BIWS 3 Statement Impact Flashcards
Prepaid expenses decrease $10. Show the impact. 20% tax rate.
IS:
(10) operating income
(2) taxes
(8) NI
CF:
(8) NI
10 prepaid expenses
2 cash increase
BS:
2 cash
(10) prepaid expenses
(8) R.E.
What happens when accrued expenses increase $10? Assume 40% tax rate
Income statement:
Operating income (10)
Taxes (4)
NI (6)
CF:
NI (6)
Accrued Expenses 10)
Cash 4
BS:
Cash 4
Accrued Expenses 10
R.E. (6)
Balance sheet balances
$100 “bailout” of a company through equity. Show me the impact. 20% tax rate.
IS:
No impact
CF:
100 cash
BS:
100 cash
100 preferred stock
Yes, it’s the same as a normal stock issuance!
A company sells PP&E for $120, with a current book value of $100. Show me the impact. 20% tax rate.
IS:
20 pre tax income
4 taxes
16 NI
CF:
16 NI
(20) Gain
120 sale
(116 cash increase)
BS:
116 cash
(100) PPE
16 R.E.
Non controlling interest represents what?
The portion of a subsidiary that the parent company does NOT own.
$100 write down of debt (cash the company owes). Show me the impact. 20% tax rate.
IS:
100 pre tax income
20 taxes
80 NI
CF:
80 NI
(100) write down
(20) cash
BS:
(20) cash
(100) bond payable/debt
80 NI
Investments in equity interests assumes what % ownership?
20% to 50%
Where is depreciation located on the income statement?
It’s own line item included in operating income, or hidden in COGS/SG&A expense.
It is included in COGS because depreciation can be capitalized as a part of inventory.
$100 stock issuance to employees at stock based compensation. Show me the impact. 20% tax rate.
IS:
(100) pre tax income
(20) taxes
(80) NI
CF:
(80) NI
100 stock compensation
20 cash
BS:
20 cash
100 CS/APIC
(80) R.E.
What happens when accrued expenses decrease by $10?
Assume 20% tax rate.
IS:
No impact
CF:
(10) cash
BS:
(10) cash
(10) accrued expenses
- What is the difference between working capital and operating working capital?
- How could operating working capital be negative?
- Working capital is current assets - current liabilities, which could include non operating current assets such as short term investments.
Operating working capital excludes non-operating balance sheet items
- If a company has a lot of deferred revenue. Or, if the company receives cash upfront but pays its suppliers on credit
Apple order $10 of inventory using cash. Show me the impact. 20% tax rate.
Then
Apple sells all of the inventory for $20 cash.
IS:
no impact
CF:
(10) inventory
(10) cash
BS:
(10) cash
10 inventory
Then
IS:
10 operating income
2 taxes
8 NI
CF:
8 NI
10 inventory
18 cash
BS:
18 cash
(10) inventory
8 NI
AR increases $10, show me the impact to the 3 financial statements.
Assume 20% tax rate
IS:
10 operating income
2 taxes
8 NI
CF:
8 NI
(10) AR
(2) cash
BS:
(2) cash
10 AR
8 R.E.
Other than revenue recognition and matching, what determines if something can go onto the income statement?
If it affects the company’s taxes
$100 dividends paid. Show me the impact. 20% tax rate.
IS:
no impact
CF:
(100) dividends
BS:
(100) cash
(100) R.E.
Apple buys $100 worth of factories with debt. Show me the initial impact. 20% tax rate.
Then:
Start of year 2: 10% interest (no principal paid off) and 10% depreciation. Only focus on year 2’s entries.
Then:
At the end of year 2, the factories break down and their value is written down to $0. Also, the loan must be paid back now. Show me the impact. Only show start year 2 to end year 2.
IS:
no impact
CF:
100 debt
(100) factories
BS:
100 factory
100 bond payable
Then
IS:
(20) pretax income
(4) taxes
(16) NI
CF:
(16) NI
10 depreciation
(6) cash
BS:
(6) cash
(10) AD
(16) R.E.
Then
IS:
(100) pre tax income
(20) taxes
(80) NI
CF:
(80) NI
80 impairment loss
10 depreciation
(100) NP
(90) cash
BS:
(90) cash
(10) AD
(80) factory
(100) NP
(80) retained earnings
How does deferred revenue become a use of cash, thus becoming a liability?
Once recorded as revenue, taxes will increase. Also, goods/services must be performed to earn that revenue, thus utilizing cash.
A company raises $100 of debt, at 5% interest and 10% principal repayment, to purchase $100 of short term securities with 10% interest attached. Show me the initial impact. 20% tax rate.
Then
Show the entries at the end of year 1, after the company has earned interest, paid interest and principal on the debt.
Then
At the end of year 1, the company sells the short term securities and gets $110 for them. It uses the proceeds to pay the $90 worth of debt. ONLY these changes.
IS:
no impact
CF:
100 debt
(100) short term securities
BS:
100 short term securities
100 debt
Then
IS:
(5) pre tax income
(1) tax
(4) NI
CF:
(4) NI
10 investment dividends
(10) debt repayment
(4) cash
BS:
(4) cash
(10) investment
(10) debt
(4) NI
Then
IS:
20 pre tax income
4 taxes
16 NI
CF:
16 NI
(20) gain
110 investment
(90) bond
16 cash
BS:
16 cash
(90) investment
(90) bond
16 R.E.
Inventory goes up by $10. You paid with cash. Show the impact. 20% tax rate.
Clarify that it’s not a sales return and simply an inventory purchase.
IS:
no impact
CF:
(10) cash
BS:
(10) cash
10 inventory
Asset write down of $100. Show me the impact. 20% tax rate.
IS:
(100) pre tax income
(20) taxes
(80) NI
CF:
(80) NI
100 loss
change in cash = 20
BS:
20 cash
(100) PP&E
(80) R.E.
A company has recorded $100 in income tax expense on its income statement. All $100 is paid. Now, we change the statement to reflect $90 cash with $10 deferred to future periods. Show me the impact. 20% tax rate.
IS:
no impact
CF:
10 cash
BS:
10 cash
10 DTL
Payment of capital lease principal is what type of cash flow?
Cash flows from financing
Let’s say you have a non-cash expense, (Depreciation/Amortization) for example. Why do you add back the entire amount of depreciation?
NI is reduced due to the after tax effects of depreciaiton. You add back the whole amount of depreciation to show the savings from the reduction in taxes.
