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P. 1

5 Accounting Principles3.0

|Views: 1,294|Likes: 3Published by whiteorchid11

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https://www.scribd.com/doc/38350943/5-Accounting-Principles

04/30/2013

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and rationally.The Cost Principle: Transactions are recorded at the cost at which they occurred. The Realization Principle: Revenue is recognized when transaction is completed, while cash may not be collected until a later time. The Matching Principle: Revenues are matched with the expenses used to generate the revenue. The Going Concern Assumption: It is assumed that a company will continue to operate for the predictable future EQUATIONS Net working capital example - Diaz Manufacturing Common Equity: Common equity represents the true ownership of the firm Total current assets = $1,039.8 million Preferred Equity: Has features that make it a combination of a fixed income security and an equity security Total current liabilities = $377.8 million Net working capital = Total current assets - Total current liabilities = $1,039.8 million - $377.8 million = $ 662.0 million Net Income example Revenues = $1,563.7 million Expenses = $1,445.2 million Net Income = Revenues – Expenses = $1,563.7 million - $1,445.2 million = $ 118.5 million NCFOA example – Diaz Manufacturing Net Income = $118.5 million Depreciation and Amortization = $83.1 million NCFOA = Net Income + Depreciation and Amortization = $118.5 million + $83.1 million = $201.6 million Ellicott Testing Company produced revenues of $745,000 in 2008. It has expenses (excluding depreciation) of $312,640, depreciation of $65,000, and interest expense of $41,823. It pays a marginal tax rate of 34 percent. What is the firm’s net income after taxes? Revenues 745,000 Costs 312,640 EBITDA 432,360 Deprec. 65,000 EBIT 367,360 Inter. 41,823 EBT 325,537 Tax(35%) 110,682.58 NI 214,854.42 Tejada Enterprises reported an EBITDA of $7,300,125 and $3,328,950 of net income for the fiscal year ended September 30, 2008. The company has $1,155,378 interest expense, and the corporate tax rate is 35 percent. What was the company’s depreciation and amortization expense? \EBITDA 7,300,125 Deprec. 1,023,285 (EBITA - EBIT) EBIT $6,276,840 (I+EBT) Inter. 1,155,378 EBT $5,121,462 (3328950/.65) Tax(35%) 1,792,512 (EBT-NI NI 3,328,950 In the year ended June 30, 2008, Tri King Company increased its investment in marketable securities by $234,375, funded fixed assets acquisition by $1,324,766, and sold $77,215 of long-term debt. In addition, the firm had a net inflow of $365,778 from selling certain assets. What is the net cash used in investing activities? Net prop, equi, & other assests $(1,324,766) (long term investing activities) Net acquisisiiton and dispositions365,778 Investemenst in marketable securities (311,590) Net cash used in investing activities $(1,270,578) Triumph Soccer Club has the following cash flows during this year. It repaid existing debt of $875,430, while raising additional debt capital of $1,213,455. It also repurchased stock in the open markets for a total of $71,112. What is the net cash provided by financing activities? Loan payment $(875,403) (Financing activities) Inc. in long term debt 1,213,455 Purchase of treasury stock 71,112 Net cash provided by financing activities $409,137 Current Ratio= Current Ass/Cur liabi Quick Ratio= current ass-inv/current liabi A/R turnover= net sales/A. R Days Sales outs (DSO)= 365/A.R. turnover Ratio=total debt/total ass Debt-to-equity ratio=total debt/total equity mar=net sales- cgs/ net sales Int. Turnover ratio= Cost of goods sold/inv Days’ sales inv=365 days/inv. Turnover Fixed Ass Turnov=net sales/net fixed ass Tot. Dbt

Total Ass Turnover=Net sales/Total assets

Equity multiplier =total ass/total equity

Times int. earned=EBIT/int. exp

Cash coverage= EBITDA/INT. EXP Gross pro

Operating p. marg= EBIT/net sales Net profit margin = net income/net sales EROA=EBIT/TOTAL ASS OR net income/total ass ROE= NI/total equity p/share=NI/shares outstanding Price earnings ratio= price p. share/ earnings p. share

Earnings

955.530. Their property.000 – $3.586.297.73 tim es $4.L =3835014/1537069= 2.423. accounts receivable of $845. F 3 = P ×e in =$3.0 V V 00 ×e 0.7% National City Bank has 646.650 shares of common stock outstanding.6 6 50 P rice .000 = $8.000 Net fixed assets = $11.423 + $2.314=13.4% GPM= 0.835.4 percent on revenues of $13.000/8. What are the company’s current ratio and quick ratio? Current assets = $677. has a gross profit margin of 31. What is the firm’s debt ratio? Equity Multiplier = Total assets 1 = Equity Equity / Total assets 1 2.000 = 0. Inc.537.586.780 .5.669.017.921.earnings ratio = Share p rice ES P $37 .144. while the accumulated depreciation and amortization amount to $3.478.0 00 ×1.150.312. Margin= 2586150/13144680= 19.113.99 Southwest Airlines.921 million. and net working capital of $2.198 million. plant.530.5% compounded continuously.921.000 Accumulated depreciation = $3.2 04 9 6 =$ 3.53 million on total assets of $11.75 percent.749 .000 for three years compounded at the following rates and frequencies? 8.337.680 EBIT = $2.3 1 8 Twenty-five years ago.221.312. What are the company’s cost of goods sold and operating profit margin? Revenues = $13.000 Total ass turnover ratio = sales/ total ass = 6. If its net income is $2.4 2 .A – Inventory/C.337.0.58 Fixed assets = $11. and equipment.5 Debt ratio = 1 .297.48 Operating P.Morgan Sports Equipment Company has accounts payable of $1.014 – $2.60 = 60% Centennial Chemical Corp.198.014 Net working capital= Current assets – Current liabilities Current liabilities = Current assets – Net working capital = $3.55.000 Fixed assets turnover ratio= sales/ fixed assets= 6.000 = $4 ..150 Gross profit margin = 31.144.30 64 .000. What is the value of the investment today? What is the .113 = $3.478 + $845. Amanda Cortez invested $10. What are the airline’s total asset turnover and fixed asset turnover ratios? Total assets = $11.000 in an account paying an annual interest rate of 5.30 What is the future value of an investment of $3.87 .000/11.000 = 0.4 = 0.A/C.250.680 and EBIT of $2.723.780.5 Quick Ratio= C.75 times Sales or operating revenues = $6.749.945.530.955 .069 Current ratio = C.723.945 = $1.000 Haugen Enterprises has an equity multiplier of 2. inventory of $2.085 ×3 =$3.680-CGS/13144680 = 9.L = 3835014-2312478/1537069=0.337 million. are listed at a historical cost of $11.198. and they are currently priced at $37. has total operating revenues of $6.835. cash of $677.55 = =8 . including their ground equipment and other assets.144.5 = 1 − Debt/Total assets 1 1 − Debt ratio = = 0. what are its earnings per share and price-earnings ratio? N incom et e E arnings per share = S hares outstandin g = $2.

375.0575 x 25 = $14.97 percent .46 – $14.458.75 today.00 Interest-on-interest = $30.458.5 You just bought a corporate bond at $863.interest-on-interest earned on this investment? Compound interest on investment = $40.000 (1 + i ) 5 = = 1.75 Amount to be paid back after 5 years = FV5 = $1.97% The rate of return on this bond is 2.75 i = (1.000 (1 + i ) 5 $1.46 . Interest rate on investment = i Present value of investment = PV PV = $863.000 x 0. What is the rate of return on this bond? Solution: 0 ├────────────────────┤ PV = $863.000.$10. In five years the bond will mature and you will receive $1.00 = $16.75 = (1 + i ) n FVn $1.375.000 = $30.458.46 5.46 Simple interest on investment = $10. 083.1577 $863.1577)1 5 − 1 i = 2.000 5 years Amount to be borrowed = PV = $863.75 FV = $1.000 Years to maturity = n = 5 years.

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