FINANCIAL ACCOUNTING DEFINITION

• Financial accounting calculation used for inventory or receivables valuation. For inventory accounting, it is the expected return on the disposal of an asset minus the costs associated with selling the asset. For receivables accounting, it is the amount due minus the cost of recovering the outstanding balance.
• A field of accounting that treats money as a means of measuring economic performance instead of as a factor of production. It encompasses the entire system of monitoring and control of money as it flows in and out of an organization as assets and liabilities, and revenues and expenses.
• Financial accounting gathers and summarizes financial data to prepare financial reports such as balance sheet and income statement for the organization's management, investors, lenders, suppliers, tax authorities, and other stakeholders.

Financial Management 2-6 B

FREE CSH FLOWS FROM AN ASSET PERSPECTIVE


STEP 1: Compute after tax cash flows from operations


 EBT                                                                                                                          $ 110,000
(+) Interest expense                                                                                                      10,000
EBIT                                                                                                                           120,000
Depreciation                                                                                                                 30,000
EBITDA                                                                    27,100
Tax Expense                                      
Less change in tax payable                                             -
Cash Taxes                                                                                                                  27,100

After tax cash flows from Operations                                                                      122,900

STEP-2 Change in Net Operating Working CApital

Change in Current Assets:
Change in CAsh                                                        $1000
Change in MArketable securities                                 200
Change in A/c recieveables                                     (4,000)
Change in prepaid rent                                              (100)
Change in Inventory                                                43,000
Change in Current Assets                                        40,100
Change non-interest bearing current debt:

Change in A/c payable                                      $     7,000
Change in Accrued expenses                                   (1000)                    
Change in Non Interest bearing current debt            6,000
Change in net operating work capital                                                                         $(43,100)

STEP 3: Change in Long term Assets

Purchase of fixed assets                                         $ 34,000
Chan ge in other assets                                                  -
Net Cash used for Investment                                                                                      $(34,000)
Assets free Cas Flows                                                                                                     $ 54,800

=========================================================================
FREE CASH FLOWS FROM FINANCING PERSPECTIVE

Interest Expense                                                      $(10,000)
Less change in interst payable                                          -
Interest paid to lenders                                                                                                        $  (10,000)
Decrease in notes payables                                                                                                        (3000)
decrease in Long term Debt                                                                                                    (10,000)
Common Stock dividened                                                                                                      (31,800)
Financing free Cash Flows                                                                                                   $(54,800)

Financial Management Solution to Problem 2-5B

FREE CSH FLOWS FROM AN ASSET PERSPECTIVE

STEP 1: Compute after tax cash flows from operations



EBT                                                                                                                      $ 270,000
(+) Interest expense                                                                                                   60,000
EBIT                                                                                                                        330,000
Depreciation                                                                                                            200,000
EBITDA                                                                                                                  530,000
Tax Expense                                       $ 108,000
Less change in tax payable                      -
Cash Taxes                                                                                                              108,000

After tax cash flows from Operations                                                                      422,000

STEP-2   Change in Net Operating Working CApital

Change in Current Assets:
Change in CAsh                                 $(50,000)
Change in A/c recieveables                  (20,000)
Change in Inventory                             (50,000)
Change in Current Assets                     (20,000)
Change non-interest bearing current debt:

Change in A/c payable                        $ (135,000)
Change in Accrued expenses                        -
Change in Non Interest bearing current debt(135,000)
Change in net operating work capital                                                                          $(115,000)

STEP 3:    Change in Long term Assets

Purchase of fixed assets                             $ 300,000
Chan ge in other assets                                      -
Net Cash used for Investment                                                                                      $(300,000)
Assets free Cas Flows                                                                                                  $ 7000

=========================================================================
FREE CASH FLOWS FROM FINANCING PERSPECTIVE

Interest Expense                                                $(60,000)
Less change in interst payable                               -
Interest paid to lenders                                                                                                  $(60,000)
Increase in notes payables                                                                                               115,000
Common Stock dividened                                                                                               (62,000)
Financing free Cash Flows                                                                                              $(7000)

Financial Management Solution to problem 2-4B

Sales                                                           $  7000,000
(-) (CGS)                                                        (4000,000)

Grand Profit                                                    3000,000
EBITD

(-) Opearting Expense                                   2600,000

EBIT                                                                400,000
(-) (Interest)                                                       (40,000)

EBT                                                                   360,000


(-) (Tax)                                                            122,400

EAT                                                                  237,600

TAX Calculation

50,000 x 15%=7500
25000 x 25%=6250
25000 x 34%=8500
235000 x 39%= 91,650
                                                                         360,000
335,000                                                           (335,000)

25,000 x 34%=8500                                         25,000
                       =122,400
                                                                                   
400,000 x 34%=136000 400,000

Financial Managemnt solution to problem 2-3B

 
Income Statement


Sales                                                                                  $ 3500,000
(CGS)                                                                                   (2000,000)
Grand profit                                                                          1500,000

EBITD
(-)(Operating Expense)    $ 500,000
Depreciation Expense      $100,000                                     (600,000)

EBIT                                                                                     900,000

(-)(Interest)                                                                           (165,000)
Earning b4 Tax(EBT)                                                           735,000
(-) (Tax)                                                                                 249,900                    
EAT/Earning After Tax                                                     $  485,100


TAX Calculation

50,000 x 15%=7500
25000 x 25%=6250
25000 x 34%=8500
235000 x 39%=91650                                               735,000
                                                                                    335,000
400,000 x 34%=136000                                             400,000
                         =$249,900

Financial Management solution to problem 2-2 B

SABINE Mfg Co
Balance Sheet
December 31, 2003

Assets

CA                                                                             CL

A/C Recieveable   $ 150,000                                      Notes Payable    $ 90,000
Inventory                  110,000                                     A/c Payable           90,000  $               180,000   
Cash                            90,000      $ 350,000               Long term Debt                                   160,000
                                                                                                                               $                340,000

FA                                                                              Equity

Macine & Equipment $ 700,000                               Common Stock                                  $320,000
Acc Depreciation           236,000  $464,000               Retained Earning
                                                                                     Prior Year                                          110,000
                                                                                     Current year                                         70,000



Total                                              $814000               Total:                                                  $814,000

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SAbine Mfg Co
Income Statement
December 31, 2003


Net Sales                                                              $  900,000
Cost of Goods Sold                                                  550,000

Grand Profit                                                             350,000

EBITDA                                                                   (280,000)
(Operating Expense)
Earning After Tax(EAT)                                       $ 70,0000                                       

Financial Management Solution to problem Set 2-1B,

Warner Company
Balance Sheet
December 31, 2003

Assets

Current Assets
Cash                                     $ 225,000
A/c recieveable                       153,000
Inventory                                  99,300
Prepaid Expense                        14500
Total Current Assets              491, 800
Building & Equipments          895,000
Accumulated Depreciation    (263,000)
Net Building & Equipment    632000
Total Assets                           11,23,800

Liabilities & Owners Equity

Current Liabilities:
A/C Payable      102,000
Notes Payable     75,000
Tax Payable      53,000
Accrued Expenses    7900
Total Current Liabilities      237,900
Long Term Debt      3,34,000
Total Liabilities        571,900

Equity

Common Stock        289,000
Retained earnings     262,900
Total Equity              551,900
Total Liabilities and Owners Equity      11,23,800


Warner Company
Income Statement
For the Yr end Dec 31, 2003


 Sales                                             $                        573,000
CGS                                                                        297,000
Gross profits                                                           276,000

General & Admin Expense      79,000
Depreciation Expense               66,000

Total Operating Expense                                       145,000
Operating Income(EBIT)                                       131,000
Interest Expense                                                         4,750
Earning b4 Tax                                                       162,250
Taxes                                                                        50,500
Net Income                                                              75,750

Financial Management Solution to problem 2-4 A

PATTS Inc-Corporate Incom Tax

 Sales                          $   6000,000
CGS and Cash
OPerating Expense         5600,000
Operating profit              4400,000
Interest Expense                  30,000    
Taxable Income             $   370,000

Tax Liability:  $

50,000 X 0.15= 7500
25,000 X 0.25= 6250
25,000 X 0.34= 8500
235,000X 0.39= 91650
35,000 X 0.34 = 11900

$ 370,000       =  $125,800

Financial Management Solution to problem 2-3A

                                                                                
2-3A. Delaney, Inc. - Corporate


Income Tax

Sales $4,000,000
Cost of goods sold
andcash operating expense                      2400,000
Depreciation Expense  100,000
Operating profit 1500,000
Interest Expense 150,000
Taxable ncome 13,50,000


Tax Liability:

                                                     50,000  X   0.15=  7500
                                                     25,000  X   0.25=  6250
                                                     25,000  X   0.34=  8500                 
                                                     235,000X   0.39=  91650
                                                    1,015,000X 0.34= 345100
                                                  $1350000              =459000

Financial Management Solution problem 2-2 A

SHARP Mfg Company
Balance Sheet
December 31, 2003
Assets
Cash                                                                    $  96,000
A/C Recievable                                                     120,000
Inventory                                                               110,000
Total Current Assets                                             326,000

Machinary & Equipment                                     700000
Acc Depreciation                                                (236000)
Net Fixed Assets                                                 4644000
Total Assets                                                          790000

Liabilities & Equity
Current Liability(CL)                                      $     100000
Notes Payable                                                        90,000
A/c Payable                                                          190,000
Total (CL)                                                            350,000

Equity
Common Stock                                                    320,000
Retained Earnings Prior Year                              100,000
=                             Current Yr                              20,000
Total Equity                                                         440,000

Total Liabilities & Owners Equity                  $   790,000

'SHARP Mfg Company
Income Statement
December 31, 2003

Sales                                                                 $  800,000
Cost of Goods Sold                                              500,000
Gross profit                                                         300,000
Operating Expense                                               280,000
Net Income                                                            20,000

Financial Management Solution problem 2-1 A

SOLUTIONS TOEND-OF-CHAPTER PROBLEMS

 Solutions to Problem Set A

 2-1A.

Belmond, Inc.
Balance Sheet
December 31, 2003ASSETS

 __________________________-

Current assets

Cash $ 16,550

Accounts receivable 9,600

Inventory 6,500

Total current assets $ 32,650

Gross buildings & equipment $122,000

Accumulated depreciation (34,000)

Net buildings & equipment$ 88,000

Total assets$120,650

LIABILITIES AND EQUITY

Liabilities

Current Liabilities

Notes payable $ 600

Accounts payable 4,800

 Total current liabilities $ 5,400

Long-term debt 55,000

Total liabilities $ 60,400

Equity Common stock $ 45,000

Retained earnings 15,250

Total equity $ 60,250

Total liabilities and equity $120,650

-------------------------------------------------------------

Belmond, Inc.

Income Statement

For the Year Ended December 31, 2003

 Sales                                                                    $ 12,800

Cost of goods sold                                              $5,750

Gross profits                                                       $ 7,050

General & admin expense    $ 850

Depreciation expense $ 500

Total operating expense                                    $ 1,350

Operating income (EBIT)                                    $ 5,700

Interest expense                                                 $900

Earnings before taxes                                         $ 4,800

Taxes                                                                   $1440

Net Income                                                         $3360