Accounting Exam 3 Review

Intangible Assets

- Non-current assets without physical substance. - Often provide exclusive rights or privileges. - Useful life id often difficult to determine. - Usually acquired for operational use.

Advantages of Debt Financing

-Stockholders' control will not be diluted. -Interest payments are tax deductible.

Stockholders' Equity

-Treasury stock -Dividends -Net Income -Stock Issuances -Additional Paid-in Capital would all be found on a statement of..?

retained earnings

A company's past profits that are kept instead of being paid to stockholders are ___________.

Stockholders' equity; balance sheet

Contributed capital of $1,000,000 is found in the __________ section of the ___________.

franchise

A _____________ provides legally protected rights to sell products or provide services purchased by a franchisee from the franchisor.

par

A common stock's ________ value is typically set at a low amount and has little meaning today other than being used by some states to assess fees.

incorporation

If the application to create a corporation is approved, the state issues a charter, also called the articles of ____________, which spells out information about the corporation.

Par value

An insignificant value per share of capital stock specified in the corporate charter.

Interest

(I) ______________ = (P) Principal x (R) Interest Rate x (T) Time

trademarks; trademarks

- Internally developed ___________ have no recorded asset cost. - Purchased ___________ are recorded at cost.

Acquisition cost includes:

1. purchase price, and 2. all reasonable and necessary expenditures needed to prepare the asset for its intended use.

Times Interest Earned Ratio

2 Financial Rations are commonly used to asses a company's ability to generate resources to pay future amounts owed: 1. Debts-to-Asset Ration 2._______________

note payable

4 Key events occur with any __________ __________: 1. Establishing the note. 2. Accruing interest incurred but not paid 3. Recording interest paid 4. Recording principal paid

dividend

A distribution of a company's accumulated prior earnings is a(n) __________.

preferred stock

A share of stock that has a dividend rate specified on it must be ____________.

Trademark

A symbol, design, or logo associated with a business.

decreases; debit

Accounts Payable ___________ with a ___________ when a company pays on its account.

increases; credit

Accounts Payable ___________ with a ___________ when a company receives goods or services on credit.

Balance Sheet

Accumulated Depreciation is recorded on the

Balance Sheet

Acquisition cost is recorded on the

Initial Public Offering

An _________ _________ _________ refers to the very first issuance of a company's stock to the public.

debt

An advantage of __________ financing is interest is tax deductible.

equity

An advantage of __________ financing is the dividends are optional.

impairment

An asset's ____________ is accounted for in 2 steps: 1) Eliminate the asset's Accumulated Depreciation against the asset account. 2) Write down the asset to its fair value (what it is worth).

Copyright

An exclusive right granted by the federal government to protect artistic or intellectual properties.

Patent

An exclusive right granted by the federal government to sell or manufacture an invention.

higher profitability

An increase in EPS is an indicator of?

Deferred Revenue

Cash received in advance of providing services creates a liability of services due to the customer.

Stock Splits

Cause the par value per share to change

Stock splits and Stock dividends

Cause total stockholders' equity to remain the same

Liabilties

Common Long-Term ______________: 1. Long-term notes payable. 2. Deferred income taxes. 3. Bonds Payable.

Straight-Line Method

Cost - Residual x 1/Useful Life = Depreciation Expense

Units-of-Production Method

Cost - Residual x Actual Production This Period/Estimated Total Production = Depreciation Expense

Income Statement

Depreciation Expense is recorded on the

Depreciation Expense

Depreciation for the current year

cost allocation

Depreciation is a ___________ ____________ process that matches costs of operational assets with periods benefited by their use.

Retained Earnings

Dividends is close into _________ _________ at the end of the fiscal year.

Payment date

Dividends payable is decreased

Income Statement

Earnings per share (EPS) appears on the __________ __________.

Employer Payroll Taxes

FICA Tax, Federal Unemployment Tax, and State Unemployment Tax are examples of

Bonds

Financial instruments that outline the future payments a company promises to make in exchange for receiving a sum of money now.

Licensing Rights

Grant limited permission to use a product or service according to specific terms and conditions.

Discount

If Cash Proceeds < Face Value Face Value - Cash Proceeds =

Premium

If Cash Proceeds > Face Value Cash Proceeds - Face Value =

Gain

In disposal of tangible assets, a __________ on Disposal is recorded if cash received is greater than the asset's book value.

Loss

In disposal of tangible assets, a __________ on Disposal is recorded if cash received is less than the asset's book value.

Payroll Deductions

Income Tax, FICA Tax, and other deductions (charitable donations, union dues, etc.) are all examples of

Bond

Key Elements of a _________: 1. Maturity Date 2. Face Value 3. Stated interest rate

Accrued Liabilities

Liabilities that have been incurred but not yet paid.

Fixed Asset Turnover

Net Revenue/ Average Net Fixed Assets

Sales Tax Payable

Payments collected from customers at time of sale create a liability that is due to the state government.

Contingent Liabilities

Potential liabilities that arise from past transactions or events, but their ultimate resolution depends on a future event.

Stock dividends

Require a journal entry

Treasury Stock

Shares that were previously issued to and owned by stockholders but have been reacquired and now held by the corporation.

Date of record

Stock records are finalized to determine which stockholders are to receive payment

debt & equity financing

The 2 main sources of long-term financing for corporation are

dividing the stock price by EPS

The P/E ratio is calculated by

Declaration date

The board of directors officially approves a dividend

price

The bond ________ involves present value computation and is the amount that investors are willing to pay on the issue date for the bonds.

Dividends; Dividends Payable

The journal entry to record the declaration of a dividends includes a debit to _________ and a credit to _________.

cash; dividends payable

The journal entry to record the payment of a previously declared dividend includes a credit to ___________ and a debit to ___________.

corporation

The owners of a(n) ____________ are not personally responsible for the debts of the business.

Stockholders' Equity

The statement of ____________ ____________ reports the change in retained earnings as well as paid-in capital.

Accumulated Depreciation

Total of depreciation to date for an asset

contra-equity

Treasury Stock is a ____________ account.

Stock option

Typically given to employees as part of their compensation that gives them the opportunity to buy the company's stock at a predetermined price and is recorded as an expense at the time it is granted.

Straight-Line & Units-of-Production

What are the 2 Depreciation Methods?

plant

When a __________ (fixed) asset is acquired during the year, depreciation is calculated for the fraction of the year the asset is owned.

no-par value stock

When a corporate charter does not specify a legal value per share, then the stock issued is referred to as _____________.

nothing

When a stockholder sells its shares of ABC Co. to another person at a price higher than what the stockholder purchased it for, ABC records __________.

declaration date

When does the company record the dividend?

intangibles

You amortize ______________ with limited lives over the shorter of their economic lives or legal lives using the straight-line method.

Payroll Deductions

________ _______ are either required by law or voluntarily requested by employees and create a current liability for the company.

Retained earnings

__________ _________ reports the cumulative amount of net income earned by the company less the cumulative amount of dividends since the corporation began.

Retained Earnings; Contributed

__________ _________ represents the earned capital and ___________ Capital represents the paid-in capital.

Outstanding; issued

__________ shares equals the number of shares __________ minus the number of shares repurchased by the company.

Current Liabilities

____________ ____________ are short-term obligations that will be paid with current assets within the company's current operating cycle or within one year of the balance sheet date, whichever is longer.

Liabilities

____________ are created when a company: - Buys goods and services on credit. - Obtains short-term loans. - Issues long-term debt.

Impairment

_______________ is when the estimated future cash flows from a long-lived asset falls below its book value by... - Casualty - Obsolesce -Lack of demand for the asset's services

Accelerated depreciation in the early years of an asset's useful life results in higher depreciation expense, lower net income and _________ book value than would result using straight-line depreciation.

lower