A302--Exam 1 (CH 8 & 14)

LCM Procedure

1. Determine Cost 2. Determine market Choose middle value of RepCo, ceiling, and floor 3. Compare the selected market to cost and choose the lower as the LCM (can be used individually, categorically, aggregately)

Relative Fair Market Value Approach

1. Determine FMV per item 2. Determine sum of all FMVS 3. Individual FMV / total FMV x lump price = Cost of Item Entry to purchase: Debit each inventory item at its cost .....Credit Cash for the total

Estimating Ending Inventory--GP Method [periodic system]

1. Determine GP% as MUR 2. Calculate CGAS Beg. Inv + Purch - Purch ret and disc + freight in = CGAS 3. Calculate Net Sales Sales - Sales ret and disc = Net Sales 4. Net Sales x GP% = Est GP 5. Net Sales - GP = COGS 6. CGAS - COGS = ENDING INVENTORY

LCNRV Procedure [everything except lifo]

1. Determine cost 2. Calculate NRV 3. Compare NRV and cost ; choose lower as the LCNRV

Forming a Corporation

1. Submit Articles of Incorporation in a state 2. State issues a charter 3. Corp becomes a legal entity under the law 4. Can only be incorporated in one state

Large Stock Dividend

Above 25% Use PAR VALUE Net effect on SE is ZERO Declaration Entry: Retained Earnings (o x % x par) .....CS Dividend Distributable (outstanding x % x $par) Distribution Entry: CS Dividend Distributable .....C/S

Small Stock Dividend

Below 20-25% Use MARKET VALUE Net Effect on SE is ZERO Declaration Entry: Retained Earnings (mv) .....CS Dividend Distributable (CS outstanding x % x $par) .....APICxPV--CS Distribution Entry: CS Dividends Distributable (par) .....C/S

Other ways to classify corporations

By purpose .....for profit .....non-profit By ownership .....public -- many stockholders ; public trading .....private -- few ; private

Components of SE

Capital Stock ....Preferred Stock ....Common Stock APIC ....PICxPV--PS ....PICxPV--CS ....PIC from TS if applicable Contributed Capital ....Total PIC Earned Capital ....Retained Earnings ....Accumulated Other Comprehensive Income ....Unrealized g/l on afs debt sec or certain derivative transactions Less: Treasury Stock

No-Par stock (true)

Carried at issue price Entry: Cash .....Common Stock

Purchase of Treasury Stock

Cost Method (we use) PV Method (we don't) Cost Method Entry: TS (cost) .....Cash (cost) Reduction to PIC and RE

Cash Dividends

Date of Declaration Entry: Cash Dividends (or RE) .....Cash Dividends Payable--PS (PS outs. x % x par) .....Cash Dividends Payable--CS (the rest) Date of Record: No Entry Date of Payment Entry: Cash Dividends Payable .....Cash

C corporation

Default Double taxed No restrictions on number of stockholders or classes of stock Largest in rev, total assets, and market value

Liquidating Dividends

Dividends based on other than RE Reduces corporate PIC Return of stockholders' investment rather than profit Declaration Entry: Retained Earnings (income amount given) PICxPV--CS (excess) .....Dividend Payable (total) Payment Entry: Dividend Payable .....Cash

Cumulative Preferred Stock

Dividends in arrears (not a liability ; just a note) "passed dividend" NO ENTRY

Property Dividends

Dividends payable in assets of the corporation other than cash Determine gain or loss between book value and fair value Declaration Entries: Equity Investment (gain/loss) .....Gain/loss on equity investment (gain/loss) Ret earn. (fair value) .....Property Dividends Payable (fair value) Distribution Entry: Property Dividends Payable (fv) .....Equity Investment (fv)

Retiring Treasury Stock

Entry: CS (par) APICxPV--CS (excess from original selling value) RE .....TS (cost) *Do not deplete balance in APIC from TS ( I am typing extra to make the card left align)

Issuance of Stock

Entry: Cash (market) .....Common Stock (par) .....APICxPV--CS (excess)

No-Par stock (sv)

Entry: Cash (market) .....Common Stock (stated) .....APICx SV --CS (excess of stated)

Recording LCM

Entry: Loss due to decline of Inventory to market (UL) .....Allowance to reduce Inv to market (UL)

Reissuing Treasury Stock

Equal Cost: Cash (cost) .....TS (cost) Above Cost: Cash (selling price) .....TS (cost) .....APIC from TS Below Cost: Cash PIC from TS (to extent of balance) or RE .....TS (cost)

Lump Sum -- Incremental Method

FMV "S = #sh x $mv The rest is allocated to the other consideration Entry: Cash .....CS (par) .....APICxPV--CS .....PS (par) .....APICxPV--PS

Lump Sum -- Proportional Method

FMV CS = #sh x $mv FMV PS = #sh x $mv ......................total mv ^^ [FMV CS / Total MV] x lump price = allocated to CS [FMV PS / Total MV] x lump price = allocated to PS Entry: Cash (lump price) .....CS (par) .....APICxPV--CS (excess) .....PS (par) .....APICxPV--PS (excess)

Non-cash Transactions

General Rule: 1. Fair Value (market value) of consideration given up 2. Fair Value (market value) of consideration received Entry: Land (fv of ___ ) .....CS (par) .....APIC

Convertible Preferred Stock

Gives shareholders opportunity to turn PS (nonvoting) into CS (voting) at a predetermined ratio no gain or loss Entry: PS (book val) APIC--PS (book val) .....CS (total)

Individual Basis Categories Aggregate

Individual = most conservative, greatest loss Categories = moderate Aggregate = least conservative, least loss

Preferred Stock

Issue Entry: Cash .....PS (par or stated) .....APICx (p or s) -- PS Receive dividends first and at the stated rate of PS outstanding

Loss Method

Leave the Inventory account alone Record the utility loss in the Allowance For Reduction of Inventory (contra Inventory) Entry: Loss due to reduction of Inventory (UL) .....Allowance for Reduction of Inventory (UL) Next year, adjust the balance in Allowance for Red. Inv. to what it SHOULD reflect...that could look the same as the above entry if the loss is greater or the opposite if the loss has been reduced.

Stock Dividends

Lowers Book Value per share Net effect on SE is ZERO

Convert between MUR and MUC

MUR = [MUC] / [1 + MUC] *divide NS, COGS, and GP by NS MUC = [MUR] / [1 - MUR] *divide NS, COGS, and GP by COGS

Ceiling

NRV (selling price - cost of completion, disposal, selling)

Utility loss calculation

NRV - Cost There is no utility loss when cost is lower than NRV

Floor

NRV - Normal profit margin

Treasury Stock

Not an asset A Contra SE account (also decreases assets because cash is used to buy it back) Decreases shares outstanding Can be held for resale or retired Unissued Capital Stock No dividends on TS

Stockholders' Equity

Owners residual interest in the business Net assets (A-L)

Redeemable Preferred Stock

Part Debt, Part Equity Reported in the "mezzanine" between debt and equity Shareholder can decide when to return the PS

S Corporation

Pass Through Tax -- directly to stockholders ; not income Limited to 100 stockholders

COGS Method

Record Inventory at LCNRV Include loss in COGS Entry: COGS (utility loss) .....Inventory (utility loss) Explanation: The historical cost of the inventory item has already been debited to Inventory ; this entry is to record it at its NRV by removing the amount of utility lost

Purchase Commitment Procedure

Record loss if the contract price is greater than market price IN THE PERIOD THAT MARKET PRICE CHANGES Entry to record loss: Loss on Purchase Commitment .....Estimated Liability on Purchase Commitment Entry to record purchase: Purchase (Inventory) Estimated Liability on Purchase Commitment .....Cash

Mandatorily Redeemable Preferred Stock

Redeemable on a certain date Liability

Stock Splits

Reduce market price of shares No JE Multiplies shares and lowers par value

Cost of issuing stock

Report direct costs as a reduction to amounts in APIC ex. underwriting costs, accounting and legal fees, printing costs, taxes Entry: APICxPV--"S (issue cost) .....Cash Expense indirect costs (manager salary) and recurring costs (registrar and transfer agent fees)

Participating Preferred Stock

Right to share in additional dividends with common

Calculate NRV

Selling price - Cost of completion/disposal/selling = NRV

Stock Dividends vs. Stock Splits

Stock Dividends: .....increase number of shares outstanding .....do NOT effect par or stated value .....increase the TOTAL par value of shares outstanding but decreases book value per share Stock Splits: .....increase number of shares outstanding .....decrease par or stated value per share

SE Section of BS

Stockholders' Equity PIC ..Capital Stock ....Preferred Stock, $par, % cumulative, authorized, issued, and outstanding ....Common Stock, $par, authorized, issued, and outstanding ....Common Stock Dividend Distributable, #shares (if applicable) ........Total Cap Stock ..APIC ....APICxPV--PS ....APICxPV--CS ....APIC from TS ........Total APIC Total PIC Retained Earnings Total PIC and RE Accumulated OCI ....gain or loss Less: Treasury Stock Total SE

Callable Preferred Stock

The COMPANY can buy back the PS at a predetermined date and price Company must pay any dividends in arrears when called

LCM [lifo]

Value goods at cost or replacement cost ; whichever is lower