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    CH 2

    Uploaded by

    Yusef Sobhi

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    © All Rights Reserved
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    of 21
    Balance Sheet Concepts: Liabilities, and Equities In one country, a result ofa coup, career rly offers with no business exparence were placed onthe boars of erecorsof several impor tant corporations fer ispecing te finance Statements of several ampariesone general. became very suspicious, ‘Genera “What are you gs yng to put er on me?” ees "What do you mean? Genera "Do you exec me to btive hat for evry ae of thse companies, the ‘otal astets are exactly equal tthe Files pis ete? We imagine tat a short ston in accountng beqan immediate, Uke the General his chapter i fused onthe balance sheet. 1 has to goals 1. To ele the economic concepts of ase bles and equtes that unde heb ance sheet 2. Toinedice the accounting techraues of eis and credits thot ae wed ta of and o ana balance sheet items Basic Defi 'nabgtion to gieupreoerest inthe ftir, In Chapter” we decasee the inponance of eco ric conepts They guie the constuction af ‘counting ers. nti chapar we fut explain hee concepts, Bask debitt bookkeeping techniques ar in portant in hi on igh, ut i nour main purpose forinvoducng ther Learn these teh- riques hes inunestanding how Facial state mers worknd, especial how they are elated. They help inciscoverng and undestaning the ‘oon ean that unde fancal statements ad thy he in Ferecasting the imact of fue conamic eens and proposed transitions In ‘combination with an understanding of concepts, he mastery of debit and crt teenies rides 2 powell anal “hs chapter begins by cssng the ently con ‘pt Both He economic concepts and accountng techniques must have a pin of efeence which is lie by teeny for which the account is one We then moe ont sty ase abies, ad equtesn dtl. Then ve formal inoduce eis and ces, Finale wor though 2 com prchersive example to lute the conection of bis and ces with th alee see. ions, Theories, and Examples ft. But whose Bee isi A aif Be whose obligation ee Think bout fting loan fa Bak You incr an obligtion to repay the ean Te bank wi ily 3 schedule of payments. Ta oun clearly bility fom owe pola up you resources in the ute, Hw does the bank view te loan? You ayes nthe uate wl be ash eet tothe banks Frm the bas perspective the loan gents fate bee se rm the bank’ pola of ve ty isin penonor THe Entity Concept The a thing to seize out asounting isthe this point of we asthe enycanesp. Assunta compiled fo a spe entity, and Betis and obligations st ered fom that ents point of vee us tke a pot of view Accoun A speci ny identified in et of Fanci statements might be acy. egulited public uly, prtnershi, a taxpayer corporation or anyst of avis fr which {woul be seul o generate an economic story. Once we define a ely we sab isa point iw forthe azounsandcan Begin to Kzaw how a ansition at che future benefits forthe entity. or oblige the enty to give up resources in the Fate Assets: Defini onc | So penn shin orn yan my a 's obligation to pay for merchandise bought on credit, turn directly ante cash when Anand saab fue theca poy wha sowed, Ole aussie nee indo ee pote | Guindy catys. of wowing cmp wc thes for ca A compar may bw cel woo be Assets: Examples secre: | 1isimpose tt evey cnc ase Ets we conta wo may de SSeeatlcoeay | entkntf tem hr eter omni eet pov an xa wn | Ssetpeotanes sei yn acnts frst cnr he wet ted BE _____1 RDIAaa SG Ic bane sheasn Bab 21 Oooh Gea ee ‘nr of ies cing vcmien kadai New esd Ech ‘der te pmo OS Teithogn or emningon of Osho Sn ass ih some rosea Der 201 esi smc fda rosy bn o hoe neck nian S01) Oxon Gs sale Dee er Curent asetshve nes SI thowand: OshKosh Gosh eae this al awn to subexegria, Carre tharecrpted beret astts ea major sbentegoy of aes whos economic hence ae epee fo Be el felwthinoneyearofthe ized witin one year ofthe blanc het dt. We sce tht OshKosh U' Goce toes te {0 ttnled SIERASS thou st Desmber 29, 201 Lats lok a he eta the AS for vruly every entity, cash is also one of OxbKash Boss caren aes COrhieah Gosh hols cash and cash equivalents of $292 thous st December Cas money in the form ofcrrency or depsitsin banks In today’s ob ma tetlace, mot tage companies old cures raed bs many diferent counts, Cosh fe rte economic beet because it an be exchanged for goods and services Tho fore isan a, snus snes canbe used ede it 4 carat nse, ‘ston 8 Cosh it nestmentt eo, Tete shorter invetnnts often clad marketable seartie ar investments i final sees, sich a shar of sock and ‘nds Ente sake tes iments oer te ends o ines hy generate o eat the pice of the sock or bond feapected fore Trvesents in stocks or bonds might generates higher return than peting money in aban, bat they may allo cary more rie Some bonds some wots beuse te Ise deft In ling x marketable rcs ay set we ast tht can be con ‘ered into cosh Anak pie generated i 3 ck marker would be the ex eridence the possi of conversion into ca ard mca secures ave an sred oa Salance sess a thir male aes Bectse the extent och market nae gic snveson int cath artless recut ase <8 Senet Na. ehbte 2.1 eh ch bc Sha rma nh nn nts (asta in tonands sept or shar amos) ‘Chand ah agalene smn ssa Pree expenses and ter Detar income tae ‘en pvt of gem det 5 $19.00 Seana ppl Hew Emphiye beet plan Ibs Tel bien Sorbet equy Peed tc pr ve $0 per share: has Bathe ta ad on “Tl sharcholdesequlty Tam lis and hacer ger Sona ‘akon Bon shows Accounts Resvble at Dessmber 29,200, of $25.57 tho sand. counts eeinableate the mots da rom customer in opment or goods ‘sinced or services performed bythe enty Bete seount etal are Gas C0 fare cash payment they are sete One cp tion that not everyone pas thelr bil, Some fave Bad as, whe others cto py. Ant resale te ate tthe extent hat iis probable they wl be ele cvanten > anuaNce SHEET CONCEFTS Aste, cnbiitts amo EnveiES + 25 ‘OshKonhAYGonh ss acount cecal t $25,697 thousand as of December 29, 2001, Thi igre net of allowance” of S78 thousand The fer alee ees tothe amount OshKosh Bom epee to be uncle Teco, we can Gee tha eaters owe OshKosh B Goth $32,779 thunand (S25497 + Sh), Oxhkech [BUG expects colle $25.97 thousand an expects to Be unable 0 ole te runing $7,075 thon inthe United Sate, os secounts receivableare en day. Tess asco Tiventorio ae stocks of gods abe usin the ents operations, OshKosh [Gos tne inventories of $850419 thou st December 2% 2001. Thee are many {erent ype of trestoree.Retlers ike Oshkorh B'Gosh ypcaly hive fancier ‘of merchandise avaible fo sale antmere. Te Red Cost minis inventory fof blood for sein emergencies, Manufacturer have inventors of ea teri ed in making products Products hu aein various sages of manatee cle work in-process Pnished goods inventory i goods aatng ale sad delery to cotores Tnveores re sset tthe exten hit ts Hel tht they wl be sl, hus genes ings benefit Inventories that contin damaged ods ries that ae or may oom tlbslete ae ley to generate fate economic beni. ‘OshKosh Gosh Tats Prepaid Expenses and Otber Crem Ast of S167 tho sand at Decenbet 28, 200]. Pepa expec ar amount ted pai for series OF {ood tobe delved inthe future For capt: ee may pay fae moe ren 0 sdrance A manufacturer ty pay al the mney pont fr isaac poly tat Ist for many period A nw hasnt may have tive an attooney aes omic Faure fs wl be pid The ai et of whether ny hese prepayments an et ther enti th ety t's pebble are economic ent repaid en ents there tose the ore spacein the fatue an econo beet Prepaid lnwirance gies the manufac rane coverge in fate periods on eonomi benef. Pepi tory fcc give the new business acess to lealscrvics in he tre, probable ‘Stononie Beat When te prepay Incas for a good or service hat sto bers within he net yan, the pre Defered Income Taxes the st st that Ocbkoch Ges in the hound at exsrber 29,20, Be seit itd und ats, we koe ha hie $13,000 housed eeeesete ative benefits for Oshkosh BGoh, tn fa, Gabon Gosh expects fo reap thee tax benefits verte next est Theeenefi coud come none of wo fons The sn a fan of tases pid inthe pat The second i reduction Faroe tax payments We explore deered cae aes etal in Chapter 1 Three more ste apps on Oshkon BGs bance sheet Property, Pat and guint Deferred Income Tae, ad Ofer At The ft tit thew at ae mot lsd creat aets tel that OnhKns Goh expect o ele the beeline shh Garten tf of eat and Nonuernt ste Spr lnger tin ane ya, Sometimes compny il we the abel" Noncreen oF ence cht ancespeted “Long-Term to separate ae cle i eaten nd foncurent ees Bat Man Labereind ovr prods pes ke OxhKonh fan tu ir the ety Fam the presentation esa one era the The est sonevrrent att that OxbKosh ca tis Pooper, Plan aad Fai elnce thet da neat fOr S30001 thossind. Proper Mant, and Equipment repress the ln ener ont touidings, manafsctring machines dies vehicles, and soon, that ets hol oe use inte busines ove sever! periods Thay ae ssc othe event they wl be sed ivan ents economic advantage. Lan maybe developed o sold uldings may pro ‘ide ofc spice for aminitrators, room spay goad oe spe to malate products. Manufacturing machiaes make goods toe sl Devry vehkeyconeey [bods o customers However pce provide by bung an become sleet po Fite and manatscarng machines outdated Tobe contre a ase, Proper, Pat and Equipment must generates probable esnonis nef for teeny. An outdated ‘machine may not bea sat ty ust be junk. ‘Osos Gosh nest sts Detered nae Tass of 4300 thousand. This ast riginstes inthe same manners the deere tues alrendy dssase, Howeve the ben [5s tepresented by thie amount of $4.50 thousaad se expectel to be reed ore {han one yer fom Deserer 29,2001, Theos thove defred tne ae not cerca asts and st be sted separately ftom the 13,0 thosand in defer income ses Like many fms Oshkosh Goss lance sheet ines the acount Other Assets a practice, most fms ci) fa too many accounts to st ich acount sparsely Atl nda accounts ar aed together to orm ne lao set acount se For example, Oahu B'Gach ikl sep seal diferent inventory secouns each a pethaps Chile’ Caching, Adalt Canal Clothing. Won Wear, ee or reporting Purposes, OshKost Bosh gous thre fen inventory acta ogether ad dis ‘ap the toa a Inseioreson the lee set The balance het ee led Osher Asset is = combination of alte raining asounts OshKosh B'Ganhsnemgcnent ‘seme not important enoagh to dsou scarily ante slice see Nt sep ing. computed to many of OshKosh E'Goes athe dnlayed att Other sels 3 ‘al $1,984 thousands a Dosenber 28,201 ‘Orhicosh Goss othe sets might inde pent copsights and trademars ‘ments give bodes the right to eaclade ster from wing Be patened prot OF [octses.Copright ge holies igh o pubic ogi works fase ery Espresion. Tdemarks ae lea ghs wanes or symbols. ienss re eg ahs turk products sevice specified trtoric rise ptented produto procoses coy Fghted material or wademakednamerorsmbols. Pets, copyright tradcma ad licenses re asses when its probable th the ih hey contey wil be se tothe Tights cin be etematy valbl or etsmpl, the US, gorernment suctiond she rights ose cers quencies fr wires ieoaimunisons The gh ae renee ‘ened by icese granted bythe Federal Commniitins Commision (FCC). Te wi hing bids inthe FCC's auton af Heese ttle $102 bllon. One comp alone: ‘Neatwane Penal Conunlatns, submited wining bison S42 lo, To determine whether agin eee os tse he i ences 2 probible econ benefit forthe ety You nt tk whether ts owned como ‘And you must ask whether roe froma fast tunstion ot eve, One ob of ‘untngsto dens the major ype ofan ents ase Gn te may ieee ‘of emits, he widely diferent acts en whieh they engage andthe Vasey of ons hey hola usta eaterivation ofthe a ets us be found ona ie yee Assets: Valuation Aer identihing an entity's ase the acct must desde what monetary amounts ‘o asign then Aaiging» monetary aru called valuation. If importan to sings cael among the deren fom of vltaton Market valuation methods ‘els to the ways markets asian valu, For cst. auction marten ales Edmund I Anes. “big Bers Win Ato forthe Sal a Account balance ‘ose ation metas ste ‘Mase vale he abe tentacataiond | Sectamer semi | beefing form prove ‘hg fen eye onsecrwve: ss wed carpany Curent nile el ern expected cise hough thse us about who wis an ers ae hw much the winger st py fr Aesounting or Balance set, valuation sees tothe collin of methods that a ‘Suntan acto sigh the vale reported in balance sets “hvala theca of viuatin, For exams the price of a atone ter ite market value deine by the ation mace. The Bask vale fa em he esl of balnce sheet valaton Sometimes mart values and ool values ave the me, but mot offen they ae not One of the Lys to ely understanding aecouting information eto sndrstnd he reaion betwen are! and book values and we de ote siicanyaenon ott in Pat LI of thet. There we wi erm many of he ‘Seen secnoting valuation methods for pater eee Several acouoting vation tethods ae rected on Onhoch Woah lance shes, Cash squivalens,sich a smounts bel in fre currencies and shot i tesiments ae cared st matt vale Mlrket vale he smouat of as that would ned by eling an se at he avalsbe alo pce Accounts eciable are aed a ‘heed ne elas, xpecte net elle the amon Osos BUGosh ‘apt to cle ron the itl eis de vetoes re valoed athe lowe foot trae (the conto eplce tem) Some longterm tustments ae wed het tated presen sale of thi fre ach Rome” Property and equipment ze vale st sori en les asumolted depreciation, Historie ast is the art pi pul foe fn hem when purchied Acuna deren ithe tol deduction fon the ie tora cnt that takes approimateaxount of he ese ofthe plant and eqpent ove tte (enone butt tpn Cheer 3 ‘No ane amower ci be pven to the question of what x rpresental by the wales report ona lance ses. Te accounting proces fraying aes, owen aa Sars fom these pce, Ast ae record at mt at he ine te sac are acqled Saeequentdevitons rom historia cast are adstents othe vcard ales jabilities: Definition Atay is pbable fate scrie of cconomi bene rx om preset big tics of an entity to tantra or provide serves a 3 es 3 pst ansactin ent Lik the csc of soe toa scabs bys conoale cries imately ‘rant themes inure ca ws Libis etre cash ow et ety tr inet or eunplenk ante out bys uses dy eds fare cath hows case it mute epi cash. An obligation to fll a sebecriersprepaid Imapvinesibsipton imply rede ftir exh ws, bess requires exh a hows to prdce and diver the magsanc. Liabilities: Examples lus as we sould not st al conceivable ast itis inposibl to it every conciable Tat Enis enter imo to many dierent nds ooligation that eae the robs abl tre sare of economic ene to ge anexaestv a However, some pes ible ae common a almost all ens Fr asp conser the Lables aed fn Oshkinh Gosh, Ins balance eet gen in hint 2 As wedi with assets et bein with some overall baervstions, OshKosh KGoshe total abilities at December 25,200, were 7 thous, Curent abit fa major sabctegoryof ble. arent ities re thos abs hose enamine in epeted to be made tsithin one year othe bloce sheet Gate, OshKosh B'Gonk has SI032 thon of ‘ren lable at December 29 2 pent valet igh interacted te Hime vale af money (8 hide a dfn cooome etn» Sola rece amet in the fe. We No fs rai 2.2 ion B'Gonh hs throngs af caren libltive Crrent Porton of Lang Tem Dob, Aces Payable and esr Lalit. Current Paton of Long-Term Det he amount of lantern debt tht mas be ep wth ane yar ofthe Balance Sect ‘ste Oabloa bad ho uch anounts tDecenber 2,20, but ese 0, 2008 tad 100 sous of longterm dab i dt repay within one Yet Accounts Payee sores ale Tee Foals Trae Aesoants Payable ep resents amounts owed to supplies of goods prevonly dled, Acoust Fle ate tual dv within ally sort peso one ener between 30 and 90 dys) and ‘Srey no exit nteeat Charges Discounts for omg payee fen afer. A ‘Sms Pay ae lables becuse they ole teeny To giv up ash and Beane they ate rom the ransction of buying ghd fom sppties Oro Gosh owed 511.29 thoasad to uppiet of good at Deseriber 28,0. “Acro Linbles sometimes called Acsued Expense se smounts defo tases, rent wages and so forth that OskKosh Bosh awex Lacking at OshKosh BCGos's TRlance shee we sue tha aves ttl of 38,103 thousand for these varus ies {ching st Oshkosh BGs various ther lables, we note that Accrued Liber ‘the ages iby OshKosh # Gosh tise on ite Blancs sheet. Ach we right beat Tea curious a to what soto tens Oson Gosh rou together ue this name Ail you il wart fo Dome sep a cresting nfraton you se presented Ia Financ statement with information presen the ntes ffl saroments AS described in Cape I, evry st of eaxporat financial semen accompanied by & ssf exlanioy note I we eek ations. informaon bout someting me ee Telunce thet income stement or semen of cth fs 9 good place to star fok: Looking trough OshKosh I°Gots noes we id Noe 5 (Esibit 22) abou Ac roed Labties It povse toc deed dcomponon of the eta compe the $8403 thousand tact We eth $7,181 thousand of the $8409 hous is Compensation Tht caegnaton msn tat Desembet 9,2001,OeiKosh BGs ones tpn 718 thousand frre hey per bt for wich ey hadnt Ben a ‘Workers Compensation amounts S800 tous wich satay payments de © ‘ver inninc foremployers ore on thea (You would oa know what wrk pation nests fou hae sme experience wih pool ets) The hs compare oF {EES38403 thousand 517209 don, be py "Other in Nate nhkosk Poot, Ine and Sbsaaies (Gotan oats) Compenaion suas, $668 rl competion 0 a0 ‘Unortnatcy OxhKonh 8 Go's nal port provides no rhe information that caso ur undersanding the components of OshKosh Goss acted lites This eck of information ilustates the dsereton Firs have in dling information i anna pote No spsiic GAAP o» SEC ruer gure ha OshKosh 5'Gonh provide ¢ Fe Noncurent or tngterm, specif lvl feta in its distasues. Some irs provide mere deal bout the com poner acronis, whe tee Gems provide les As Enancal statment ea Se st ve wih whatever le of del och Bosh des o prvi, ‘Atbough Osakash Gosh doc ot fit ther we cn dee sme athe ommonty found ret lil, Shr erm orowgr at monary smut de fe the ay ret fh las, ots pala her nme paper tat mst be pid win ‘ne yea. They tables fea they oat ent ge up hand Das ey ‘Stic part the anscon of sep ck fom he lender an ans ots payable ten promises py) and consti apr (esissued by compre bone) ety Tere charg tht heal amu gat mst be ea exe the our borrowed ‘earned revennerarthe monetary ama eeied by a ey ta seep front payments coh in echang or are delery of predacts For example 9 brpa thre ear subcrption o pot Uren Aceptance of your subscition oA ne Sport Iara eter deliver aarines you fr the tro the suhsrpion {rio refund a portion ofthe amount you paid. Deery of magazines reques the s- fice af economie eoures 4 compe, print, a tunpor the magunne, Your nb Scripion a lablity to Sports raed beast require probe ature mci: fof recs and Beaute are from the tration of taking your chin ecnge for promising to deiner 2 maorine It called cared even because i caries an ition delivery ofthe magazine discharges he obligation and conver the tabty roi even. The amount of your slsripton becomes eared eve Sports Iced sales obligations ade the ee of your sarpSon Dividends repayment that corporations mi othe shareholders. Corporations ly obligato to py dividends. Not de py vices, bt sme dnt. The sol acorporation Tht pay dividends sully expect the corpostion to co Hive to das, Dividend ze one way tat sharers cee 4 tea on hc aver et Ihave pst transition the purchase of shares in erportion 3 the Probable reo fut economic benefits payment of eat by the corporation Bidens Go nox become iby, bower uns alison op aren ch ‘irs when the corporations dieuorr woe To py the disens. Therelore, dividend Deyablets he amon oe by the comorstion oshareholdes when dividends declared Sythe bard of diets are yetio be pas. Theol foturestenm of dividends bough epeced by sarees anda probable rife of economie bene na abit ‘Berane fs nt yt anon, tw Beane inte fate hen ae i the Board of ‘ists foraly dels that lends wil be ai Retuming to OshKosh B'Gos's flan shee ese that it ts wo moncurent oc long-term bles Long Tern Debt ad Employee Benet Plan Ushi, The S24 thousand for lng-erm debt resets amounts batowed by Oshkosh tat will Be Tapa overa pera of years, The 4,08 thous obligation for employee benef pane ‘spies surfs that OsaKoeh 8 Gosh must me moe thin one yen from Deze bar 35,2001 for pensions, eat care benefit in retirement nd other ene that tmpoyes eared, For example, OshKosh Boa, ie most companies the United Stxen offers ts employees a pension plan hat provide for cach payment Ging Te tismeat Depending on the eso the plan, obligations make probable are so omic rife ca aie and ans be reported on the balance se ‘ute B'Go sony two noncaren kis, ut many Bem hve more Fo example many firs acto hbie sociated with warrants a bonds, Wares Ste rights el by purchasers fe comps prods get damaged or alnctoning ‘tenon and poteteent bei oer than px inven sre complied sar of scouting Some of he complstin ses rm be imple of peso ni bevel pans Hwee mack of he cooley ss om he hg pot al GM thc ye aft onzeceive “ota egy sth dieese etween td te labs. connec coe routs repr or ele nites slic warrant tprviseasnsanee abot The quality of tc products. Some odvidal ute of product break dig the war ‘any esd Some asanyrapass ae moc ospensve han othe. Beease warns ke rom the ess of esas tastcton, waa payabl ae lulls othe extent that hy wl etn the pbb ature sate eons resus tele Bonds are finan insruments amenity wes raise mone. They promis py rent of ah nthe fsture om the ier Bends pays age the seus duet pur aes of bond, ued bythe entity, under the fens ofthe bands They resent ‘Obligation o ie up eh (an econo Dac it) ag from de pas tunsaction of sling the Bon fcr of boeing) Bonce payable aii “To determine wheter 1 gre teria lebity; yms ask wheter eqs a probable fit serie ofan eeannmic bent You mast whether tian blige Tan, And you rust atk whether ares cut of pt tanaition or ees. Ah 5 oe job of accountng is oben the majo type fan entity’ lables. len the many dierent yet of ele, the wid detent activites in which he engage, nd the varity of obligation hey hate, «Ul exertion of the mse abies rast be fund om 9 are-by-ce Bs, Liabilities: Valuation ‘As with ste, tsiging monetary amounts iso Hibs is clled won. ‘arts are aval for some ables, such athe Bonde sued by large compo tions The mart vale of sch bili te the pies at which hey ade eer counting or balance het valaton proce ae rquired for abi tha fost Fe example, the book value of Osh Kosh 8 Goa counts payable, 11,229 thousand ‘on Decernbes 29, 200, ithe amount that OabKonh B'Gonh expt o pay to sete thet obligations A more somplietd proces ade othe $4,008 thou ised fo “employee beet plan nbtes. Beare these sais wll eco far the fre. “ousideration ofthe ine ae of money ot af the secounting valuation process for these lems: We espace then value af oney da Chiper “otal equity isthe ference beeen ttl asets and otal bites To the extent hat ‘het are red the preset vue of future econo bene sad able are a Sela the present value of ablation osiafic economic Beefits inthe futur, sy the at benef let ove forthe were the entity, No owns are nv Ne iy is «not-for prott oguieaton andthe difeencebeteen fal ase and oa iiss the wet smount of ours aslo ase io csomplbing te elt asin, proctce, uy nis fom a narber of sours One sores the Gt tion of omnes. Rel he accounting Het ASSETS = LIABILITIES + 8QUITY ‘When owners provide ass tothe enti, me obligations ar ceed. To preserve the ‘enti. ey must nce. For insta ithe ewmers conte $100 thon he for soc, then cath (att) would ince by $100 howard and comenon sole cul) would inert by $100 thous, he ents operations generate economic tenets (ass in excess of he economic lation incre (ii) eq in Equities: Examples Gtasifng diferent types of eauty a msn emphasis of the ety scion of dhe Trance ice. One objective io Separate the ety that arose from stations fiom owaets from the equity hat roe fom net asses generated through the entiy's pertons ‘Ones contbate iets sing many diferent ype fey. For esp, common stock athe pray franca instrament tat orpraions use or aging ownership inthe worporaton The ower of common ack ete fo Yoon maj compote ‘lin such whether to sel he rm a akeve tet hth to etn oe Dc esting management how fo tuctuceegetve compensation, and who shoud Ser on tc boar of dir, The owners of common sock als have rida cai fn theres ofthe fr: hit the ie insted, the common steels = ‘ive ha eft ar al the ent ater obligate ze need Some Fems sh as Kosh Bodh erly differen ses of common tock, were the detent cases ean exer diferent noting rights andor diferent ahs reprint scxp of svdends Osos B'Goas G0 thousand of Cas A common Stock and $22 thowsand of las B common stock as of December 9,20, ndtes that some pin) athe pst, OtKorhB'Gns ted sk ith Lt a, oF stated taht of S152 thnusnd ($140 $22). We cold ae st the noes tothe Cnc state Trent to era more about the ears that ferent GuKooh Gos too Gates SF common soc, ‘CuhKosk Bosh ised camion stock for ore than its pr valve "The exes of the amount raised over pr vai the $5359 tousand in Additonal Palla Cap- tal (APIC). The pa vue, abd therefore the ational pada apt, presents 0 fealsgaance in th United States In some conten ach as Norway te pa vale pg roe determining whether dividend tcomenon shareholders cin be egy pau Preferred stock anotberistument tat cepoatons use to rise conebutions fom owns, The we prefered sock icy no ented wo woe an corporate ‘econ he es iguldated, refered seers eee the sae vale ofthe ‘hte in adoo he pice nck may contin «rare of didend. provisions. ‘akon Gos bulnee she tel that Geach Gat competed the legal eulsoryregurments ase tose plead stack, but hadnt actly ed ‘np of Deserber 2.200 “The pele soc, crinnn stock, and don! pid-in-apial accounts eet she comtution af owners The final cunt on OsbKesh Goes nee sheets Re ‘ined Earnings which eect ogy generated fam operations. The uae Renined ‘Sls us thu Retained Earnings ecpesens et sects erated a operations Bot not Yet ditibuted to owners. Tae blace i Osbodh BGoMs Retained Earrings wa S81 thotnand at December 29,200 Examples: Concluding Remarks We presente several example of ast ibe, and equles. Be avare thatthe dis {uston sofa by no means providers complete ito he eet lable, nd eq tis you will enouner om balance sheets Fc in othr indore bythe mate af thei busines genetutesuts ad lbs that oot xi for OxbRosh Gosh Alo, total rms ee tothe sane as fled ets by exactly the same ame Bor example, shorten nxinete night be abled sci h y another fem Hosen the stuctare of the bance set provides «thread of reporting common aly All alice sets are suctued with ase section, We can re arsed Ut Somcone decided bei aunagement ofthe FASB that the items we se sted es [estate lutune ith infos, ether by thers orn combination with the abet ‘uly all balance ahets povided the fies hs alti, coma aliabliy ston stich includes ems expec to generate fur ish oto, ef to financial Slotement renders tome thet am ssn about the agate and pra iy of thse ature xs inflows ad oufowe We tke this subject a considerable ‘das in ater chapters, but for ow oer Figure Lara pene overviw ofthe struc ture of ance sheet Figure 21 Masdeubl curs None ng tr Propet pln. supe Accrual specs Soncren lg) Montage pate cect Sb ‘ons Ps ncopt Ted ad snc esne asings Balance Sheet Constructioi Using the Accounting Identity The bac structre of balance sheets andthe espe fa swe the ies the ounton we ned Sirution of balance shee. Ou primary aim isto enable you to bet tle final statements Understnding and soaysng Hina tert oles enet~bascly working backard om Bauil saeesoWhl 2. fetter tobe st tack which meine tar constrain the elt financial sateen: ie fon, we asta the bcs of the construction and interpretation of Palince sheets Through a sere of bypothetia transactions and events It bo srves to ety nore ‘An Example: Websell Bob and his cousin, ety form Webel Corperation to develop ae mart soir ‘ove fotecet nl spy strat consul erica, Ba und Bee elie they nut Ise ofc spe, soma computes, and ots micllnsous ims beloe operation ad zn, Ath pa, however the iy, Webs, has es In fot nn peep slp inl lance swt for Wabalreying on the secounting deny ASSETS = LIABILITIES + EQUITY Asan ea, Webel has nothing yet. Bven though Bab and Beta india may hove bank account ets sa loss and ee ats te ny Webel dacs na. ity holder sarbol usable stoke eit 23 Werle ares tat ‘Telegeland tn ystems may not makes distinction between Web and Bob and Bet, bat for Ginnciaeeportng purposes they are tote dingsed We il prepare the Balance shes and ater fal semen onthe peapetve ol he septate en ob aod ety deide tn incorporate Wel This move tables Webel #6 sat enty recoil by the US legal stm incoeporation eos witha number of impiations Ansa the mow nsportan tha, as separate lea en Webs = trecangot be held el bl ore debts Io fer word Bod and ety cant be eld tna spon for money boroned bythe entiy Web. Thy dace split owaerip of Web eal On naar 1208, they ead entbute $50,000 Eh the busine In the Usted Sate, ownesip rights to buses ents ae refer oa eo. Bb and Betey now cic own hl of the tock of Wel, When no speci ewnersip right [sich especial voting pivilegs)ate tated to sock tlre 3 com. mon sock As aliedy dicused, owners of common stock bol eal ca oo the ‘Set ofthe ay ha ifthe in gd ee cornmom sbrceldes oie wt it aher ll the ents ther ligation ae vtled To th expe Bb and ty ‘wn ths etal ci ‘Now teeny, Webs, ss 100000 cash its disposal That $1, 000900 came from somewhere, ssf frm Bob and Bete comet, They ae Webs gly holders (sharers stockholder residual owner, residual liana staked rl les means they own the righ fo whats Webel hs, The seaunting Wen thy stl bath Webel 31009800 in ch and at owner coated est In (Gnas heoin) cat sim lei portato note bo things thi pois Fi, "Ca" and "Common Stock se oth refered os acount, The ean ao ot syaonymous with an ‘ant For actuating purposes, a acount sap a dolar ama tht represen something For exampl, Webs sent Commi Sac epesente the dll amon ‘Sonsut to Webs by the owners, Webcast Cas epee the 100000 {tbowned by Webel. That 1.00.00 might Be tributed err several det bak Scout at svt dirent buns. It might ao bone hous $1.00 bil sed in drawer. The pot blaae set sctunts te senate constructs sd 9 ‘npiniz a entity's sources an bigtions Second, noice tha the Reng on Webs saement of ancl posson, or bl nce set, cides the phrase, "i of fama 1.200 becuse Webs hos $0.80, ess on anoary 1, 204 Oterteansction and events ca eause Welw to hanes, Fest amount of cash atv ferent dt, ance shots aes In at cat's ‘sures and obligtons. By that, reuse aod blgation exis pit time. Thos aecountans earefly ent what pln in nehe ents tes and lita: were mesic Continuing Bob abd Besy decide Wesel wl borrow ome money. At we expla ti, borrowing, or obtaining ere amin, takes om many forma is es lar stance, on ansary 2, 2008, Webel pts tout bond receling §2 081000 ak | ‘The bonds pay yin anntall (on fneary 2 ofeach ea). The dee oe ane ny 2010 Te us rexamine th accounting equation and conseuct Balance set of Jan sey 2.20 ASSETS = LIABILITIES + eQUITY sS.oona0= '$2ana00” + $1,00.000 The new balance sete shown in Ex 24 ‘Statement of Financial Postion ae of January 2, 2006 ‘onsunsin theses) | rowre | Tay som Notie that the $2.00.00 bored fected Webul’s blanc shee in two Wa Fis the ea account nereaze by $2.00088, Secon, beech $2006 mat oe ‘eps in the ftir ates Hoods Palle need by $2000.00, Wesel ov has $500,000 cash indicated bythe le seo the accounting det. The Hah de tls usher ht 3,000.00 came roe, Cos contre 32.00.08, Over co | tabuted ton ten ‘The notion ofthe ownes as esis cman i ore apparent now. The owt Liguiaon ithe sting of cm Webel residual ssc In other words i Wel wae Howldted an, en alof cays ase ani up and appropiate amounts dteuted cis and curt on asuey S soon siunbuing eto does bondholders would rece 200000, Anying lin his ne 1000000 wg sd reid dino o the suiy Holders Bob and ety. ‘Webel begins acguling proactive aes, We place exch even in he cnet ofthe accounting identi. Consistent with common aesounting prstse, we sow Segue ‘umber in parentheses, We ls show the ininentl fet ofeach rannaton she Balance set en: hati we idea which ase bead eqs change se # esa ofthe partclartrasacion, (Change wl be denote y dca) ‘On nun 3, Webs buys computers and offic ssipmen for $3000, Com: an oes equpent ae considered sss (property plant. an equipment) be hse they wil be we to genoa cath flown ate period nner 204 Metts Aus: + Sten (On January 3, Websell prepay $75.00 for one ya’ rent om ce ssc. Prepaid itemsare considered ass Esentaly, Webel sng the right os te ofc pce for one ya, Agin the office space wil be usd ta gest cash ows dog tht Fre. as pop Feat a ase lo We cou ns Vesa toby op tos 9 meson sd We ha ys Notice ht we made no ince sheet soit ofthe $10.00 cei ne, bsaaee sining ppm or $1000 of crt dove aot sondy enough steno denon of "lai Recall dat our definition of a abt is tre ch tw resting om {past event As of Ianary 4 Wel hs no abigaton to sarender ca in the ure {Theagreement np ons Web fo purchase upto S10D00 worth of pps i= ‘ut poring co mea. hus incurs no aby a8 of Janay 42008. the ihe howeven Wr gts ome spies under the iernnt Now Webel ba nob ligation wo aurcender ca in he are, $2.00 within day tobe exact Set ier by $2,000 case Webel hope to those sapien generate cat ie, the suppes ‘On fear 7,200, Websell pays S200 on i acount a OfceMas Thi payment satis part of Webel eguon to OficeMa- Ts the haley for Accounts Payable ‘Eelincs the trnecton sli reduce Cath estat ofthc | eee a ar cr ‘coun oe $00) 1 this points efi to costae nee lance sheet (Eibie 25). We ad new asst and lblty accounts ince the st lance sat but the accounting deny The balance ss apres the cumulative fect ofall tansctions upto the date of the balance see For intact cath balance of $2424.00 cas be explained fos {0.00 fom common sick mestment of owners + 522000 fom sl of bode = coset ase oe (eset in aus) oh 52504 Accounts os sa Sipps Totearen bis ST Prepuid et “al eaty Sioa 300,000 sed n purchase augment ~ $7540 to psy or prepaid ent ~ $1000 pdt ‘Nnlce Siar the Acount aye tal of $1200 the 32800 original agen rece bythe $00 payment All the scounts include ely Be effet of one tan Sten A expect th xan het sl a balance ast of $3,000 equ ail as of $2,001 00 pls egy of 31.0000, ‘Wibsl now bos cnr ost They ttl $300,009. Wesel bind 52,90 00 Fianng forte sacs om credits ich means Webwel oes 32,0100). The ‘Seminng £1,000 of Financing woe stand frowns, Pu nate wy We ‘Seeley 7, 2004, 52,0000 fi sss would be dstibted to {retor, and the remaining 1.000000 would be dieu to Bob and Ber The format cary separates probe Rte economibenefts fast rom pro sole future segpomic aries nits). Shove euren) sn longterm Set snd litle re clealy tingused Thee tino shoud hap the ener se nt portant fact ahout theese stat f Web ‘This section, we looked st hom Blance sets fet basic transitions To this pain, we ony considered transactions here the entity ether aban nansing oe egies prodoctiveresouress In the nest hapter we consider how alse set ate afevied by transactions anor evens ha use productive source, Inthe net se on af ths chapter we duces some tediguetsecountents use ai nthe peepe ‘ation of balance shots an oter financial statements However, yu wil so Hikly {Ed these echniques invaluable in anlzing and interpreting nan statemen in Review Questions 1. loan ais and ats Gan val ch ow aes? Ht tebe ha "or example rely apenas, oe ange sea ge tre ot of nee tergh ocoing cd iugcorro sc eba eean it con quchy genet ines at eure tp debt bent bd tei wl be potable Frofiabey Spens on the sit generate stn at 3° —eeee——————————EEeE 2: xn wht any te iy ne Aree icc ow ap fe sie ea re eran ap ofln To ens acu 000 Pe a Xt Hentai sie: a Foe rer al afc cog vat bas he? f TAccounts, Debits, and Credits 3 ah on the Stan or bracts 0 show dress accountant colonies on the sie dit 2 cies he dia 8 ol i 1 te ert asatns so ming x tt | : In orn renal Coches ta hI we we He Fog les to reson ehanges it neun pea bad ul 4 Tats we sets an decease Habis deities Debits lef etre) neon : ae janie) incre bites eam deren ee cet preserves the Blane These rls aly that any entry wi ts ance sect ety debi el : eee ag Al tna erty that preserves the bal shat ety, As es san as wy fo peri the aout UN. St ce TH esate Jes (tin eid clans) cy action 2 me al eis a al os es A eck on owe aur? E 1 etary pti. Ts ae of acon prowes# 2 13 DEnITS = CREDITS aad j asgits = LAMLITIES + EQUITY pe i ee a Gd anaeent f he ahS esc thon oe 4 ‘tas al of se acount ae shes umn ly eq epi a mote eo . ‘Seyconayed in pb inane 0 Frc al ole eos, Forex we eons ac cr pare ing wy adv ce thse and is re BH. BB. rants runbamunrats oF accauinine (onary, 200 ao amar 2,280, Wet ‘Me Saae 0 bte On nary 3,200 ioc or 5000 cas, ‘pepo S 0 foro On any 20 Wet rms 30009 men On ory 7,200, Wt pombe Bodh ms ol ou might thik, This method prove rnsanshle ways compile seeunting in Formation, butt just wane to ead and suas financial setemcnns Donat udoeee sate he power ofthese simple techni. Many tines you may wis eden oe Ram's Geni sateents wl change he fm sogies in a parca earacton any people fn the esest wat sae his pons iso wit wa Tacos oe the alee accounts and then enter the appropriate dle amounts to decane he ew balances in those accounts Many fine yea may wi ane Haan cen t deuemine the dor amount os purtcu eancon Many peuple Sn tha ne Taccoums fers the eset way cae this problem, Many Easncl anus bea ‘ment manages consults, projet creo budget aay and oes fad count Shalit be a importa Sl To lsat how debs and credits re entered inn T-asounts lets go back and record Websells previous tnactions, he owes ines $1,000.00 in Weel by puhssng 1,000.00 shares of $1 p common sak (IF te oenets paid sore than $100,000, we maul eet 2 oe, unt led Capi fn Exes of Par) co Conmon Sack (2) Web stl 2.000000 jn bonds 3) Webel purchases computer and ofc equipment fo $300600 cash (4) Web prepys ent inthe amount of $5 60, 1) Koons] sos 8) 1) F006 (6) Webel purchases $200 of supplies 0 ei Slee Account Pyle (6) Webel pays $1.00 of te econ paybe 1) Tape] Sana) 3) (6) TTT) | “tone te) 7 encanto nouns @) Map m0 1c 3) o 0 eh 2.6 cans Aral ansctios ge entered ito the Tazo the Hlaaces in the acounts ted snd s Dalaceshct is onsrted, Essie 26 summa all ofthe ences the account. The sng bleed acount apes bel Tine fa each isang the dete and edie ted agit ech othe “Te nal toplist tol debt spl cris nal ofthe Taccouns, called making rial lane Eat 27) Vee Bre bet ne (nouns towns) Sips 2 Exuipacn = Accounts pope sa Bonde ate 2000 Notice hat tl debits equal de ttl eres inthe tial lane. The aeoant bl ances ca then be xpd in pope orn, gerrt the Blane sec 0 East 2, Bp asing dat and caste, we aze eased we wilend yp sae he fudarental Shunt denis Ths sl rc no ater ho die et ne as hat the pete of debits and credits can be wed wet ny set of econo deitons and ' Counting conventions Tl seoantng dens sit handy wo all uss of aecounting i reports, ot ato senna For empl, we wil se that US. GAAP spl donot ‘etogiae expenditures on sch and devsopment a acts, whic aids tbe ee though the manages who euthorzed thee expec rey to believe they ces + Fare economic nai An apa may woe date and ered oveast U.S. rail Satementsasaming expeninres on roses deelprnet cet ts. Review Questions 1. ei irc ht i of an it cade aly pea aa tetany ste ans Paes nt Come Fact 2. hit ane rns tm ht aad al efi of vanacton 3, Sapo sss patna copay al es 5. in atc rt tyr mm Wh olsen ee dod tro th anc Analyses Using Balance Sheet Information We as un some commonly sed aac indiatrs based on what we ns sot Balance abet t this point, Conse, sean, OnKonh Bab lance seat (Exhibit 2:1. We kv that OuKoeh B'Goeh he $61,340 thoustd in ol stat December 29,2001 Beene tal shareholder ey $73,700 tsa he isncing Ke $7700 iousand of tose ats exme fom eqly holders. The remaining $70 thousand ‘SI610 ~ $7300) ame fom credit was bored, whch medal ll that Galak Goa sles once fo on HR In fat ofthe tala 561,340 thousand of nancing sede, 51.3% come fre Barowing Using slighty deren tke on the same inerence, aaa fen speak ofthe ratio fda acing 1 uty Ginancing athe debe o-equity rato. Fr Osdkosh Bos this a 19 176107370), mcanig dat for every Slit ofancing supple by own a Alona $1.19 s supped by xeon. Another question weight a what Roe B Gos iy to meso teem ret obligation? History proves may examples of ene that, beau oneal ‘let sttenon cash management, found ey wre unbl o py thea il fen hough tae long term proses wet ut poste, The carrer vers ance Balance sot dsiations ne wel inti regare: Reval hat iret bile sre one that gencral) willbe due win ote year othe Balance et date: Osos BGs at 't8052 thon of sch aligitions, Caretta the expec ab omer to fash or some other at within one est So gh get Oso Ho aly to py dhe S983 thousand it nein the net ois whether it ea Gt oe gree amount of creat at: OshKosh Gosh as 9125035thowand i cutent st “Aalst ue ot est two way to combie cute ast an caret aes into ina ofthe ability to ens orien the ar ern The st to deter thes iene current sets ~ crtet Labs. Ths dieence eld working taplta The second ir to determine thir at: current ssecret lables. Tis, ‘alo eed the caret et, ‘Oe B'Gon has worRng capil of $7423 dhosand ($125,055 ~ $1963) a Desembee 2,20 is eusent rato a thar date 252 [S125055/84630), The work ing capil oF $7533 thousand gives dll scaare of OaKon BG sy to ret ir curren ables The arent rat 232 tll tha OKs Bash hat 252 of current ssets fr every doi of case nb se example show what ind ition the blancs sect provides us. More information cin be gleaned by comparing balance see infrmation sro time 30 ace companies We wl conduct ch cares ate. Conclusion This hope introduced esc econo concep se them in resing blanc she, sad shoe how aster of debits and cde canbe aed t npn’ therm wa transactions heel poner eliskng he eonoesaneeps wth eb andres cae Be record Forth ana the Pov Cones when the ansclons become comple Ind to cord th transaction? Te scoemting ey cls fora f abi nd css tba spect st of acount whch turn regres you to tink bout the won othe ttasaton esr eral ba anther! Were obtony a see, IE Warsr ciation encnlt War ity Sees bt de To the manager or he sal, this plies importa inthe net chapter we extend our econo efinitions and te ase of debits and cr othe income statement Aad fom th coneeps we mst develop you wal ‘erhow the ate deloped hs fa ep ineping the addon recor need {Seo byod the aane tt The blanc she 9 nop esa pce fhe ‘some xources and obligations of an nity poi se. To et he lace eet Weloncony at th ending bane in ech scout The income statement lus oe Thing about how we get fos one aloe abet oe ex Is cneraed wih thet [hoi our samt We mus aw soething st he proce of peti from he begining othe end. Rortnatey the te of debits and ces ean helps secon E Pls hsb ton [[Key Terms counting auton methods 27 ——_erentaio 0 sarketbe sears 27 accounts 33 kits ede cose 37 scare ong abilities 27 sxcunt pale 2

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