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Wyoming Statute 1-21-1203. Owner's duties; notice by renter of noncompliance; duty to correct; exceptions; termination of rental agreement; liability limited.

Wyoming Statute 1-21-1203. Owner's duties; notice by renter of noncompliance; duty to correct; exceptions; termination of rental agreement; liability limited.

(a) To protect the physical health and safety of the renter, each owner shall:

(i) Not rent the residential rental unit unless it is reasonably safe, sanitary and fit for human occupancy;

(ii) Maintain common areas of the residential rental unit in a sanitary and reasonably safe condition;

(iii) Maintain electrical systems, plumbing, heating and hot and cold water; and

(iv) Maintain other appliances and facilities as specifically contracted in the rental agreement.

(b) If the renter is current on all payments required by the rental agreement and has reasonable cause supported by evidence to believe the residential rental unit does not comply with the standards for health and safety required under this article, the renter shall advise the owner in writing of the condition and specify the remedial action the renter requests be taken by the owner. Within a reasonable time after receipt of this notice, the owner shall either commence action to correct the condition of the residential rental unit or notify the renter in writing that the owner disputes the renter's claim. The notices required by this subsection shall be served by certified mail or in the manner specified by W.S. 1-21-1003.

(c) The owner shall not be required to correct or remedy any condition caused by the renter, the renter's family or the renter's guests or invitees by inappropriate use or misuse of the property during the rental term or any extension of it.

(d) The owner may refuse to correct the condition of the residential rental unit and terminate the rental agreement if the costs of repairs exceeds an amount which would be reasonable in light of the rent charged, the nature of the rental property or rental agreement. If the owner refuses to correct the condition and intends to terminate the rental agreement, he shall notify the renter in writing within a reasonable time after receipt of the notice of noncompliance and shall provide the renter with sufficient time to find substitute housing, which shall be no less than ten (10) days nor more than twenty (20) days from the date of the notice. If the rental agreement is terminated, the rent paid shall be prorated to the date the renter vacates the unit and any balance shall be refunded to the renter along with any deposit due in accordance with W.S. 1-21-1208.

(e) The owner is not liable under this article for claims for mental suffering or anguish.

Wyo. Stat. Ann. § 1-21-1202 (2001). Duties of owners and renters; generally.

Wyo. Stat. Ann. § 1-21-1202 (2001) - Wyoming

ARTICLE 12 - RESIDENTIAL RENTAL PROPERTY

1-21-1202. Duties of owners and renters; generally.

***

(a) Each owner and his agent renting or leasing a residential rental unit shall maintain that unit in a safe and sanitary condition fit for human habitation. Each residential rental unit shall have operational electrical, heating and plumbing, with hot and cold running water unless otherwise agreed upon in writing by both parties. Provided, however, this section shall not prevent the rental of seasonal rental units such as summer cabins which are not intended to have such amenities.

(b) Each renter shall cooperate in maintaining his residential rental unit in accordance with this article.

(c) This article does not apply to breakage, malfunctions or other conditions which do not materially affect the physical health or safety of the ordinary renter.

(d) Any duty or obligation in this article may be assigned to a different party or modified by explicit written agreement signed by the parties.

Cases:  Merrill v. Jansma, 86 P.3d 270 (2004)

42 U.S. CODE § 1983 - Civil Action For Deprivation of Rights

42 U.S. CODE § 1983 - Civil Action For Deprivation of Rights

Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress, except that in any action brought against a judicial officer for an act or omission taken in such officer’s judicial capacity, injunctive relief shall not be granted unless a declaratory decree was violated or declaratory relief was unavailable. For the purposes of this section, any Act of Congress applicable exclusively to the District of Columbia shall be considered to be a statute of the District of Columbia.

New Jersey Stat. Ann. §2A:18-53 Removal of tenant in certain cases; jurisdiction

N. J. Stat. Ann. §2A:18-53.
2A:18-53. Removal of tenant in certain cases; jurisdiction 

Except for residential lessees and tenants included in section 2 of this act, any lessee or tenant at will or at sufferance, or for a part of a year, or for one or more years, of any houses, buildings, lands or tenements, and the assigns, under tenants or legal representatives of such tenant or lessee, may be removed from such premises by the Superior Court, Law Division, Special Civil Part in an action in the following cases:

a. Where such person holds over and continues in possession of all or any part of the demised premises
after the expiration of his term, and after demand made and written notice given by the landlord or his
agent, for delivery of possession thereof. The notice shall be served either personally upon the tenant or
such person in possession by giving him a copy thereof or by leaving a copy of the same at his usual
place of abode with a member of his family above the age of 14 years.

b. Where such person shall hold over after a default in the payment of rent, pursuant to the agreement under
which the premises are held.

c. Where such person (1) shall be so disorderly as to destroy the peace and quiet of the landlord or the
other tenants or occupants living in said house or the neighborhood, or (2) shall willfully destroy, damage
or injure the premises, or (3) shall constantly violate the landlord's rules and regulations governing said
premises, provided, such rules have been accepted in writing by the tenant or are made a part of the
lease; or (4) shall commit any breach or violation of any of the covenants or agreements in the nature
thereof contained in the lease for the premises where a right of re-entry is reserved in the lease for a
violation of such covenants or agreements, and shall hold over and continue in possession of the demised
premises or any part thereof, after the landlord or his agent for that purpose has caused a written notice of
the termination of said tenancy to be served upon said tenant, and a demand that said tenant remove from
said premises within three days from the service of such notice. The notice shall specify the cause of the
termination of the tenancy, and shall be served either personally upon the tenant or such person in
possession by giving him a copy thereof, or by leaving a copy thereof at his usual place of abode with
some member of his family above the age of 14 years.

N.J. Rev. Statute §46:8-3

N.J. Rev. Statute §46:8-3 (New Jersey)
New Jersey Statutes and Codes

***

46:8-3.  Lessees of real estate;  rights against grantees of reversion

    From and after November tenth, one thousand seven hundred and ninety-seven, all lessees of real estate for a term of years, life or lives, their executors, administrators or assigns, shall have the like action and advantage against all persons and bodies politic and corporate, their heirs, successors and assigns, who have or shall have any gift or grant of the reversions of such real estate  so let, or any part thereof, for any condition, covenant or agreement contained  in their leases, as the same lessees, or any of them, ought or might have had  against such lessors, and their heirs, excepting the right to recover upon any  warranty of title, by deed or implied by law.

Cases:
Martinique Realty Corp. v. Hull

The Benzene Case [Industrial Un. Dept., AFL-CIO v. Am. Petroleum Inst.] case brief

The Benzene Case [Industrial Un. Dept., AFL-CIO v. Am. Petroleum Inst.] case brief summary

U.S. (1980)

FACTS

• OSHA lowered the allowed limit of benzene in the workplace from 10 ppm to 1 ppm. 
• There was some evidence that risk existed between 1 and 10 ppm, though it wasn’t systematic. 
• OSHA shifted burden to industry and required them to prove that anything about 1 was safe. 
• OSHA has a generic policy where “carcinogens” are considered no-threshold substances where no safe exposure level can be determined and the substances must be regulated at the lowest technologically-feasible level that will not cripple the industry. 
• It went to 1 ppm because they believed that was the lowest feasible solution that would not destroy the industry. 

RULES
Statute: OSH Act:

• § 3(8) – “occupational safety and health standard’ means a standard which requires conditions ... reasonably necessary or appropriate to provide safe or healthful employment and places of employment.”
• § 6(b)(5) – “standards dealing with toxic materials or harmful physical agents ... shall set the standard which most adequately assures, to the extent feasible, on the basis of the best available evidence, that no employee will suffer material impairment of health. . . .” 

DISPOSITION

Remanded back to OSHA.

ANALYSIS

• OSHA provided no indication that it made a finding, based upon scientific evidence, that an exposure level above 1ppm posed a “significant risk.” (no dose-response evaluation). 
• Finding a significant risk is a threshold determination which needs to be made in order to proceed to application of § 6(b)(5). 

NOTES

• The plurality relied upon § 3(8), however the dissent relied upon § 6(b)(5). Section 3(8) is a definitional section and more generic, while § 6(b)(5) is a substantive standard related to the particular type of substance at issue. 
• Judge Rehnquist concurred, holding the statute unconstitutional on non-delegation grounds. If this position were taken seriously, most environmental regulation would be unconstitutional. \
• No precedential effect since plurality and not majority. However, cases after Benzene were able to survive Court scrutiny because OSHA quantified the risk with a dose-response evaluation. For example, a similar regulation was upheld in Public Citizen Health Research Group v. Tyson, 796 F.2d 1479 (D.C. Cir. 1986), p78, because OSHA used a dose-response curve to make its decision.
• Although the Court required a seemingly-scientific rationale for Agency action, many policy decisions affect the risk assessment.

Gas Natural v. Argentina, ICSID case brief

Gas Natural v. Argentina, ICSID case brief summary

2005 (U2 458)

FACTS

Plaintiff is a Spanish company claiming BIT violation. 

Defendant claims that 1) these were measures of general economic policy (thus this is not a legal dispute subject to ICSID jurisdiction); 2) that it had not given consent to arbitration under ICSID because the BIT they have with Spain requires exhaustion of local remedy before brining a claim; 3) because they are not an investor under BIT (Standing). With regards to 2), Plaintiff responds by saying that under the MFN clause, they should get the treatment that is accorded to US investors under US-Argentina BIT (no need to go to local courts). 

HOLDING
This is a legal dispute capable of being submitted to ICSID adjudication. (U2 471, #22).

ANALYSIS

• International arbitration provides significant protection and incentives for foreign investors as compared to national courts. 
• Therefore, the provision in the US-Argentina BIT is more favorable than that in the US-Spain BIT. 
• Accordingly, the plaintiff is entitled to dispute settlement provisions of US-Argentina BIT. (U 477, # 31) 
• Plaintiff has standing to bring claim pursuant to ICSID rules and Spain-Argentinean BIT. (U 479, #35).

In re Treasure Island Land Trust case brief summary

In re Treasure Island Land Trust case brief summary

Plaintiff	The debtor is not entitled to be a Debtor
Case Facts	- Petition filed in name of TILT on Nov 29, 1979 - Nov 30 secured creditors moved to dismiss the petition on the basis that the Trust is not entitled to be a DEBTOR. - Trust: contractual document Land Trust Agreement. 1971. - §109(a) only a persona that resides in the US or has a domicile a place of business or property in the US can be a debtor… (d) only a person that may be a debtor under CH 7…definition of person in §101(41)…definition of corporation §101(9) Includes business trusts.
Issue	TILT is in reality a simple trust and as such it cannot be a debtor under the Bankruptcy Code. Movants presented a motion to dismiss.
Holding	Motion to dismiss granted.
Analysis	- Debtor's argument: Contends that it is a business trust. (Illinois trust land is similar to business trust, present state law.) However, nowhere in the instrument does the word land trust appear, not Illinois. Florida Law governs this case. Look at economic realities, not the form! Created to carry on business and then divide profits. Operates as a business enterprise. Unable to point to any business activity. Court is faced with continuous assertions and conduct to the contrary: SEC filing. Trust sought to avoid registration requirements of Securities laws. Estoppel theory binding the creditor to its own representations? The movants contend that they are not: look at the language of the instruments creating the trust. Difference between business trust and others is that it is created with the purpose of carrying on some kind of business or commercial activity for profit. (object of the others: protect and preserve the trust assets) Language of A 5 Trusts: “to hold title and protect and conserve property until sale, liquidation or disposition” -Equity consideration: embraces consistency. The Courts view is that TILT has become a business trust on November 29, 1979 a day after it filed its petition. TILT is not registered in Florida as a business trust as Florida law requires. -TILT does not qualify as a business trust within the meaning of the code. The motion to dismiss granted.

United States v. Whiting Pools, Inc. case brief summary

1. United States v. Whiting Pools, Inc. case brief summary (U.S. 1983)
   
   FACTS
   The IRS seized the debtor’s property on which it had placed a tax lien. Liquidation value of property was much less than going concern value. Debtor filed Chapter 11. Debtor requested turnover of property under § 542(a).
   
   HOLDING
   1.  The IRS is required to turn over property, because (1) § 542(a) requires turnover of all property of the estate that may be leased, sold, or used by trustee under § 363, and (2) seized property, in which debtor still had interest, counted as such property
   
   2.  Even though Code defines “property of the estate” as “all interests of the debtor in property,” not “all property in which the debtor has an interest,” Court does not take definition to limit what can count as “property of the estate”.
   
   3.  IRS had the right to seize and sell property under non-bankruptcy law, but those rights were merely procedural, and meant to protect its substantive property interest – the lien – which is now protected by different bankruptcy procedures.

Risk Outline: Accounting for Lawyers

Risk Outline: Accounting for Lawyers

• Factors that affect risk:
  • Economy-wide factors, such as credit crisis, a recession or inflation
  • Industry wide factors, such as obsolescence or competition
  • Firm-specific factors such as the potential for a labor strike and poor management
• Generally focuses on relative liquidity of firm:
  • Short-term risk: can firm pay short-term obligations, such as wages?
    • Working capital: current assets – current liabilities
      • Expressed as money amount
    • Current ratio: current assets/current liabilities
      • Expressed as a ratio; rule of thumb = 1.5
    • Acid-test/Quick ratio:
      • (cash + ST investments + net receivables)/current liabilities
      • More stringent measure than the current ratio
      • Expressed as ratio; rule of thumb = 0.9 – 1.0
    • Current ratio (aka working capital ratio)
      • Measure of company’s ability to pay its current liabilities
      • = total current assets/ total current liabilities
      • = (cash + ST investments + net receivables + inventories + prepaid expenses) / total current liabilities
  • Long-term risk: can the firm pay long-term obligations, like debt?
    • Debt-to-equity:
      • = total liabilities/total equities
      • Percentage of total financing provided by debtors or creditors
    • Debt ratio:
      • = total liabilities/total assets
      • Proportion of the assets that are financed with debt
        • Average for most companies = 0.62
      • The higher the ratio, the greater the pressure to pay the debt
    • Times Interest Earned
      • Income from operations/interest expense
      • Measures the number of times interest can cover interest
      • High ratio indicates the ease of paying interest
    • Cash from operations/total liabilities
      • Measures the ability of the firm to pay all liabilities from cash without new debt or additional investment
• Liabilities on Cash Flow Statement
  • Issuing bonds, short- and long-term debt are reported as financing inflows
  • Repayment of bond and loan principal are financing outflows
  • Interest expense is classified as operating outflow
  • Capital lease: financing inflow, investing outflow
• Stock investments
  • Price-earnings ratio
    • Market price per share of common stock/earnings per share
    • Compares market price to earnings
    • Investors prefer low P/E ratio to high one
  • Dividend yield
    • Dividend per share/market price per share
    • Compares dividends per share to market price
  • Book value per share
    • (Total shareholders’ equity – preferred equity)/(# of common shares outstanding)
• Limitations of Ratio Analysis
  • Ratios based on financial data share the same problems of financial data (such as timeliness).
  • Changes in many ratios correlate with other ratios, so a direct interpretation of a change in ratio is not always apparent.
  • Comparing ratios over time is complicated by the fact that economic conditions may change also.
  • Comparing ratios between two firms is complicated by the fact that the firms may hve different economic environments or production technologies even though they produce same product.

Financial Statements Outline (The Balance Sheet): Accounting for Lawyers

Financial Statements Outline: Accounting for Lawyers

The Balance Sheet

• “Statement of financial position”
  • Provides information at a certain point in time
  • Lists firm’s assets, liabilities, shareholder’s equity, totals & subtotals
  • Can be represented by:
    • Assets = Liabilities + Shareholder’s Equity
• A common-size balance sheet expresses each balance sheet item as a percentage of total assets = assumes that the size or scale of business does not affect the relation between a given balance sheet item and total assets

Assets

• Asset definition:
  • Probable future economic benefit
  • Firm controls because of a past event or transaction
• Asset recognition:
  • Right to use
  • Results from past transaction
  • Future benefit can be quantified
• Asset Valuation:
  • Historical cost (acquisition cost), example: land, goodwill, intangible finite life
  • Value in use (acquisition cost), example: building, equipment
  • Fair Value (under GAAP: exit value, under IFRS: current exchange value)
  • Present value of future net cash flows (discounts future cash flows to present)
  • Net realizable value (net cash value today), except what if you can’t sell it
• Current assets: Assets that a firm expects to turn into cash, or sell, within one year
  • Cash: short-term, safe, liquid sources of funds- currency on hand, bank deposits, savings accounts, CDs
  • Accounts Receivable (AR): aka receivables- amounts due from customers for sale of goods or services (right to collect from customers, banks use as collateral)
  • Inventory (INV): goods to be sold- can be completed goods, in-process goods, and raw materials
  • Other: prepaid expenses (money paid in advance of goods and services; ex: rent), marketable securities (stocks, bonds, etc, measured by market value)
• Non-current assets: assets held and used for several years
  • Net Property, Plant & Equipment (Net PP&E): long term assets used in operations, including land, buildings, machinery (priced at acquisition cost)
    • Depreciation is a non-cash charge that:
      • Reduces the (net) value of tangible assets on the balance sheets,
      • is an expense on the income statement that reduces earnings
      • is an attempt to capture the deterioration in an asset’s value caused by time and use (though it’s a rough measure)
  • Other: intangibles (patents, trademarks, goodwill= difference between cost of an acquired firm and the value of its individual assets)

Liabilities

• Definition: probable future sacrifices of economic benefits, that arise from present obligations to transfer assets or to provide services in the future as a result of past transaction
• Recognition: represents a present obligation that exists as a result of a past transaction and requires probable future economic resources that can be quantified with sufficient reliability
• Measurement: most liabilities are financial, requiring settlement with cash or other assets
• Current Liabilities: obligations a firm expects to pay within one year
  • Automatic sources: informal liabilities incurred in the ordinary course of business
    • Accounts payable (AP): money owed under informal credit agreement
    • Accrued expenses: expenses incurred through passage of time, but not yet due (utility bills, taxes, wages, etc)
    • Does not include: notes, loans, any other category of debt
  • Debt: Loans, notes, etc. Any liability that is not an automatic source
    • Usually requires interest payments
• Non-current liabilities & shareholder’s equity: sources of funds where the supplier does not expect to receive them all back within a year
• Contingencies: liabilities that are uncertain (timing and/or amount)
  • Recognition criterion under GAAP – no precise threshold, practice indicates approximately 80%

Liabilities: Notes, Bonds & Leases Outline: Accounting for Lawyers

Liabilities: Notes, Bonds & Leases Outline: Accounting for Lawyers

• Liability is an obligation of business:
  • Result of a past transaction
  • Requires an unavoidable future sacrifice
  • Amount can be quantified (estimated)
• Valuation of LT liabilities
  • Many liabilities do not have to be paid until far in the future
  • Must consider the time value of money (interest)
    • Rewards lender for:
      • Giving up use of the money (rent)
      • Inflation
      • Risk
    • Expressed as an annual rate
• Sources of LT financing
  • Notes: borrow from commercial banks, insurance co, and other institutions
  • Bonds: borrow from capital markets

Notes Payable – Term Loans

• Bank lends a certain sum (principal) to business for a fixed time (term) at a set rate of interest and payment schedule
  • At end of term, loan is repaid or refinanced
  • May be short term (less than one year) or LT (greater than one year)
    • If long-term note has less than one year to be repaid, re-classified short term

Bonds

• Issuing Procedures:
  • Requires regulatory approval
  • Paper certificate, typically $1,000 face value
  • Interest payments usually are made semi-annually
  • Contract is called a “bond indenture”
    • Represents a promise to pay a sum of money at designated maturity date plus periodic interest at a stated rate on the face value
• Definitions:
  • Face value: maturity value, except for serial bonds
  • Principal: face value on coupon bonds and serial bonds but not zero coupon bonds
  • Maturity value: amount paid by the issuer at the maturity date of bond
  • Stated interest rate: rate stated in bond contract
  • Semiannual interest rate: half stated annual rate
• Types of bonds:
  • Zero coupon bond: provides for no periodic payments of interest while the bond is outstanding, but repays all principal and interest at maturity
  • Term bond: pays interest periodically and repays principal at maturity
  • Serial bond: requires periodic payments of interest plus a portion of the principal throughout the life of the bond
  • Registered and Bearer bonds
  • Unsecured borrowing – Debenture bonds: lenders do not have rights to specific assets but must rely on assets not pledged as collateral for other loans in event of default
  • Senior Rights (Collateralized bonds): higher priority for payment in the event of bankruptcy than subordinated unsecured lenders
• Bond Provisions:
  • Convertible bonds: permit the holder to exchange the bonds for shares of the firm’s common stock under certain conditions
  • Callable bonds: issuing firm has the right to repurchase the bonds prior to maturity at a specified price
  • Redeemable Bonds: put options allow bond investors to force the issuing company to repay the bonds prior to maturity under specified contractual conditions
• Market Interest Rate at Issue (e.g., issued to yield 6%)
  • Rate used by market to discount future cash flows and determine the initial price of the bond, also called yield
  • To account for lag between filing registration papers and market issue
    • Rates fluctuate frequently- changes in overall economy, government policy, consumer demand, credit worthiness of the company
• When the market-required yield to maturity exceeds the stated rate, then the bonds initially sell for less than or a discount to, face value
  • When market-required yield to maturity is less than the stated rate, the bonds will sell at a premium to face value
• Fair Value Option:
  • Firms can choose between fair value measurement and the amortized cost approach based on historical market rates on a case-by-case basis

Leases

• Lease = renting an asset instead of purchasing that asset.
• Types of leases:
  • Capital lease: equivalent of purchases
    • Lessee recognizes both the leased asset and lease liability
    • Lease asset is depreciated over time and lease liability is amortized as payments are made
    • Non-cancelable
      • Transfers ownership at end of lease, or
      • Has a bargain purchase option, or
      • Lease life > 75% of asset, or
      • PV of contractual lease payments > 90% FMV (most restrictive)
  • Operating Lease (true lease) recognizes lease payments as rental expenses
    • No asset or long-term liability is recognized

• Benefits to Lessee
  • Leases may not require down payment
  • May have less restrictive covenants than other types of lending arrangements
  • May be less costly way of financing
  • Operating leases do not add debt or assets on the balance sheet
  • Reduce risk of obsolescence to the lessee
• Firms must disclose the cash flows associated with capital and operating leases for each of the succeeding five years and all years after 5 years in the aggregate
  • In the notes of financial statements
  • Must also indicate the present value of the cash flows for capital leases

Income Statement Outline: Accounting for Lawyers

Income Statement Outline: Accounting for Lawyers

• Statement of profit and loss, of operations, of operating activity:
  • Provides information on profitability,
  • Reports economic inflows & outflows for a period of time,
    • Corporate life is infinite- can’t stop business to measure business,
  • Goal in creating an income statement: best guess for revenues of next period,
  • Represented by the Basic Income Equation:
    • Net income = Revenues – Expenses

• Revenues, a.k.a. sales, sales revenues, turnover
  • Measures the inflow of assets (or reduction in liabilities) from selling goods and providing services to customers
  • Records economic performance- recorded at cash value of goods or services provided
  • Recognition: when the transaction meets both of the following conditions:
    • Completion of earnings process
    • Receipt of assets from the customer
  • Earned in a given time period (timing is important)
    • Matching principle: expenses are matched with the revenues produced in a given time period
• Expenses
  • Measure the outflow of assets (or increase in liabilities) used in generating revenues
  • Timing of expense recognition focuses on when the firm consumes the benefits
  • Recognized when either of the following conditions hold:
    • Asset consumption results from transactions that lead to revenue recognition
    • Asset consumption results from the passage of time
• Other Comprehensive Income (OCI): refers to changes in net assets that are not transactions with owners and that do not appear on income statement
  • Ex: currency conversions, adjustments
• Cost of Goods Sold (CGS)
  • Costs that can be allocated to the goods that were sold
  • Ex: cost of raw materials, assembly-line labor, depreciation of machines used in production
• Selling, General and Administrative (SG&A)
  • Costs incurred to sell products/services as well as cost of administration
• Interest income
  • Income earned on amounts lent to others or from investments in securities

• Gross profit: Sales – CGS (Cost of Goods Sold)
• Operating Expenses (Op Exp)
  • Costs that do not depend on quantity sold
  • Ex: rent, executive and office salaries
• EBIT: earnings before interest & tax, often called “operating profit”
  • Measure of profit that is shared by equity, debt, and the government
  • Measure of profit that is (mostly) independent of financing choices (debt/equity mix) because interest expense is not subtracted
• EBT: earnings before tax
  • The base from which taxes are taken- after interest expenses are taken away
• Net income (NI), aka profit, earnings
  • Measure of profit that belongs only to the equity holders
  • Note that NI does depend on leverage
  • Earnings-per-share (EPS) is the Net Income divided by the number of shares outstanding

Capitalizing vs. expensing

• What purchases should be treated as assets (capitalized) and what should be expensed?

• General rule: expense when benefits are immediate, or future benefits are too uncertain or immaterial (R&D expenditures)

Income statements do not tell us anything about sources and uses of funds

• Where is the cash coming from and where is it going?
• Many important trends do not show up on the income statement (like asset buildup and capital structure changes)

Relationship between income statement & balance sheet

• Income statement links the balance sheet at the beginning of the period with the balance sheet at the end of the period
• Retained earnings is increased by net income and decreased by dividends

Interpreting & Analyzing the Income Statement

• Provides information on the profitability of the firm over the long-term
• Three tools are useful in the analysis:
  • Common-size statements: revenues are set to 100% and each expense item is shown as percentage of revenue
  • Time series analysis: changes from year to year are calculated in both revenue and expense items
  • Cross-section analysis: revenues and expenses are compared to competitors

Shareholders Equity Outline: Accounting for Lawyers

Shareholder’s Equity Outline: Accounting for Lawyers

• Shareholder's Equity is divided into:
  • Contributed capital – original investment by owners
    • Par or nominal or stated value of the shares which has a legal definition.
    • Remaining amount called additional paid-in capital (APIC), share premium, or capital contributed in excess of par value.
  • Retained earnings – amount of earnings left in the firm after the payment of dividends to the owners.
    • Net accumulation of earnings of the firm since the beginning
      • Increased by net income
      • Reduced by losses, and by the payment of dividends
    • Beginning Retained Earnings + Net Income – Dividends paid = Ending Retained Earnings

Assets and Liabilities Outline: Accounting for Lawyers

Assets and Liabilities Outline: Accounting for Lawyers

Assets

• Asset definition:
  • Probable future economic benefit
  • Firm controls because of past event or transaction
• Asset recognition:
  • Right to use
  • Results from past transaction
  • Future benefit can be quantified
• Asset Valuation:
  • Historical cost (acquisition cost), ex: land, goodwill, intangible finite life
  • Value in use (acquisition cost), ex: building, equipment
  • Fair Value (under GAAP: exit value, under IFRS: current exchange value)
  • Present value of future net cash flows (discounts future cash flows to present)
  • Net realizable value (net cash value today), except what if you can’t sell it
• Current assets: Assets that a firm expects to turn into cash, or sell, within one year
  • Cash: short-term, safe, liquid sources of funds- currency on hand, bank deposits, savings accounts, CDs
  • Accounts Receivable (AR): aka receivables- amounts due from customers for sale of goods or services (right to collect from customers, banks use as collateral)
  • Inventory (INV): goods to be sold- can be completed goods, in-process goods, and raw materials
  • Other: prepaid expenses (money paid in advance of goods and services; ex: rent), marketable securities (stocks, bonds, etc, measured by market value)
• Non-current assets: assets held and used for several years
  • Net Property, Plant & Equipment (Net PP&E): long term assets used in operations, including land, buildings, machinery (priced at acquisition cost)
    • Depreciation is a non-cash charge that
      • Reduces the (net) value of tangible assets on the balance sheets
      • Is an expense on the income statement that reduces earnings
      • Is an attempt to capture the deterioration in an asset’s value caused by time and use (though it’s a rough measure)
  • Other: intangibles (patents, trademarks, goodwill= difference between cost of an acquired firm and the value of its individual assets)

Liabilities

• Definition: probable future sacrifices of economic benefits, arising from present obligations to transfer assets or provide services in the future as a result of past transaction
• Recognition: represents a present obligation that exits as a result of a past transaction and requires probable future economic resources that can be quantified with sufficient reliability
• Measurement: most liabilities are financial, requiring settlement with cash or other assets
• Current Liabilities: obligations a firm expects to pay within one year
  • Automatic sources: informal liabilities incurred in the ordinary course of business
    • Accounts payable (AP): money owed under informal credit agreement
    • Accrued expenses: expenses incurred through passage of time, but not yet due (utility bills, taxes, wages, etc)
    • Does not include: notes, loans, any other category of debt
  • Debt: Loans, notes, etc: any liability that is not an automatic source
    • Usually requires interest payments
• Noncurrent liabilities & shareholder’s equity: sources of funds where the supplier does not expect to receive them all back within a year
• Contingencies: liabilities that are uncertain (timing and/or amount)
  • Recognition criterion under GAAP – no precise threshold, practice indicates approximately 80%