Assignment -
Part 1 - In this part, you are learning about the acquisition and depreciation of long-term assets. These are very important topics because these assets represent a business's largest investment of resources. Recording the correct cost for an asset can be difficult because there are many costs associated with the purchase or construction of tangible property, and there are many legal fees associated with the purchase of real property.
After assets have been acquired or constructed, they can be depreciated over a period of time. Depreciation is not meant to show the decline in the value of property. Depreciation refers to how the asset is used or charged over a period of time - its useful life. A company will record depreciation on the books in order to follow the matching principle. The matching principle occurs when expenses are matched to revenues. The revenue generated from the asset purchased is matched to depreciation expense.
Discussion Questions
For your initial post, image you own a business and discuss the following information:
- Identify and describe your business for this assignment (e.g. Clothing Store, Landscaping business, Delivery service, or Restaurant).
- Give an example of a long-term asset that the business owns.
- Classify the asset (i.e. building, equipment, furniture & fixtures, etc.)
- What depreciation method will you use to depreciate this asset? Explain Why.
- How does depreciation affect the income statement and balance sheet?
- Explain how depreciation might affect your decisions to purchase expensive equipment or real estate.
Provide an appropriate subject bar that captures our interest and gives us an idea as to what your post is about.
Be sure to cite any sources that you use with APA. Wikipedia is not an acceptable source.
Part 2 - Current liabilities are debts or obligations owed to others outside the business and due within one year. All businesses and organizations incur current liabilities as part of their routine operations. For example, a sporting goods store purchases goods (sports equipment) on account in anticipation of the upcoming season. They also have current liabilities for utility bills, rent, etc. Current liabilities recorded for utilities, rent, etc. are also recorded as an expense. This ensures companies are following the matching principle.
Payroll liabilities are expenses incurred during the normal course of operations. Business owners have to pay taxes on employees and withhold taxes for employees. These particular transactions are recorded as liabilities until paid. Not only will a business incur known and payroll liabilities but it also incurs estimated and contingent liabilities.
Contingent liabilities are generally not known and are contingent on an event happening. Over the last decade, arguments on whether contingent liabilities should be recorded, disclosed, or remote have been raised. A good example is BP. BP had a huge oil spill and many liabilities arose from this event. BP had to disclose this in the Annual Report in 2010 because at the time, it could not estimate an amount. However, in 2011, many of these disclosed contingent liabilities were recorded because past transactions were estimable.
Whether it is a known, estimated, payroll, or contingent liability, companies incur these liabilities in the course of operations. It's inevitable so that is why it's important to understand the different types of current liabilities and how they are classified (Wild, Shaw, and Chiappetta, 2014).
Discussion Questions
For your initial post, image you own or work for a business and discuss the following information:
- Identify and describe the type of business or organization you will be discussing.
- Discuss two examples of current liabilities that your business or organization might have. Please be specific.
- List one example of an estimated or contingent liability that your business or organization has or might have. Explain why it is estimated or contingent.
- How will these liabilities affect the financial statements?
Provide an appropriate subject bar that captures our interest and gives us an idea as to what your post is about.
Part 3 - Although stocks and bonds may both be viewed as investment opportunities, there are major differences between these two. Stock represents capital, the financial investment or equity, in a corporation. In a publicly traded corporation, individuals and groups buy and own shares of stock in the company. Shares of stock are traded (bought and sold) on one of the stock exchanges. For example, you might buy shares of stock in Coca-Cola, a publicly traded company. Publicly traded companies are very different from privately owned companies. Private corporations do not sell stock on a public exchange. For example, ECPI is a privately owned company. Its stock is not available to outside investors, nor is it traded on an exchange.
Bonds are debt issued by a government or corporation. Individuals and groups buy and hold these bonds as an investment. The government or corporation that issues these bonds guarantees payment of the original investment plus interest earned at a specific future date. For example, perhaps New York City wants to build a new tunnel and bridge. The city might issue a bond to finance this project.
Both stocks and bonds are used to raise money. Issuing bonds allows the corporation to maintain control since ownership is not changed. Issuing stock gives up control to the stockholders (Wild, Shaw, & Chiappetta, 2014).
Discussion Questions
Image you own or work for a business that is a publicly owned corporation, and discuss the following information in your initial post:
Plans have been designed for a major business expansion that would take place over the next several years. You know you need to raise money to finance this project.
- Identify your (fictitious) company and the project you have planned.
- Are there any advantages to issuing bonds over stocks? Identify one advantage.
- Are there any advantages to selling stocks instead of issuing bonds? Identify one advantage.
- Would you sell stock in your company or would you issue a bond? Explain your decision.
- Now, imagine you sell the stock. Would you issue common stock or preferred stock? Why?
Please provide an appropriate subject bar that captures our interest and gives us an idea as to what your post is about.
Be sure to cite any sources that you use with APA. Wikipedia is not an acceptable source
Part 4 - In this unit, you are learning how to examine financial statements using several methods of analysis and how to use ratios. As a business owner you must monitor cash flow in order to make sure bills are being paid on time and cash is being received from customers. Monitoring cash flow can help you determine if you have enough resources to expand, purchase new equipment, or even invest in other securities or companies. In addition to the Cash Flow Statement, business owners can use the horizontal, vertical, and ratio analysis to evaluate a company's performance. These tools are beneficial in monitoring revenue and expenses as well as measuring performance against competitors.
Discussion Questions
Imagine you own a business and you need to prepare a cash flow statement, and both a horizontal and vertical analysis. Please discuss the following information in your initial post:
- Briefly describe your business.
- What information will you need to prepare the cash flow statement?
- Which method will you use to prepare the cash flow statement? Why?
- How can a horizontal analysis help you evaluate the performance of your company? Vertical Analysis? Which analysis do you think is more important or relevant as a business owner?
Now imagine you are applying for a small business loan. You have all the financial statements prepared and the bank requests you to calculate three different ratios: working capital, acid test ratio, and current ratio.
- How do you calculate working capital, acid-test ratio, and current ratio?
- Why do you think banks or creditors look at these three particular ratios?
- Do you feel these ratios are important to monitor or do you feel other ratios are just as important?
Please provide an appropriate subject bar that captures our interest and gives us an idea as to what your post is about.
Be sure to cite any sources that you use with APA. Wikipedia is not an acceptable source.
Part 5 - Note: Please complete your reading assignment and view the unit presentations before you participate in this discussion.
Partnership agreements can vary, depending upon what the partner contributes to the agreement. Each partner brings certain personal skills and assets into a partnership. For example, one partner could supply technical knowledge while the other partner supplies business knowledge or perhaps the financing for the partnership. When there are two parties involved, the partnership agreement would easily be split 50/50.
However, when there are multiple partners involved, the partnership becomes more complicated. Perhaps one partner supplies time to run the business, another partner supplies talent, and the third partner supplies physical assets, and yet another partner supplies financing. The partnership agreement obviously becomes more difficult to structure.
As you have learned in this unit, there are different methods used to allocate income among the partners. Income can be allocated based on stated ratios, services, and capital. Some partners do not provide any services but provide capital such as cash or equipment to the partnership. This is why it's so important to choose a business form that bests covers the needs and wants of everyone in involved.
Discussion Questions
Imagine you are forming a partnership with two other partners. All three of you have cash to invest in the business as well as skills to contribute. Two of your partners will provide services, along with investing cash.
- Are there any details you think should be included in the partnership agreement? What disadvantages should you be aware of when forming a partnership?
- How will you allocate income or loss? Will you also include a salary allowance for the partners who contribute services?
- Allocation of partnership income among the partners appears on what financial statement?
- How will you handle the admission of the new partner if he or she purchases an interest in the partnership?
Please provide an appropriate subject bar that captures our interest and gives us an idea as to what your post is about.
Be sure to cite any sources that you use with APA. Wikipedia is not an acceptable source.