Unit 5

The purpose of Unit 5 is to define the four basic financial statements and discuss the information presented on each.

Income Statement

Retained Earnings Statement

Balance Sheet

Statement of Cash Flow

Trends in operating expensesCurrent ratios Statement of Cash Flows

◦Operating Activities◦Investing Activities◦Financing Activities

Statement of Owners Equity◦Dividends◦Shares of Stock

Study the income statement. Concentrate on the operating expenses. Please write in your own words a paragraph – about 50 words – explaining the trends in operating expenses. Explain what you think “restructuring and asset impairment charges are.”

Look at page 33 and page 50 for the Income Statement and Page 36 for the explanation of the Operating expenses

http://www.accountingformanagement.com/operating_ratio.htm

This website is a great reference, it has links to most of the ratios you will ever use in accounting, and explains their significance.

Study the balance sheets for 2009 and 2010. Please discuss the current ratios for both years, writing a paragraph of at least 50 words, explaining what elements of the current ratios are responsible for the changes.

Look at page 51 for the Balance Sheet.

It is a measure of general liquidity and is most widely used to make the analysis for short term financial position or liquidity of a firm. It is calculated by dividing the total of the current assets by total of the current liabilities.

Current Ratio = Current Assets/Current Liabilities

Use the link I gave you earlier for additional information.

Study the statements of cash flows. Please discuss the three activities detailed in the statement of cash flows and describe the information and where the preparer of a statement of cash flows can find the information. Your discussion should be one or more paragraphs totaling at least 50 words.

See page 52 of the Form 10K

The statement of cash flows reports a firm’s major cash inflows and outflows for a period. It provides useful information about a company’s ability to:

1. Generate cash from operations2. Maintain and expand its operating

capacity3. Meet its financial obligations4. Pay dividends

The statement of cash flows reports cash flows from three types of activities:1. Cash flows from operating activities

are cash flows from transactions that affect net income.

2. Cash flows from investing activities are cash flows from transactions that affect investments in the noncurrent assets of the company.

3. Cash flows from financing activities are cash flows from transactions that affect the equity and debt of the company.

The indirect method of reporting cash flows from operating activities uses the logic that a change in any balance sheet account (including Cash) can be analyzed in terms of changes in other balance sheet accounts.

Any change in the Cash account can be determined by analyzing changes in liability, stockholders’ equity, and noncash asset accounts.

Cash inflows from investing activities normally arise from selling fixed assets, investments, and intangible assets. Cash outflows from investing activities normally include payments to acquire fixed assets, investments, and intangible assets.

Cash inflows from financing activities normally arise from issuing long-term debt or equity securities. Cash outflows from financing activities normally include paying cash dividends, repaying long-term debt, and acquiring treasury stock.

Study the statement of owner’s equity. Several factors are responsible for the change in the owner’s equity in the two years being compared. Intel has only one class of stock outstanding. Did the number of shares of that stock increase or decrease during the year 2010? Did the company pay a cash dividend during the year? If so, how much per share? Where did you find that information? Please discuss those elements, writing a paragraph of at least 50 words, explaining where you can find the details of these answers.

See page 53 of the Form 10K When the only change to stockholders’

equity is due to net income or net loss and dividends, a retained earnings statement is sufficient.

When a corporation also has changes in stock and paid-in capital accounts, a statement of stockholders’ equity is normally prepared.