Recent orders
Critical Thinking Question
ACC 206 Week Assignment
Name
Institution
Date
Critical Thinking Question:Why are noncash transactions, such as the exchange of common stock for a building for example, included on a statement of cash flows? How are these noncash transactions disclosed?
Cash Flow statement represents the comprehensive statement that outlines the sources of cash funds and their application for an entity over a given accounting period. It is therefore an analytical tool that determines the liquidity position of a firm/entity. Its preparation is founded on the international accounting standards (IAS) 7. Cash flow statements provide a detailed analysis of the financial and non-financial transactions reported in the operations of an entity over a specified period of time. Both cash and non-cash transactions are included in the cash flow statements. The inclusion of the non-cash transactions is founded on the “cash and cash equivalents” principle of the cash flow statement. According to this principle, non-cash transactions that are highly liquid and convertible to known monetary amounts of cash are accorded the same accounting treatment as other cash transactions, hence their inclusion in the cash flow statements. Some non-cash transactions are included in the cash flow statement in the account that they constitute investing or financing activities that are not directly related to the firm’s operating activities. Non-cash transactions mainly fall under this category of financing or investing activities that have no effect on the firm’s cash outlay or inflows. However, these transactions involves long-term resources and owner’s equity, hence the justification for their inclusion in the cash flow statements. IAS (7) and the General Accepted Accounting Principles (GAAP) outlines the disclosure principle for these non-cash financing and investing activities. The two principles state that non-cash transactions should be disclosed in footnotes of the financial statements for the same accounting period. In most occasions, these financing and investing activities are disclosed in a separate schedule to enhance accountability during the preparation of financial statements.
Classification of activitiesClassify each of the following transactions as arising from an operating (O), investing (I), financing (F), or noncash investing/financing (N) activity.
________ Received $80,000 from the sale of land – Investing Activity
________ Received $3,200 from cash sales – Operating Activity
________ Paid a $5,000 dividend – Financing Activity
________ Purchased $8,800 of merchandise for cash – Investing Activity
________ Received $100,000 from the issuance of common stock – Financing Activity
________ Paid $1,200 of interest on a note payable – Financing Activity
________ Acquired a new laser printer by paying $650 – Investing Activity
________ Acquired a $400,000 building by signing a $400,000 mortgage note Non-cash Investing Activity
Overview of direct and indirect methods
Evaluate the comments that follow as being True or False. If the comment is false, briefly explain why.
Both the direct and indirect methods will produce the same cash flow from operating activities – False. This because direct method is not adjusted for other cash flow items including depreciation and exchange loss.
Depreciation expense is added back to net income when the indirect method is used – True.
One of the advantages of using the direct method rather than the indirect method is that larger cash flows from financing activities will be reported – True.
The cash paid to suppliers is normally disclosed on the statement of cash flows when the indirect method of statement preparation is employed – True.
The dollar change in the Merchandise Inventory account appears on the statement of cash flows only when the direct method of statement preparation is used – False; exchange losses adjustment are common with indirect method rather direct method.
Equipment transaction and cash flow reporting
Dec. 31, 20X4 Dec. 31, 20X3
Property, Plant & Equipment:
Land $94,000 $94,000
Equipment 652,000 527,000
Less: Accumulated depreciation -316,000 -341,000
New equipment purchased during 20×4 totaled $280,000. The 20×4 income statement disclosed equipment depreciation expense of $41,000 and a $9,000 loss on the sale of equipment.
Determine the cost and accumulated depreciation of the equipment sold during 20X4.
Determine the selling price of the equipment sold.
Show how the sale of equipment would appear on a statement of cash flows prepared by using the indirect method.
Workings
DR. Equipment Account As at 31st Dec. 2004 CR.
Bal. b/d 527,000
Purchases/Cash 280,000
Acc. Depreciation (2003) 341,000 Provision for Dep. (2004) 316,000
Sales/Cash 180,000
Bal. c/d 652,000
$1,148,000 $1,148,000
Disposal A/C
DR. As at 31st Dec. 2004 CR.
Equipment 180,000
Acc. Depreciation 41,000
Proceed from Sales 130,000
Loss on Disposal 9,000
$180,000 $180,000
Cost of the Equipment = $180,000
Accumulated Depreciation = $41,000
Selling Price = $130,000
Sample Cash Flow Statement
Cash Flow from Operating Activities
Net Profit before Tax xxxx
Adjusted for:
Depreciation $41,000
Loss on disposal of Equipment $9,000$50,000
Cash Flow from Investing Activities
Purchase of Equipment (280,000)
Proceeds from Disposal of Equipment 130,000
Cash flow information: Direct and indirect methods The comparative year-end balance sheets of Sign Graphics, Inc., revealed the following activity in the company’s current accounts:
20X5 20X4 Increase / Decrease)
Current assets Cash $55,400 $35,200 $20,200
Accounts receivable (net) 83,800 88,000 -4,200
Inventory 243,400 233,800 9,600
Prepaid expenses 25,400 24,200 1,200
Current liabilities Accounts payable $123,600 $140,600 ($17,000)
Taxes payable 43,600 49,200 -5,600
Interest payable 9,000 6,400 2,600
Accrued liabilities 38,800 60,400 -21,600
Note payable 44,000 — 44,000
The accounts payable were for the purchase of merchandise. Prepaid expenses and accrued liabilities relate to the firm’s selling and administrative expenses. The company’s condensed income statement follows.
SIGN GRAPHICS INC.
Income Statement
for the Year Ended December 31, 20×5
Sales $713,800
Less: Cost of goods sold 323,000
Gross profit $390,800
Less: Selling & administrative expenses $186,000
Depreciation expense 17,000
Interest expense 27,000 230,000
Add: gain on sale of land $160,800
21,800
Income before taxes $182,600
Income taxes 36,800
Net income $145,800
Other data:
Long-term investments were purchased for cash at a cost of $74,600.
Cash proceeds from the sale of land totaled $76,200.
Store equipment of $44,000 was purchased by signing a short-term note payable. Also, a $150,000 telecommunications system was acquired by issuing 3,000 shares of preferred stock.
A long-term note of $49,400 was repaid.
Twenty thousand shares of common stock were issued at $5.19 per share.
The company paid cash dividends amounting to $128,600.
Instructions:
Prepare the operating activities section of the company’s statement of cash flows, assuming use of:
The direct method.
The indirect method.
Prepare the investing and financing activities sections of the statement of cash flows.
Sign Graphics, Inc.
Cash Flow Statement
As at 31st Dec., 2005
Cash Flow from Operating Activities
Cash Receipts from customers $713,800
Cash paid to suppliers ($323,000)
Cash Generated from Operations $390,800
Interest Paid (27,000)
Income Tax Paid (36,800)
Depreciation Expense (17,000)
Net Cash Flow from Operating Activities $310,000
Indirect Method
Sign Graphics, Inc.
Cash Flow Statement
As at 31st Dec., 2005
Cash Flow from Operating Activities
Net Profit before Tax $182,600
Adjusted for:
Depreciation expense 17,000
Gain on Sale of Land (21,800)
Interest Expense 27,00022,200
Operating Profit before changes in Working Capital 204,800
Increase in Cash (20,000)
Increase in Account Receivable (4,200)
Increase in Inventory (9,600)
Increase in Prepaid Exp (1,200)
Decrease in A/c Payables (17,000)
Tax Payable decrease (5,600)
Increase in Interest Payable 2,600
Accrued liability (21,600)
Increase in Notes Payable 44,000(32,000)
Cash Generated from Operating Activities 172,200
Critical Thinking Paper
Critical Thinking Paper
Author
Institution
Introduction
Healthcare has always been considered as one of the fundamental pillars of any country. It is well acknowledged that the health of a people is a fundamental determinant of the health of the economy especially considering that only healthy individuals have the capacity to generate wealth. In the recent times, the United States government has made numerous legislations that have changed the healthcare sector, the most fundamental of which is the Affordable Care Act. Popularly known as “Obamacare”, the Affordable Care Act is considered the most sweeping and reformative legislation since the passage of Medicare and Medicaid in 1965. It is aimed at giving all Americans the capacity to obtain medical coverage at an affordable rate. While there may be differing opinions as to the utility of the Affordable Care Act, the law comes as extremely beneficial to the country.
First, the legislation would allow for increased health insurance coverage in the country. Research shows that currently, there are about 32 million Americans who are yet to be under a health insurance cover (Hill, (2011). This piece of legislation will allow for these people to be covered at least by 2014 when the bill comes fully into force. This includes the 3.1 million Americans aged between 19 and 25, who are under their parents’ plans since they cannot afford to pay for their own plans (Tate, 2012). In addition, insurance companies will no longer have the capacity to deny individuals who have pre-existing conditions insurance coverage or even drop plan members when they become sick (Hill, (2011). For many years, applicants for health insurance in the Family or Individual market were required to complete an application and pass the approval of the underwriting guidelines. This was extremely frustrating to individuals who had their applications declined or even their premiums increased simply because of the preexisting health conditions (Tate, 2012). In essence, the Affordable Care Act comes as a relief to these people, as well as for individuals who are unable to afford their health insurance as they will be added to the Medicaid’s program in the states with the federal government paying the states for the addition (Tate, 2012).
On the same note, the bill comes as extremely beneficial to the low-middle income families and individuals. Scholars note that Medicaid program will be expanded so as to cover individuals in the low income brackets (Pipes, 2010). It is worth noting that individuals who have low income will obtain subsidies from the United States government, which will be catering for up to 100% of the monthly premiums (McCaughey, 2012). In addition, subsidies will be availed up to 400 per cent of the Federal Poverty Level. The determination of the subsidies is based on the family’s annual income, as well as the total number of dependants in that family. This ensures that individuals in the low-middle income bracket can access healthcare services if and when they need it, which goes a long way in enhancing the health of the country (McCaughey, 2012).
In addition, the Affordable Care Act reduces the healthcare costs (Murdock, 2012). The Congressional Budget Office noted that there would be a reduction in the healthcare costs in the country especially considering that the Act ensures that 95% of Americans obtain health insurance in which case there will be increased accessibility of preventative healthcare (McCaughey, 2012). It is noted that the newly insured individuals will not be waiting until their health problems become extreme to the extent of becoming an emergency, which is a relatively costly avenue (Murdock, 2012).
In addition, the Affordable Care Act would result in a reduction of the budget gaps or deficit in the country (Tate, 2012). It is estimated that by 2019, the Affordable Care Act would lower the deficit in the national budget by about $143 billion thanks to the Act’s associated fees and taxes (McCaughey, 2012). On the same note, the Congressional Budget Office opines that, by 2020, the Act would result in the elimination of the Medicare “donut hole” gap in its coverage. The donut hole is essentially a temporary limit on the things that the drug plan covers for drugs (Boehner, 2011). Once a beneficiary of Medicare has exited the initial coverage pertaining to the prescription drug plan, he or she would financially responsible for a considerably higher cost of the prescription drugs up to the time when he or she attains the catastrophic coverage threshold (Tate, 2012). This gap, however, will be eliminated by the bill thereby reducing the amounts that a beneficiary uses out of pocket for his medication.
However, the legislation has faced opposition especially from the business community. Businesses that have more than 50% full-time employees are required to pay for healthcare insurance for their workers (Boehner, 2011). This may see businesses pass the extra costs to consumers or reduce their full-time workers so as to fit in the less-than-50-fulltime-employees bracket (Atlas, 2012). On the same note, the ideal functioning of the program requires everyone to buy an insurance policy, failure to which he will have to pay “penalty income tax” (Atlas, 2012). While this may be considered a con, it goes a long way in enhancing the health of the nation in general.
In conclusion, the Affordable Care Act has been arguably the most radical program since 1965. It comes as extremely beneficial to the nation as it reduces the cost of insurance, increases coverage and eliminates the “donut hole” in the Medicare program. In addition, it reduces the budget gap thanks to the savings in the healthcare costs, as well as the fees and taxes from the Act.
References
Tate, N. J. (2012). ObamaCare survival guide. West Palm Beach, FL: Humanix Books.
Murdock, K (2012). Affordable Care Act: ObamaCare. New York: GRIN Verlag
Hill, J.W (2011). Obamacare – What’s In It. New York: Primedia E-launch LLC
Pipes, S. (2010). The truth about Obamacare. Washington, DC: Regnery Pub.
McCaughey, B (2012). Decoding the Obama Health Law: What You Need to Know. New York: Paperless Publishing LLC
Atlas, S. W. (2012). Reforming America’s Health Care System: The Flawed Vision of ObamaCare. New York: Hoover Press
Boehner, J (2011). Obamacare: A Budget-Busting, Job-Killing Health Care Law. New York: DIANE Publishing
pHHHHHHHH
Critical Thinking on Legal Issues
Critical Thinking on Legal Issues
Name
Institution
Scenario 1
The National Construction has a cause of action against WV Steel Company. Under the common law of negligence, the manufacturer has a responsibility to ensure that its products that are sold to consumers are not defective. As such, manufacturers are liable for any injuries or harm sustained by the consumers due to the defectiveness in the design or manufacturing process of its products. On top of this, the manufacturer is responsible for giving effective warnings of dangers involved in the use of the product. The manufacturer is liable for the injuries caused by a failure to give effective warning regarding the use of the product (Best & Barnes, 2007).
In the current scenario, the steel cable sold to the National Construction was not defective in either the design or manufacturing process. However, WV Steel did not give effective warnings regarding the use of steel cable. WV Steel ought to have given effective warnings regarding the weight that the steel cable could withstand. The warning would have led National Construction to seek for a better option. In this regard, WV Steel is liable for injuries and harm that occurred during the incident. If WV Steel had given a warning, the National Construction would not have a cause of action against it. The legal issue sends a message to both small and large businesses that on top of ensuring that the products they manufacturer are effective, they should give effective warnings regarding the use of their products. Otherwise, they are liable for any injuries or harm sustained by the users for lack of such warnings.
About the second issue, the passengers have a cause of action against WV Steel. However, they do not have a cause of action against Jessica. Using the common law of negligence, the employer is held responsible for the wrongful acts of an employee, which occur while performing job duties (Best & Barnes, 2007). Therefore, WV Steel is liable for the injuries and harm that occurred during the incident. In this case, the accident occurred when Jessica was performing job duties for WV Steel. In the case Jessica was doing her own activities, and not the job duties, she would be personally liable for the injuries and harm. The legal implication of the issue to small and large businesses is that they should be aware that they are to be held responsible for injuries or harm caused by the negligent acts of their employees when they produce work that leads to injuries to the victims
Scenario 2
In the second case, the defendants are not strictly liable to Johnson. Under the strict liability rule, the defendants, manufacturers, dealers and retailers have a responsibility to ensure that any product that is passed on to the consumer is not defective (Dunham, 2011). As such, they are liable to the consumer for any injuries occurring because of the defectiveness of the product. In the current case, GMC, Chevrolet and the dealership are liable for Johnson for injuries caused by the inadequate seatbelt. For the strict liability rule to apply, Johnson must prove that the seatbelt was defective during the time when the car was sold to him. Secondly, Johnson must show that the defendants expected the car reach him without any changes to the seatbelt. Lastly, Johnson must show that injuries that occurred during the accident were caused by the defectiveness of the seatbelt.
Johnson managed to provide the above proofs to support his case for strict liability. However, strict liability rule does not apply if there is evidence that the plaintiff carelessness contributed to the injuries. During the time of the accident, Johnson’s actions involved carelessness; he was texting his girlfriend while still driving. In other words, Johnson’s careless actions contributed to the injuries sustained during the accident. In this regard, the rule of strict liability ceases to apply. If Johnson were not involved in careless driving, the law could have applied. Such an issue has an impact to both small and large businesses. In particular, all businesses (including manufacturers, retailers and dealers) need to know that they are liable to consumers for any injuries caused by defective products they sell. However, they can also defend such cases in case the consumers’ careless actions contribute to the injuries (Dunham, 2011).
References
Best, A. & Barnes, D. W. (2007). Basic Tort Law: Cases, Statutes, and Problems. New York,
NY: Aspen Publishers Online
Dunham, B.W. (2011). Introduction to Law. New York, NY: Cengage Learning