Ok, for all you super smart accounting types, I've got two questions, they are relatively basic but would appreciate some help!

1. At the beginning of the fiscal year
Assets = 1,364
Liabilities = 528
Owners Equity = 836

if during the fiscal year, Assets increase $74, and Liabilities decrease $38
The end of the year Owners Equity is 948 right?
I think this is the right number b/c of the accounting equation, but wasn't sure what the deduction in liabilities would result in, i.e. would it also mean assets decrease to keep it equal or as I think it is, OE increases to offset the reduction in liabilities.


2. If you took out a 6 month loan what would be the change in working capital before you took the loan out?

I think it would decrease as the loan has to be paid in a year and although you now have more capital with the loan you will owe more than you borrowed....




Thanks...

5/18/2008 11:51:43 PM

OE = 948

if you have trouble with this one then good luck on whatever common final is coming your way

5/19/2008 11:44:34 AM

1. Assets (A) - Liabilities (L) = Owner's Equity (OE)

OE = 948

Make sure the professor's not giving you a trick question concerning fiscal (or tax) year versus calendar year.

2. Net Working (Working) Capital = Current Assets - Current Liabilities

Trick question? There should be no change before you take out the loan--you haven't taken it out yet. Once you have, though, it's a current liability--a short-term obligation (frequently less than one year). But don't forget that you now also have cash.

5/19/2008 1:05:50 PM

Yeah I understand why OE was 948, and it is the first week of class... cut me some slack!

Ok I paraphrased the question poorly, here it is:

"If a firm borrowed money on a six-month bank loan, the firm's working capital immediately after obtaining the loan, relative to its working capital just prior to the loan, would be:"

the answer choices are, higher, lower, depending on the loan amount, and the same"

According to the instructor the correct answer is "the same"
however, I think, as do a few others that the question is unclear as if interest is applied and since the loan is for 6 months it falls into that window of a year quite easily.
I answered it with lower because the interest on the loan would need to be paid within the period normally defined by current liability.

[Edited on May 20, 2008 at 10:46 AM. Reason : ..]

5/20/2008 10:39:57 AM

There is no change in NWC. When you take out a loan(say for 1,000) current liabilities(notes payable) increases by 1,000 while current assets(cash) will also increase by 1,000. The increases will offset each other in the equation when CL are subtracted from CA. Interest would not matter at the time you take out the loan because none has been accrued at that point.

5/20/2008 11:31:52 AM

you're over thinking the question

Quote :

"immediately after obtaining the loan"

there is no interest at this point in time

5/20/2008 11:35:07 AM

I certainly understand why "the Same" is the correct answer, and agreed, I did over think it but on most any short term loan, the interest is charged when you make the loan, regardless if any time has passed.

meh, thanks for the input though. I appreciate the help... I have no doubts that there will be more questions in the future.

[Edited on May 20, 2008 at 2:42 PM. Reason : questions]

5/20/2008 2:24:27 PM

^ Um. . .yes, there will be questions a lot more difficult than that trinket. For the record, I found managerial accounting to be significantly more challenging than financial accounting--and while opinions vary, I think this is generally accepted truth (play on words intended).

If you're going to continue on to, say, intermediate, advanced, and cost accounting, you'd better really apply yourself: go to every class; do all the homework; study like fiend; ask questions of the professor, classmates, and anyone else that may be helpful; and consider getting a tutor. Accounting is no joke.

5/20/2008 11:34:49 PM

^I'm taking: "Financial and Managerial Accounting"
Its a masters level course for an MBA through Boston University.
I know the fun is only just beginning.
Fortunately for me I know that this class is the only one I need for this degree although my next class will be Financial Management which I am sure will have some accounting concepts in it.

5/20/2008 11:49:54 PM

^ Well, I wish you luck--truly I do. You do realize that question is the very basic undergrad stuff, right?

Maybe the professor is just starting with a little refresher/probe to see where everyone is. But most MBA programs would have required you to have taken a certain number of undergrad accounting--and economics and statistics courses--for admission. Have you taken any such courses?

[Edited on May 21, 2008 at 1:09 AM. Reason : .]

5/21/2008 1:07:01 AM

I've taken Micro and Macro economics and Statistics at NCSU... although to my detriment, it was about 7-8 years ago now though.

But yeah, it was the first chapter in the first week, I got the questions right on the exam, I just was being impatient and asked TWW before the exam results were released!

5/21/2008 6:39:14 PM

Well, the class is moving, along I found the following question tricky and thought I'd liven up the ol' Study Hall for another Q&A...

A company has a fiscal year ending on March 31. On January 31, it borrowed $40,000 by giving a 6-month, 15% note. The company's March 31 balance sheet should report interest payable of:

a. $2,000
b. $6,000
c. $3,000
d. $1,000

I'm going for A, b/c
40,000*15%*0.333 =2,000
Amount *Interest rate* 1/3 of time has been paid

However, I think, interest payable refers to how much you still owe, in which case
40,000*7.5%*0.33 = 1,000
Amount*interest/.5 year(6 month term with yearly rate given at 15%) *1/3 of time past
3,000 total interest
-1,000 already paid
-------
2,000 interest payable
however if you used the full 15% your answer would be 4,000 which is not a choice.
But with the latter method, there is an argument for 1,000 being what the interest paid was on a yearly rate on a 6 month policy.
I got in trouble for over thinking one of the first quizzes so I stuck with my gut on A. I hope I got it right!

6/2/2008 10:57:44 PM

fudge, yep, 1,000 was the answer...
oh well.

6/3/2008 12:27:44 AM