cover the year ended December 30, 1995, and the years ended December 31, 1994 and 1993.
2. The income statement is presented in a condensed, mostly multiple-step format.
3. The information for the statement of retained earnings is
located in the third column (Retained Earnings Column) of the Consolidated Statement of Stockholders' Equity.
4. Intel made accounting changes in both 1994 and 1995. The company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities", at the beginning of fiscal 1994; and SFAS No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of", in fiscal 1995.
5. There were no prior period adjustments in 1993, 1994, or 1995.
6. The major subclassifications of the balance sheet are: Assets —current assets, property, plant and equipment, long-term investments, and other assets; Liabilities—current liabilities, long-term debt, deferred tax liabilities, and put warrants;
Stockholders' Equity—preferred stock, common stock, additional capital in excess of par, and retained earnings.
7. There were no extraordinary items in 1993, 1994, or 1995.
8. The amount of the allowance for doubtful accounts was $57 million and $32 million in 1995 and 1994, respectively.
9. Inventory was valued at lower of cost or market on a currently adjusted standard basis (an approximation of actual cost on an average or FIFO basis).
10. Straight-line depreciation was used.
11. The make up of the $400 million in long-term debt is discussed in the "Borrowings" footnote.
12. Depreciation expense in 1995 was $1,371 million, as shown
Copyright © 1998 John Wiley & Sons, Inc. Kieso/Intermediate 9e 38
13. The earnings per common and dilutive common equivalent share was calculated by dividing the net income by the weighted average number of outstanding common and dilutive common equivalent shares.
14. The 1995 effective tax rate was 36.8%, as shown in the "Provision for Taxes" footnote.
15. Foreign sales amounted to 51.1% of total sales, as shown in the Industry Segmented Reporting footnote (total foreign sales divided by total sales).
16. An assumed 7% interest rate was used to determine the present value of projected benefits, as shown in the Retirement Plans footnote.
17. There were no restrictions on retained earnings for 1993, 1994, or 1995.
18. The par value per common share was $0.001.
19. As of December 30, 1995, there were 1,400 million shares authorized, and 821 million shares issued and outstanding.
20. 1995 cash dividends paid amounted to $124 million, as
shown on the Consolidated Statement of Stockholders' Equity.
21. The unamortized bond discount for 1994 was $8 million, as shown in the Long-term Debt footnote.
22. Intel was involved in various legal proceedings, which
management believes will not have an adverse effect on Intel's financial condition, as shown in the Contingencies footnote.
23. There were no subsequent events disclosed.
24. There was no intraperiod tax allocation disclosed.
25. The auditor's report did not express any reservation about the financial statements, and issued an unqualified opinion.
26. The range of stock prices for Intel at December 30, 1995 was $56.75–$72.88.
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