Ch 10/11/13 Liabilities/Equity/CashFlowStmt Flashcards
Sales Taxes (5%)
entries record for
$10000 Purchase
Dr Inventory 10000
Dr Sales Tax 500
Receivable
Cr Cash 10500
Sales Taxes (13%)
entries record for
$10000 Sales
Dr Cash 11300
Cr Sales 10000
Cr Sales Tax 1300
Payable
Employee’s Portion
of Payroll entries
Dr Salaries Expense
Cr Salaries Payable
Cr CPP / EI Payable
Cr I/Tax / UnitedWay / UnionDues Payable
Employer’s Portion
of Payroll entries
Dr Employee Benefit Expense
Cr CPP Payable
Cr EI Payable (1.4x Employee Contribution)
Cr Workers’ Comp. / Health Ins. Payable
Employer’s Remit
of Payroll entries
Dr CPP Payable
Dr EI Payable
Dr I/Tax / UnitedWay / UnionDues Payable
Dr Workers’ Comp. / Health Ins. Payable
Cr Cash
Property Tax
Entries on Billed Date (Mar 1) & Pay Date (Jun 1)
Billed Date
Dr Prop Tax Expense 2mo
Cr Prop Tax Payable 2mo
(accrue 1/1-3/1)
Pay Date
Dr Drop Tax Expense 3mo
(3/1-6/1)
Dr Prop Tax Payable 2mo
Dr Prepaid Prop Tax 7mo
(6/1-12/31)
Cr Cash 12mo
Liabilities
NOT CERTAIN
whom / when / what to settle
Uncertain Liabilities
Including:
Provisions &
Contingent Liabilities
Provisions
recorded when
(負債準備)
1. Present Obligation is must
2. $ Outflow to settle is Probable
3. Amount can be Estimated
E.g. Refund Liabilities /
Warranties /
Damages Arising /
Potential Fines
Contingent Liabilities
(dependent)
(或有負債)
1. Outcome NOT Probable, or
2. Outcome NOT Determinable, or
3. Estimate of Outcome NOT Made
E.g. Class Action Lawsuits 集體訴訟
Uncertain Liability which’s Possibility of $ Outflow is Remote
No Record / Note needed
Examples of
Non-Current Liabilities
Bank Loan Payable
Bond Payable
Deferred Income Taxes
Employees Future Benefits
Lease Liability
Mortgage Payable
Pension Liability
A short-term liability when a company’s cash account overdrawn (within line of credit) is
Bank Indebtedness
Dividends declared by
the Board of Directors
Rights of Common Shareholders
- Vote (e.g. Board of Directors election)
- Share earnings thru Dividends
- Share assets upon Liquidation
Measure of Fair Value of a company’s Total Equity
Market Capitalization 市值
= # of Shares * Share Price (at given date)
Share Capital
= Common Shares + Preferred Shares
CBCA requires
Two-Part Solvency Test
before Dividend Declaration
- Sufficient Fund AFTER Dividend paid
- Net Realizable Assets > Total Liabilities + Share Capital
Cash Dividend
Debit / Credit ?
(A.J.E.)
Declaration Date
Dr Dividend Declared
Cr Dividend Payable
Record Date
Entitle Payees
Payment Date
Dr Dividend Payable
Cr Cash
Stock Dividend
(Capitalizing R/E)
Debit / Credit ?
(A.J.E.)
Declaration Date
Dr Dividend Declared
Cr Stock Dividend Distributable (S/E)
Record Date
Entitle Payees
Distribution Date
Dr Stock Dividend Distributable (S/E)
Cr Common Shares
2-for-1 Stock Split
Debit / Credit ?
(A.J.E.)
Memo: # of Common Share increased (doubled)
Par Value of shares
股票面額
Shares have predetermined value.
Normally shares don’t have.
Legal Capital
法定資本
= Proceeds received from issuing share
Must be retained in business to protect creditors. Cannot be distributed to shareholders (unless shares return to company or cancelled)
Normal Course Issuer Bid
股份回購
= Repurchase of Shares
Repurchased shares must be retired (cancelled) and restored to the status of authorized but not issued.
Account of
Contributed Surplus
資本盈餘
（回購溢價）
Shareholders’ Equity
(normal credit balance)
J.E. when
Repurchase < Average Cost
(8000<10000)
Dr. Common Shares 10000
Cr. Contributed Surplus 2000
Cr. Cash 8000
J.E. when
Repurchase > Average Cost
(14000<10000, 1500 in Contributed Surplus)
Dr. Common Shares 10000
Dr. Contributed Surplus 1500
Dr. Retained Earnings 2500
Cr. Cash 14000
Shares issued for NonCash Consideration (e.g. land) which value IS / ISN’T determined
Value of Entries =
Fair Value of the Consideration Received / Value of Issued Share (Consideration Given Up)
Types of
Dividend Rates
of Preferred Shares
-
Resettable
Reset every 5 yrs, relative to Canada Gov Bonds - Fixed
-
Floating
Relative to Canada Gov T-Bill
Types of
Dividend Preferences
of Preferred Shares
-
Cumulative
Preferred shareholders dividends must be paid both current yr and any unpaid prior yrs
No dividends paid to common shareholders until paid all dividends in arrears (pref div not declared in a period) -
Noncumulative
If dividends not declared in the yr, no dividends will be distributed.
Most Canadian preferred shares are noncumulative
Liquidation Preference
優先清算權
Creditor >
Preferred Shareholder >
Common Shareholder (all remaining balance)
Other Preferred Shares
1) Redeemable (Callable)
2) Retractable
3) Convertible
1) Corporate can buy back at specific dates & prices
(In Canada mostly Redeemable)
2) Shareholder can ask company to repurchase at specific dates & prices
3) Can be exchanged for common shares at specific ratio
Price Volatility factors for
1) Preferred Shares
2) Common Shares
1) Rate of Dividends Paid
2) Profitability
Preferred Shares
& Liabilities (Bonds)
Similarities &
Major Difference
Similarities:
1) Fixed Rates for Returns (div & pmt)
2) Inverse relationship with Interest Rates Changes
3) Have Credit Ratings
4) Could convert into Common Shares
Major Difference:
Preferred Shares have NO Contractual Obligation for company while Bonds have
Preferred & Common Shares
Similarities &
Differences
Similarities:
1) Dividends
2) No legal requirement to declare dividends
Differences:
1) Voting rights
2) Dividend preference
3) Liquidation preference
4) Volatility of market price
Convert Bonds Payable into Common Shares
1) Classification
2) Report in Stmt of Cash Flows
1) Non-Cash Investing & Financing
2) Notes
Investments that are
- Short-term (cash in 90 days)
- Highly liquid
- Insignificant risks
Cash Equivalents
e.g. Term deposit / Bank Indebtedness (liability) / Bank overdrafts (on operating lines of credit, liability)
3 Activities in
Cash Flows Stmt
- Operating
- Current Assets
- Current Liabilities
(including held-for-tradings)
(revenue & expense)
- Investing
Long-lived Assets
(spending for future $) - Financing
- Long-term Liabilities
- Equity
- Current Liabilities not related to Operating (Div Pyb, Current Portion of Loans/Mtg, Notes Pyb for lending..)
(raising $)
Non-Cash Investing & Financing activities
- Issue Shares for Assets/Liabilities
- Convert Debt to Equity
- Exchange PPE
- Acquisition of Assets by Liabilities
Not reported but
disclosed in NOTES
Formats of
Cash Flows Stmt
- Indirect Method
Starts by Net Income
then adjusts to cash basis
(Mostly used as provides working capital) - Direct Method
No Net Income but lists cash rev / exp
Both Permissable
→ Same result
Steps in Preparing
Cash Flows Stmt
- Prepare Operating Activities Section
- Prepare Investing Activities Section
- Prepare Financing Activities Section
- Complete Cash Flows Stmt
Borrow $ on
Operating Line
of Credit
1) Classification
2) Report in Stmt of Cash Flows
1) Operating
2) Not reported
(cash equivalent)
(current liability)
Adjustments to Convert
Net Income to Net Cash Provided (Used) by Operating Activities
- Add back NonCash Expenses
(depreciation exp, depletion exp) - Add Loss / Deduct Gain
(loss on disposal, impairment loss) - / + in Current Asset accts
&
+ / - in Current Liability accts
($ collected/paid?)
- / + in Current Asset accts
NonCash Current Asset accts which affect Operating Cash Flows
Accts Receivable /
Prepaid Expenses /
Inventory
When + / -
Cash Flows Stmt - / +
NonCash Current Liability accts which affect Operating Cash Flows
Accts Payable /
Payables /
Deferred Rev
When + / -
Cash Flows Stmt + / -
Trading Investments
1) Activities when held-for-trading
2) Activities when NOT held-for-trading
3) = Cash Equivalent?
1) Operating
2) Investing
3) No → Risky
Lending $ on short-term notes receivable to generate interest
Classification in
Cash Flows Stmt
Short-term notes: Investing
Interest Receivable: Operating
(This is an exception for notes)
Disposal of Equipment
Classification in Cash Flows Stmt
Cash for Disposal: Investing
Loss / Gain: Operating
