The Balance Sheet
Consolidated Balance Sheet
In thousands December 31 2005 2004
Assets
Current assets:
Cash 7,750 8,825
Marketable Securities at cost 1,225 1,230
Accounts Receivable 11,000 15,000
Less provision for bad debts (986) (1,200)
Repair shop tools and office
equipment and supplies 2,875 2,639
Other 1,266 2,377
Total current assets 23,130 28,871
Fixed assets:
Transportation Equipment 120,950 117,450
Real estate properties 30,408 16,000
Other equipment 8,500 6,492
less accumulated depreciation (25,000) (18,000)
Total net fixed assets 134,858 121,942
Intangible assets:
Prepayments and deferred charges 12,200 11,240
Goodwill, advertising copyrights, etc. 4,500 5,000
Total assets 174,688 167,053
Liabilities and shareholders' equity
Current Liabilities:
Accounts payable 5,500 6,200
Notes Payable 1,275 1,350
Current portion of long-term debt 1,000 1,500
Taxes, payrolls and sundries accrued 1,350 1,490
Accrued dividends 6,113 6,113
Total current liabilities 15,238 16,653
Long-term liabilities
Equipment trust certificates, 5.0%,
due 2005 22,000 24,000
First mortgage, 6.5% interest bonds,
due 2010 35,000 36,000
Sundry reserves and deferred credits 2,300 2,500
Total liabilities 74,538 79,153
Shareholders' equity
Capital stock
Preferred stock, 4.5% cumulative,
$100 par value;
authorized, issued and
outstanding 100,000 shares 10,000 10,000
Common stock; no par value,
authorized, issued and
outstanding 20,000,000 shares 20,000 20,000
Capital surplus 11,980 12,280
Retained earnings 58,170 45,620
Total Liabilities and shareholders' equity 174,688 167,053
The balance sheet, by definition, must always be in balance; the
Assets section must equal the Liabilities and
Stockholders'
Equity section. Whereas the income statement shows the
results of
operations over a period of time, a calendar quarter or year, the
balance
sheet is a picture of the current financial status of the firm at
a certain
point in time, usually at the end of the company's fiscal year.
Buxton's balance sheet shows the following:
- Total assets increased 4.6% from the 2004 level.
- Total Liabilities decreased 5.8%.
- Stockholders' equity increased 13.9%.
Total assets increased but current assets declined significantly due to a
decrease in accounts receivable. Fortunately, current liabilties declined, but not as
much. This can have an effect on the company's ability to pay current debt.
Other assets increased due to real estate investments and replacing outworn equipment.
Apparently the company had funds to make these investments since there is no increase in
long-term debt.
Since stockholders' equity increased we can say that the stockholders are better off.
But what stockholders? Recall that there is both common and preferred stock outstanding.
The statement of Accumulated Retained Earnings will indicate the actual change in
retained earnings accruing to the common stockholders for the period.
Statement of Accumulated Retained Earnings
In thousands
Balance January 1, 2005 $45,620
Net income for the year 37,000
_______
Total $82,620
Less dividends Paid on:
Preferred stock @ 4.5% ( 450)
Common stock @ $1.20 per share
per year (24,000)
_______
Balance December 31, 2005 $58,170
_______
_______
Thus, common stockholders' undistributed earnings increased from $45,620 at the
beginning of 2005 to $58,170, which is available to plow back into the business.
- Accrued dividends payable
- Amount of preferred and common stock dividends, declared by the board of directors but
not yet paid.
- Accounts payable
- Amount owed to regular business creditors from whom the company bought goods on open
account. The company usually has 30, 60, or 90 days in which to pay.
- Accounts receivable
- Amounts due from customers for goods delivered or services rendered which have not been
paid for. Receivables are usually reported after deducting provision for bad debts.
- Accumulated depreciation
- This the accumulated amount of depreciation expense which is charged to operations at
each reporting period. On the balance sheet, it appears as a deduction from fixed assets.
- Assets
- Items of value owned by the company which are categorized as current assets,
investments, fixed assets, intangible assets, prepayments and deferred charges. Creditors
may or may not have claims against assets.
- Balance Sheet
- A financial statement divided into two sides; both of which are in balance, i.e., the
totals of both sides are equal. On the left side is what the company owns (assets) and the
right side is what the company owes to creditors (liabilities) and the amount of ownership
interest in the assets of the company (shareholders' equity). In other words the right
side tells how the left side is financed.
- Bond
- A bond is a financial instrument that represents debt. It is a formal promissory note
issued by the company that stipulates the maturity date on which the debt will be repayed
and the annual interest rate which is usually payable semi-annually during the term of the
bond.
- Capital stock
- The stated value of the shares that represent the ownership interest of the company.
There may be several different types or classes of shares issued, e.g., common stock,
preferred stock; each class having attributes different from another class.
- Capital surplus
- Surplus is that part of the interest of the common shareholders in the assets of the
company over and above the stated value of the common stock. Surplus can be created when
shares are sold at a price greater than the par or stated value.
- Common stock
- The common stock represents ownership of the company. The interest of the common
stockholders is expressed on the balance sheet by the "stated value" of the
common stock plus the "surplus." The stated value or "par value" is an
arbitrary amount, bearing no relation to the market value or to what would be received in
liquidation.
- Current assets
- Assets which may normally be converted into cash within one year. Current assets include
cash, accounts receivable, inventory, marketable securities, prepaid insurance, etc.
- Current liabilities
- Debts that will become due within one year. Included are accounts payable, notes
payable, wages and salaries, interest payable, accrued dividends, taxes payable etc.
- Current portion of long-term debt
- Amount of the long-term debt due within one year. Debt agreements may require annual
repayments over a period of years.
- Deferred charges
- Like prepayments, deferred charges are expenditures which should not be fully charged
against current year's earnings because the benefits to be derived will be realized in
future accounting periods. Current research and development expenses, for example, are
outlays for future production and sales.
- Deferred credits
- Income received in advance that should not be credited as income in the current
reporting period, since it will not be earned until a future reporting period. Such items
represent obligations to render service rather than obligations to pay cash. Examples are
interest collected in advance, rentals collected in advance, etc.
- Equipment Trust Certificates
- Obligations primarily issued by railroads which are secured by a lien on rolling stock
and equipment financed by issuing the certificates (bonds).
- Fixed assets
- Assets such as property, plant and equipment which are not intended for sale but are
used in the operation of the business. Fixed assets are presented; cost less accumulated
depreciation.
- Intangible assets
- These assets have no physical existence but may have substantial value. Assets such as
patents, copyrights, franchises, trademarks and goodwill are difficult to determine but
play a major role in the success of the company.
- Long-term liabilities
- Debts due after one year from the date of the financial report. Examples are mortgages
payable, bonds payable, and long-term notes payable.
- Marketable securities
- For a non-financial company, this amount represents temporary investment of excess cash.
Since these funds may be needed on short notice, they are usually invested in readily
marketable securities which are subject to minimum price fluctuation.
- Mortgage Bonds
- Long-term debt secured by a mortgage placed on real estate property. first mortgage
means that if the company fails to pay off the bonds in cash when they are due, the
bondholders have first claim or lien before other creditors on the mortgaged assets.
- Notes payable
- Amount owed to a bank or other lender in which a promissory note has been given by the
borrower.
- Preferred stock
- These shares have preference over other types of shares as to dividends or in the
distribution of assets in case of liquidation or both. However, preferred dividends are
usually fixed and will not increase as common stock dividends if the company prospers.
- Prepayments
- Payments which have been made for which services are expected in future accounting
periods. An example is prepayment for an insurance policy extending over the next five
years. Only the current year's premiums are charged against current earnings; the balance
is reported as a prepaid asset.
- Reserves
- Portions of retained earnings, transferred by accounting entries, indicating a provision
for contingent obligations and are thus not available for dividends.
- Retained earnings
- The accumulated earnings of the company which are reinvested in the business and not
paid to shareholders as dividends.
- Shareholders' equity
- Also called Owners' equity or Net Worth, it represents the stockholders' ownership
interest in the assets of the company. It is the balance of total assets minus total
liabilities; composed of capital stock and surplus.
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