ACC 305 Exam 2 Chpt 13 Starred

Demolishing an existing building to build a new one is valued as?

Demolish Value = Cost to Demolish - Salvage Value It is included in the cost of land.

If a loss on a contingency is remote then

ignore

What do we do if the exchange has commercial substance?

recognize gains and losses immediately

Goodwill has an indefinite life and is not __________ (what's left over)

amortized

Internally-created Goodwill should not be __________________.

capitalized

Impairment of Limited Life Intangibles is equivalent to ________ for impairment on ____________ assets (Fair Value - Book Value) Debit the __________ _______ & Credit the __________

testing, long-lived D - Impairment Loss C - Intangible

Limited Life Intangibles must be amortized over expected __________ (periods in which asset will provide cash flows). We would credit the __________ account. Amortization Base = Cost - Residual Value

useful life (periods in which asset will provide cash flows) *Intangible*

In order to capitalize costs instead of taking an expense, one of three conditions must be present; _____ ______ must be increased, _______ of units produced must be increased, OR ________ of units produced must be enhanced.

useful life, quantity, quality

If current liabilities are refinanced and excluded, disclose in the notes to the financial statements:

A general description of the financing agreement. The terms of any new obligation incurred or to be incurred. The terms of any equity security issued or to be issued. Contingency disclosures need to include the (a) nature and (b) estimate of the contingency

If a loss contingency is reasonably possible then

Footnote

We pay 400k for 350k worth of a company at FAIR value, what happens to the extra 50k?

It goes to Goodwill

Accounts Payable vs. Notes Payable

Notes payable are due on a specific date

Think about iPhones, ________ life would be 5 years, _______ life would be 20 years

Useful = 5 Service = 20

Commercial Substance

When the future cash flows change as a result of the transaction. That is, if the two parties' economic positions change, the transaction has commercial substance. It causes significant changes in a company's cash flow.

Assurance-Type Warranty guarantees that the product meets agreed-upon specifications. You ________ cost at the time the product is sold & record a __________ __________.

You expense cost at the time the product is sold & record a Warranty Liability.

How do you test the impairment of a limited life intangible asset?

You use the Recoverability Test (Expected Future Cash Flows v. Book Value) (If there is a Loss --> Fair Value - Book Value = Impairment Loss)

A contingent liability is...

a liability incurred as a result of a loss contingency

A liability should be accrued for the cost of compensated absences if all of the following conditions are met:

a. The employer has an obligation because the employee already worked b. The obligation is vested or accumulated c. Payment of the compensation is probable d. The amount can be reasonably estimated If an employer meets conditions (a), (b), and (c), but not (d) then it should be disclosed

R&D costs cannot be ___________, they must be _________

capitalized, expensed

Artistic-Related Intangible have copyright granted for ______________. You must ________ _________ to acquire and defend. This asset is _________ over its _______ ____.

creator's lifetime plus 70 years Capitalize Cost Amortied over useful life

Current ratio

current assets divided by current liabilities Current Ratio shows how many times a company can cover their current liabilities using current assets; ideal for 1.0 or better

A cash dividend authorized by the board of directors would be recorded as a _______________________ and a ____________________. The Dividends Payable account should be classified as a current liability.

debit to Retained Earnings and a credit to Dividends Payable.

Goodwill is defined as the excess in ______ _________ over the ______ ______ of the ____ __________ ___________. Recognized when an entire business is purchased.

purchase price over the fair value of the net assets purchased.

What do we do if we have an exchange that lacks commercial substance and cash is received?

Recognize partial gain unless cash is > 25% of fair value of transaction; recognize losses immediately.

Three factors of interest capitalization

Assets that require a period of time to get ready, Interest Costs are being incurred, Amount to Capitalize is the lesser of Actual Interest Costs

What do we do if we have an exchange that lacks commercial substance and there is no cash received?

Defer gains; recognize losses immediately.

Gain contingencies are ________________, disclosed only if probability of receipt is high

Gain contingencies are *not* recorded, disclosed only if probability of receipt is high

Recognized (partial) Gain formula

(Cash received / (cash received + FV of other assets received)) x total gain

What is Kellogg's Profit Margin? Net sales: 12.9k Beg Assets: 16.3k End Assets: 15.1k NI: 1.3k

1.3/12.9 = .10

Trademarks and trade names have legal protection provided for an unlimited number of __-year renewal periods. They are Indefinite Life Intangible, so they are ___ ________.

10, Not Amortized

Lump Sum Purchase $100 Phone $150 Computer FV = $200

100/250 = 40% * 200 = 80 150/250 = 60% * 200 = 120

M. Alou Inc. has equipment that, due to changes in its use, it reviews for possible impairment. The equipment's carrying amount is $600,000 ($800,000 cost less $200,000 accumulated depreciation). Alou determines the expected future net cash flows (undiscounted) from the use of the equipment and its eventual disposal to be $580,000. Determine whether an impairment has occurred. Then, Assume this asset has a fair value of $525,000. Determine the impairment loss, if any.

580,000 - (800,000 - 200,000) = -20,000 (FV) 525,000 - (CV) 600,000 - = 75,000 impairment loss Impairment Loss (D) 75,000 Acc Dep (C) 75,000

Impairment Loss

Impairment Loss = Carrying Amount - Fair Value of the Asset.

Indefinite Improvements (i.e. drainage systems, street lights, etc.) are recorded as _______________? Definite life improvements (i.e. sidewalks, fences, etc.) are recorded as ___________________?

Indefinite Improvements (i.e. drainage systems, street lights, etc.) are recorded as cost of land and and are not depreciated. Definite life improvements (i.e. sidewalks, fences, etc.) are recorded as Land Improvements and are Depreciated.

Indefinite Life Intangibles are not _________ and must be ________ ______ __________ ____________

Indefinite Life Intangibles are not amortized and must be tested for impairment annually

Askbrook Inc. has negotiated the purchase of a new piece of automatic equipment at a price of $8,000 plus trade-in, f.o.b. factory. Ashbrook Inc. paid $8,000 cash and traded in used equipment. The used equipment had originally cost $62,000; it had a book value of $42,000 and a secondhand fair value of $47,800, as indicated by recent transactions involving similar equipment. Freight and installation charges for the new equipment required a cash payment of $1,100. Prepare the general journal entry to record this transaction, assuming that the exchange has commercial substance

New Equipment (D) 59.6k Depreciation Undone (D) 20k Old Equipment Sold (C) 62k Cash (Installment too) (C) 9.1k Gain (Fair - Book Value) (C) 5.8k

Service-Type Warranty provides a service above and beyond the assurance-type warranty Recorded as a separate obligation called __________ __________ __________. Recognize service revenue on a __________________ over the life of the ________

Recorded as a separate obligation called Unearned Warranty Revenue Recognize service revenue on a straight-line basis over the life of the warranty

Costs that are similar to R&D Costs but are not R&D Costs:

Start-up costs for a new operation, initial operating losses, advertising costs, & computer software costs

How do you test the impairment of a unlimited life intangible asset?

Test for impairment using the Fair Value Test (Fair Value - Book Value = Impairment Loss)

What is the Impairment of Indefinite-Life Intangibles Other than Goodwill?

Test for impairment using the Fair Value Test (Fair Value - Book Value = Impairment Loss)

Exclude maturing portion of long-term debt from current liabilities when these two conditions are met: The liability is contractually due to be settled ____ ___ _____ _____ after the _______ ______ _________. The entity has contractual right to defer settlement of the liability for ___ ______ _____ ______ after the _______ ______ ________.

The liability is contractually due to be settled more than one year after the balance sheet date. The entity has contractual right to defer settlement of the liability for at least one year after the balance sheet date.

A franchise can have either limited or indefinite life; amortized accordingly

True

Undeclared dividends on preferred stock and Stock Dividends are NOT _____________

Undeclared dividends on preferred stock and Stock Dividends are NOT liabilities

Internally Created Intangibles capitalize only _________ ________. R&D costs are normally ___________.

direct costs, normally expensed.

If an intangible is acquired in exchange for stock or other assets, the value of the intangible is the ____________ of the ____________________ or the _______________________________, whichever is more clearly evident

fair value of the consideration given or the intangible received

A Bargain Purchase occurs when a company pays less than the _____ value of the ___ ______ purchased The excess amount is recorded as a gain by the purchaser

fair, net assets

Current Liabilities are reported at their ___________________________.

full maturity value

PPE & Intangible Assets are recorded at ______ _______. This includes cost of the asset and the cost to ___ ___ ____ __ ___ _______ and ___ _____ _____ ______ for its intended use.

get the asset to the location, in the necessary condition

Contract-Related Intangibles

include licensing agreements, construction permits, and broadcast rights, supply/service contracts

Marketing-Related Intangibles

include trademarks, newspaper mastheads, internet domain names, and non-competition agreements Wheaties, Buick

Land purchased and held for sale is considered what?

is considered inventory not PP+E

Unemployment Benefits only occur when

you get laid off

Intangible Assets on the Income Statement

Amortization Expense and Impairment Losses go to Income from Continuing Operations Exception: Impairment of Goodwill associated with a discontinued operation

A contingent liability should be recorded and a charge accrued to expense only if

It is probable that a liability has incurred prior to the issuance of the financial statements

The cost of a crane is $500,000 and has a useful life of 5 years and a salvage value of $50,000. The production life of the crane is 30,000 hours and we've used 4,000 hours this year. What is our ACTIVTY METHOD depreciation?

((Cost - Salvage) x Hours this year) / Total hours ((500k - 50k) x 4k)/30k = $60k

What is Kellogg's ROA? Net sales: 12.9k Beg Assets: 16.3k End Assets: 15.1k NI: 1.3k

(1.3k/12.9k) x (12.9k/((16.3k+15.1k)/2)) = .082 1.3k /((16.3+15.1)/2) = .082

Book Value of Division = 2.4M Fair Value of Division = 1.9M Carrying Value of Goodwill = 900k Fair Value of Goodwill = X What is our loss on Impairment?

2.4M > 1.9M = Impairment because BV > FV So we take FV of Division - BV of assets except goodwill to find FV of goodwill 1.9M - (2.4M - 900k) = 400k (FV goodwill) 400k - 900k = -500k Loss (D) 500k Goodwill (C) 500k

We are using the double-declining depreciation method, so how do we find the depreciation expense? The cost of a crane is $500,000 and has a useful life of 5 years and a salvage value of $50,000. What is our depreciation in year 4? What is the depreciation expense percentage?

(450k/5 = straight line of 90k) (90k/450k= .20 x 2 = .40) (Our depreciation percentage should be 40%) Year 1 = (500k x .4) = 200k = 500k - 200k = 300k Year 2 = (300k x .4) = 120k = 300k - 120k = 180k Year 3 = (180k x .4) = 72k = 180k - 72k = 108k Year 4 = (108k x .4) = *43k* = 108k - 43k = 64.8k Year 5 = (64.8k x .4) = 14.8k (can't be less than salvage) = 50k

The cost of a crane is $500,000 and has a useful life of 5 years and a salvage value of $50,000. What is our SUM OF DIGITS depreciation in year 4?

(5+4+3+2+1) = 15 Year 1 = (500k-50k) x 5 years left/15 = 150k = 350k BV Year 2 = (500k-50k) x 4 years left/15= 120k = 230k BV Year 3 = (500k-50k) x 3 years left/15= 90k = 140k BV Year 4 = (500k-50k) x 2 years left/15= *60k* = 80k BV Year 5 = (500k-50k) x 1 years left/15= 30k = 50k BV

Current maturities of long-term debt that are excluded from current liabilities

(a) not retired by current assets - but rather equipment (b) refinanced by new long-term debt or (c) converted into capital stock

Acid-Test/Quick Ratio

(cash + short-term investments + NET current receivables) / current liabilities is a better indicator of current liability coverage because it excludes inventories & prepaid expenses

Customer Advances & Returnable Cash Deposits

- When you get money from a customer that you have to give back. For example you pay a hotel $100 just in case you damage something, if you don't damage something, the hotel gives the money back.

(Exchanges, Gain w/ NO Commercial Substance, Some Cash Received Example) Queenan Corporation traded in used machinery with a book value of $60,000 (cost $110,000 less accumulated depreciation $50,000) and a fair value of $100,000. It receives in exchange a machine with a fair value of $90,000 plus cash of $10,000. What is the gain on the machine? What is the journal entry?

100k (fv) - 60k (bv) = 40k (Partial Gain) (10k/(10k+90k))x(40k) = 4,000 Cash (D) 10k Dep undone (D) 40k New Machinery (D) 54k Old Machine (C) 110k Gain on Disposal (C) 4k

What is Kellogg's ATR? Net sales: 12.9k Beg Assets: 16.3k End Assets: 15.1k NI: 1.3k

12.9/((16.3+15.1)/2) = .82

2016, Winston Corporation spent $170,000 in research and development costs. As a result, a new product called the New Age Piano was patented. The patent was obtained on October 1, 2016, and had a legal life of 20 years and a useful life of 10 years. Legal costs of $180,000 related to the patent were incurred as of October 1, 2016. Prepare all journal entries required in 2016 and 2017 as a result of the transactions above. 2018, Winston spent $9,480 to successfully prosecute a patent infringement suit. As a result, the estimate of useful life was extended to 12 years from June 1, 2018. Prepare all journal entries required in 2018 and 2019. Winston determined that a competitor's product would make the New Age Piano obsolete and the patent worthless by December 31, 2021. Prepare all journal entries required in 2020 and 2021

2016 Research and Development Expense (D) 170k Cash (C) 170k Patent (D) 180k Cash (C) 180k Amortization Expense (D) 450 Patent (C) 450 (18k/10yr x 3mo/12mo) 2017 Amortization Expense (D) 1.8k Patents (C) 1.8k 2018 Patents (D) 9.48k Cash (C) 9.48k Amortization Expense (D) 1.94k ($750 + 1190) (jan-june 1 = 5mo) (18k/10y x 5m/12m = 750) (jun 1 - dec 31 = 18k - 450 - 1.8k - 750 + 9.48k = 24.48k/12 x 7m/12m = 1190) 2019 Amortization Expense (D) 2.04k Patents (C) 2.04k 2020/2021 Amortization Expense (D) 10,625 Patents (C) 10,625 (24,480 - 1190 - 2040 = 21250/2 = 10625)

(Exchanges, Gain w/Commercial Substance Example) Interstate Transportation Company exchanged a number of used trucks plus cash for a semi-truck. The used trucks have a combined book value of $42,000 (cost $64,000 less $22,000 accumulated depreciation). Interstate's purchasing agent, experienced in the secondhand market, indicates that the used trucks have a fair market value of $49,000. In addition to the trucks, Interstate must pay $11,000 cash for the semi-truck. What is the cost for the semi-truck?

49,000+11,000=60,000 Semi-Truck (D) 60,000 Dep Undone (D) 22,000 Gain on Disposal (C, FV - BV) 7,000 Used Trucks (C) 64,000 Cash (C) 11,000

(Exchanges, Gain w/ NO Commercial Substance Example) The used trucks have a combined book value of $42,000 (cost $64,000 less $22,000 accumulated depreciation). Interstate's purchasing agent, experienced in the secondhand market, indicates that the used trucks have a fair market value of $49,000. In addition to the trucks, Interstate must pay $11,000 cash for the semi-truck.

60k (FV of semi 49k+11k (what we give for the semi)) - 7k (gain from used trucks (49fv-42bv)) = 53k Semi truck basis Semi-Truck (D) 53k Dep Undone (D) 22k Used Trucks (C) 64k Cash (C) 11k

If a loss contingency is probable then

Accrue to Current Liabilities & Footnote

Cost of Buildings

All costs related to acquisition and construction such as Materials, Labor, Overhead Costs, Professional Fees & Building Permits

Barret Company recorded depreciation on a machine costing $18,000 for 9 years at the rate of $1,200 per year. If it sells the machine in the *middle* of the tenth year for $7,000, Barret records depreciation to the date of sale & sale of the machine as what?

Equipment (D) 600 Depreciation for half year (C) 600 Cash (D) 7,000 Acc Dep (D) 11,400 ((1,200*9) + 600) Machine (C) 18,000 Gain (C) 400

An accumulated but undeclared dividend on cumulative preferred stock is ______________ in the accounts as a liability until declared by the board, but should be _______________________________ to the balance sheet or parenthetically in the capital stock section.

An accumulated but undeclared dividend on cumulative preferred stock is not recorded in the accounts as a liability until declared by the board, but such arrearages should be disclosed either by a footnote to the balance sheet or parenthetically in the capital stock section.

Contingency

An uncertainty as to possible gain (gain contingency) or loss (loss contingency) to an enterprise that will ultimately be resolved.

On 11/30/2020, Montavon Winery issued a note payable of $3,000,000. The note is due on 2/28/21 & their balance sheet date is 12/31/2020. Montavon issued is financial statements on 3/1/2021. At that time it plans to extend the maturity date of the loan to 6/15/2022. What is the accounting treatment for Montavon's short-term debt to be refinanced if a contract to refinance is completed on January 15, 2021?

Classify note as Current Liability because contract is not complete

On 11/30/2020, Montavon Winery issued a note payable of $3,000,000. The note is due on 2/28/21 & their balance sheet date is 12/31/2020. Montavon issued is financial statements on 3/1/2021. At that time it plans to extend the maturity date of the loan to 6/15/2022. What is the accounting treatment for the short-term debt to be refinanced if a contract to refinance is completed by December 31, 2020?

Classify note as Noncurrent Liability because company has right to defer settlement of the liability

Consideration Payable are items that companies offer as a means of discounting products they sell. An estimate of premium offers that will be redeemed are debited to _________ ____________ and credited to __________ ____________ in the period of sale.

Consideration Payable are items that companies offer as a means of discounting products they sell. An estimate of premium offers that will be redeemed are debited to Premium Expense and credited to Premium Liability in the period of sale

Customer-Related Intangible Assets include ________, ____________, and ____________. If you happen to acquire this, you must _________ the cost of it. They are _______ over their __________ _________

Customer lists, order backlogs, and customer contracts. You must capitalize Customer-Related Intangible Assets. They are amortized over their useful life.

WHAT CAN YOU NOT INCLUDE IN CALCULATION OF LAND?

Definite life improvements (i.e. sidewalks, fences, etc.)

Research & Development (R&D) Costs are inputs to the creation of an intangible, such as a Patent or Copyright or compositions or literary works. *All R&D Costs are __________ when incurred*

Expensed (not an intangible asset on the balance sheet You don't know if the R&D will actually lead to something so you can't capitalize it. It is only money spent.)

Cost $9,000000 Accumulated Depreciation $1,000,000 Expected Future Cash Flows $7,000,000 Fair Value $4,800,000 Assume that Suarez will continue to use this asset in the future. As of December 31, 2020, the equipment has a remaining life of 4 years. Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2020

FCF < BV = Impaired Loss = FV - BV(9-1) = -3200000 Impairment Loss (D) 3.2M Depreciation (C) 3.2M

FV - BV If a loss... always recognize the entire loss! If a gain and commercial substance, _________ ____ _____ ______! If a gain but no commercial substance, no cash, ____ _____ ____ ______. If a gain but no commercial substance, some cash is given, ____ _____ ____ ______. If a gain but no commercial substance, some cash is received, ____ _____ ____ ______.

FV - BV If a loss... always recognize the entire loss! If a gain and commercial substance, recognize the entire gain! If a gain but no commercial substance, no cash, don't recognize a gain. If a gain but no commercial substance, some cash is given, don't recognize a gain. If a gain but no commercial substance, some cash is received, recognize some of the gain.

Loss of Impairment on Indefinite Life Intangible Asset

Fair Value - Book Value

Costs associated with R&D include:

Materials, equipment & facilities, personnel, purchased intangibles, contract services, & indirect costs

Ashbrook Inc. has negotiated the purchase of a new piece of automatic equipment at a price of $8,000 plus trade-in, f.o.b. factory. Ashbrook Inc. paid $8,000 cash and traded in used equipment. The used equipment had originally cost $62,000; it had a book value of $42,000 and there was not a determinable fair value. Freight and installation charges for the new equipment required a cash payment of $1,100. Prepare the general journal entry to record this transaction, assuming that the exchange has commercial substance

New Equipment (D) 51.1k Depreciation Undone (D) 20k Old Equipment Sold (C) 62k Cash (Installment too) (C) 9.1k

(Exchanges, Loss Example) IPI trades its used machine for a new model at Jerrod Business Solutions Inc. The used machine has a book value of $8,000 (original cost $12,000 less $4,000 accumulated depreciation) & a fair value of $6,000. The new model lists for $16,000. Jerrod gives IPI a trade-in allowance of $9,000 for the used machine. What is the cost of the new asset? What is the journal entry?

New Machine Purchase Price (-) 16,000 Trade-In (+) 9,000 = Cash Payment (-) 7000 Fair Value Old Machine (-) 6000 = Cost of New Machine (-) 13000 JOURNAL ENTRY Equipment (D) 13,000 Acc Dep Undone (D) 4,000 *Loss on Disposal (D, 8k bv - 6k fv)* 2,000 Old Equipment (C) 12,000 Cash (C) 7,000

Harcott Co. incurs $180,000 in legal costs on January 1, 2020, to successfully defend a patent. The patent's useful life is 12 years, its legal life is 20 years, amortized on a straight-line basis. Harcott records the legal fees and the amortization at the end of 2020 as??

Patent (D) 180k Cash (C) 180k Amortization Expense (D) 15k Patent (C) 15k

Technology-Related Intangibles have _________ which can be used for up to ___ years. You must _________________ of the purchase, ________ R&D, amortize any capitalized costs over ________ or useful life, whichever is shorter.

Patents which can be used for up to 20 years. You must capitalize costs of the purchase and expense R&D. You must amortize capitalized costs over legal or useful life.

Return on Assets

Profit Margin x Asset Turnover OR net income/average total assets Measures a firm's success in using assets to generate earnings.

Consideration Payable Example: Fluffy Cake Mix Company sells boxes of cake mix for $3 per box. In addition, Fluffy Cake Mix offers its customers a large durable mixing bowl in exchange for $1 and 10 box tops. The mixing bowl costs Fluffy Cake Mix $2, and the company estimates that customers will redeem 60% of the box tops. The premium offer began in June 2020. During 2020, Fluffy Cake Mix purchased 20,000 mixing bowls at $2, sold 300,000 boxes of cake mix for $3 per box, and redeemed 60,000 box tops.

Record the purchase of 20,000 mixing bowls at $2 per bowl. Premium Inventory (D) 40k Cash (C) 40k Record the sale of the cake mix boxes in 2020. Cash (D) 900k Sales Rev (C) 900k Record the redemption of 60,000 box tops, receipt of $1 per 10 box tops, and delivery of mixing bowls: Cash (D) 6k Premium Expense (C) 6k Premium Inventory (C) 12k 300k x 6 = 180k / 10 x $1 = 18k - 6k = 12k Record the adjusting entry to record additional premium expense and the estimated premium liability at Dec. 31 2020 Premium Expense (D) 12k Premium Liability (C) 12k

Service-Warranty Example: You purchase an automobile from Hamlin Auto for $30,000 on January 2, 2020. Hamlin estimates the assurance-type warranty costs on the automobile to be $700 (Hamlin will pay for repairs for the first 36,000 miles or three years, whichever comes first). You also purchase for $900 a service-type warranty for an additional three years or 36,000 miles. Hamlin incurs warranty costs related to the assurance-type warranty of $500 in 2020 and $200 in 2021. Hamlin records revenue on the service-type warranty on a straight-line basis. What entries should Hamlin make in 2020 and 2023?

Record the sale of the automobile & warranties (Jan. 2, 20). Cash (D) 30,900 Unearned Warranty Rev (C) 900 Sales Rev (C) 30,000 Record the warranty costs incurred in 2020 (Jan. 2, - Dec. 31, 20). Warranty Expense (D) 500 Cash/Inventory (C) 500 Record estimated warranty expense & warranty liability for expected assurance warranty claims in 2021 (Dec. 31, 20): Warranty Expense (D) 200 Warranty Liability (C) 200 Record revenue in 2023 on the warranty (Jan. 1 - Dec. 31, 23): Unearned Warranty Rev (D, 900/3) 300 Warranty Rev (C) 300

Assurance-Warranty Example: Denson Machinery Company begins production of a new machine in July 2020 and sells 100 of these machines for $5,000 cash by year-end for a total sales revenue of $500,000 (100 × $5,000). Each machine is under warranty for one year. Denson estimates, based on past experience with similar machines, that the warranty cost will average $200 per unit for a total expected warranty expense of $20,000 (100 × $200). Further, as a result of parts replacements and services performed in compliance with machinery warranties, it incurs $4,000 in warranty costs in 2020 and $16,000 in 2021.

Record the sale of the machines & warranty costs (July-Dec. 20) Cash (D) 500k Sales Rev (C, 5k x 100) 500k Warranty Expense (D) 4k Cash, Inventroy, Payroll (C) 4k Record the estimated warranty expense & warranty liability for expected claims in 2021 (Dec. 31, 2020): Warranty Expense (D) 16k Warranty Liability (C, 20k - 4k) 16k Record the payment for warranty costs incurred in 2021 related to 2020 machinery sales (Jan. 1 - Dec. 31, 2021): Warranty Liability (D) 16k Cash/Inventory (C) 16k

Impairment of Goodwill (2 steps)

STEP 1: Fair Value < Carrying Amount of all Net Assets = Impairment STEP 2: Impairment Loss = Fair (Implied) Value of Goodwill - Carrying Value of Goodwill

Compensated Absence Example. Amutron Inc. employs 10 individuals and pays each $480 per week. Employees earned 20 unused vacation weeks in 2020. In 2021, the employees used the vacation weeks, but now they each earn $540 per week. Amutron accrues the accumulated vacation pay on December 31, 2020, as follows: In 2021, it records the payment of vacation pay as follows.

Salaries & Wages Expense (D) 9,600 Salaries & Wages Payable (C) 9,600 Salaries & Wages Payable (D) 9,600 Salaries & Wages Expense (C) 1,200 Cash (C, 540 x 20) 10,800

Intangible Assets on the Balance Sheet

Separate line item under fixed assets (no contra accounts) Goodwill is shown separately

Askbrook Inc. has negotiated the purchase of a new piece of automatic equipment. Ashbrook Inc. paid $8,000 cash. Their used equipment had originally cost $62,000; it had a book value of $42,000 and a secondhand fair value of $47,800, as indicated by recent transactions involving similar equipment. Freight and installation charges for the new equipment required a cash payment of $1,100. Prepare the general journal entry to record this transaction, assuming that instead of paying $8,000 for the new equipment, Ashbrook actually received $8,000 for their old equipment, the new equipment has a fair value of $50,000 and the transaction lacks commercial substance.

Total Gain = FV of Old - BV of old Gain on Disp Assets = (cash/cash + new FV) x total gain Total Gain = 47.8 - 42 = 5.8 Gain on Disp Assets = (8k/58k) x 5.8k = .8k New Equip (D, plug) 34k Cash (D) 8k Dep Undone (D) 20k Old Equip (C) 62k Gain (C) 8k

Compensated Balances

paid absences for vacation, illness or holidays

Profit on Margin

net income/net sales Measure of the ability to generate operating income from a particular level of sales.

Asset Turnover Ratio

net sales/average total assets Measure of a firm's ability to generate sales from a particular investment in assets.

Current liabilities are obligations whose liquidation is reasonably expected to ________________________________________________________________________.

require use of current assets, or the creation of other current liabilities

Accure the ______________________________________________ on a litigation loss

smallest amount estimable