FINAL REVIEW
                                           By Albert

Chapter 21
Statement of cash flows:
     Shows where the cash came from and how it was spent
     Reports cash increases and decreases
     Covers a spent of time
     Predict future cash flows
     Evaluate managements
     Predicts ability to pay debts and dividends
Cash equivalents: highly liquid investments that can be converted into cash quickly
Operating activities:
     Create revenues, gains and losses
     Affect net income on the income statement
     Affect current assets and current liabilities on the balance sheet
     Are the most important categories of cash flows because they reflect the day to day
       operations that determine the future of an organization
Investing Activities:
     Increase and decrease long term Assets (computers, software, land buildings, equipment)
     Include lending money and collecting it (investing money)
     Include purchases and sales of these long term assets
     Are next most important after operating activities
Financing Activities:
     Increase and decrease long term liabilities and owners’ equity
     Include issuing stocks, paying dividends, and buying and selling treasury stock
     Include borrowing money and paying off loans (Bonds Payable)
     Are least important because what a company invests in is usually more important than how
       the company finances the purchase
Indirect method: reconciles from net income to net cash provided by operating activities
Changing in Operating Activities:
       + Depreciation/amortization
       + Loss on sale of long-term assets
       - Gain on sale of long-term assets
       - Increases in current assets
       + Decreases in current assets
       + Increases in current liabilities
       - Decreases in current liabilities
Changing in Investing Activities:
       +Sales of long-term assets
       -Purchases of long-term assets
       (Any transaction that have to do with PIPE)
Changing in Financing Activities:
       + Issuance of stock
       + Sale of treasury stock
       - Purchase of treasury stock
       + Issuance of notes or bonds payable
       - Payment of notes or bonds payable
       - Payment of dividends
       (Related to Owner’s Equity and Long Term Liabilities)
Non-Cash Transaction
       - Using c/s to buy assets
       - Issuing liabilities to buy assets
       - Find Net income (from additional statement or income statement)
       - Find depreciation, loss, gain, amortization depletion first (these can be found either from
          the income statements or from the additional statements, in the extreme that those are
          not given, use the balance sheet to find them)
       - Look for current assets and current liabilities, and mark them with increasing or
          decreasing (These can be found from your balance sheet)
Direct method: reports all cash receipts and all the cash payments from operating activities
     Operating - Inflows:
          o Cash receipts from earning revenues
              Dr Cash
              Dr/Cr A/R
                     Cr Sales Revenue
          o Interest revenue
              Dr Cash
              Dr/Cr Interest Receivable
                     Cr Interest Revenue
          o Dividend revenue
              Dr Cash
              Dr/Cr Div Receivable
                     Cr Dividend Revenue
     Outflows
          o Cash paid from Operating Expenses
              Dr Operating Expenses
              Dr/Cr Accrued Liabilities
              Dr/Cr Prepaid Expenses
              Dr/Cr Wages Payable
              Dr/Cr Utilities Payable
              Dr/Cr (Any other expenses not specified but related to operating)
                     Cr Depreciation(if not specified as an expense)
                     Cr Cash
          o Salaries and wages
              Dr Salary Expense
              Dr/Cr Salary Payable
                     Cr Cash
          o Payments to suppliers for inventory
              Dr COGS
              Dr/Cr Inventory
              Dr/Cr A/P
                     Cr Cash
          o Taxes and fines
              Dr Income tax expenses
              Dr/Cr Income tax payable
              Dr/Cr Deferred tax asset/liability
                     Cr Cash
   o Interest paid to lenders
       Dr Interest expense
       Dr/Cr interest payable
              Cr Cash
Chapter 19
Two types of EPS:
    Basic EPS: Used when there are no potential common shares present.
    Diluted EPS: Incorporates the dilutive effect of all potential common
Basic idea:
EPS = net income – preferred dividend / common stock outstanding
    There are preferred stocks: subtracted from the net income
           o Nonconvertible: does not affect the diluted
           o Convertible: affect the diluted
    There are Treasury stocks: subtracted from the common stock
       outstanding based on the weighted fraction of the months it is issued
    Stock Options: Affected the diluted common stock outstanding
    New shares are treated as a weighted fraction of the months it is issued
Final Exam Study Guideline
       60 points from EPS (8 questions)
              - Issuance of stock
              - Purchase of Treasury stock
              - Stock split or Stock dividend
              - Preferred Stock
              - Convertible Bonds
              - Basic vs Diluted
              - Antidilutive situation
       40 points from SCF (3 questions)
              - Direct Method (1Q)
              - Indirect Method (2Q)
       5 points from derivative (Thanks to Taiana)
       5 points from the take home

                                  Practice Final
172. On December 31, 2008, Heffner Company had 100,000 shares of common stock
outstanding and 30,000 shares of 7%, $100 par, cumulative preferred stock
outstanding. On February 28, 2009, Heffner purchased 24,000 shares of common
stock on the open market as treasury stock paying $45 per share. Heffner sold 6,000
of the treasury shares on September 30, 2009, for $47 per share. Net income for
2009 was $540,000. The income tax rate is 40%. Also outstanding at December 31,
2008, were fully vested incentive stock options giving key personnel the option to
buy 50,000 common shares at $40. During 2009, the average market price of the
common shares was $50 with a closing price of $51 on December 31, 2009. Five
thousand 6% bonds were issued at par on January 1, 2009. Each $1,000 bond is
convertible into 125 shares of common stock. None of the bonds had been converted
by December 31, 2009 and no stock options were exercised during the year.

Compute basic and diluted earnings per share for Heffner Company for 2009.

Define what is meant by Derivative?

                                             THIS EXAM WILL BE:___________________

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