Accounting Final

Journal entry to record sale of equity investments at a price higher than the purchase price.

debit: cash credit: equity investments (original purchase price) credit: gain on disposal

Journal entry to record issuing common stock at a price above the par value per share. The question will provide you with the number of shares issued, the par value per share, and the market price per share

debit: cash ($ per share x shares) credit: common stock (par value x shares) credit: excess par ($ per share - par value x shares)

Journal entry to record the sale of treasury stock at a price higher than the purchase price. The question will provide you with the number of treasury shares purchased and the purchase price, the number of treasury shares sold and the sale price per share

debit: cash ($ per share x shares) credit: treasury stock - common (prior sale cost x shares) credit: paid in capital from treasury stock transactions (difference between debit and T/S par value x shares)

Journal entry to record purchase of equity investments

debit: equity investment ($ per shar x share amount) credit: cash

Journal entry to record the estimated warranty payable which will be estimated as a % of sales (both the sales and the % will be given).

debit: estimated warranty payable credit: merchandise inventory

Journal entry to record purchase of Held-to-Maturity investments.

debit: held to maturity debt investment credit: cash

Journal entry to record income taxes payable.

debit: income tax expense credit: income taxes payable

Compute the employer's payroll tax expense. The question will provide the gross salary, FICA %, Medicare %, State Unemployment tax %, Federal Unemployment tax %, and salaries subject to unemployment taxes. Hint: Employer's Payroll Tax Expense include all four items

debit: payroll tax expense credit: fica, medicare, state unemployment tax, federal unemployment tax, salaries

Journal entry to record the payment of sales tax payable to the states

debit: sales tax payable credit: cash

Journal entry to record the decrease in market value of trading investments(at end of year). Hint: you need to debit Unrealized Holding Loss and credit Fair Value Adjustment account.

debit: unrealized holding gain credit: fair value adjustment

Theory question about the difference between debt and equity securities

debt securities: notes or bonds that are payable that are issued by another company - high debt ratio = more risky equity securities: investments in stock ownership in another company that sometimes pays cash dividends or issues stock dividends

Compute depletion expense for the first year. This is the same as question 3 above, except that this is depletion not depreciation expense

depletion photo

Compute depreciation expense for the second year using the double-declining balance method. The question will give you the purchase price, the residual value, and the useful life. Remember, you need to compute the depreciation for the first year and subtract it from the cost to get the balance at the beginning of the second year which you multiply by 2/N.

double declining photo

Compute Return on Total Assets (ROTA). Remember, ROTA = (Net Income + Interest Expense)/Average Total Assets. Average total assets = (assets at the beginning of the year + assets at the end of the year)/2. The question will provide all four numbers of the equation

ROTA = (Net Income + Interest Expense)/Average Total Assets. Average total assets = (assets at the beginning of the year + assets at the end of the year)/2

Compute Earnings Per Share (EPS) and Price/Earnings (P/E) ration.

Remember, EPS = (Net Income - Preferred Stock Dividends)/ Average number of common shares outstanding. Average number of common shares outstanding = (Shares at the beginning of the year + Shares at the end of the year)/2. All of these will be provided in the question. P/E ratio = Market Price per Share/EPS. The market price per share will be provided in the question. So, you just divide it by the EPS you just computed.

Journal entry to record the purchase of land where the purchase price is covered by signing a note payable, but survey fees and brokerage commission are paid in cash. Remember, survey fees and brokerage commissions should be added to the cost of the land.

Debit: Land Credit: Cash (all the fees and charges) Credit: notes payable

Compute total stockholders' equity (all common) at end of year. The question will provide the number of shares issued, the par value per share, the market price per share at issue date, the net income for the year, and the dividends declared and paid per share during the year.

Remember, total equity = Common Stock, par + PIC in Excess of Par + Net income for the year - dividends declared and paid during the year. Dividends declared and paid during the year = dividends declared and paid per share x number of share outstanding

Compute the gross pay for an employee who works more than 40 hours a week. The question will give you the number of hours the employee worked for the week, the wage rate per hour and overtime is paid at the rate of time and a half if the employee work hours exceed 40 hours a week

So, if the employee works 50 hours a week, and the regular wage per hour is $20. The gross wage = 40 hours x $20 = $800 plus 10 hours x $30 = $300. Thus the total is $1,100

Problem to compute return on average Common Stockholders' Equity.

This = Net Income for the current year/Average Common Stockholders' Equity. Average Common Stockholders' Equity = (Common Equity at end of last year + Common Equity at end of the current year)/2. The question will provide brief balance sheets, basically, assets, liabilities & equity (all common) for two years. So, you use that to compute average common equity. The question will also provide the net income for the current year, which you need to divide by average common equity.

Compute the book value of a patent after one year of amortization.

amortization expense = (cost - residual value) / useful life

Journal entry to record the amortization of a patent for one-half year.

amortization expense x (number of months / 12)

Compute the average assets turnover ratio for a company and determine if it is better or worse than the industry average industry turnover which is given in the question. Remember, average asset turnover = sales revenue/average assets. Average assets = (assets at the beginning of the year + assets at the end of the year)/2

average asset turnover = net sales revenue / average total assets (previous year + current year / 2) - higher asset turnover is better

Theory question about the corporate form of business

business that has its own legal entity that is separate from its owners (stockholders) -separate legal entity, number of owners, no personal liability of the owners for the business's debts, lack of mutual agency, indefinite life, taxation, capital accumulation

Problem to compute total paid-in capital. Remember, this includes Common Stock, Par; PIC in excess of Par-Common; Preferred Stock, Par; PIC in excess of Par-Preferred. It does NOT include Retained Earnings, because R/E is not paid-in. It is income generated by the company

common stock, par + PIC in excess of par - common + preferred stock, par + PIC in excess of par - preferred

Journal entry to record receipt of cash dividend from investments that have no significant influence, i.e., less than 20% of outstanding shares. Hint: you credit Dividend Revenue.

debit: cash credit: dividend revenue (dividend $ x share)

Compute the times-interest-earned (also known as interest coverage) ratio. The question will provide Net Income, Income Tax Expense, and Interest Expense. Remember, Times-Interest-Earned ratio = Earnings before Interest & Taxes/Interest Expenses. So, you need to add back the interest and taxes to net income and divide the total by interest expense

interest coverage ratio = (net income + income tax expense + interest expense) / interest expense

Compute the book value of a machine at the end of the second year using the straight-line method of depreciation. You need to subtract the accumulated depreciation for two years from the original cost.

look at straight line depreciation image

Compute the gain or loss on sale of the asset. The question will give the original cost, the accumulated depreciation, and the sale price. Gain or Loss = sale price - book value of the asset. Book value of asset = original cost - accumulated depreciation

market value of asset received - book value - cash paid = gain or loss

Theory question about the method of accounting for trading securities, specifically, at what value should they be reported on the Balance Sheet. Hint: They should be reported at fair value

method of accounting for trading securities: fair value method should be reported at fair value price they would get if they sold at market

Theory question about how to account for a contingent liability when the contingency is more than remote but less than probable that it will result in an actual liability

possible: disclose

Theory question about how to account for a contingent liability when it is probable that it will result in an actual liability and while the exact amount is not known, it can be estimated

probable and can be estimated: record debit: expense credit: liability

Theory question about how to account for a contingent liability when there is only a remote possibility that the lawsuit will result in an actual liability

remote: do nothing

Compute the dividends to be paid to preferred stockholders where the preferred stock is cumulative, and the company did not pay any dividends for the last three years. Remember, the company has to pay all past three years dividend in addition to the current year dividends. The annual dividend for preferred shares is computed by multiplying the stated dividend rate X the par value per share X the number of shares outstanding. All these three will be provided in the question

total dividends - (dividends in arrears + current year dividends) = dividends to common stock difference is what you pay to preferred

Compute depreciation expense for an asset for the first year using the production method. The question will give you the purchase price, the residual value, total estimated number of units to be produced over the life of the asset, and the number of units produced during that year.

units of production photo