Balance Sheet pg83-95 Flashcards
List Examples of Different Valuation for the Balance Sheet-Historical Value, Depreciated, Market Value, Net Realizable Value, Present Value, Aggregate of more than one valuation basis
- Historical Value- Land, some investments, cash, prepaids, many current liabilities, contributed capital account, treasury stock
- Depreciated- Property, Plant, Equip, intangibles, natural resources
- Market Value- investments in marketable securities (stocks and bonds) not held to maturity and holding firm doesn’t have significant influence (fair value)
- Net Realizable Value- Amount firm expects to receive from sale or collection of item–acct receivable and inventories
- Present Value- Measure of current sacrifice when extinguishing debt at balance sheet date. Present Value of future cash flows is discounted value. noncurrent debt (mainly bonds and long-term notes)
- Aggregate of more than one Valuation basis- net income reflects all measurement bases through revenue and expense recognition ( Retained Earnings)
What is a current asset
Assets expected to be realized in cash or to be consumed or sold during normal operating cycle (period of time from purchasing inventory to paying for payable to sale of good to collection of receivable then purchasing inventory all over again) or within one yr whichever is longer
What is a current liability
Liability expected to be extinguished through use of current asset or by incurrence of other CL (CL that are continuously refinanced by replacing them with other CL, even though no CA will be used to extinguish then in the yr after BS date
Current Ratio
CA/CL- Includes inventories and prepaid not considered very liquid
Quick Ratio
(cash +- short term investments+-AR)/CL–More accurate
Order of Assets
CA: Cash, cash equivalents, short term investments, AR, other receivables, inventories, prepaids
NCA: Long-tern investments, property, plant, and Equip, intangibles, “other” assets (long term prepaid)
Goodwill
Largest intangible-equals excess of purchase price pd for another business over market value of its net assets. Only time on BS is when a firm is purchased by another otherwise it’s expensed
Order of Liabilities
CL:AP, Accrued liabilities, unearned revenue, income tax payable, notes payable, current portion of long-term debt
NCL: Notes Payable, bonds payable, lease liabilities, pension liabilities, post retirement health care liabilities, deferred taxes,
Types of Owners’ Equity
Contributed Capital- common stock, preferred stock, contributed capital in excess of par, treasury stock
Retained Earnings- total net income to date less total dividends to date
Contra Accts
Contra: Opposite of associated acct. Accumulated depreciated is contra to PP&E-not valuation acct bc net book value is not equal to market value. Allowance for uncollectible accts is contra to AR-is valuation acct
Adjunct Accts
- Valuation allowance for investments in marketable securities is adjunct acct if market value exceeds original cost–Contra acct if market value is less than original cost-is a valuation acct
- Bonds Premium & Discount are adjunct and contra acct respectively–not valuation acct
Valuation Accts
Used to increase or decrease book value of item to measure of current value–Accounts valued at Net Realize accts, market value (AR, Investments in market securities)
Owners’ Equity:
- Total OE or net assets
- Market Value of net identifiable assets
- Total Value of Firm
- Amt determined by US GAAP and is on BS
- Amt of cash would remain after selling all identifiable assets and paying off all liabilities “split up or liquidation value”–Diff b/w OE and this is caused by identifiable assets/liabilities w/ market values diff from book values (investments & natural resources)
- total value of firms outstanding stock “market capitalization” –Diff b/w this and market value of net identifiable assets is goodwill
Debt Disclosures
Most important item on BS dollar for dollar. Indicate quantifiable financial risk faced by firm in future
