Accounting 200 Chapter 9-11

• What are the characteristics of a tangible asset?

-Physical substance, -used in operations, -have over a year (long period of time)

• What is the responsibility of the Treasurer

? Custody of corporations funds and maintain cash position of the corporation.

• What is treasury stock?

A corporation's own stock that it has reacquired from shareholders, but not retired. Treasury stock is a contra stockholders equity account. It reduces total stockholders' equity.

• What is preferred stock

A second class of stock that has gives holders preference to dividends and assets upon liquidation. Not all companies have preferred stock.

• Know how to record a disposal of tangible asset?

ALL ONE JOURNAL ENTRY: Always: debit accumulated depreciation, cash & credit asset (equipment, building) THEN if you have a loss on disposal you will debit. If you have a gain on disposal you will credit.

• How does depreciation expense work under Units of production

Units of Production- expense each year depends upon activity taking place.

• What is legal capital?

Value per share that the company must retain in the business for the protection of corporate creditors.

• How do you calculate gain or loss on disposal

Compare book value to the selling amount of the asset. If cash received is Greater than book value you have a Gain. If cash received is Less than book value you have a Loss.

Give the owner the exclusive right to reproduce and sell an artistic or published work. Granted for the life of the creator plus 70 years. Capitalize costs of acquiring and defending it. Amortized to expense over useful life.

Copyright

• What are long-term liabilities?

Debts or obligations that will be paid beyond the 12 months.

• What are current liabilities?

Debts or obligations that will be paid within the next 12 months. (12 months from the balance sheet date)

• How does depreciation expense work under Declining balance

Declining balance - expense higher in first year then decreases over life.

• What does outstanding shares mean?

Number of shares that have been sold and are still in the hands of stockholders.

• What does shares issued mean?

Number of shares that have been sold.

• What is meant by authorized shares?

Number of shares the company is allowed to sell as stated in the charter.

Word, phrase, jingle, or symbol that identifies a particular enterprise or product. Legal protection for indefinite number of 20 year renewal periods. Capitalize acquisition costs. No amortization.

Trademark

• How can corporation be formed

By purpose (not-for-profit or for-profit) or by Ownership (privately held or publicly held)

• What is par value stock?

Capital stock that has been assigned a value per share.

• What types of payroll taxes are paid by the company and how are they journalized (slide 20)?

FICA taxes (match the employee amount), Federal and/or state unemployment. Know how to journalize

• What types of deductions can be withheld from employees checks and how does the company record them (journal entry slide 10)?

Federal and state income taxes, FICA taxes, Insurance, Union Dues, United Way, etc. Know how to journalize!

• What is a bond?

Form of note payable issued by either corporations, universities or governmental entities. Can be sold at face value, above face value (premium) or below face value (discount).

Contractual arrangement between a franchisor and a franchisee Franchise (or license) with a limited life should be amortized to expense over the life of the franchise. Franchise with an indefinite life should be carried at cost and not amortized.

Franchises

Includes exceptional management, desirable location, good customer relations, skilled employees, high-quality products, etc. Only recorded when an entire business is purchased.

Goodwill

• What does capitalizing the cost mean?

Increasing the asset account

• Which asset is NEVER depreciated?

LAND

• What is unearned revenue?

Liability recorded when cash is received before providing a service.

• What is the responsibilities of a Controller?

Maintain accounting records, maintain internal controls and issue financial statements.

• How is a corporation formed?

Must file application with Secretary of State

• What is found in a charter?

Name of company, its purpose, number of shares authorized to be sold and type of stock to be sold.

• How do you calculate depreciation expense using the straight-line method?

Need to know how to do this calculation. Remember you can only record depreciation from the date of purchase.

what accounts are found in paid-in capital?

This section contains: common stock, preferred stock, and paid in capital in excess of par accounts.

What is the difference in ordinary repairs and maintenance vs extraordinary repairs, replacements and additions

Ordinary repairs & maintenance - recurring that must be done to MAINTAIN operating efficiency, production capacity or useful life→ Expensed Extraordinary - not frequent; higher cost, INCREASE operating efficiency, production capacity or useful life→Capitalized

• How do you calculate book value of an asset?

Original cost minus Accumulated depreciation

• What are 2 primary sources of equity?

Paid-in capital and Retained Earnings.

• What is paid-in capital

Paid-in capital is the total amount of cash and other assets paid in to the corporation by stockholders in exchange for shares of ownership.

Exclusive right to manufacture, sell, or otherwise control an invention for a period of 20 years from the date of the grant. Capitalize costs of purchasing a patent and amortize over its 20-year life or its useful life, whichever is shorter. Expense any R&D costs in developing a patent. Legal fees incurred successfully defending a patent are capitalized to Patent account.

Patent

• What is a contingent liability

Potential liabilities that arise from past transactions or events, but their ultimate resolution depends (is contingent) on a future event

• Know how to calculate interest

Principal amount x Yearly interest rate x Time (months / 12 months)

• What is the stated interest rate used for?

Printed on the bond certificate. Used to calculate interest that will be paid on the bond

• What is the requirements to record a contingent liability on the balance sheet?

Probable and estimate dollar amount

• What is depreciation?

Process of allocating cost of a plant asset over useful life in a systematic and rational manner.

• What is amortization?

Process of allocating cost of an intangible asset over useful life in a systematic and rational manner. Indefinite life is not amortized. Limited life intangibles are amortized

• What are intangible assets?

Provides exclusive rights and privileges. NO physical substance but are very valuable.

• What is considered acquisition cost of a tangible asset?

Purchase price plus all other costs necessary to get it ready for its intended use.

• What is the market interest rate used for?

Rate investors are demanding for loaning their funds. Used to determine selling price of the bond.

• How does depreciation expense work under Straight line

Straight line - expense each year is the same.

• What are the 3 depreciation methods? Which is allowed by GAAP

Straight-line; Units of production Declining balance

• What must be present for a cash dividend to be paid

Sufficient retained earnings, adequate cash and declaration by the board of directors.

what does issuing bonds at a premium do to the cost of borrowing?

decreases it

what does issuing bonds at a discount do to the cost of borrowing?

increases it