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Financial Accounting

by: Carlee Nikolaus

Financial Accounting ACCT 22500

Marketplace > Ithaca College > Accounting > ACCT 22500 > Financial Accounting
Carlee Nikolaus
GPA 3.79

Alan Cohen

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Alan Cohen
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This 29 page Class Notes was uploaded by Carlee Nikolaus on Tuesday October 13, 2015. The Class Notes belongs to ACCT 22500 at Ithaca College taught by Alan Cohen in Fall. Since its upload, it has received 22 views. For similar materials see /class/222296/acct-22500-ithaca-college in Accounting at Ithaca College.


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Date Created: 10/13/15
TO Al Cohen FROM Liana Casciani RE 9 8 3 Ratio Analysis a Quick Ratio An indicator ofa company s short term liquidity 2010 2009 2008 12223 144BllB 11893 127B8938 1167B 1IZB11593 988 118B 918 c The liquidity ofthe company in the last three years seems consistent d The entertainment quick ratio could not be found 4 Ratio Analysis a Accounts payable turnover ratio A short term liquidity measure used to quantify the rate at which a company pays off its suppliers Accounts payable turnover ratio is calculated by taking the total purchases made from suppliers and dividing it by the average accounts payable amount during the same period b m w m X4628 X400B X4368 c I could not find the total supplier purchases for Walt Disney d There was nothing on accounts payable turnover rate for the entertainment industry THE SMARTEST MAN IN THE ROOM NOTES 0 eff Skilling o Converted stock for 66 million dollars 0 The Guy with the big ideas I To find a new way to deliver energy 0 Would become a stock market for natural gas 0 Became the largest buyerseller in energy and natural gas 0 Amanda Martin Executive Ieff hired o Skilling had one condition before he joined Enron I That he would be allowed to use a certain accounting method known as mark to market 0 Arthur Anderson signed off on it and the FCC approved it 0 Mark to Market accounting allowed Enron to book potential future profits on the day a deal was signed no matter how much cash actually came through the door 0 Now Enron could set what ever profits they wanted to o PRC Process I Review process for employees 0 Ranked 15 were 10 had to be a 5 o The 5 s were fired 0 Equivalent to 15 of the company every year 0 Enron s traders became the biggest ever I Turned Ieff s free market beliefs into success 0 Many Enron employees got paid through their stock because of how high it was 0 Analyst I Bought stockin Enron o Ate out of the companies hand I Those Analyst were didn t buy stock were considered enemies of Enron 0 John Olsten was one of the only analysts who had any form of doubt about Enron o Merril Liych Fired john Olson I They received a large Money gift from Andrew Fastow in thanks for getting rid ofa potential problem 0 Enron got into energy within Bandwidth Internet 0 Started to buyselltrade bandwidth energy 0 Enron stock raised 34 in two days 0 Going to make a deal to stream movies with Block Buster online I Deal fell through O o BUT with Mark to Market accounted they recorded future assets to make it seem that Enron made 53 million dollars off the Block Buster deal even though the deal never happened Executives began to sell their own stocks I This was the start of the fast downfall Ken Lay CEO Captain of the Ship 0 PHD Economics 0 Deregulation through it I How to get government out of Energy I Governor ofTexas 0 Strong relations to the Bush Family 0 Helped Enron with billions of dollars in subsidies o Vahalla Scandal 1987 I Misappropriation on oil with traders I Made false bank records I Auditors told executives of malpractice o Traders weren t disciplined 0 Memo quotkeep making us millions I Ken Lay is a lire 0 Behind Bars Lou Pie 0 Skillings quotMy ICBM o quotThe invisible CEO 0 2 things motivated Pie I Money and Strippers I Used Enron money on strippers 0 Left Enron with 220 million dollars I Sold all stock 0 Became the 2 101 largest land owner in CO 0 Divorced wife and married a stripper with his child 0 Lost the company 1 billion dollars I Which the company covered up Merger with PGE Portland General Electrics O 0 Put Enron to the energy business I Put Enron on the map in CA PGE stock became Enron I PGE employees put maximum funds in Enron because they though it was a safe investment TIME LINE OF EVENTS BREAKDOWN July 1985 7 Houston Natural Gas merges with InterNorth a natural gas company based in Omaha Neb to form the modernday Enron an interstate and intrastate natural gas pipeline company with 37500 miles of pipe Jan 1987 7 Enron discovers that oil traders in their Valhalla NY office have been diverting company funds to their personal accounts April 1987 7 The board7including Ken Lay7learns that Louis Borget and Tom Mastroeni the men in charge of the Valhalla operation were gambling beyond their limits destroying trading reports keeping two sets of books and manipulating accounting in order to give the appearance that Valhalla was earning steady pro ts The board does not re the Valhalla executives because Lay makes it clear that they are making too much money to let them go Lay increases the trading limits of the Valhalla traders Oct 1987 7 Borget and Mastroeni end up on the wrong side of a massive trade threatening to bankrupt the company Enron executive Mike Muckleroy manages to bluff the market and reduce the loss from 1 billion to 140 million thus saving the company Oct 1987 7 Ken Lay professes shock at the actions of the traders They are fired Three years later Borget and Mastroeni plead guilty to a number of felonies Borget spends one year in jail Mastroeni receives a suspended sentence Oct 19 1987 7 Black Monday The Dow Jones industrial plummets 508 points dropping 204 It s the greatest singleday loss in Wall Street history 1989 7 Enron begins trading natural gas commodities The company will become the largest natural gas merchant in North America and the United Kingdom June 1990 7 Jeff Skilling who has been a consultant for McKinsey amp C0 joins Enron June 11 1991 7 Enron asks SEC to approve marktomarket accounting Jan 30 1992 7 SEC approves marktomarket accounting for Enron 1993 7 Enron and the government of the state of Maharashtra India sign a formal agreement to build a massive power plant The cost for construction will soar to 28 billion 1996 7 Enron signs a contract giving it rights to explore 11 gas elds in Uzbekistan a project costing 13 billion The goal was to sell gas to the Russian markets and link to Unocal s southern export pipeline crossing Turkmenistan Uzbekistan and Afghanistan Jan 8 1996 7 Enron and the government of Maharashtra reached a new agreement that would shift some of the construction costs and lower the electricity tariffs Feb 23 1996 7 New Dabhol agreement announced Nov 1996 7 Richard Kinder COO of Enron doesn t get CEO job so he leaves Dec 10 1996 7 Enron announces that Jeff Skilling is taking over as COO July 1997 7 Enron executive Rebecca Mark tries to sell 50 of Enron International to Shell But the deal doesn t get done She blames Cliff Baxter and Skilling for botching the negotiations May 24 1999 7 Tim Belden head of Enron s West Coast Trading Desk in Portland Oregon conducts his first experiment to exploit the new rules of Califomia s deregulated energy market Known as the Silverpeak Incident Belden creates congestion on power lines which causes electricity prices to rise and at a cost to California of 7 million This will be the first of many games that Belden and his operation play to exploit opportunities in the California market June 28 1999 7 Enron s Board of Directors exempts CFO Fastow from the company s code of ethics so that he can run a private equity fund7LJM17that will raise money for and do deals with Enron The LJM Funds become one of the key tools for Enron to manage its balance sheet and make investors think that it is performing better than it is Sept 16 1999 7 Enron s CFO Andy Fastow addresses Merrill Lynch in World Trade Center asking the team of investment bankers to find investors for his LJM2 Fund He assures them If there s a con ict between Enron and LJM I will favor LJM Oct 12 1999 7 Enron board exempts Fastow from Enron s code of ethics so that he can raise money for LJM2 Oct 13 1999 7 Merrill Lynch releases placement memo for LJM2 Jan 1920 2000 7 Annual Analysts Meeting First day 7 Skilling EES is just rockin and rollin Second Day Enron rolls out its Broadband plan Scott McNealy of Sun Microsystems shows up to offer his support By end of day stock rises 26 to new high of 6725 April 2000 7 Conference call with stock analysts Skilling we have been swamped with new opportunities May 5 2000 7 Enron trader in an email to colleagues announces Death Star a new strategy to game the California market May 12 2000 7 Timothy Belden chief trader for Enron s West Coast power desk sends email to Enron headquarters in Houston con rming his strategy is working So far so good pricing keeps going up Belden has made amassive bet that California energy prices will increase His email confirms that prices are rising May 22 2000 7 CA ISO Independent System Operator the organization in charge of Califomia s electricity supply and demand declares a Stage One Emergency warning of low power reserves June 12 2000 7 Skilling makes joke at Las Vegas conference comparing California to the Titanic July 2000 7 Enron announces that its Broadband unit EBS has joined forces with Blockbuster to supply videoon demand August 23 2000 7 Stock hits alltime high of 90 Market valuation of 70 billion FERC the Federal Energy Regulatory Commission orders an investigation into strategies designed to drive electricity prices up in California Sept 20 2000 7 Jonathan Weil writes piece about marktomarket and energy companies Investment analyst James Chanos reads this in the Texas Journal a regional supplement to the Wall Street Journal Oct 3 2000 7 Enron attorney Richard Sanders travels to Portland to discuss Timothy Belden s strategies Nov 1 2000 7 FERC investigation exonerates Enron for any wrongdoing in California Dec 6 2000 7 Christian Yoder and Stephen Hall write internal memo detailing Belden s strategies Dec 13 2000 7 Enron announces that president and chief operating officer Jeffrey Skilling will take over as chief executive in February Kenneth Lay will remain as chairman End of 2000 7 Enron uses aggressive accounting to declare 53 million in earnings for Broadband on a collapsing deal that hadn t earned a penny in profit Jan 2001 7 Belden s West Coast power desk has its most profitable month ever 7 254 million in gross profits Jan 17 2001 7 Rolling blackouts in Northern California Jan 22 2001 7 Quarterly Analyst Conference Call7Skilling reports outstanding fantastic tremendous Jan 25 2001 7 Analyst Conference in Houston TexasSkilling bullish on the company Analysts are all convinced Ken Rice increases his estimates for value of Broadband Feb 2001 7 Tom White resigns from EES Enron Energy Services the retail division he headed since 1998 and becomes Secretary ofthe Army He cashes out with 14 million and begins to build a huge home in Naples Florida The purchase price for the property is 65 million Feb 2001 7 Over the past year while he presided over EBS Enron Broadband Services Ken Rice cashes in 53 million in shares and options Feb 514 2001 7 Senior Andersen partners meet to discuss whether to retain Enron as a client They call use of marktomarket accounting intelligent gambling Feb 14 2001 7 Writer Bethany McLean interviews Skilling Feb 15 2001 7 Mark Palmer head of publicity for Enron and F astow go to Fortune to answer questions Fastow to Bethany McLean I don t care what you say about the company Just don t make me look bad Feb 19 2001 7 Fortune article by Bethany McLean Is Enron Overpriced Feb 21 2001 7 Employee Meeting Skilling says Yes it is a black box But it is a black box that s growing the wholesale business by about 50 percent in volume and profitability That s a good black box Skilling announces Enron s goal The World s Leading Company March 2001 7 Enron transfers large portions of EES business into wholesale to hide EES losses March 2001 7 Arthur Andersen takes auditor Carl Bass off the Enron account March 23 2001 7 Enron schedules unusual analyst conference call to boost stock It works April 17 2001 7 Quarterly Conference Call The asshole call May 17 2001 7 Secret meeting at Peninsula Hotel in LA7Schwarzenegger Lay Milken June 21 2001 7 Skilling hit in face with blueberry tofu cream pie by Francine Cavanaugh at The Commonwealth Club in San Francisco June 2001 7 FERC finally institutes price caps across the western states The California energy crisis ends July 12 2001 7 Quarterly Conference CallSkilling still bullish July 13 2001 7 Skilling announces desire to resign to Lay Lay asks Skilling to take the weekend and think it over There are two different Views of what happened that day According to Lay he tried to talk Skilling out of resigning Skilling says Lay didn t seem to care and that he offered to stay on for siX months Board member says he recommended the transition period to Lay Lay claims Skilling wanted an immediate out July 2425 2001 7 Skilling meets with analysts and investors in NY We will hit those numbers We will beat those numbers Says LJM is stopping and that all other issues are immaterial All of these are bunk These are not issues for the stock August 3 2001 7 Skilling makes a bullish speech on EES That aftemoon he lays off 300 employees August 11 2001 7 Skilling talks to Mark Palmer about preparing press release for resignation August 13 2001 7 Board Meeting Rick Buy outlines disaster scenario if Enron s stock starts to fall All SPEs crash Skilling dismisses this That evening in board only session Skilling in tears resigns August 14 2001 7 Skilling s Resignation Announcement In evening analyst and investor conference call Skilling The company is in great shape Lay Company is in the strongest shape that it s ever been in Lay is named CEO August 15 2001 7 Jim Chanos thinks the stock is going through the oor and bets aggressively on that Notes that Skilling s departure coincided with release of second quarter 10Q Enron s cash ow was a negative 13 billion for the first siX months September 2001 7 Skilling sells 155 million of stock bringing stock sales since May 2000 to over 70 million Sept 26 2001 7 Employee Meeting Lay tells employees Enron stock is an incredible bargain Third quarter is looking great Oct 16 2001 7 Enron reports a 638 million third quarter loss and declares a 101 billion nonrecurring charge against its balance sheet partly related to structured finance operations run by chief financial officer Andrew Fastow In the analyst conference call that day Lay also announces a 12 billion cut in shareholder equity Oct 17 2001 7 Wall Street Journal article written by John Emshwiller and Rebecca Smith appears The article reveals for the first time the details of F astow s partnerships and shows the precarious nature of Enron s business Oct 22 2001 7 Enron acknowledges Securities and Exchange Commission inquiry into a possible con ict of interest related to the company s dealings with the partnerships Oct 23 2001 7 Lay professes support for Fastow saying he has the highest regard for his character during conference call with analysts and employee meeting Oct 23 2001 7 In a massive shredding operation Arthur Andersen destroys one ton of Enron documents Oct 24 2001 7 Enron ousts Fastow Oct 31 2001 7 Enron announces the SEC inquiry has been upgraded to a formal investigation Nov 8 2001 7 Enron files documents with SEC revising its financial statements for past five years to account for 586 million in losses Nov 19 2001 7 Enron restates its third quarter earnings and discloses it is trying to restructure a 690 million obligation that could come due Nov 27 Nov 28 2001 7 Enron shares plunge below 1 Dec 2 2001 7 Enron les for Chapter 11 bankruptcy protection Jan 9 2002 7 Justice Department con rms it has begun a criminal investigation of Enron Jan 10 2002 7 Arthur Andersen announces that employees in its Houston Division had destroyed documents related to Enron Jan 23 2002 7 Lay resigns as chairman and CEO of Enron Jan 25 2002 7 Cliff Baxter commits suicide Feb 2 2002 7 The Powers Report a 218page summary of an internal investigation into Enron s collapse led by University of Texas School of Law Dean William Powers spreads blame among selfdealing executives and negligent directors Feb 7 2002 7 Fastow and his former top aide Michael Kopper invoke the Fifth Amendment before Congress Skilling testi es saying he knew of no problems at Enron when he resigned March 14 2002 7 Former Enron auditor Arthur Andersen LLP indicted for obstruction of justice for destroying tons of Enronrelated documents as the SEC began investigating the energy company s nances in October 2001 April 9 2002 7 David Duncan Arthur Andersen s former top Enron auditor pleads guilty to obstruction June 15 2002 7 Arthur Andersen convicted of obstruction after a sixweek trial that included 72 hours of jury deliberations spread over 10 days Aug 21 2002 7 Michael Kopper pleads guilty to conspiracy to commit wire fraud and money laundering conspiracy acknowledges funneling millions of dollars to Fastow through myriad nancial schemes and agrees to cooperate with investigators Aug 31 2002 7 Arthur Andersen surrenders its license to practice accounting in US 85000 people lose theirjobs 9 billion in annual earnings disappears Oct 16 2002 7 Arthur Andersen sentenced to probation and a 500000 ne rm already banned from auditing public companies with only a few hundred employees left on the payroll after its conviction Oct 31 2002 7 Fastow indicted on 78 charges of conspiracy fraud money laundering and other counts Feb 5 2003 Republican former Assemblyman Howard Kaloogian and the taxpayer group People s Advocate announce separate campaigns to try to recall California Gov Gray Davis March 19 2003 7 Enron announces the company will keep its North American pipelines and 18 intemational pipeline and power assets to emerge from bankruptcy as two separate companies with different names March 25 2003 7 California Recall supporters begin collecting the 897158 signatures needed to put the recall on the ballot May 1 2003 7 Andrew Fastow s wife Lea and seven former Enron executives charged Lea Fastow is charged with conspiracy and ling false tax forms for allegedly participating in some of her husband s deals Former Enron treasurer Ben Glisan Jr and midlevel executive Dan Boyle also charged for allegedly participating in Fastowrun schemes Additional charges led against Andrew Fastow July 11 2003 7 Enron les reorganization plan in its bankruptcy case that says most creditors will receive about one fth of the estimated 67 billion they are owed The 67 billion shrinks to 664 billion after several revisions July 23 2003 7 California Secretary of State Kevin Shelley announces that Davis will face arecall election Aug 6 2003 7 Actor Arnold Schwarzenegger announces on The Tonight Show with Jay Leno that he will run for governor Califomia s Lt Gov Cruz Bustamante breaking ranks with fellow prominent Democrats announces he too will run US Sen Dianne Feinstein rules out running for governor saying the election is more and more like a ca1nival every day Sept 10 2003 7 Ben Glisan pleads guilty to one count of conspiracy and is the rst former Enron executive to be put in jail Oct 7 2003 7 Arnold Schwarzenegger wins the recall election Nov 18 2003 7 Enron announces it will sell Portland General Electric its Paci c Northwest utility to partnership backed by Texas Paci c Group for 125 billion in cash and 11 billion in assumed debt Jan 6 2004 7 Enron Corp s roadmap for emerging from bankruptcy receives a New York judge s initial blessing and will be sent to creditors to accept or reject the plan that will pay them a fraction of what they are owed Jan 14 2004 7 Andrew and Lea Fastow plead guilty Andrew who faced 98 counts pleaded guilty to one charge of conspiracy to commit wire fraud and one charge of conspiracy to commit wire and securities fraud F astow has agreed to serve 10 years in prison forfeit 238 million including homes in Galveston and Vermont and forfeit claims on another 6 million held by third parties He is cooperating with the Enron task force in ongoing investigations Lea Fastow pleaded guilty to one count of filing a false tax report for failing to report 47800 in income on her 2000 personal taxes part of more than 204000 undeclared over four years She is currently serving a oneyear term in prison Feb 19 2004 7 Named in 35count indictment Skilling pleads not guilty to wire fraud securities fraud conspiracy insider trading and making false statements on financial reports He s the highestranking Enron executive to face criminal charges in the energy giant s downfall Charges against former chief accounting officer Richard Causey also expanded in the indictment to 31 counts May 18 2004 7 Paula Rieker former director of investor relations and secretary for Enron s board of directors pleads guilty to one felony count of insider trading and agrees to pay the SEC the 499333 profit she netted by selling Enron stock before the public knew about big losses at Enron s Internet business Lay is escorted into the courthouse in handcuffs July 8 2004 7 Indicted on 11 criminal counts of fraud and making misleading statements Enron s highestranking executive Ken Lay surrenders to the FBI After pleading not guilty he calls a news conference to proclaim his innocence and argue that while he takes responsibility for Enron s failure only a superman could know everything that happens at his company It has been a tragic day for me and my family Lay says July 30 2004 Ken Rice former coCEO of Enron Broadband Services pleads guilty to a single count of securities fraud Aug 25 2004 Mark Koenig the former head of Enron s Investor Relations section pleads guilty to a charge of aiding and abetting securities fraud and agrees to cooperate with the government Aug 28 2004 Kevin Hannon former chief operating officer for Enron Broadband Services pleads guilty to conspiracy to commit securities and wire fraud Oct 5 2004 Timothy Despain former assistant treasurer at Enron pleads guilty to conspiracy to commit securities fraud by lying to credit rating agencies Nov 3 2004 7 Enron s first criminal trial ends Former Enron accountant Sheila Kahnek is acquitted Former Vice President Dan Boyle and four former Merrill Lynch bankers are convicted of conspiracy and fraud in the Nigerian barge deal Jan 7 2005 7 The US Supreme Court agrees to consider overturning the conviction of the Arthur Andersen accounting firm for obstruction of justice in the shredding of thousands of Enron document February 25 2005 7 The fraud and conspiracy trial of Kenneth L Lay the founder of the Enron Corporation and Jeffrey K Skilling its former chief executive has been set for Jan 17 2006 Chapter 10 notes Vocab Bond Principle amount payable at the maturity of the bond and on period cash interest payments are computed PerValue bond principlematurity amount for a bond Face amount bond principle maturity for a bond Stated rate rate of cash interest per period states in bond contract Debenture unsecured bond no assets are specifically pledged to guarantee repayment Callable Bond can be called for call retirement at option of user Convertible Bond Can be converted into other securities usually common stock Indenture Bond contract that specifies legal provisions of a bond issue Bond Certificate bond document that each bondholder receives Trustee independent party appointed to represent bondholders Coupon rate state rate of interest on bonds Bond Premium difference between selling price and par when bond is sold for MORE than par Bond Discount difference between selling price and par when bond is sold for LESS than par Straightline amortization simplified method of amortizing a bond discount or premium that allocates an equal dollar amount to each interest period Effective interest amortization Method of amortization of a bond discount or premium on the basis of the effective interest amortization it is the theoretically preferred method MC 1c 2c 3b 4d 5c 6b 7c 8c 9a 10c Mini s M10 11 Balance Sheet 2 Income Statement 3 Statement of Cash Flows 4 May be in notes 5 Not at all 6 May be in notes M10 2 Principal 600000 x 273840 04564 Interest 24000 x 326 167 135903 Issue Price 600007 M10 3 Principal 900000 x 391500 04350 Interest 27000 x 358 949 132944 Issue Price 750449 M10 4 January 1 2011 Cash A 940000 Discount on Bonds Payable XL L 60000 Bonds Payable L 1000000 June 30 2011 lnterest Expense E SE 940000 x 11 x 12 51700 Discount on Bonds Payable XL L 1700 Cash A 1000000 x 10 gtlt 12 50000 M10 5 January 1 2011 Cash A 580000 Discount on Bonds Payable XL L 20000 Bonds Payable L 600000 June 30 2011 lnterest Expense E SE 31000 Discount on Bonds Payable XL L 1000 Cash A 30000 M10 6 PrinciQal 500000 x 04564 228200 Interest S 25000 x 135903 339 758 Issue Price 567958 M10 7 January 1 2011 Cash A 620000 Premium on Bonds Payable L 20000 Bonds Payable L 600000 December 31 2011 lnterest Expense E SE 52000 Premium on Bonds Payable L 2000 Cash A 54000 M10 8 January 1 2011 Cash A 910000 Premium on Bonds Payable L 60000 Bonds Payable L 850000 December 31 2011 lnterest Expense E SE 910000 x 7 63700 Premium on Bonds Payable L 5700 Cash A 850000 x 8 68000 M10 9 The debttoequity ratio and times interest earned ratio are both measures of the risk associated with using debt in the capital structure of a company A company could have a high debttoequity ratio with relatively little risk if it generated a high level of stable earnings M10 10 If the interest rates fall after the issuance of a bond the bond s price will increase The company will report a loss on the debt retirement On the balance sheet cash and bonds payable will decrease On the income statement a loss would be recorded M10 11 When a company issues a bond at a discount the interest expense each period will be more than the cash payment for the interest When a company issues a bond at a premium the interest expense will be less than the cash payment for the interest Neither is affected by the method used to amortize the discount or premium M10 12 Cash paid to retire a bond would be reported in the financing activities section of the Statement of Cash Flows while cash paid for interest payments would be reported in the operating activities section Questions 3 Secured bonds are supported by a mortgage or pledge of specific assets as a guarantee of payment Secured bonds are designated on the basis of the type of asset pledged such as real estate mortgage bonds and equipment trust bonds Unsecured bonds are not supported by a mortgage or pledge of specific assets as a guarantee of payment at maturity date Unsecured bonds usually are called debentures 4 Callable bonds bonds that may be called for early retirement at the option of the issuer V Convertible bonds bonds that may be converted to other securities of the issuer usually common stock after a specified future date at the option of the bondholder 7 At the date of issuance bonds are recorded at their current cash equivalent amount that is the amount of cash received for the bonds when issued The recording is in conformity with the cost principle 9 The stated rate of interest is the rate specified on a bond whereas the effective rate of interest is the market rate at which the bonds are selling currently Must do Exercises E10 7 Computations Interest 100000 x 6 x 12 3000 Present value 100000x 06756 67560 3000 x 81109 24333 Issue price 91893 E10 8 Computations Interest 750000 x 8 60000 Present value 750000x 04224 316800 60000 x 64177 385062 Issue price 701862 Req 1 January 1 Cash A 701862 Discount on Bonds Payable XL L 48138 Bonds Payable L 750000 Req 2 December 31 Interest Expense E SF 64814 Discount on Bonds Payable XL L 4814 Cash A 60000 Req 3 December 31 2011 Income statement Interest expense S 64814 Balance sheet Longterm Liabilities Bonds payable 750000 Less Unamortized discount 48138 4814 43324 706676 E109 Computations Interest 600000x 75 x 12 S 22500 Present value 600000X 07168 430080 22500 X 66638 149936 Issue price 580016 Req 1 January 1 Cash A 580016 Discount on Bonds Payable XL L 19984 Bonds Payable L 600000 Req 2 June 30 Interest Expense E SE 24651 Discount on Bonds Payable XL L 2151 Cash A 22500 5580016 x 85 x V2 Req 3 June 30 2011 Income statement Interest expense S 24651 Balance sheet Longterm Liabilities Bonds payable 600000 Less Unamortized discount 19984 2151 17833 582167 TO Al Cohen FROM Liana Casciani RE Enron Memo What went wrong I think that it was a conglomerate of things that quotwent wrong in the fall of Enron I think besides the fact that the lying and forging of numbers greed selfishness and lack of ethics and morality took over The people who were doing these scandals got too into themselves and money Their heads got big the money got to them and they believed that they were invincible They were just so conceded in their vision that quotif you are smart enough then you can do anything They really thought that they were so much smarter than everyone else in the world that they were about morals they were above the law That failure didn t apply to them They didn t care that quotloop holes were illegal bending the law and breaking the law was just like breathing to them I really think that stopping wasn t an option and neither was saying no for anyone who became involved Not only were these directors and people involved in the Enron scandal ruthless in the business world but some of them really did not care in the lives let alone wellbeing s of others There are even rumors of them killing people they did not like so it isn t surprising to me that no one had the guts to say no to taking billions of dollars with a few lies Who do I think was to blame Although I said it isn t surprising that that no one had the guts to say no to taking billions of dollars with a few lies still does not mean that it was ethical or right I really think that the people who did not have the guts to say no to stick up for their beliefs were to blame That includes the bankers and businesses involved in receiving money for lying And Ithink that the directors were obviously to blame to I mean they are the ones that started this entire downfall ofthe company Personally Itook an interest in Lou Pai and his involvement in the company He was heavily involved in manipulating the books to make it look like Enron was making a profit Why I was so intrigued by him was because he was not only was he a brilliant little man but he was ruthless too There were rumors about him quotsending people to Canada for making jokes about him He cheated on his wife he was infatuated with strippers and yet he was so smart that he got out of the business right before the crash and put his money into land so no one could take it from him He was highly involved in the fall of Enron yet he got away clean Only someone that devious careless about other humans and relentless could plan so carefully like that This is why I think he was such a key part because he knew what was going to happen and got away before it did Liana Casciani Chapter 11 Notes Vocab Legal capital permanent amount of capital defined by state law that must remain invested in the business cushion for investors Nopar value stock Capita stock that has no par value specified in the corporate charter Treasury stock Corporations own stock that has been issued but subsequently reacquired and is still being held by corporation Declaration date date which the board of directors officially approves dividends Record datedate which corporation prepares list of current stockholders as shown on records dividends can be paid only to share holders who own stock on that date Stock dividend distribution of additional shares of a corporations won stock Stock splitincrease in total number of authorized shares by a specified ratio doesn t decrease retained earnings Preferred stockstock that has specified rights over common stock Current dividend preferencefeature of preferred stock that grants priority on preferred dividends over common stock dividends Cumulative dividend preference preferred stock feature that requires specific current dividends to not be paid in full 2 accumulate for every year they are not paid Must be paid before common stock is issued Dividends in arrearsDividends on cumulative preferred stock that have not been declared in prior years MC 1c 2d 3b 4a 5c 6b 7c 8c 9d 10a Questions 2 The charter of a corporation is a legal document from the state that authorizes its creation as a separate legal entity The charter specifies the name of the entity its purpose and the kinds and number of shares of capital stock it can issue 5 Par value is a nominal per share amount established for the common stock andor preferred stock in the charter of the corporation and is printed on the face of each stock certificate 6 The usual characteristics of preferred stock are 1 dividend preferences 2 conversion privileges 3 asset preferences and 4 nonvoting specifications 8 Stockholders equity is accounted for in terms of source This means that several accounts are maintained for the various sources of stockholders equity such as common stock preferred stock contributed capital in excess of par and retained earnings 9 Treasury stock is a corporation s own capital stock that was sold issued and subsequently reacquired by the corporation 12 Cumulative preferred stock has a dividend preference such that should the dividends on the preferred stock for any year series of years not be paid dividends cannot be paid to the common stockholders until all such dividends in arrears are paid to the preferred stockholders Noncumulative preferred stock does not have this preference therefore dividends not paid in past periods will never be paid to the preferred stockholders contributed capital 15 When a dividend is declared and paid the three important dates are Declaration date the date on which the board of directors votes the dividend In the case of a cash dividend a dividend liability comes into existence on this date and must be recorded as a debit to Retained Earnings and as a credit to Dividends Payable Date of record this date usually is about one month after the date of declaration It is the date on which the corporation extracts from its stockholders records the list of individuals owning shares The dividend is paid only to those names listed on the record date No entry in the accounts is made on this date Date of payment the date on which the cash is disbursed to pay the dividend It follows the date of record as specified in the dividend announcement The entry to record the cash disbursement for the dividend is a debit to Dividends Payable and a credit to Cash Mini s 111 Stockholders can Vote in stockholders meetings on major corporation management issues Participate somewhat with other stockholders about the corporations profits Share proportionately with other stockholders in the sharing of the corporate assets when it is liquidation time Most important right Being able to vote because it ensures the stockholders have some sort of control 112 Unissused shares 268000 178000 90000 113 Cash 3570000 Common stock 170000 Capital in Excess of Par 3400000 Par Value 2 Cash 3570000 Common stock 340000 Capital in Excess of Par 3230000 114 Common stock is the basic voting stock issued within a corporation Ranks preferred stock dividends and assets distributed upon liquidation of the corporation The dividend rate for preferred stock is fixed by a contract People recommend investing in the common stock 115 A L SE Nl Purchased Decrease nc Decrease bc 20000 900000 900000 shares of treasury stock Sold 5000 Increase nc Increase nc shares 250000 250000 Sold Increase nc Increase nc 10000 370000 370000 shares 116 20000065 130000 117 April 15 RE 65000 Dividends Payable 65000 June 14 Dividends Payable 65000 Cash 65000 118 Past year 2000002 400000 Current year 2000002 400000 Total to preferred stockholders 800000 119 Stock DividendStock Split No change in assets no change in assets No change in liabilities no change in liabilities Increase in common stock no change in common stock No change in SE no change in SE Decrease in market value decrease in market value 1110 RE 800000 Common Stock 800000 Enron Notes Cliff Baxter committed suicide when Enron went bankrupt Manic Depressive Trial and questions occur They bring out the books to see what was really going on Money was funneling to quotMr In yass My Ass haha The theory that ifyou are smart enough than you can do anything Greed and no matter who you stepped on you got more money Free markets were turned into an ideology Ieff Skilling I am Enron Re made himself from a nerd to someone who worked out and changed his personality Tragic figure Huge HUGE risk taker He took small group of friends and some customers on wild adventures to make them feel good as men These stories became legendary in Enron and fed the whole quotmochoquot feel of the place Men with Spikes Ken Rice Sales man Lou Pie Helped build the trading part of the company Ran EES business ICBM Mysterious figure 0 Was almost never in his office Motivated by money and strippers o All charges of the strippers club to the Enron Card Didn t care ifhe had to quotleave a man behind Relentless ruthless man Left Enron with 250 million dollars Left wife for stripper who had his child Iust packed up and left one day 0 Leaving departments with 1 billion dollars in loss Love me Love me Enron stocks going up like crazy Biggest bull market in the history of the world Mounted a campaign to capture stock traders quotPump and dump Ceo s would pump up their stock and when they got high they would sell Built power plant in India Failed to see that India couldn t afford to pay for the power that Enron produced Lost a billion because of this yet they still paid multimillion dollars bonuses to executives based on imaginary profits that never arrived Purchased PGE PGE employees then took all their money into their 401k and savings because they saw how much Enron s stock was increasing and making money Love for sale Any analyst who didn t have money in Enron became an enemy of Enron Iohn Olstist One of the only analyst who was skeptical about Enron Meryl Lynch Fired John and then were rewarded by Enron with basically 1 billion dollars Enron got into broadband Someone found something wrong in the financial statements that all the analysts had missed No one who was supposed to say no said no They just took their money and kept their mouth shut Author and Anderson received 1 million dollars a week Everyone lied about knowing about the transactions in trials TO Al Cohen FROM Liana Casciani RE 8 11 2 The Walt Disney Company and Subsidiaries reports say that the long lived assets quotFair value is determined based on discounted cash flows or appraised values depending upon the nature ofthe assetsquot 3 103 Billion 5 Ratio Analysis a A financial ratio of net sales to fixed assets The fixed asset turnover ratio measures a company s ability to generate net sales from fixed asset investments specifically property plant and equipment PPampE net of depreciation A higher fixed asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenues b 2010 2009 2008 380683618B 361583499B 3784B3884B 10SB 10SB 97 B c Throughout the last three years they have increased their effectiveness in using the investment in fixed assets to generate revenues d Entertainment ratio was unavailable


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