Review of Quiz 1

New Venture DevelopmentJanuary 24, 2013

By the numbers

• Average: 81.8• Standard deviation: 8.4• (64% scored between 73.4 and 90.2)• Max score: 100• 43 of you took advantage of extra credit

Prepaid expenses

• Definition of 'Prepaid Expense'– Asset on balance sheet resulting from making payments for

goods and services to be received in the near future. Initially recorded as assets, but value is expensed over time as the benefit is received onto the income statement, because unlike conventional expenses, the business will receive something of value in the near future.

– Example: company has a one-year insurance policy cost of $1200. As each month elapses, $100 of prepaid insurance would be expensed to the income statement until the account is empty at the end of the year.

– Cash decreases, prepaid expense increases, no immediate effect on IS

Howard M. Burgers

• Howard is a consultant ( a service provider )• Service providers make their revenues from

their labor billings – there are no “goods” sold• Howard would certainly be likely to realize:– Revenues– Operating income (after paying expenses)– Income after interest paid (for paying interest on a

loan)

Disintermediating suppliers

• Build-A-Bear receives unfinished inventory from suppliers – can presume lower COGS

• Build-A-Bear employs workers to help stuff bears and customize final product in store – can presume higher operating expenses

• Build-A-Bear’s COGS/Revenues should be lower than a regular toy stores’s

Buy-back of common stock

• A company may buy back shares of its stock to raise the share price

• This is a financing activity that results in negative cash flow (cash is being spent to buy shares of stock on common market)

• Result: cash decreases, negative cash flow in financing