Accounting Final
a company recorded the 17k adjusting entry for the earning of rent received in advance by debiting expenses and crediting liabilities 17k. Owners equity is?
34k understated
IFRS recommends what type of cash flow method?
direct
What are accrued expenses?
entries that grow gradually over time but have not been paid yet they need to be adjusted prior to producing financial statements.
If something is a long term liabilities and OE) it will probably be what type of cash flow
financing cash flow
What are the two accounting pronouncements that are addressed regarding cash flows?
in APB19 and FASB #95
A company has 2,000,000 common shares of $1 par value stock issued and outstanding when it declares a 4% stock dividend. The market price is currently $12 per share make the appropriate entry-
Debit retained earnings $960,000. Credit Per Value common stock (PV*Shares) 80,000 and also credit additional paid in capital for (12-1)(80000) which equals $880,000.
If something is primarily long term asset it will probably be what type of cash flow?
investing.
800 shares of $2 par common stock were issued in stock dividend when the market price was $14/share. Make a journal entry for this small stock dividend-
Debit to retained earnings (Market Price*Shares ) so 11,200. Then credit par value (par value*shares) and also credit additional paid in capital in excess ((MV-PV)*800) for 9600.
What is one difference between bonds and leases for companies in the way they are paid?-
leases are usually paid upfront.
Accounts Payable increase. Inventory accounts do not change is Cash Paid > or < Accrual Basis Cost of Goods Sold?
less than
Accounts receivable increase. Unearned fees do not change. Is cash collected > or < Accrual Basis Sales Revenue?
less than
State whether the following items are in the operating, investing, or financing activities section under Cash flows: Paid dividends, sold equipment for cash, issued preferred stock for cash, cash paid for inventory purchases
F, I, F, O
State whether the following items are in the operating, investing, or financing activities section under Cash flows: issuance of bonds payable, cash paid for interest, cash collected from customers
F, O, O
When costs are rising what produces highest net income and taxes?
FIFO
When costs are falling what is better for shareholders? FIFO or LIFO and why?
FIFO. it reduces tax liability (costs are highest for FIFO if prices are falling since beginning items would have had highest costs) and benefits shareholder's in the long run.
What is the tax liability if taxable income equals $40,000,000?
Falls into the sweet spot of 35% because it is above $18,333,333.
Salaries Payable decrease. Prepaid salaries do not change is Cash paid > or < Accrual Basis Salaries Expense?
Greater than
Assume Sales of 200, COGS 140, and Salary Ex 30. Accounts Payable increase 8. Inventory increases 10. Is Cash Paid > or < Accrual Basis Cost of Goods Sold, After answering make journal entry?
Greater than. Debit COGS for 140, Credit A/P for 8, Debit inventory for 10, to balance the Cash Paid (credit) would be 142.
Supplies on account is a natural debit or credit?
It is an asset so it is a debit
Kramer Company is authorized by the state to issue 10,000 shares of 8 percent, $100 par value preferred stock. On January 1, Year One, Kramer issues 5,000 shares for $125 per share. On December 13, Year One, Kramer's board of directors declares the annual dividend to owners on record as of January 3, Year Two. The dividend will be distributed January 18, Year Two. What liability should Kramer Company report on its December 31, Year One, balance sheet as a result of this dividend?- 40000. You calculate dividends off per value not market price.
Its a large dividend since 5000/10000 is 50%. Take par value times the new stocks. Then multiply by the dividend percentage payout 8%
When costs are falling what produces highest net income and taxes?
LIFO
When costs are rising what is better for shareholders? FIFO or LIFO and why?
LIFO. because it reduces tax liability and benefits the shareholders in the long run.
What is accrual accounting
Method of accounting used by US GAAP to standardize the timing of revenues and expenses it is made up of the matching principle and realization principle
Describe what happens to the value of interest expense for a capitalized lease over periods?-
The difference between interest expense and the stated payment goes towards a lease payable which decreases your lease payable. As your lease payable decreases the interest you pay on it naturally decreases as well.
which of the following would be larger in amount on an adjusted trial glance than on trial balance? Prepaid interest; Unearned dues; Rent Receivables; None of these; all of these
Rent Receivables
What are the expenses associated with a capital lease?-
Rent expense, interest expense, depreciating/ammortization expense
Accounts Receivable Turnover
Sales/average A/R
Assume Sales of 200, COGS 140, and Salary Ex 30. Accounts Receivable increase 12. Unearned Fees increase 9. Accounts Payable increase 8. Inventory increases 10. Assume Sales of 200, COGS 140, and Salary Ex 30. Salaries Payable decrease 11. Prepaid Salaries decrease 7. How would make direct and indirect cash flow?
Take your Sales, subtract COGS and salary expense to get NI. For direct, take add or subtract your cash from customers, cash to suppliers and cash to workers to get NI. For direct start at NI and +/- every single increase and decrease that was mentioned. Both will give you same cash flow. Plant Assets at 1/01/X0=140 Plant Assets at 12/31/X0= 180 Acc Deprec at 01/01/X0=32 Acc Deprec at 12/31/X0=36
How do you figure out how long money will double at a certain interest rate?
Use rule of 72. Take 72 divided by the percent per period. Note per period.
Equity Method (20-50)
You debit X company and credit cash Debit investment in X company and credit income (if gain) When it pays dividends debit X company and credit cash
What is unearned revenue?
an entry that news to be adjusted prior to producing financial statements. It is a liability that decreases over time
Cash flow ratio
cash flow from operations/average current liabilities
If you get error five during a present value calculation what do you do?
change your initial deposit to negative then try it out.
Name three things that are not on a statement of cash flows?
stock dividends, stock splits and appropriations of retained earnings will not be shown on cash flows. Will be on test
What does a 1 for 2 stock split mean?-
take current outstanding stock and divide by two.
For a lease payable how do you find total expense and interest expense?-
take the payment as stated in the problem and multiply by number of periods. To find interest expense subtract this from the value you originally wrote on the books whether it was stated in the problem or you had to find answer with PV.
Debt to equity ratio
total liabilities/shareholders equity
How do you record loss from a contingency such as a lawsuit
you debit loss and credit estimated liability. Once settled you debit your liability, gain/loss if you ended up paying less or more and crediting cash.
What is the Tax liability if taxable income is 1,000,000?
$350,000 use shortcut.
Randy acquired equipment on Jan 1, 2004 for 300,000. The equipment had an estimated useful life of 10 years and an estimated salvage value of 25,000. On Jan 1 2007, Randy revised the remaining useful life of the equipment to 12 years with no change in the estimated salvage value. Assuming straight line depreciation what is depreciation expense for 2007?
16,042. 300000-82500-25000/12=16042
How much would you have to deposit at 10% so in 6 years youd have 100k?
56447. Don't. change calculator to beginning. FV=100k IY=1- N=6 Compute for PV
Is stock holders equity a credit or debit?
A credit
A company wants to convert from the cash to accrue basis. Inventory increased while Salaries Payable decreased. What operations must be performed to convert from the cash to accrual basis?-
Add and Add.
Inventory Turnover
CGS/average inventory
What is the difference in two words between a direct financing lease and a sales type lease?-
Dealers profit
What do companies prefer defined contribution or defined benefit plan?
defined contribution since you only match what the person is willing to put in and you don't have the ultimate responsibility at the end if he can't survive off what he saved.
How do you quickly find the total interest expense for a bond?
(facevalue)(original interest rate)/#payments in a year *the number of periods minus the value of your bond aka the sum of the two PV calculations.
Return on Equity
Net income/Average common stockholders equity. Don't try to take dividends away from NI before dividing. Also don't add that years NI to the denominator.
trading securities
carried on balance sheet at fair value Unrealized gain/loss is part of net income
Warranty expense is estimated at 5% of sales. Beginning balance in warranty payable is 13,600. Sales equal 300,000. Warranty claims paid equals 16,100. What is ending balance in warranty payable?
$12,500. Take beginning plus (Sales*.05) minus claims paid.
michael industries has credit sales of 12k. beginning and ending accounts receivable are 2,700 and 2,100. what are collections and the age of accounts receivable assuming a 360 day year?
$12,600 and 72 days. to find days receivables sales/((beg+end)/2)
What is tax liability if taxable income is 17,000,000?
%5,910,000. The formula is .34(10,000,000,)+.35(5,000,000)+.38(2,000,000). You can the shortcuts talked about in class to solve this quicker.
A company's NI is equal to $900,000 preferred dividends are $100,000. On Jan 1st common shares and outstanding shares are 200,000. On oct 1st company issued another 100,000 shares. What is EPS?-
(900-100000)/(200000(12/12) + 100000 (3/12))= 3.56
If you are given a problem that asks to find the total interest expense for the life of a bond after given the bond details how can you solve this?
(Face value * original interest)/periods in a year. Times total number of periods. Then subtract from your PV calculation.
A company has 2,000,000 common shares of $1 par value stock issued and outstanding when it declares a 4 for 1 stock split. The market price is currently $12 per share make the appropriate entry
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If it means criteria 1 (transfer tittle) and 2 (huge discount with opportunity to buy) then it is depreciation. If it meets criteria 3 (leasing it for 75% assets life) and 4 then it is amortization (paying close to the equivalent of the purchase price).
...
If you get a question regarding GAAP and IFRS see if under GAAP those two activities would go in different areas of Operating, investing and Financing cash flows. If so, then GAAP states they must be separated. IFRS doesn't care.
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Which of the following affect retained earning?- A. Cash Dividends B. Stock Dividends, C. Stock Splits D. A and B, E. A and C, F. B and C, G. All of these, H. None of these.
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Net income is 2,000,000 and preferred dividends are 120,000. You have 500000 outstanding on Jan 1st X1 then in April 1st X1 another 200,000. What is EPS?-
1,880,000/(500000*12/12 + 2000000 * 9/12)=2.89
Approximately what is the present value of receiving 4000 per year for 10 years if the first receipt is 7 years from today and interest is compounded at 8% annually?
16,900. You first find the PV of getting 4000 a year for 10 years. Then you discount that back 6 years because you receive you first receipt at the beginning of year seven thus the end of year six. It would be seven if it said at the end of year seven or just at year eight.
Total assets and total owners equity are 120k and 91k at the end of the period. Assets decreased 40% and liabilities increased 45% during the period. What is owners equity at the beginning of the period?
180k
The Abraham Company begins the year with bonds payable having a reported balance of $600,000. The ending balance is $700,000. This company's income statement for the year reports a gain on extinguishment of bond of $9,000. During the year, new bonds were issued at their face value of $300,000. How much cash was paid for the bonds that were extinguished?
191,000. Don't forget what the question is asking, cash paid not received.
Net income is 2,000,000 and preferred dividends are 120,000. You have 500000 outstanding on Jan 1st X1 then in April 1st X1 another 200,000 shares are outstanding. On October first the company repurchases 40,000 treasury shares. What is earnings per share?-
2,000,000-120,000/200,000(12/12) + 200,000(9/12) -40000(3/12)= 2.94
Bonds with the face value of $500,000 and a carrying value of $515,000 are retired at 98. Compute the gain or loss?
25,000. 1)Take your face value and multiply by 98%. 2) Subtract this from your carrying value.
James Thorpe invests $100,000 to start a new business. He immediately borrows another $400,000 at a 6 percent annual interest rate. The business earns a profit on its assets of 10 percent per year. At the end of one year, Thorpe liquidates all assets at book value and closes the business. What rate of return did he earn on this investment during this year of operations? Ignore income taxes
26%. 10% of 500,000 minus 6% of 400,000. So 26000/100000. You divide by the original investment
1. A building is bought on October 1, Year One, for $500,000 in cash. It is depreciated using the straight-line method over an expected life of twenty years. A residual value of $20,000 is anticipated. The half-year convention is applied. On April 1, Year Four, the building is sold for cash at a loss of $13,000. Which of the following appears on the company's Year Four statement of cash flows for investment activities?
415,000. 12000+24000+24000+12000 is what you subtract from depreciation and then you take away another 13k for the loss. Just don't forget to include gain and loss!! for total cash received under investment activities.
A company reports sales of 660,000 cash if this includes sales tax of 10% what are true sales?
600,000. This question is saying that they collected 660000 from customers but also because they collected tax. So part of that revenue comes from the 10% tax they paid on purchase. So after figuring it out you debit cash for 660,000 and credit sales revenue for 600,000 and a Tax liability for 60,000.
You use of the methods to estimate uncollectibles (such as percentage of sales) and find the amount to be 60k. If you have a prior credit balance of 3k what will the allowance for doubtful accounts on the balance sheet be?
63k. If previous estimates were wrong you don't try to correct them. So if you have a credit balance and then a new balance add them together. If you have a debit balance and a new balance find the difference.
On January 1, year one, a company started when owners contributed 300k to start operations. During the first year, the company earned net income of 35k and declared and paid a 5k cash dividend. During the second year it earned another 46k of net income and declared and paid 7k cash dividend what is retained earnings at the end of year two
69K
If a credit union pays 7% compounded monthly what is the effective annual rate?
7.22. On calc press 2nd then #2. Put in 7 as your nominal (no decimals) go down twice and press 12 for compounding periods now go up one and hit compute.
What is tax liability if taxable income is $250,000. What is the average tax rate, and what is the marginal tax rate?
80,750. Formula is: .15(50000)+.25(25,000)+.34(25,000)+.39(150,000). For average tax rate take liability divided by income which equals 32.3% For marginal think what would the tax be on an extra dollar which is 39%
The current ratio is 4 and working capital is 60k at the end of the present year of rome company. what are current assets and current liabilities? A. 60k and 15k B. 80k and 20k C. 80k and 60k D. 100k and 40k E. 160k and 40k
80k and 20k
A company's sales account total $869,200 which includes 6% state sales tax, what is the true sales revenue and the corresponding entries?
820000. You credit cash for 869,200 and debit sales revenue for 820000 and tax liability for 49200.
A company's sales account total $869,200 which includes 6% state sales tax, what is the true sales revenue?
820000. You credit cash for 869,200 and debit sales revenue for 820000 and tax liability for 49200.
A company traded in ol machinery with book value of 27k and a cost of 100k for machinery that had a cash cost of 90k. A trade in allowance of 30k on the old machinery was given and the difference was paid in cash. The new machinery is recorded at ?
90000. The actual way to do it is to debit new machinery for 90k and also debit accumulated depreciation of the old machine 73k. Then credit cash, the original cost 100k and the gain of 3k.
For bonds if the contract rate is less than the market rate the bonds will be issued at at
A discount
Joe uses the aging method to estimate uncollectibles. The aging schedule reveals 4270 of uncollectible accounts. Prior to adjustment, allowance for uncollectible accounts has a debit balance of 27. The bad debts expense on the income statement will be?
A. 4297
Which of the following affects total stockholder's equity and explain the answer?- A. Cash Dividends B. Stock Dividends, C. Stock Splits D. A and B, E. A and C, F. B and C, G. All of these, H. None of these. Only A because paying dividends makes retained earnings go down and retained earnings are part of OE.
A. Cash Dividends
A company wants to convert from the cash to the accrual basis. Inventory increased while Salaries Payable decreased. What operations must be performed to convert from the cash to accrual basis?-
Add and Add.
What are prepaid expenses
An entry that needs to be adjusted prior to producing financial statements. After a journal entry is made and needs to be expensed over time
What are accrued revenues?
An entry that needs to be adjusted prior to producing financial statements. It is a revenue that grows over time, mirrors that of accrued expenses.
If an aging schedule reveals 2,570 of uncollectible accounts but prior to adjustment the allowance for had a credit balance was 35. The bad debt expense on the income statement will be?
Bad debt expense is what gets the initial uncollectible account to equal the ending balance so its 2,535.
On April 1, Year One, Hayden Corporation buys machinery for $30,000 and pays an additional $4,000 to have it delivered to its factory and then assembled. Company officials believe this machinery will last for ten years and then have a $2,000 remaining residual value. Depreciation is to be computed by applying the double-declining balance method. The half-year convention is utilized. The value of the asset actually declines at only a rate of 10 percent per year. On the company's balance sheet as of December 31, Year Three, what is reported as the net book value for this asset?
Cost of the asset is $34,000, which is multiplied by 2/10 to get $6,800. Because of the half-year convention, $6,800 is multiplied by 1/2. Depreciation is $3,400. For Year Two, book value is $30,600 ($34,000 less $3,400). When multiplied by 2/10, depreciation is $6,120. The contra account rises to $9,520 and book value falls to $24,480. When multiplied by 2/10, expense for the third year is $4,896. Accumulated depreciation is now $14,416 and book value is $19,584 ($34,000 less $14,416). Remember add extra costs to the price of asset. Formula is asset times 2/life years.. If its not a full year a half year convention says just divide depreciation by two. For the following years make sure you take away your depreciation before finding next years asset*2/interest.
Do you add back or subtract the following in the indirect method-: Depreciation, Gain, Decrease in Accounts Receivable, Decrease in Salaries Payable, Amortization of Bond Premium?
Depreciation Expense (Add), Gain(minus), Decrease in A/R (Add), Decrease in S/P (minus), Amortization of Bond Premium (minus)
What is the present value of receiving 2000 per year for 8 years beginning one year from today if interest is compounded at 12% annually?
Don't worry about the beginning one year from today. Just solve it regularly. 9935.
In an unbalanced trial balance, liabilities and owners equity total 7k while assets total 6.4k. The correct balance for both columns is 7k if there was a A. Failure to post a 600 credit entry to accounts payable B. Failure to post a 600 credit entry to cash C. failure to post a 600 credit entry to owners equity D. All of these E. none of these
E. none of these
On Jan 1/20x0 the peter company leased a machine for 10,139 that will transfer title after 10 years. Peter uses straight line depreciation for this type of machine. There is no expected residual value. Lease payments are 1,500 per year payable in advance. Peter's incremental borrowing rate is 10%. Present value of an annuity due at 10% for 10 periods is 6.759. Solve for depreciation expense on X2 and interest expense for X2.-
First record entry when you receive the machine debit 10,139 and credit payable for 10,139. Since you are told payments are made in advance journal entry your first payment of a 1,500 payable and 1,500 cash. Since you made this immediately there is not depreciation or interest expense. One year from now at X1 you have to find depreciation and interest first. For straight line take 10,139/10 since this is how long until the lease expires. Debit depreciation expense and credit accumulated depreciation. Now find interest which is based off how much you have payable. Start a payable T account which will make it easier on the credit right side put down the entire original payable 10,139. Remember you took 1,500 off so put that on left. The difference is your current payable and times that by 10%. That is your 864 debit to interest expense and credit to interest payable. Next, immediately after you figure this out you have to make your year payment of 1500. The way this works is that part of it will pay interest and the other pay down the payable. So first you pay off interest so debit interest for 864. Now leave a blank in between in order to credit cash for 1500. The place in the middle is for a lease payable debit (what you actually pay off) find this by finding the difference between the 1500 cash and interest payable of only 864. Write down 636 and lease payable and don't forget to put that on your T account. Repeat again by finding depreciation and interest for next year.
Assume Sales of 200, COGS 140, and Salary Ex 30. Salaries Payable decrease 11. Prepaid Salaries decrease 7. Is Cash Paid > or < Accrual Basis Salaries Expense, After answering make journal entry?
Greater than. Debit Salary Expense for 30, Credit Prepaid Salaries for 7, Debit Salaries Payable 11, to balance the Cash Paid Credit would be 34.
State whether the following items are in the operating, investing, or financing activities section under Cash flows: purchased a small percentage of the ownership shares of another company, cash received from dividend income?
I, O
At what tax levels are the marginal rates equal to the average rates?
If X<50k then .14 If 335,000<X>10,000,000 then .34 and if X>18,333,333 then .35. A bold means or equal to.
Assume Sales of 200, COGS 140, and Salary Ex 30. Accounts Receivable increase 12. Unearned Fees increase 9. Is Cash Collected > or < Accrual Basis Sales Revenue. After answering, make journal entry?
Less than by 3. Debit COGS for 140, Debit Salary Ex for 30 and Credit Sales as Revenue for 200. To balance your Cash Collected (debit) would be 197.
A company wants to convert from the accrual to the cash basis. Inventory decreased while interest Payable increased. What operations must be performed to convert from the cash to accrual basis?-
Minus and Minus.
Earnings per share
NI/average number of shares outstanding
Return on Assets
Net income/average total assets
Can you ever have a gain on your own shares?-
Nope
What is the order of Direct Method
Operating, investing, financing, change in cash (beginning cash-ending cash), non cash activities, reconciliation (start with net income add back depreciation expense either add/subtract gain/loss, subtract/ the increase/decrease in A/P and A/R, add/subtract Inventory/Prepaid
A plant asset with a book value of 18 and accumulated depreciation of 12 was sold during 20X0 at a loss of 15. What were cash proceeds on the plant asset sale and depreciation expense during the year?
Original Cost- depreciation- loss= 3. To find Plant asset purchases set up a T account for Assets now debit 450 with the debit bottom equaling 457. Credit 30. To make the debit equal 457 you need a 37 asset purchase. To find depreciation expense make an accumulated depreciation T account. Credit 220 with an equal at the bottom being 222. Debit 12 and to make the credit side equal 222 you need a 14 expense.
A plant asset with an original cost of 4 and a book value of 3 was sold during 20X0 at a gain of 2.5. What were the cash proceeds on the plant asset sale? What were plant assets purchases during 20X0? What was depreciation expense on plant assets during 20x0? Plant Assets at 01/01/X0= 450 Plant Assets at 12/31/X0= 457 Acc Depre at 01/01/X0= 200 Acc Depre at 12/31/X0=222
Original-Depre+2.5 Gain= 5.5. For finding plant assets purchases make a T table for Assets, on the debit side you have 140 and at the very bottom 180. You would credit the original cost of the good for 4. So to balance your purchases would have to be 44 in order to equal 180. To find depreciation expense set up a T table for Accumulated Depreciation with a credit of 32 and a final credit value of 36. Because you get rid of accumulated depreciation once you sell an item you debit accumulated depreciation for 1. In order for the credit side of the T table to equal 36 you need a depreciation expense of 5.
A company wants to convert from the accrual to the cash basis. A/R decreased while A/P increased. What operations must be performed to convert from the accrual to the cash basis in this situation?-
Set up an equation where you start with accrual basis +/- Accounts receivable +/- Accounts payable= cash basis. Think about your cash flow problems. Answer add and add.
When professor says with no change in useful life what do you do?
Stay at the number of years you are currently. So if you originally calculated for 10 years of depreciation and you are at the seventh year. Use 7 years for your next calculation.
What are expenses associated with an operating lease?-
The expenses from paying for the property so Rent Expenses.
The equity accounts of Subsidiary company total 6mil. Parent company purchases 85% of Subsidiary company for 5,800,000. The fair value of net assets is equal to the book value. What is the amount of goodwill? and non controlling interest?
The second column 100% and the third column 85%. Write down 5,800,000 under 85% cost. Since your BV=FV you can write down 6mil for 100% FV and BV. Now take .85X=5800000 and put $6,823,529 under 100% cost. The difference of 100% cost and 85% cost is your non-controlling interest. The difference between 100%cost and 100% FV is your goodwill.
What are the four types of adjustments?
accrued expenses, prepaid expenses, accrued revenues, and unearned revenues
On Dec 31st 20X4 a company leased a machine with an estimated useful life of 8 years. Lease rental is 100k per year every Dec 31st starting in X4. Kaffee's incremental borrowing rate is 12%.
around 360,000 I say around because his PV is off so what you will get will probably be different from these. When you don't have an initial value ex "peter company had the opportunity to either purchase a machine for 10,139 or lease the machine for a ten year period" then find the PV for your initial. You make payment right at way so change calculator to Beginning. You debit machine for 556,375 and credit lease payable for 556,375. You debit lease payable for 100,000 and cash for 100,00 (since you pay right away an no depreciation or interest has occurred since it's a soon as you get the machine). At X5 you amorticize ex for 69500 and credit lease hold for 69,500. Debit interest expense for 54,720 and credit interest payable for same amount. You then would make a payment right away, you would pay off interest expense first so debit interest payable for 5472O and debit lease payable for BLANK. You credit your stated cash payment on the problem for 100k. Find the difference to find Blank. Keep doing this one more time. As you do this keep a T account to make the interest expense easier to calculate and solve for final liability. By the end of the third year you would have a lease payable t account which consists off credit of 556,375 and debit of 100,000, 45280, 50714. Find the difference and that is what is left over in the liability.
At the beginning of the year Walter Co. Had inventory of 90k during the first three months purchases were 560k and sales were 700k. Walter historically has a 40% markup on cost. A fire destroyed all but 12k of the inventory on March 31st how much inventory was lost in the fire?
beginning+purchases=available-ending inventory=CGS. You can find cost of goods sold by figuring out what X+1.40X=700k then you solve for ending inventory subtract that by 12k.
Available for sale securities
carried on balance at fair value Unrealized gain or loss bypasses net income and goes to OE as comprehensive
What are adjusting entries?
changes in account balances prior to preparing financial statements. because some assets have decreased or increased with time but have not been recorded with a journal entry. not a result of physical events or transactions but caused by the passage of rime or small changes in account balances.
Three steps of paying out dividends for a company
date of declaration (debit R.E and credit div payable. date of record Date of payment (credit div payable, credit cash)
On January 1, a company issued 1,000,000 at 10% term bonds with a five year life paying interest rate every June 30th and December 31. How much cash will the company receive on January 1st if the market rate was 12% on the date of the issue. What is the interest expense on the first and second payment under effective. How about for staright line?
debit cash and bond payable for 926,000. The discount for the first payment is 5,560 and the expense 55,560. You get this by taking the PV and multiplying by effective for the period (not entire year!). For the second payment the discount would be 5893.6 and the interest expense 55,894. You get this because for discount you add your discount to your PV bond value and then multiply by effective interest (for a period). For straight line you take your discount 7400/10=740 this would be discount for the first period interest expense would be 49260. This would be the same after every period.
How do you record a warranty and its impact over years. If your goods start to break what do you do?
debit cash and credit unearned liability. You depreciate by debiting unearned liability and crediting revenue. Don't mess with previous unearned liabilities entry. If things start to break you debit expense and credit liability. As soon as its fixed you debit liability and credit cash.
Describe journal entries for selling gift cards and someone using part of them?
debit cash and credit unearned rev. When someone uses part of it debit unearned and credit revenue. Then debit COGS and credit inventory.
A company has 2,000,000 common shares of $1 par value stock issued and outstanding when it declares a 50% stock dividend. The market price is currently $12 per share make the appropriate entry-
debit retained earnings 1,000,000 an credit common stock for 1,000,000
100 shares of treasury stock were purchased at $30/share. 40 of these shares were later sold at $32/share. The other 60 of these shares were later sold at $26/share. Make the three entries associated with these transactions-
debit treasury stock for 30,000 then credit cash for same amount. Then debit cash for 1280 and par value of 1200. Go back to in-between these two entries to capital in excess 80. Now debit cash for 1560 and at the very bottom leaving two spaces common stock credit for 1800. In between debit capital in excess for what is in the account so 80 but because that is not enough you still have to debit retained earnings for 160.
How to do bonds when effective rate is different than market rate and you are using effective interest amortization
first you need to value the bond aka price the bond so you can put it down in your books. You need to present value two different things, the bond itself and the payments. To pv the bond make sure you have your N and IY set to the appropriate periods. So a semiannual 5 year bond with 6% interest would be N=10 and I/Y=6%. The interest that you use is the effective interest rate! Usually the second one given. Once you get an answer to this you need to add it to the pv of the payments per period not year. Take the original rate times your face value divided by the number of periods in a year. Then take this number and calculate the present value. • Find PV of bond using effective interest rate, add it to the PV of the payments. To first figure out the payments take the bond value times the original interest divided by the number of periods in a year. • debit cash for the value found above, credit payable for 1mil, and credit discount for the difference. • Now you have to make your first payment (you found it earlier by taking your face value times your original interest all over the number of periods in a year). This will be the amount of cash you credit. You then need to figure out what amount interest expense you will debit. Take your PV value of the bond times the new effective interest rate for each period. Don't simply multiply by the yearly rate that is given. So if the yearly rate is 12% you would multiply by .06. In order to make this balance you then credit discount in order to balance. • Start making a list starting with the PV of your bond and adding the discount you found. Make a Taccount for the Discounts and debit your original found master discount. After finding your discount for the first period you would credit it aka put it on the right side. • You find your next years interest expense by adding the PV of your bond to the discount, and multiplying by your interest rate for each period. The discounts become cumulative. If it's a premium bond you subtract your discounts from the PV. • Keep doing this until your last payment where you would debt bonds payable and credit cash for your face value.
What to do bonds when effective rate is different than market rate and you are doing straight line?
first you need to value the bond aka price the bond so you can put it down in your books. You need to present value two different things, the bond itself and the payments. To pv the bond make sure you have your N and IY set to the appropriate periods. So a semiannual 5 year bond with 6% interest would be N=10 and I/Y=6%. The interest that you use is the effective interest rate! Usually the second one given. Once you get an answer to this you need to add it to the pv of the payments per period not year. Take the original rate times your face value divided by the number of periods in a year. Then take this number and calculate the present value. • Find PV of bond using effective interest rate, add it to the PV of the payments. To first figure out the payments take the bond value times the original interest divided by the number of periods in a year. • debit cash for the value found above, credit payable for 1mil, and credit discount for the difference. • Now you have to make your first payment (you found it earlier by taking your face value times your original interest all over the number of periods in a year). This will be the amount of cash you credit. You then need to figure out what amount of discount you will credit (take your previous discount divided by number of periods). In order to make this balance you will debit interest expense. • Create a T account for bond payable. Start off with your original bond face value and each year add to it your discount payment. Create a T account for discount. Your original discount will be on the left and any subsequent entry will be subtracted by being on the right. • Keep doing this until your last payment where you would debt bonds payable and credit cash for your face value.
What are two main difference between a small stock dividend and a large stock dividend?-
for large dividend of 25% or above you debit retained earnings and credit common stock for (par value*the new shares). In a small stock dividend of 25% or less you debit retained earnings (market value*new shares)and credit commong stock and credit additional paid in capital (market price-par value * shares).
Gross margin percentage
gross profit/sales
When are marginal equal to average in taxes?
if X is less than 50,000 then .15. If X is between 330,000 and 10mil then .34 and if X is above 18,333,333 then .35
At the beginning your payments goes more towards ____ and at the end more towards ___?- interest. At the end to decrease lease payable.
interest expense and at the end more towards your lease payable
If something ends up on the income statement it will probably be what type of cash flow?
operating
In one word what is the difference between direct and indirect cash flow methods?
operating
What are 3 types of leases form the perspective of the lessor?-
operating (the lessor retains substantially all of the risks and benefits of ownership so you would get rental revenue but also have to pay expenses). Direct Financing aka Capital lease (lessor records the receivable created from lending assets by finding the present value of the future lease payments to be received. Sales Type leases very similar to direct financing except this type the dealer makes profit/loss.
What is the order of indirect method?
operating, investing, financing, change in cash (beginning minus ending), non cash activities,
What are two types of leases from the perspective of the lessee?-
operational and capital lease
For a calendar year company which of the following balances would cause accrual basis income to be more than cash bias income? a. dues receivable decreased this year b. interest received in advance increased this year c. insurance payable increased this year d. prepaid rent increased this year e. unearned rent increased during the year
prepaid rent increased this year. Essentially unearned anything will make cash basis higher. Prepaid will make cash basis lower. Accrual: Revenues are recognized when realized or realizable, earned, and collectibility is reasonably assured. Expenses are recognized when incurred. Cash: Revenues are recognized when cash is received. Expenses are recognized when cash is paid out.
A company wants to convert from the cash to accrual? Inventory decreased while interest Payable decreased. What operations must be performed to convert from the cash to accrual basis?-
subtract and Add.
What does a 4 for 1 stock split mean?
take current outstanding stock and multiply by 4.
How do find earnings per share and what is diluted EPS?-
take income - preferred dividends/ weighted average of common shares outstanding. There is a basic and diluted. In the diluted we include the stock that is issued and debt that can converted into stock such as options etc. They would be treated as common stock so EPS would be lower.
What are the 4 criteria that must be met to have a capital lease?-
the title will be handed over to the lessee after the end of the term, if there will be a huge discount for the lessee to buy at the end so that it is anticipated, if the lease period accounts for 75% of the property's life, paying close to the equivalent of the purchase price.
Difference between uncollectible accounts and bad debt expense
uncollectible accounts are permanent and bad debt expense are only temporary for that year. Bad debt expense is the amount required to adjust the allowance balance to this ending total.
Are dividend revenues, interest expense, interest revenue reported within operating?
yes
how do you record goodwill
you debit good will asset and credit cash
