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The surf's up issues 1,000 shares of 6%, $100 par value preferred stock at the beginning of 2017. All remaining shares of common stock. The company was not able to pay dividends in 2017, but plans to pay dividends of $18,000 in 2018. Assuming the preferred stock is cumulative, how much of the $18,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2018?

$12,000 preferred stockholders and $6,000 to common stockholders

Rock Adventures has 15 employees each working 40 hours per week and earning $30 an hour. Federal income taxes are withheld at 15% and state income taxes at 6%. FICA taxes are 7.65% and unemployment taxes are 3.8% of the first $7,000 earned per employee. What is the actual direct deposit of payroll for the first week of January?

$12,843. Total Salaries Expense [((15 × 40 hours) × $30)] $18,000 Less: Withholdings Federal Income Taxes ($18,000 × .15) $2,700 State Income Taxes ($18,000 × .06) 1,080 FICA Taxes ($18,000 × .0765) 1,377 Total Withholdings 5,157 Actual Direct Deposit $12,843

GRAPH #15 What was LeGrand's operating income?

$120,000

At December 31, Tremble Music had account balances in Accounts Receivable of $300,000 and in Allowance for Uncollectible Accounts of $1,000 (credit) before any adjustments. An analysis of Tremble's December 31 accounts receivable suggests that 5% of the account balances are not expected to be collected. The balance of Allowance for Uncollectible Accounts after adjustment will be:

$15,000

Net income (in millions) $150 Shares outstanding (in millions) 300 Stock price $20.00 What is the company's earnings per share?

$150/ 300 = $0.50

Strikers, Inc. sells soccer goals to customers over the Internet. History has shown that 2% of Strikers' goals will need repair under the warranty program. For the year, Strikers has sold 4,000 goals and 45 have been repaired. If the estimated cost to repair a goal is $200, what would be the warranty expense for the year?

$16,000. [(4,000 goals × 2%) × $200] = $16,000.

GRAPH #37 What is the amount of long-term assets assuming the accounts above reflect normal activity?

$173,000

Fashion, Inc. had a Retained Earnings balance of $12,000 at December 31, 2018. The company had an average income of $7,500 over the next 3 years, and an ending Retained Earnings balance of $15,000 at December 31, 2019. What was the total amount of dividends paid over the last three years?

$19,500

The ending Retained Earnings balance of Lambert Inc. increased by $1.5 million from the beginning of the year. The company's net income earned during the year is $3.5 million. What is the amount of dividends Lambert Inc. declared and paid?

$2.0 million

Net income (in millions) $150 Shares outstanding (in millions) 300 Stock price $20.00 What is the company's price-earnings ratio?

$20.00/ $0.50 = 40.0 *Earnings per share = $150/ 300 =$0.50

What is the interest on a 3 month note with a face value of $2000 that was issued on March 1 with a 12% annual interest rate?

$2000 x 0.12 x (3/12) = $60 $60 = total interest due after 3 months; aka $20 per month

GRAPH #16 What amount will Spitzer report for operating income?

$210,000

Kansas Enterprises purchased equipment for $60,000 on January 1, 2018. The equipment is expected to have a five-year life, with a residual value of $5,000 at the end of five years. Using the double-declining balance method, depreciation expense for 2018 would be:

$24,000

Universal Travel, Inc. borrowed $500,000 on November 1, 2018, and signed a twelve-month note bearing interest at 6%. Principal and interest are payable in full at maturity on October 31, 2019. In connection with this note, Universal Travel, Inc. should record interest expense in 2019 in the amount of:

$25,000. [($500,000 × 6%) × 10/12] = $25,000.

Clothing Emporium was organized on January 1, 2018. The firm was authorized to issue 100,000 shares of $5 par value common stock. During 2018, Clothing Emporium had the following transactions relating to shareholders' equity: Issued 30,000 shares of common stock at $7 per share. Issued 20,000 shares of common stock at $8 per share. Reported a net income of $100,000. Paid dividends of $50,000. What is the total amount recorded in the Common Stock account at the end of 2018?

$250,000

Roberto Designers was organized on January 1, 2018. The firm was authorized to issue 100,000 shares of $5 par value common stock. During 2018, Roberto had the following transactions relating to stockholders' equity: Issued 10,000 shares of common stock at $7 per share. Issued 20,000 shares of common stock at $8 per share. Reported a net income of $100,000. Paid dividends of $50,000. Purchased 3,000 shares of treasury stock at $10 (part of the 20,000 shares issued at $8). What is total stockholders' equity at the end of 2018?

$250,000

On September 1, 2018, Daylight Donuts signed a $100,000, 9%, six-month note payable with the amount borrowed plus accrued interest due six months later on March 1, 2019. Daylight Donuts should report interest payable at December 31, 2018, in the amount of:

$3,000. [($100,000 × 9%) × 4/12] = $3,000.

The Pita Pit borrowed $196,000 on November 1, 2018, and signed a six-month note bearing interest at 12%. Principal and interest are payable in full at maturity on May 1, 2019. In connection with this note, The Pita Pit should report interest expense at December 31, 2018, in the amount of

$3,920

Roberto Designers was organized on January 1, 2018. The firm was authorized to issue 100,000 shares of $5 par value common stock. During 2018, Roberto had the following transactions relating to stockholders' equity: Issued 10,000 shares of common stock at $7 per share. Issued 20,000 shares of common stock at $8 per share. Reported a net income of $100,000. Paid dividends of $50,000. Purchased 3,000 shares of treasury stock at $10 (part of the 20,000 shares issued at $8). What is the balance in the Treasury Stock account at the end of 2018?

$30,000

If a 6% sales tax is recorded together with sales revenue in the sales account and the balance at the end of the month is $5,300, how much sales tax is payable?

$300.00 $5,300/1.06 = $5,000 $5,300 - 5,000 = $300

On September 1, 2018, Daylight Donuts signed a $100,000, 9%, six-month note payable with the amount borrowed plus accrued interest due six months later on March 1, 2019. Daylight Donuts should report interest payable at December 31, 2018, in the amount of:

$3000

On December 1, 2018, Old World Deli signed a $300,000, 5%, six-month note payable with the amount borrowed plus accrued interest due six months later on June 1, 2019. Old World Deli records the appropriate adjusting entry for the note on December 31, 2018. What amount of cash will be needed to pay back the note payable plus any accrued interest on June 1, 2019?

$307,500. $300,000 + [$300,000 × 5% × 6/12] = $307,500.

Carpenter Inc. estimates warranty expense at 2% of sales. Sales during the year were $4 million and warranty expenditures were $44,000. What was the balance in the Warranty Liability account at the end of the year?

$36000 $4 million × 2% = $80,000. $80,000 - $44,000 = $36,000.

Clothing Emporium was organized on January 1, 2018. The firm was authorized to issue 100,000 shares of $5 par value common stock. During 2018, Clothing Emporium had the following transactions relating to shareholders' equity: Issued 30,000 shares of common stock at $7 per share. Issued 20,000 shares of common stock at $8 per share. Reported a net income of $100,000. Paid dividends of $50,000. What is total paid-in capital at the end of 2018?

$370,000

Suppose that the balance of a company's Allowance for Uncollectible Accounts was $6,200 (credit) at the end of the year, prior to any adjustments. The company estimated that the total of uncollectible accounts in its accounts receivable was $44,300 at the end of the year. What amount of bad debt expense would appear in the company's year-end income statement?

$38,100

On October 1, 2018, Stripes Inc. lends $100,000 to another company and accepts a 24-month, 6% note. What is the amount of interest revenue Stripes will report in its 2020 income statement?

$4,500

The Pita Pit borrowed $100,000 on November 1, 2018, and signed a six-month note bearing interest at 12%. Principal and interest are payable in full at maturity on May 1, 2019. In connection with this note, The Pita Pit should report interest expense in 2019 for the amount of:

$4000

Mike Gundy is a college football coach making a base salary of $2,400,000 a year ($200,000 per month). Employers are required to withhold a 6.2% Social Security tax up to a maximum base amount and a 1.45% Medicare tax with no maximum. Assuming the Social Security maximum base amount is $118,500, how much will be withheld during the year for the coach's Social Security and Medicare.

$42,147. Total withheld for: Social Security $118,500 × .062 = 7,347 Medicare $2,400,000 × .0145 = 34,800 Total $42,147

Clothing Emporium was organized on January 1, 2018. The firm was authorized to issue 100,000 shares of $5 par value common stock. During 2018, Clothing Emporium had the following transactions relating to shareholders' equity: Issued 30,000 shares of common stock at $7 per share. Issued 20,000 shares of common stock at $8 per share. Reported a net income of $100,000. Paid dividends of $50,000. What is the total stockholders' equity at the end of 2018?

$420,000.

GRAPH #7:Lightning uses the aging method and estimates it will not collect 2% of accounts receivable not yet due, 10% of receivables less than 30 days past due, and 40% of receivables greater than 30 days past due. The accounts receivable balance of $7,000 consists of $3,500 not yet due, $2,000 less than 30 days past due, and $1,500 greater than 30 days past due. What is the appropriate amount of Bad Debt Expense?

$470

Boynton Jewelers reported the following amounts at the end of the year: total sales = $550,000; sales discounts = $12,000; sales returns = $44,000; sales allowances = $17,000. What was the company's net revenues for the year?

$477,000

Marvin sold 2,300 units of inventory during the month. Ending inventory assuming LIFO would be:

$5,040

GRAPH #21 Marvin sold 2,300 units of inventory during the month. Ending inventory assuming weighted-average cost would be (round weighted-average unit cost to four decimals and final answer to the nearest whole dollar):

$5,087

GRAPH #19 Marvin sold 2,300 units of inventory during the month. Ending inventory assuming FIFO would be:

$5,140

Clothing Emporium was organized on January 1, 2018. The firm was authorized to issue 100,000 shares of $5 par value common stock. During 2018, Clothing Emporium had the following transactions relating to shareholders' equity: Issued 30,000 shares of common stock at $7 per share. Issued 20,000 shares of common stock at $8 per share. Reported a net income of $100,000. Paid dividends of $50,000. What is the ending balance in the Retained Earnings account at the end of 2018?

$50,000

The balance sheet of California Clothing reports total equity of $600,000 and $700,000 at the beginning and end of the year, respectively. Net income and sales for the year are $65,000 and $1,300,000, respectively. What is California Clothing's return on equity?

$65,000/[$600,000+$700,000/2]= 10%

California Clothing reports net income and sales for the year of $65,000 and $1,300,000, respectively. Return on equity is 10%. What is California Clothing's average Stockholders' Equity for the year?

$650,000

Over the first four years of the company's life, the company earned the following net income (loss): $6,000; $3,000; $6,000, and ($2,000). If the company's ending retained earnings is $10,000 after year 4, what is the average amount of dividends paid per year?

$750

Bahama Catering purchased a commercial dishwasher by paying cash of $8,000. The dishwasher's fair value on the date of the purchase was $10,000. The company incurred $600 in transportation costs, $500 installation fees, and paid $300 annual insurance of the equipment. For what amount will Bahama record the dishwasher?

$9,100

Financial position

'Point in time' / 'Level of bathtub' - Balance sheet

Financial performance

'over time period' / 'rate of water' / 'flow' - Income statement

Beach Boards reports dividends per share of $1.40 and net income for the year of $150,000. The current stock price is $40.00. What is Beach Boards' dividend yield?

($1.40/$40.00) = .035 3.5%

Beach Boards reports dividends per share of $1.40 and net income for the year of $150,000. Dividend yield is 3.5%. What is Beach Boards' current stock price?

($1.40/.035) =$40.00 $40.00

Net income (in millions) $175 Preferred stock dividends (in millions) $25 Common shares outstanding (in millions) 250 Stock price $10.00 What is the company's earnings per share?

($175 - $25) / 250 = $0.60

Dividends (in millions) $75 Shares outstanding (in millions) 300 Stock price $20.00 What is the company's dividend yield?

($75/300)/$20.00 = 0.0125 or 1.25%

A company records a sales return from a credit customer. Indicate how this transaction would affect (1) assets, (2) stockholders' equity, and (3) revenues.

(1) Decrease, (2) Decrease, (3) Decrease

Average Inventory =

(Beginning Inventory + Ending Inventory) / 2

Income statement organization/order

- Revenue is top line (e.g. service revenue, product revenue, and interest revenue reported separately) - Expenses listed sequentially below: 'Direct' product costs (COGS, etc.), then overhead, then accrual basis estimates (depreciation), then financing stuff (overhead expenses) - Net income is literal bottom line

"Two ways to see it"

- Sources of financing view: L + E = A - "What's left over / claims of creditors vs. owners": E = A - L

Deposits outstanding

Cash from the company not yet added to the bank's records of the company's balance

Investing activities

Cash investments in long-term assets and investment securities Change in long term assets

Operating activites

Cash transactions involving revenues and expenses Net income +Depreciation expense +Amortization expense +Loss -Gain Change in current asset Change in current liability

Checks outstanding

Checks the company wrote out to another entity that has not been subtracted from the bank's record of the company's balance

Stockholder's Equity (What you own) =

Common Stock (What you invested) + Retained Earnings (Portion of profits that you reinvest into company)

The par value of shares issued is normally recorded in the:

Common Stock account

What goes on the Statement of Stockholder's Equity?

Common Stock, Dividends, Retained Earnings, Stockholder's Equity, and Contributed Capital

What two things make stockholder's equity?

Common stock plus Retained Earnings

Why would a company choose LIFO?

Companies choose LIFO when prices are rising in order to pay lower taxes

prepaid expenses

Company A is paying Company B in advance for service it expects to get in the future from Company B - deferred expense

Commercial paper

Company borrows from another company rather than from a bank Interest is lower than on a bank loan

Accrued Expense

Company has a cost that has yet to paid in cash or recognized as an obligation/liability.

Not example of cash basis

Company provides cruise services to ruby and Calvin, but the payment is due in April. Services have been provided but money has not been received so this is not recorded. This is an accrual basis.

Not example of accrual basis

Company receives cash from ruby and Calvin for Hawaiian cruise next April. The cash revenues is received but the service revenues has not been provided. This is cash basis.

Current Liabilities

Company will pay the debt within one year or the operating cycle - accounts payable, notes payable, salaries/wages payable, taxes payable, interest payable, unearned revenue????

business transactions

Company's economic events that are recorded by accountants ex. Purchasing supplies; Paying rent for office space; Paying employee salaries; Receiving cash from customers; Borrowing money from the bank

Sale of Plant Assets

Compare the book value of the asset with the proceeds received from the sale. If proceeds exceed the book value, a gain on disposal occurs. If proceeds are less than the book value, a loss on disposal occurs.

Times interest earned ratio

Compares interest expense with income available to pay those charges

Perpetual Inventory System

Constantly recording company inventory Helps better manage inventory Performed daily

Accumulated depreciation

Contra asset account

What kind of account is Discount on bonds payable?

Contra liability account

Similarities between employee and employer payroll costs

Contributions and investments towards: Retirement or savings plan Social security and Medicare (FICA) Health, dental, disability, and life insurance

The exclusive right to benefit from a creative work, such as a film, is a:

Copyright

In terms of total sales, assets, and earnings, the dominant form of business organization is a:

Corporation

Book value

Cost - Accumulated depreciation = Book value

Cost of Goods Available at End of Period (Ending inventory) =

Cost of Goods Available at Beg of Period (Beginning Inventory) + Cost of Goods Purchased - Cost of Goods Sold (COGS)

How to calculate inventory turnover ratio

Cost of goods sold/ average inventory

Cost of goods sold

Cost of the inventory that is sold during the period. This is not to be confused with the total inventory in stock, but only the amount of inventory sold.

Cost of machinery/equipment

Costs needed to make the machine or equipment ready for use. Amount paid for the machinery/equipment Sales tax Delivery charges Special installations needed Initial testing of the machine Equipment repairs are not included

South Beach Apparel issued 10,000 shares of $1 par value stock for $5 per share. What is true about the journal entry to record the issuance?

Credit Additional paid in capital $40,000

Jade Jewelers issued 15,000 shares of $1 par value stock for $20 per share. What is true about the journal entry to record the issuance?

Credit Common Stock $15,000

On December 2, Coley Corp. acquired 1,000 shares of its $2 par value common stock for $27 each. On December 20, Coley Corp. reissued 400 shares for $15 each. Which of the following is correct regarding the journal entry for the reissued shares?

Credit Treasury Stock $10,800

On February 22, Brett Corporation acquired 200 shares of its $5 par value common stock for $25 each. On March 15, the company reissued 70 shares for $30 each. What is true of the entry for reissuing the shares?

Credit additional paid in capital $350

A company issued 1,000 shares of $1 par value preferred stock for $5 per share. What is true about the journal entry to record the issuance?

Credit additional paid in capital $4,000

At the end of May, paid $4,000 cash for May rent on storage space.

Credit cash 4000 Debit mortgages payable 4000

Quarterly adjusting entry: interest or $400 is accrued on the notes payable

Credit interest expense Debit interest payable

Earned $1,000 in sales revenue. The customer paid $500 in cash and put the remaining balance on their account.

Credit revenues 1000 Debit cash 500 Debt accounts receivable 500

Sales on account or service on account

Credit sales = Accounts receivable

At the beginning of 2018, the balance in Jackson Enterprises' Allowance for Uncollectible Accounts was $31,800. During 2018, the company wrote off $38,000 of accounts receivable. Writing off the individual bad debts would include a:

Credit to Accounts Receivable.

Wright Inc. issued 20,000 shares of $1 par value common stock for $80,000. The journal entry to record this issuance includes a:

Credit to Common Stock for $20,000

A company reissues 400 shares of its own common stock for $20 per share. The company had acquired these shares two months before for $15 per share. The reissuance of this stock would be recorded with a:

Credit to additional paid in capital for $20000

How to calculate current ratio

Current assets / current liabilities = current ratio

Current ratio is

Current assets divided by current liabilities

Working capital is

Current assets minus current liabilities.

On September 1, 2018, Southwest Airlines borrows $39.5 million, of which $7.0 million is due next year. Show how Southwest Airlines would record the $39.5 million debt on its December 31, 2018, balance sheet.

Current portion long-term debt: 7,000,000 Notes Payable: 32,500,000

journal entry for dishonored notes receivable if you expect the borrower to pay you back eventually

DR Accounts Receivable (full + interest for the note) CR Notes Receivable CR Interest Receivable/Interest Revenue

journal entry for when a machine is retired before it is fully depreciated

DR Accumulated Depreciation - Machine CR Loss on Disposal CR Machine

journal entry for when a machine is fully depreciated and retired with no salvage value

DR Accumulated Depreciation - Machine CR Machine

journal entry for dishonored notes receivable if you don't expect the borrower to pay you back

DR Allowance (note full + interest) CR Notes Receivable CR Interest Receivable/Interest Revenue

direct write-off journal entry

DR Bad Debts Expense CR Accounts Receivable - person's name

Recording bond retirements at maturity

DR Bonds payable CR cash Some people choose to retire the bonds prior to the maturity date as well

What is the journal entry for an inventory write-down?

DR COGS CR Inventory

Recording notes payable

DR Cash CR Notes payable

journal entry for when you sell a machine for less than book value

DR Cash DR Accumulated Depreciation DR Loss on Disposal CR Machine

what happens if you sell a machine before the end of its useful life?

DR Cash DR Accumulated Depreciation DR Loss on Disposal CR Machine

journal entry for when you sell an asset for exactly the book value

DR Cash DR Accumulated depreciation CR Asset

journal entry for when you sell a machine for more than the book value

DR Cash DR Accumulated depreciation CR Asset CR Gain on Disposal

When a company sells a 200,000 receivable to a factor who charges 3% commission, what is the journal entry for the company?

DR Cash 194,000 DR Service Charge Expense 6,000 CR Accounts Receivable 200,000

journal entry for accrued interest in a month

DR Interest Receivable CR Interest Revenue

What is the journal entry for if a company requires a customer to issue a promissionary note to ensure payment of an accounts receivable?

DR Notes Receivable CR Accounts Receivable

When a company lends money using a note, what journal entry is made?

DR Notes Receivable CR Cash

Recording payment of notes payable

DR Notes payable, interest expense, and interest payable (to get total amount owed for the note) CR Cash

journal entry for a sales allowance

DR Sales Returns & Allowances, CR Accounts Receivable (no impact on Inventory or COGS since the goods are not returned)

If a company sells something to a customer on account, what is the journal entry?

DR accounts receivable CR sales revenue

Recording bond retirements before maturity

DR bonds payable DR loss CR cash

Recording depreciation

DR depreciation expense and CR Accumulated Depreciation

Recording interest payable

DR interest expense (expense you will have to pay) CR interest payable (interest that your are required to pay in addition to the notes payable)

Paid down half of amount due to Company Y for Transaction 1.

Debit Accounts Payable (Liabilities) $2,500 Credit Cash (Assets) $2,500

Bear Essentials borrowed $50,000 from Stacks Bank and signed a promissory note. What entry should Bear Essentials record?

Debit Cash, $50,000; Credit Notes Payable, $50,000.

In December 2017, Quebecor Printing received magazine subscriptions for 2018 from a customer, who paid $500 in cash. What would be the appropriate journal entry for this event?

Debit Cash, $500; credit Deferred Revenue, $500.

In January 2018, Summit Co. sells a gift card for $50 and receives cash. What would be the appropriate journal entry for this event?

Debit Cash, $50; credit Deferred Revenue, $50.

Brian Inc. borrowed $8,000 from First Bank and signed a promissory note. What entry should Brian Inc. record?

Debit Cash, $8,000; Credit Notes Payable, $8,000.

Good Inc., sold inventory for $1,200 that was purchased for $700. Good records which of the following when it sells inventory using a perpetual inventory system?

Debit Cost of Goods Sold $700; credit Inventory $700.

In January, 2018, Summit Co. sells a gift card for $50 and receives cash. In February, 2018, the customer comes back and spends $20 of their gift card on a water bottle. What would be the appropriate journal entry for the purchase of the water bottle?

Debit Deferred Revenue, $20; credit Sales Revenue, $20.

Quarterly adjusting entry: Insurance expires at a rate of 400 per month.

Debit Insurance expense 400*3=1200 Credit prepaid insurance 400*3=1200

ABO purchased a truck at the beginning of 2018 for $140,000. They sold the truck at the end of 2019 for $95,000. If the expected useful life of the truck was six years with a residual value of $20,000 and ABO uses straight-line depreciation, which of the following is true regarding the entry to record the sale of the truck?

Debit Loss $5,000.

Bear Essentials borrowed $50,000 from Stacks Bank and signed a promissory note. What entry should Stacks Bank record?

Debit Notes Receivable, $50,000; Credit Cash, $50,000.

How do you record credit sales

Debit accounts receivable and Credit Service revenue

How to record trade discounts

Debit accounts receivable and Credit service revenue with the discounted amount

Journal entry for write off

Debit allowance for bad debt and credit accounts receivable with the customer name or specific title.

Journal entry for recording uncollectible

Debit bad debt expenses and credit allowance for uncollectible accounts

Issued 10 shares of common stock to investors in exchange for $500 cash.

Debit cash 500 Credit Common Stock 500

How to record a sales discount

Debit cash, debit sales discount, and credit accounts receivable with the total of both cash and sales discount

Quarterly adjusting entry: Equipment depreciates at $280 per month

Debit depreciation expense $280*3=$840 Credit and ccumulated depreciation 840

On November 1, 2018, New Morning Bakery signed a $191,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2019. New Morning Bakery should record which of the following adjusting entries at December 31, 2018?

Debit interest expense and credit interest payable, $1,910

Purchased $1,200 worth of inventory. Paid $800 in cash and put the remaining balance on their account with the manufacturer.

Debit inventory 1200 Credit cash 800 Credit accounts payable 400

What is the normal balance for a contra-revenue account?

Debit normal balance, because contra accounts have normal balances opposite of the accounts they are offsetting

Adjusting entry: The balance (3600) represents 4 months rent costs

Debit rent expense (3600/4)=900 Credit prepaid rent

Adjusting entry: Employees were owed 3000 relating to unpaid salaries and wages

Debit salaries and wages expense Credit salaries and wages payable

Recording sales allowance

Debit sales allowance and credit accounts receivable

Using a perpetual inventory system, the entry to record the return of inventory previously purchased on account includes a:

Debit to Accounts Payable.

A company acquires 1,000 shares of its own $1 par common stock for $15 per share. This purchase would be recorded with a:

Debit to Treasury Stock for $15,000

Quarterly adjusting entry: Half of unearned revenue (1200) was earned during quarter

Debit unearned rent revenue 600 Credit rent revenue 600

Adjusting entry: consign satisfied obligations worth $4700 related to unearned service revenue

Debit unearned service revenue 4700 Credit service revenue 4700

Adjusting entry: unpaid maintenance and repairs cost were $2300

Debit: maintenance/repairs cost Credit: accounts payable

How to calculate debt to equity ratio

Debt to equity ratio = total liabilities / stock holder's equity

Journal Entries to record cash dividends are made on the:

Declaration date and payment date

When treasury stock is acquired, what is the effect on totals stockholders' equity?

Decrease

What would be the impact on the accounting equation when a company acquires treasury stock?

Decrease assets and decrease stockholders' equity

Crossroads Mall had 100,000 outstanding shares of common stock. On June 16, 2018, Crossroads repurchased 20,000 shares of its own stock at $30 per share. On July 23, 2018, Crossroads resold 10,000 shares at $28 per share. What net effect did the repurchase and the resell of common stock have on the accounting equation?

Decrease in assets and decrease in stockholders' equity

Activity based method is similar to

Depletion

What accounts are only reconciled on the bank's records

Deposits and checks outstanding

Causes for difference in balance between the company and the bank

Difference in timing or errors

Which of the statements regarding the corporate form of business is correct?

Disadvantages are that the business is subject to government regulations and double taxation on its income.

Ogden Motors, Inc. is involved in a lawsuit. It is reasonably possible that the jury will find in favor of the plaintiff and Ogden will owe ten million dollars. What is the appropriate reporting of this lawsuit and what is the effect on the balance sheet?

Disclose; no effect on the balance sheet - The outcome is reasonably possible, not probable, so the contingent liability will be disclosed, but not recorded.

Why might showing the contra account be more preferable than decreasing the asset directly on the balance sheet?

Discloses both the original cost of the asset and the total cost that has expired to date.

Assume Delta Airlines borrows $500,000 from Chase Bank on November 1, 2021, signing a 9%, six-month note payable. Record the issuance of the note payable.

Dr. Cash 500,000 Cr. Notes Payable 500,000

On December 18, Intel receives $255,000 from a customer toward a cash sale of $2.55 million for computer chips to be completed on January 23. The computer chips had a total production cost of $1.55 million. What journal entries should Intel record on December 18 and January 23? Assume Intel uses the perpetual inventory system. Record the sales revenue.

Dr. Deferred Revenue Cr.

journal entry: When the customer purchases and downloads, say, $15 worth of music, Apple records the following:

Dr. Deferred Revenue 15 Cr. Sales Revenue 15

The football stadium has a seating capacity of 80,000, expandable to 111,000 with standing-room-only capacity. The new stadium cost $1.15 billion, making it one of the most expensive sports stadiums ever built. They hold eight regular season games at home; an average ticket sells for about $100 a game. Assume the Cowboys collect $48 million in season ticket sales prior to the beginning of the season. Record the $6 million in revenue recognized after the first game.

Dr. Deferred Revenue 6 Cr. Sales Revenue 6

journal entry: Record interest incurred, but not yet paid

Dr. Interest Expense Cr. Interest Payable

Record the repayment of the note at maturity. On August 1, 2021, Trico Technologies, an aeronautic electronics company, borrows $19.8 million cash to expand operations. The loan is made by FirstBanc Corp. under a short-term line of credit arrangement. Trico signs a six-month, 8% promissory note. Interest is payable at maturity. Trico's year-end is December 31.

Dr. Interest Expense 132,000 Dr. Interest Payable 660,000 Dr. Notes Payable 19,800,000 Cr. Cash 20,592,000

Record the adjusting entry for interest. On August 1, 2021, Trico Technologies, an aeronautic electronics company, borrows $19.8 million cash to expand operations. The loan is made by FirstBanc Corp. under a short-term line of credit arrangement. Trico signs a six-month, 8% promissory note. Interest is payable at maturity. Trico's year-end is December 31.

Dr. Interest Expense 660,000 Cr. Interest Payable 660,000

Assume Delta Airlines borrows $500,000 from Chase Bank on November 1, 2021, signing a 9%, six-month note payable. Record the adjustment for interest payable on December 31, 2021.

Dr. Interest Expense 7,500 Cr. Interest Payable 7,500

shareholders equity identity

- shareholders equity = common stock + retained earnings - word association: common stock = paid in capital, retained earnings = earned capital

straight-line method

-Depreciable cost = cost of asset - salvage value -Annual depreciation expense = depreciable cost/useful life OR, determine the annual rate of depreciation: -Depreciation rate = 100%/useful life -Annual depreciation expense = depreciation cost * depreciation rate

OS Environmental provides cost-effective solutions for managing regulatory requirements and environmental needs specific to the airline industry. Assume that on July 1 the company issues a one-year note for the amount of $4.5 million. Interest is payable at maturity. Required: Determine the amount of interest expense that should be recorded in a year-end adjusting entry under each of the following independent assumptions: 1. 12% Interest; Year End= December 31 2. 10% Interest; Year End= September 30 3. 9% Interest; Year End= October 31 4. 6% Interest; Year End= January 31

1. 4,500,000 X 6/12 X 0.12% = 270,000 2. 4,500,000 X 3/12 X 0.10% = 112,500 3. 4,500,000 X 4/12 X 0.09% = 135,000 4. 4,500,000 X 7/12 X 0.06% = 157,500

3 types of receivables

1. Accounts receivable 2. Notes receivable 3. Other receivables

Aging Schedule Method (3 steps)

1. Arrange the accounts receivables by age in buckets (Not yet due, 1-30 days past due, 31-60 days past due, 61-90 days past due, over 90 days past due) 2. Estimate the probable bad debt loss rates for each category or bucket 3. Calculate the total estimated bad debts

Double declining method steps

1. Calculate straight line rate (100%/useful life) 2. Double straight line rate -> double declining rate 3. Use a table! Year, Book Value (beg), Dep Rate, Annual Dep Exp, Acc Dep, Book Val (end) For the first year, Book Value (beg) * DD rate = dep exp

Apple Inc. is the number one online music retailer through its iTunes music store. Apple sells iTunes gift cards in $15, $25, and $50 increments. Assume Apple sells $19.5 million in iTunes gift cards in November, and customers redeem $12.5 million of the gift cards in December. 1. Record journal entries for cash receipt and for revenue earned from redemption of gift cards 2. Ending balance in deferred revenue account

1. Cash receipt: - Debit: Cash 19,500,000 - Credit: Deferred Revenue 19,500,000 1. Redemption of gift cards - Debit: Deferred Revenue 12,500,000 - Credit: Sales Revenue 12,500,000 2. 19,500,000 - 12,500,000 = 7,000,000 ending balance

Journal entries for recovery of a write-off

1. DR Accounts receivable - person CR Allowance 2. DR Cash CR Accounts receivable - person

I buy shoes from Nike, then return $600 worth of shoes back to Nike. What do the journal entries look like for Nike? (assume a cost of $400)

1. DR Sales Returns & Allowances 600, CR Accounts Receivable 600 2. DR Inventory 400, CR COGS 400

How do we close revenue and expense accounts? (4 steps)

1. Debit revenue account for the entire revenue amount, credit income summary 2. Debit income summary for total expenses, credit each expense account for its full amount 3. Debit income summary for the amount of net income, credit retained earnings for the amount of net income. If you have a negative net income, credit income summary and debit retained earnings instead. 4. Debit retained earnings for the balance in the dividends account. Credit dividends.

How do companies revise periodic depreciation?

1. Determine the asset's depreciable cost at the time of the revision 2. Allocate the revised depreciable cost to the remaining useful life

2 ways a company determines its uncollectible accounts

1. Direct write-off method 2. Allowance method

On November 1, 2018, Aviation Training Corp. borrows $56,000 cash from Community Savings and Loan. Aviation Training signs a three-month, 6% note payable. Interest is payable at maturity. Aviation's year-end is December 31.

1. Issuance of Note - Debit: Cash 56,000 - Credit: N/P 56,000 2. Adjustment for Interest 56,000 X 2/12 X 0.06% = 560 - Debit: Interest expense 560 - Credit: Interest payable 560 3. Record Payment of Note Debit: N/P 56,000 Debit: Interest Exp 280 Debit: Interest payable 560 Credit: 56,840

On November 1, Bahama Cruise Lines borrows $3.5 million and issues a six-month, 9% note payable. Interest is payable at maturity. Record the issuance of the note and the appropriate adjustment for interest expense at December 31, the end of the reporting period

1. Issuance of Note Debit: Cash 3,500,000 Credit: Notes Payable 3,500,000 2. Interest adjustment 3,500,000 X 2/12 X 0.09% = 52,500 Debit: Interest Exp 52,500 Credit: Interest Exp 52,500

How do you estimate how much of accounts receivable is uncollectible? (2 methods)

1. Percentage of receivables method 2. Accounts Receivable aging method (much more accurate)

Which of the following is not a current liability? a) accounts payable b) note payable in 2 years c) current portion of long-term debt d) sales tax payable

A note payable in 2 years

GRAPH #27 Anthony's inventory turnover ratio is:

2.76

Discount Travel has the following current assets: cash, $102 million; receivables, $94 million; inventory, $182 million; and other current assets, $18 million. Discount Travel also has the following liabilities: accounts payable, $98 million; current portion of long-term debt, $35 million; and long-term debt, $23 million. Based on these amounts, what is the current ratio?

2.98. ($102 + $94 + $182 + $18)/($98 + $35) = 2.98 (rounded).

Which of the following is TRUE regarding the accounting for treasury stock?

-Treasury stock is reported on the balance sheet in the equity section -The purchase and sale of treasury stock has no impact on the income statement. -Treasury stock represents a negative a equity account -ALL OF THESE

Time in terms of one year

-When the maturity date is expressed in months, divide the number by 12 -When the maturity date is expressed in days, divide the number by 360

accounts receivable

-amounts owed by customers on account -result from the sale of goods or services -companies expect to receive these within 30-60 days

Record the adjusting entry for interest for Precision Castparts. Precision Castparts, a manufacturer of processed engine parts in the automotive and airline industries, borrows $40.7 million cash on October 1, 2021, to provide working capital for anticipated expansion. Precision signs a one-year, 9% promissory note to Midwest Bank under a prearranged short-term line of credit. Interest on the note is payable at maturity. Each firm has a December 31 year-end.

Dr. Interest Expense 915750 Cr. Interest Payable 915750

Note payable

A promissory note signed by a business and given to a creditor

Treasury Stock is normally reported as:

A reduction of total stockholder's equity

collateral

A security pledged for the repayment of a loan.

notes receivable

A written promise that a customer will pay a fixed amount of principal plus interest by a certain date in the future.

Deposits in Transit

AKA outstanding deposits These are due to timing differences and so the bank can't give you the money you need to spend even though you de deposited the money into your account.

multiple-step income statement

An income statement that shows several steps in determining net income.

Trial balance

An informal report of all the accounts and their balances at a particular date. Purpose is to make sure total debits equal total credits.

How do you determine the adjusting entry for percentage-of-receivables method?

-find Bad Debt Expense by taking the difference between the estimated ending balance and the beginning balance -DR Bad Debt Expense -CR Allowance

inventory management

-have enough inventory to meet demand -too much inventory could be costly, especially if inventory spoils or becomes obsolete

Average Cost Method

An inventory costing method that uses the weighted-average unit cost to allocate the cost of goods available for sale to ending inventory and cost of goods sold.

Average Cost Method

An inventory costing method that uses the weighted-average unit cost to allocate the cost of goods available for sale to ending inventory and cost of goods sold; most stable

nonoperating expenses

-interest expense on notes and loans payable -casualty losses from vandalism/accidents -loss from the sale or abandonment of PPE -loss from strikes

nonoperating revenues

-interest revenue from notes receivable and marketable securities -dividend revenue from investments in capital stock -rent revenue from subleasing -gain from the sale of PPE

temporary accounts

All revenue accounts All expense accounts Dividends

Depletion

Allocation of the cost of a natural resource over its service life (using natural resources causes the cost to drop)

Contra asset accounts for allowance method

Allowance for un collectible accounts, doubtful accounts, and bad debt.

Names of uncollectible accounts

Allowance for un collectible accounts, doubtful accounts, and bad debt.

Face Value

Amount of principal due at the maturity date of the bond

Cost of land

Amount paid for the land Realtor fees Survey costs Back taxes owed Title insurance Cost of demolishing the old building in the land Salvage of the land

Liabilities

Amounts owed to creditors in the form of debt and other obligations - creditor's claim on the assets

Common stock

Amounts paid in by shareholders. such cash infusions are structured as sale of shares of stock

Accounts payable

Amounts to be paid in the future for goods or services already acquired.

Amplify, Inc. was sued by Sound City for $50,000. Sound City feels very confident that it will win the case and will be awarded the full amount. Amplify, Inc. feels it is probable that it will lose the case and pay Sound City the full amount. Which of the following is correct?

Amplify, Inc. would record a loss and contingent liability for $50,000; Sound City would record nothing.

Contra-account

An account with a balance that is opposite, or "contra," to that of its related accounts. The use of a contra account allows a company to report the original amount and also report a reduction so that the net amount will also be reported.

materiality principle

An accounting principle that states that only items that are "material" or that "make a difference" should be presented in financial statements

GRAPH #10 On September 1, 2018, Heartford Construction lends $50,000 to a customer with 9% interest. The note and interest are due in twelve months. The note receivable is recorded for $50,000 on September 1, and the following year-end adjusting entry is made on December 31, 2018:

Assets are overstated.

Kelton Inc. purchases inventory for $2,000 and incurs shipping costs of $100 for the goods to be delivered. To record this transaction, the company debits Inventory for $2,000, debits Selling Expenses for $100, and credits Cash for $2,100. Which of the following statements is correct?

Assets are understated.

Current assets

Assets that a company expects to convert to cash or use up within one year or its operating cycle, whichever is longer - cash; short-term investments; accounts receivables, notes receivable, interest receivable; inventories; prepaid expenses (supplies, insurance) - listed in order of liquidity

Property, plant, and equipment (PP&E)

Assets with relatively long useful lives that are currently being used in operating the business - land, building, equipment, delivery vehicles, furniture - depreciation and accumulated depreciation

What goes on the Balance sheet?

Assets, Liability, and Stockholder's Equity

Permanent accounts

Assets, liabilities, contributed capital, retained earnings, or accounts on the balance sheet

Record the adjusting entry for interest for Midwest Bank. Precision Castparts, a manufacturer of processed engine parts in the automotive and airline industries, borrows $40.7 million cash on October 1, 2021, to provide working capital for anticipated expansion. Precision signs a one-year, 9% promissory note to Midwest Bank under a prearranged short-term line of credit. Interest on the note is payable at maturity. Each firm has a December 31 year-end.

Dr. Interest Receivable 915750 Cr. Interest Revenue 915750

journal entry: An auditor believes it is probable that Jeeps, Inc., will lose the $100 million lawsuit at some point in the future

Dr. Loss 100 Cr. Contingent Liability 100

Journal entry worksheet Record the contingent liability if needed. Top Sound International designs and sells high-end stereo equipment for auto and home use. Engineers notified management in December 2021 of a circuit flaw in an amplifier that poses a potential fire hazard. Further investigation indicates that a product recall is probable, estimated to cost the company $3.3 million. The fiscal year ends on December 31.

Dr. Loss 3,300,000 Cr. Contingent Liability 3,300,000

Record payment of note and interest

Dr. Notes Payable Dr. Interest Payable Dr. Interest Expense Cr. Cash

Assume Delta Airlines borrows $500,000 from Chase Bank on November 1, 2021, signing a 9%, six-month note payable. Record the payment of the note and interest at maturity.

Dr. Notes Payable 500,000 Dr. Interest Payable 7,500 Dr. Interest Expense 15,000 Cr. Cash 522,500

Record the acceptance of the note by Midwest Bank. Precision Castparts, a manufacturer of processed engine parts in the automotive and airline industries, borrows $40.7 million cash on October 1, 2021, to provide working capital for anticipated expansion. Precision signs a one-year, 9% promissory note to Midwest Bank under a prearranged short-term line of credit. Interest on the note is payable at maturity. Each firm has a December 31 year-end.

Dr. Notes Receivable 40,700,000 Cr. Cash 40,700,000

Federal & state income tax withheld= $24,000 Health insurance premiums (Blue Cross) paid by employer= 5,000 Contribution to retirement plan (Fidelity) paid by employer= 10,000 FICA tax rate (Social Security and Medicare)= 7.65% Federal and state unemployment tax rate= 6.2% Record the EMPLOYER payroll taxes.

Dr. Payroll Tax Expense 13,850 Cr. FICA Tax Payable 7,650 Cr. Unemployment Tax Payable 6,200 (FICA= 0.0765 x 100,000) (unemployment= 0.062 x 100,000)

Units of activity method

-useful life is expressed in terms of the total units of production rather than as a time period -used for things that sit idle until you use them (ie. airplane - number of miles) -estimate total units of activity and divide these into depreciable cost

*NOTE* franchise/ license can be limited time or indefinite

...

Adjustment for the following occur on 12/31/13

...

Federal & state income tax withheld= $24,000 Health insurance premiums (Blue Cross) paid by employer= 5,000 Contribution to retirement plan (Fidelity) paid by employer= 10,000 FICA tax rate (Social Security and Medicare)= 7.65% Federal and state unemployment tax rate= 6.2% Record the EMPLOYER provided fringe benefits as Salaries Expense & the related credit balance to Accounts Payable.

Dr. Salaries Expense (fringe benefits) 15,000 Cr. Accounts Payable (blue cross) 5,000 Cr. Accounts Payable (fidelity) 10,000

Federal & state income tax withheld= $24,000 Health insurance premiums (Blue Cross) paid by employer= 5,000 Contribution to retirement plan (Fidelity) paid by employer= 10,000 FICA tax rate (Social Security and Medicare)= 7.65% Federal and state unemployment tax rate= 6.2% Record the EMPLOYEE salary expense, withholdings & salaries payable.

Dr. Salaries Expense 100,000 Cr. Income Tax Payable 24,000 Cr. FICA Tax Payable 7650 Cr. Salaries Payable 68,350 (FICA= 0.0765 x 100,000)

Dell introduces a new laptop computer in December 2021 that carries a one-year warranty against manufacturer's defects. Suppose new laptop sales for the entire month of December are $1.5 million. How much does Dell "owe" these customers? Even though no laptops are currently needing warranty work, Dell expects future warranty costs to be 3% of sales. Record the adjusted entry

Dr. Warranty Expense 45,000 Cr. Warranty Liability 45,000

journal entry- Dec 31: Assume warranty costs are estimated to be 3% of sales. December sales are $1.5 million and customers make warranty claims of $12,000 in January of the following year.

Dr. Warranty Expense 45,000 Cr. Warranty Liability 45,000

Dell introduces a new laptop computer in December 2021 that carries a one-year warranty against manufacturer's defects. Suppose new laptop sales for the entire month of December are $1.5 million. Customers make warranty claims costing Dell $12,000 in January of 2022

Dr. Warranty Liability 12,000 Cr. Cash 12,000

journal entry- jan 31: Assume warranty costs are estimated to be 3% of sales. December sales are $1.5 million and customers make warranty claims of $12,000 in January of the following year.

Dr. Warranty Liability 12,000 Cr. Cash 12,000

expanded accounting equation

Assets=Liabitlities+common stock+revenue-expenses-dividends

FICA taxes

Based on the Federal Insurance Contributions Act tax withheld from employees' paychecks and matched by employers for Social Security and Medicare.

COGS =

Beginning Inventory + Purchased - Ending Inventory

Ending Retained Earnings (end of Year X) =

Beginning Retained Earnings (start of Year X) + Net Income (during Year X) - Dividends (during Year X)

End retained earnings

Beginning retained earnings + Net income - Dividends = End retained earnings

Serial

Bond issue matures in installments

Term

Bond issued matured on a single date

Callable

Borrowers can pay off bonds early

LIFO conformity rule

IRS rule requiring a company that uses LIFO for tax reporting to also use LIFO for financial reporting

LIFO Reserve

If a company chooses LIFO, they must report the difference between LIFO and FIFO even if they didn't calculate FIFO.

Bonds

Formal debt instrument that borrower repays the face amount at a specified date while paying interest over the life of the bond.

GAAP

Generally Accept Accounting principles

Intangible assets that can't be amortized

Goodwill, trademarks (with indefinite life)

During periods when inventory costs are rising, ending inventory will most likely be:

Greater under FIFO than LIFO.

Intangible assets

No physical substance, can be valuable, and acquired by purchase or created internally. Patents, Copyrights, Trademarks, Goodwill, Franchises

Second Chance is a consignment store that takes consigned goods and pays the seller when their goods sell. If the goods do not sell during a period of time, Second Chance returns the goods to the seller. Does Second Chance count these consigned goods as part of its Inventory?

No, because Second Chance has not taken ownership of the goods

Does a write off affect the accounting equation?

No, because negative effects already recorded

Does Bad Debts Expense increase when a write-off occurs?

No, because the store recognized the Bad Debts Expense when it made its adjusting entry for estimated bad debts

Can Land depreciate?

No, never, ever.

Do income statement accounts, such as revenues and expenses, carry over into the next period?

No. The income statement covers a period of time.

Are annual recurring expenses on equipment included in the cost of equipment?

No; they are treated as expenses when incurred. ie. License expense

Unsecured bonds

Not backed by collateral

Periodic inventory system

Not continual teach of inventory Reports are based on physical counts of units on hand Very few companies use this method

Direct write off method

Not preferred by GAAP Used for income tax purposes Another way of calculating bad debt expense

What is the differences between accounts payable and notes payable?

Notes payable has interest

Average collection period

Number of days the averages accounts receivables balance is outstanding

Financing activities include

Obtaining cash from creditors and repayment of those loans -issuing and reacquiring capital stock -Payment of dividends

Are interest costs included in the building cost?

Only interest costs from the construction period

SE 2018 (from 2017-2018)

SE 2017 + CS 2018 + NI - D

change in SE =

SE end - SE beg ex. SE 2018 - SE 2017

How to calculate Net revenues (Net sales)

Sales - Sales Discount - Sales returns and allowances

Which of the following accounts is not reported in the stockholders' equity section of the balance sheet?

Sales Revenue

Contra revenue account

Sales discount and sales allowance

How to calculate gross profit

Sales revenue - Cost of goods sold = Gross profit (Need to know for multi step income statement)

Formula for credit sales method / income statement method

Sales revenue/Net sales/Credit sales x % estimated to be uncollectible = bad debt expense

During December, Far West Services makes a $2,600 credit sale. The state sales tax rate is 6% and the local sales tax rate is 2.5%. Record sales and sales tax payable.

Sales tax payable (combined) : 2,600 X 0.0825% = 221 Debit: A/R 2,821 Credit: Sales Rev 2,600 Credit: Sales tax payable 221

How much do you have to sell a machine for to get a gain on disposal?

Sell for anything over the current book value (cost - accumulated depreciation)

FOB destination

Seller places the goods on board the truck/carrier AND pays the freight costs. - seller owns product and is in its inventory until it arrives at destination

FOB shipping point

Seller places the goods on board the truck/carrier for free - the BUYER pays the freight costs. - seller makes sale as soon as product loads carrier, no longer in ownership/inventory

Preventative controls

Separation of duties, physical controls, proper authorization, employee management, and E-commerce controls

Annuity

Series of equal payments at equal intervals.

Provisions of Sarbanes Oxley

Oversight board Corporate executive accountability Nonaudit services Retention of work papers Auditor rotation Conflicts of interest Hiring and auditor Internal control

Young Company is involved in a lawsuit. The liability that could arise as a result of this lawsuit should be recorded on the books if the probability of Young owing money as a result of the lawsuit is:

Probable and the amount is reasonably estimable.

A contingent liability should be recorded on a company's financial statements only if the likelihood of a loss occurring is:

Probable and the amount of the loss can be reasonably estimated.

Liability

Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions of events (Note: not just cash sacrifice. e.g. deferred revenue)

Asset

Probably future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

perpetual inventory system

Purchase inventory --> Record purchase of inventory Sell inventory --> Record revenue and compute/record COGS At the end of the accounting period --> No entry

periodic inventory system

Purchase inventory --> Record purchase of inventory Sell inventory --> Record revenue only At the end of the accounting period --> Compute/record COGS

Basket purchases

Purchase of more than one asset for one purchase price. Allocate totally purchase price based on individual fair values.

notes payable

Short-term or long-term liabilities that a business promises to repay by a certain date. - can be your friend, bank, etc. - CL

Inventory turnover ratio

Shows the number of times the firm sells its average inventory balance during a reporting period

change in RE =

RE end = RE beg ex. RE 2018 - RE 2017

Cash flow statement

Shows: (1) the cash effects of the company's operations (2) its investing transactions (3) its financing transactions (4) net increase/decrease in cash (5) cash amount at the end of the period - divided into three parts: Cash flow from 1) operating activities, 2) investing activities, 3) financing activities - Helps show where your cash is coming from and where it is going

Non cash activities

Significant investing and financing activities that do not affect cash. Reported after the cash flow statement or in a not the financial statement.

Copyright

Similar to patent Lasts for as long as the publisher lives + 70 years Legal action are taken against those who attempt to infringe the copyright

T-accounts

Simplified forms of a general ledger Has beginning balance, ending balance, and transactions on the account

Petty cash fund

Small amount of cash kept on hand for minor purchases

Equipment repairs

Reoccurring costs are not a part of the cost of the equipment and considered to be Maintenon expenses for the equipment.

The current portion of long-term debt should be

Reported as a current liability on the balance sheet

The current portion of long-term debt should be

Reported as a current liability on the balance sheet.

LIFO Conformity rule

Requires company that uses LIFO for tax reporting to also use LIFO for financial reporting. This is because LIFO has the most tax savings because it reports the lowest amounts of profit when inventory costs are high. The lower the income, the less Taxes from the IRS.

Where are cost of goods sold always report

In the income statement

How to record bonds payable issued at discount

Include bonds payable to account for the difference as a credit to the balance

How to record bonds issued at a premium

Include bonds payable to account for the difference as a debit to the balance

general ledger

Includes all accounts used to record the company's transactions

Where is "Gain on disposal" reported in the financial statements?

Income Statement - Other revenues and gains

What are the order of the financial statements?

Income Statement, Statement of Stockholder's Equity, Balance Sheet, and Statement of Cash flows

Where does "loss on disposal" go?

Income statement - other expenses and losses

If a company issued 1,000 shares $1 par value common stock for $20 per share, what would be the effect on the account equation?

Increase the assets and increase stockholder's equity

Normal balance for Revenue

Increased by credit

Normal balance for Stockholder's equity

Increased by credit

Normal balance for liabiltiy

Increased by credit

Normal balance for Expenses

Increased by debit

Normal balance for assets

Increased by debit

Normal balance for dividends

Increased by debit

Retained Earnings

Increases stockholders Equity

When treasury stock is resold at a gain, the difference between its cost and the cash received when resold:

Increases stockholders' equity

Return on assets

Indicates the amount of net income generated for each dollar invested into the asset

Average days in inventory

Indicates the approximate number of days the average inventory is held

Profit margin

Indicates the earnings per dollar of sales Net income/net sales = profit margin

Line of credit

Informal agreement to permit a company to borrow up to a prearranged limit

Which of the following stages of equity financing comes last in the traditional order of progression?

Initial public offering (IPO)

What is the formula for interest?

Interest = Face amount x (Interest rate) x Time period it was borrowed out of a year

How to compute interest for notes receivable?

Interest = face value of note x annual interest rate x time in terms of one year

Bond issued at face amount

Interest rate and market rate are the same

Bond issued at premium

Interest rate is greater than market rate (so think of it as you're paying more) The carrying value will decrease over time so you will pay more

Bond issued at discount

Interest rate is lower than market rate (so think of it as you're paying less) The carrying value will increase over time so you will pay more

What accounts are only reconciled on the company's records

Interest revenue, service fees, NSF checks, receivables

sales return

Inventory X Cost of Goods Sold X

Which of the following stages of equity financing comes first in the traditional order of progression?

Investment by the founders of the business

Account for petty cash

Establish fund, recognize expenditures from the fund, replenish the fund. Make journal entries of each.

Percentage of credit sales method

Estimates uncollectible accounts based on percentage of credit sales that will not be collected.

Internal transaction

Events that affect the financial position of the company but do not include an exchange with a separate economic entity. Everything else that needs to be done before closing books and reporting.

Convertible

Investor can convert bond into common stock

Unearned revenue

Is a liability

Receivable turn over ratio

Is the number of times the average accounts receivable balance is collected

Earnings per share (EPS)

Is useful in comparing earnings performance for the same company over time.

Outstanding common stock refers to the total number of shares:

Issued less treasury stock

Liabilities are defined as:

Resources owed by an entity as a result of past transactions.

Which of the following is a disadvantage of an S Corporation?

Restrictions on number of stockholders

Net Income from the Income Statement flows into the

Retained Earnings Sheet

How to calculate return on assets

Return on assets = profit margin x asset turnover (Net income/average total assets) = (net income/net sales) x (net sales/average total assets)

Accrued revenues

Revenue earned but hasn't received cash or recorded an amount receivable for the revenues yet

Temporary accounts

Revenue, expenses, and dividends or whatever accounts are on the income statement

How do you calculate Basic Net Income?

Revenues minus expenses

Revenue recognition principle

Revenues should be recognized when it's earned and not when you have received payment for the service. Revenues is recognized when: goods or services are provided, know or can estimate dollar value of goods or services, or fairly assured of collection.

What goes on the Income Statement?

Revenues, Expenses, and Net Income

The issuer of a 5% common stock dividend (small stock dividend) to common stockholders should debit stock dividends for an amount equal to the

Market value of the shares issued

Specific identification

Matches each unit of inventory and is practical for companies selling unique and expensive products

Bank reconciliation

Matching the balance of the bank accounts with the company's accounts Hint: On the bank reconciliation, less means money is leaving the account and add means money is entering the account.

Debt to equity ratio

Measure of financial leverage

Gross profit ratio

Measures the amount by which the sale price of the inventory exceeds its cost per dollar of sales

Asset turnover

Measures the sales per dollar of asset invested Net sales / average total assets = asset turnover

Aging of receivables/percent of receivables/ balance sheet approach

Method: Balance in accounts receivables x % estimated to be uncollectible = desired balance in the allowance account. The desired balance in the allowance account (+/- current debit or credit in balance in allowance) = amount for bad debt expense in JE

Components of internal control

Monitoring <- Control activities <- risk assessment <- Control environment

Do tax regulations require companies to use the same depreciation method on their tax return that they use in their financial statements?

No

Does a write-off impact cash realizable value?

No

When shares of another corporation are purchased, what is the effect on total stockholders' equity?

No effect

Richard LLC accounts for possible bad debts using the allowance method. When an actual bad debt occurs, what effect does it have on the accounting equation?

No effect on the accounting equation.

A company collects an account receivable previously written off. Indicate how this transaction would affect (1) assets, (2) stockholders' equity, and (3) revenues.

No effect, (2) No effect, (3) No effect

ways to determine the costs of inventory and COGS:

Specific Identification FIFO LIFO Average-Cost

Three depreciation methods to calculate depreciation expense

Straight line depreciation, Double delving depreciation, and activity based depreciation

Is the market rate or the interest rate used for calculating bond payments?

THE MARKET RATE. NEVER USE THE INTEREST RATE TO FIND THE NEW PVF. The interest rate is used to find interest payments to calculate PVOA.

The PE ratio:

Tends to be higher for growth stocks.

Authorized common stock refers to the number of shares:

That can be issued

What does the total amount of estimated uncollectible accounts receivables represent?

The ending balance in the Allowance for Doubtful Accounts at the end of the period

par value

The legal capital assigned per share of stock no relationship to the market value of the common stock

The par value of common stock represents:

The legal capital per share of stock assigned when the corporation was first established

A contingent liability should be disclosed in a note to the financial statements rather than being recorded if:

The likelihood of a loss is reasonably possible.

the common stock account on a company's balance sheet is measured as:

The number of common shares issued times the stock's par value per share

outstanding stock

The number of shares held by investors; excludes treasury shares

The primary difference between the periodic and perpetual inventory systems is:

The perpetual system maintains a continual record of inventory transactions, whereas the periodic system records these transactions only at the end of the period.

Amortization

The reduction of a loan balance through payments made over a period of time. - analogue of depreciation but for intangible/nonphysical assets - same exact concept and practice (contra account -- 'accumulated amortization)

Which of the following is a reason that a corporation would prefer to issue stock instead of bonds?

The risk of going bankrupt is less

All publicly help corporations are regulated by what government organization?

The securities and exchange commission

GAAP (Generally Accepted Accounting Principles)

The standards and rules that accountants follow while recording and reporting financial activities.

How does the stockholders' equity section in the balance sheet differ from the statement of stockholders' equity?

The stockholders' equity section shows balances at a point in time, whereas the statement of stockholders' equity shows activity over a period of time.

Accounting Information System

The system of collecting and processing transaction data and communicating financial information to decision-makers.

Operating cycle

The time it takes a business to get the initial inlay of cash from produced goods, sell the goods, and receive cash from the customer.

Accumulated Depreciation

The total amount of depreciation that the company has expensed so far

Write off

When you determine a specific receivable is uncollectible and is now bad debt. This should not be confused with hoe to record uncollectible receivables.

account

a summary of the effects of all transactions related to a particular item over a period of time

perpetual system

a system in which the inventory account is increased at the time of each purchase and decreased at the time of each sale; determine COGS each time a sale occurs

periodic system

a system in which the inventory account is updated only at the end of the accounting period

accounting

a system of maintaining records of a company's operations and communicating that information to decision makers

unemployment taxes

a tax to cover federal and state unemployment costs paid by the employer on behalf of its employees

income summary

a temporary account used in closing revenue and expense accounts

factor

a third party finance company that buys receivables from businesses and then collects the payments directly from the customers; charge the businesses a 1-3% commission

post-closing trial balance

a trial balance prepared after the closing entries are posted that lists only the permanent accounts, since the temporary accounts have been closed

monetary unit assumption

a unit or scale of measurement can be used to measure financial statement elements

promissory note

a written promise to pay a notes receivable

Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Western's legal counsel believes it is probable that Western will have to pay an estimated amount in the range of $75,000 to $175,000, with all amounts in the range considered equally likely. How should Western report this litigation? a) As a liability for $75,000 with disclosure of the range. b) As a liability for $125,000 with disclosure of the range. c) As a liability for $175,000 with disclosure of the range. d) As a disclosure only. No liability is reported.

a) As a liability for $75,000 with disclosure of the range.

Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably possible, a contingent liability should be a) Disclosed but not reported as a liability. b) Disclosed and reported as a liability. c) Neither disclosed nor reported as a liability. d) Reported as a liability but not disclosed.

a) Disclosed but not reported as a liability.

A company purchases inventory or supplies and promises to pay within 30 to 45 days. No formal agreement is signed. This transaction is recorded as a(n) a) accounts payable. b) accounts receivable. c) notes receivable. d) notes payable.

a) accounts payable.

Issuing a note payable for cash results in a(n) ______. a) increase in assets and an increase in liabilities b) decrease in assets and an increase in liabilities c) increase in liabilities and a decrease in stockholders' equity d) decrease in assets and a decrease liabilities

a) increase in assets and an increase in liabilities

A probable future sacrifice of economic benefits arising from present obligations of an entity to transfer assets or provide services as a result of past transactions or events is a(n) a) liability. b) expense. c) loss. d) asset.

a) liability

A(n) ___________ payable is a short-term liability that occurs when a company purchases goods and does not immediately pay with cash.

account

faithful representation

accounting information that is complete, neutral, and free from error

relevance

accounting information that possesses confirmatory value and/or predictive value

temporary accounts

accounts that only relate to a given accounting period revenues, expenses, dividends

permanent accounts

accounts that relate to one or more future accounting periods assets, liabilities, stockholder's equity

___________ don't have a previously recorded asset or liability that needs to be adjusted: the adjusting entry is the initial entry for accruals.

accruals

If no adjusting entry is made, there is nothing in the financials to show that _________ revenues have been earned or __________ expenses incurred.

accrued

Type of adjustment: utility expenses of 275 are unpaid

accrued expense - liabilities understated - expenses understated

Type of adjustment: salaries of 620 are unpaid

accrued expense salaries and wages expense salaries and wages payable - expenses are understated - liabilities understated

Type of adjustment: services performed but unbilled total 600

accrued revenue - asset understated - revenues understated

Types of Accruals

accrued revenues and accrued expenses

Which of the following would be recorded as land improvements

adding a parking lot

When treasury stock is resold at a price above cost:

additional paid- in capital is increased

disadvantages of a corporation

additional taxes( double taxation) and more paperwork

premium rate

adjunct account which is credited,

debt covenant

agreement between a borrower & lender that requires certain minimum financial measures be met or the lender can recall the debt

permanent accounts

all accounts that appear in the balance sheet; account balances are carried forward from period to period

general ledger

all accounts used to record the company's transactions

economic entity assumption

all economic events with a particular economic entity can be identified

temporary accounts

all revenue, expense, and dividends accounts; account balances are maintained for a single period and then closed (or zeroed out) and transferred to the balance of the retained earnings account at the end of the period

limited life

amortized over useful life such as copyrights and patents

current portion of long-term debt

amount will be paid within 1 year from the balance sheet date

revenues

amounts earned from selling products or service to customers

liabilities are

amounts owed

liabilities

amounts owned to creditors

declining balance method

an accelerated depreciation method that applies a constant rate to the declining book value of the asset and produces a decreasing annual depreciation expense over the useful life of the asset -makes sense with assets that lose usefulness quickly because of obsolescence

contra-revenue account

an account that is offset against a revenue account on the income statement ie. Sales Returns & Allowances

contra revenue account

an account that is offset against a revenue account on the income statement - Revenues have a credit normal balance so contra-revenue accounts have debit normal balances

contra asset account

an account that is offset against an asset account on the balance sheet This account appears right after the account is offsets. Contra-accounts have increases, decreases and normal balances opposite to the account it offsets.

contra account

an account with a balance that is opposite, or "contra" to that of its related accounts

The purchase of a new cooling system for $150,000 to upgrade an office building owned by the company would be accounted for as:

an addition in the buildings account

book value

an asset's original cost less accumulated depreciation

corporation

an entity that is legally separate from its owners

contingent gain

an existing uncertain situation that might result in a gain

contingent gain

an existing uncertain situation that might result in a gain normally don't record until it is for certain a gain

contingent liabilities

an existing uncertain situation that might result in a loss depending on the outcome of a future event example= lawsuit, product warranties, premium offers, environmental problems

financial accounting standards board (FASB)

an independent, private body that has primary responsibility for the establishment of GAAP in the United States

horizontal analysis

analyzes trends in financial statement data for a single company over time calculate the amount and percentage change in an account from last year to this year

What is the annual depreciation expense for the final year?

annual depreciation expense of 2nd to last year - book value (end) of last year

Under the straight line method, how do you calculate depreciation expense in the middle of the year?

annual depreciation expense*(number of months owned/12)

Which of the following statements regarding liabilities is not true? a) Liabilities can be for services rather than cash. b) Liabilities are reported in the balance sheet for almost every business. c) Liabilities result from future transactions. d) Liabilities represent probable future sacrifices of benefits.

c) Liabilities result from future transactions.

copyrights

can be sold or assigned but cant be renewed

Preferred Stock:

can have features of both liabilities and stockholder's equity

quick assets

cash + current investment + accounts receivable

examples of operating activities

cash collected from customers payments for inventory, accounts payable on expense related items, interest expense

What should amortization reflect? consumption or straight- line?

consumption

A transaction or event in which the outcome is uncertain is referred to as a(n) __________________

contingency

A(n) __________________ liability is an existing uncertain situation that might result in a loss depending on the outcome of a future event.

contingent

pending litigation is a ____ litigation

contingent

allowance for doubtful accounts

contra-asset account containing the estimated uncollectible accounts receivable -not closed out at the end of the fiscal year (balance is carried over into the next year) AKA the well

Current Ratio

current assets/ current liabilities

deferrred revenue, sales tax payable, current portion of long-term debt are all examples of what?

current liabilities

long-term debt is sometimes referred to as a note. when a note (or portion of a long-term note) becomes due in the next year, the amount due is classified as a...

current liability

unearned revenue is a

current liability

What is market price in LCM?

current replacement cost of the inventory, NOT the price at which the company sells the inventory

Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Smith's legal counsel believes it is probable that Western will have to pay $125,000, although no final settlement has yet been reached. How should Smith report this litigation? a) As an asset for $125,000. b) As a gain for $125,000. c) As both an asset and a gain for $125,000. d) No asset or gain is reported.

d) No asset or gain is reported.

What is the normal balance of sales discounts?

debit

issued stock transactions for $15000 cash

debit 15000 cash credit common stock 15000

billed customers 3700 for services performed

debit accounts receivable 3700 credit service revenue 37000

paid 200 cash for advertising

debit advertising expense 300 credit cash 300

received payment from customer for services performed

debit cash credit accounts receivable

take out bank loan 1.5 mln

debit cash 1.5 mln credit notes payable 1.5 mln

initial investment by owners, 1000 in cash

debit cash 1000 credit common stock 1000

received 1100 cash from customers billed in transaction

debit cash 1100 credit accounts receivable 1100

paid dividends of 400 cash to stockholders

debit dividends 400 credit cash 400

purchase $10000 equipment, 1000 cash, 9000 bank loan

debit equipment 10000 credit cash 1000 credit notes payable 9000

purchased used car for 10000 cash (originally 40000)

debit equipment 10000 credit cash 10000

company gets used equipment for 2000 from stockholder (originally purchased for 4000) in exchange for loan from company

debit equipment 2000 credit accounts payable 2000

purchase 2000 inventory on account

debit inventory 2000 credit accounts payable 2000

adjusting entry: accrued salaries payable is 480

debit salaries and wages expense 480 credit salaries and wages payable

pay 10000 salaries to employees; 1/2 cash, 1/2 salaries payable

debit salaries expense 10000 credit cash 5000 credit salaries payable 5000

purchased supplies on account 300

debit supplies 300 credit accounts payable 300

The entry to record a large stock dividend would include a:

debit to stock dividends

customers receiving services worth $700 used gift certificates for payment

debit unearned service revenue credit service revenue

What are credit losses recorded as?

debits to Bad Debts Expense

Bonds Payable

debt securities sold to investors that must be repaid at a particular date some years in the future - LTL

Treasury Stock

decreases stockholders' equity

Type of adjustment: prepaid insurance totaling 600 had expired

deferred expense - Assets Overstated - Expenses Understated

Type of adjustment: store supplies of 160 are on hand. supplies account shows a 1900 balance

deferred expense (prepaid expense) - assets overstated - expenses understated

liability other than cash

deferred revenue

The sale of gift cards by a company is a direct example of:

deferred revenues

annual depreciation expense (units of activity)

depreciable cost per unit * units of activity during the year

depreciable cost per unit (units of activity)

depreciable cost/total units of activity

annual depreciation expense

depreciable cost/useful life OR depreciation cost*depreciation rate

Developed internally or purchased: Which do we expense and which do we capitalize?

developed= expense purchased= capitalized

inventory write-down

difference between ending inventory (cost) and ending inventory (LCM)

net income

difference between revenues and expenses

If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is reasonably possible, a contingent liability should be

disclosed but not reported as a liability

When a gain contingency is probable and the amount of gain is reasonably estimable, the gain should be:

disclosed; but not recognized in the income statement

if the likelihood of payment is remote...

disclosure usually is not required

dividends are

distributions to stockholders

Balance sheet accounts - like cash, notes payable, and retained earnings - ________ carry over the next period.

do

Income statement accounts - such as revenues and expenses - __________ carry over to the next period.

don't

What do you use for the declining balance depreciation rate?

double the straight-line method

Depreciation on machinery is $4,300 for the year.

dr Depreciation Expense 4300 cr Accumulated depreciation 4300

Depreciation on machinery is $4,700 for the year.

dr Depreciation Expense 4700 cr Accumulated depreciation 4700

On October 1, 2013, Microchip lent $81,000 to another company. A note was signed with principal and 8% interest to be paid on September 30, 2014.

dr Interest Receivable 1660 cr Interest Revenue 1660

On October 1, 2013, Microchip lent $98,500 to another company. A note was signed with principal and 8% interest to be paid on September 30, 2014.

dr Interest Receivable 1970 cr Interest Revenue 1970

On November 1, 2013, the company paid its landlord $5,000 representing rent for the months of November through January. *****Prepaid rent was debited (normal adjustment)

dr Rent Expense 3300 cr Prepaid Rent 3300

On November 1, 2013, the company paid its landlord $6,600 representing rent for the months of November through January. *****Prepaid rent was debited (normal adjustment)

dr Rent Expense 4800 cr Prepaid Rent 4800

On August 1, 2013, collected $12,600 in advance rent from another company that is renting a portion of Microchip's factory. The $12,600 represents one year's rent and the entire amount was credited to ******rent revenue (Alternate adjustment)

dr Rent Revenue 7700 cr Unearned Rent Revenue 7700

On August 1, 2013, collected $16,000 in advance rent from another company that is renting a portion of Microchip's factory. The $16,000 represents one year's rent and the entire amount was credited to ******rent revenue (Alternate adjustment)

dr Rent Revenue 9333 cr Unearned Rent Revenue 9333

Vacation pay for the year that had been earned by employees but not paid to them or recorded is $8,200.

dr Salaries Expense 8400 cr Salaries Payable 8400

Vacation pay for the year that had been earned by employees but not paid to them or recorded is $9,00.

dr Salaries Expense 9000 cr Salaries Payable 9000

Microchip began the year with $1700 in its asset account, supplies. During the year, $6200 in supplies were purchased and debited to supplies. At year-end, supplies costing $3,021 remain on hand.

dr Supplies Expense 4879 cr Supplies 4879

Microchip began the year with $2,200 in its asset account, supplies. During the year, $6,700 in supplies were purchased and debited to supplies. At year-end, supplies costing $3,350 remain on hand.

dr Supplies Expense 5850 cr Supplies 5850

Depreciation on equipment totaled $15,000 for the year

dr depreciation expense 15,000 cr accumulated depreciations 15,000

On November 1, 2013, the company borrowed $200,000 from a bank. The note requires principal and interest at 12% to be paid on April 30, 2014

dr interest expense 4,000 cr interest payable 4,000

A three-year fire insurance policy was purchased on July 1, 2013, for $12,000. The company debited insurance expense for the entire amount.

dr prepaid insurance 10,000 cr insurance expense 10,000

Employee salaries of $18,000 for the month of December will be paid in early January 2014

dr salaries expense 18,000 cr salaries payable 18,000

On December 1, 2013, the company received $3,000 in cash from another company that is renting office space in Falwell's building. The payment, representing rent for December and January, was credited to unearned rent revenue

dr unearned rent revenue 1,500 cr rent revenue 1,5000

revenues we...

earn

expense recognition principle

efforts (expenses) are matched with accomplishments (revenue) whenever it is reasonable and practicable to do so

5 guiding principles

entity assumptions, continuity assumption, stable-monetary unit assumption, historical cost principle, matching principle

closing entries

entries that transfer the balances of all temporary accounts (revenues, expenses, and dividends) to the balance of the retained earnings account

adjusting entries

entries used to record events that occur during the period but that have not yet been recorded by the end of the period (cannot include cash)

accounting equation

equation that show's a company resources (assets) equal creditor's and owner's claims to those resources (liabilities and stockholder's equity)

two kinds of financing

equity and credit

allowance method step 1

estimate the amount of uncollectible accounts receivable

t-account for warranty liability

estimated liability expense - actual payment

internal transactions

events that affect the financial position of the company but do not include an exchange with a separate economic entity

contingencies

events with uncertain outcomes that may represent potential liabilities

capital expenditures

expenditures that increase the value of assets on the balance sheet ie. repairs, replacing parts

Research and development costs should be:

expensed in the period incurred

Always debit

expenses and dividends

matching principle

expenses must match the profits ???

accrued expense

expenses that you have incurred but not paid out. ex. get utilities fixed but have not paid

deferred expense

expenses that you have prepaid but not incurred ex. supplies, prepaid expenses, depreciation

Deferrals

expenses that you have prepaid but not incurred, or cash that you have received before revenue is earned.

vertical analysis

expresses each item in a financial statement as a percentage of the same base amount specific amount / total amount = percentage

interest =

face value x annual interest rate x fraction of the year

we record a gain if we sell an asset less than book value true false

false

Straight line produces a lower net income than accelerated methods in the earlier years of an asset's life true false

false- straight line produces a higher net income than accelerated methods in the earlier years of an asset's life

We capitalize repairs and maintenance expenditures because they maintain a given level of benefits: true false

false- we expense repairs and maintenance expenditures in the period incurred because they maintain a given level of benefits

Accumulated Depreciation is a liability account that is increased by credits true false

false-it is a contra-asset account; it reduces an asset account

the franchisee's initial fee is recorded as an expense on the income statement true false

false-the franchisee's initial fees recorded as an intangible asset and then expensed over the life of the franchise agreement

T/F: Current liabilities are always paid within 1 year

false: usually, but not always

cost constraint

financial accounting information is provided only when the benefits of doing so exceed the costs

what kind of business activity is borrowing from the bank

financing

what kind of business activity is issuing common stock to investors

financing

what kind of business activity is paying dividends to stockholder

financing

three principal types of business activity

financing activities, investing activities, operating activities

Revenue Recognition

formal recording and reporting of revenues at the appropriate time

ex of a fringe benefit

free flights for you & your family if you are a flight attendant

accounting cycle

full set of procedures used to accomplish the measurement/communication process of financial accounting

Model of business

get financing to procure resources to generate profits

Sales discounts

given to customers for paying cash early Sales Returns & Allowance X Accounts Receivable X No impact on Inventory or Cost of Goods Sold since the goods are not returned.

Patents

gives exclusive rights to the holder for 20 yrs , amortization should reflect consumption patters and are amortized over the shorter legal life

inventory

goods available for future sales to customers - current assets

Which of the following intangible assets has an indefinite useful life:

goodwill

income from operations =

gross profit - operating expenses

Notes to the Financials Statements

help explain or supplement information that is in the four financial statements.

Liquidity

how easily an asset can be converted into cash

future value

how much an amount today will grow to be in the future

When do we expense expenditures?

if it benefits the current period/ normal fixes

When do we capitalize expenditures?

if it benefits the future period or upgrades

impairments

if there is a permanent decline in the market value of an asset, the asset is said to be impaired company must write the asset down to its new fair value during the year in which the decline occurs

Liabilities are listed before stockholder's equity because

in bankruptcy, they are paid out before stockholders get paid

going concern assumption

in the absence of information to the contrary, a business entity will continue to operate indefinitely

When and where in the financial statements do companies do closing entries?

in the general journal, after the last adjusting entry, under center caption "Closing Entries"

What does it mean for PPE to be recorded at cost?

includes all expenditures necessary to acquire the asset and make it ready for intended use

Net Income on MSIS

income before income tax expense - income tax expense

Where do bad debt expenses go on the financial statements?

income statement - operating expenses

If you improve/repair an asset, how does the balance sheet change?

increase the value of the asset on the balance sheet by how much you spent on improvements

Junk

increased yield with high risk

when company collects the sales taxes, it ____________ (dr/cr) cash and ______________ (dr/cr) sales tax payable

increases (debits), increases (credits)

We record interest expense in the period in which we ___ it, rather than in the period in which we ___ it.

incur, pay

line of credit

informal agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures/ prepare paperwork

timeliness

information being available to users early enough to allow them to use it in the decision

2 types of fringe benefits

insurance & retirement

when a firm doesnt pay interest on their note until a future year, notes payable turns into ____

interest payable

LIFO

inventory accounting in which the most recently acquired items are assumed to be the 1st sold; method is supposed to create the lowest ending inventory in a period of rising prices; create a lower taxable income, lower gross profit.

LIFO

inventory accounting in which the most recently acquired items are assumed to be the first sold if costs are increasing, LIFO method is supposed to create the lowest ending inventory in a period of rising prices. Also create a lower taxable income, lower gross profit.

FIFO

inventory accounting in which the oldest items (those first acquired) are assumed to be the 1st sold; creates a higher ending inventory and lower COGS, higher gross profit and higher taxable income.

FIFO

inventory accounting in which the oldest items (those first acquired) are assumed to be the first sold If costs are increasing, FIFO creates a higher ending inventory and lower cost of goods sold, higher gross profit and higher taxable income.

specific identification method

inventory costing method that matches or identifies each unit of inventory with its actual cost

what kind of business activity is purchasing building

investing

what kind of business activity is purchasing land

investing

investing involves transactions

involving the purchase and sale of productive assets

notes payable

is a liability that creates an expense

Goodwill

is valued as the excess of -the purchase price of the business acquired over - the fair market value of the net assets required

companies would rather report long-term liabilities than current ones because

it may cause the firm to appear less risky

closing entries

journal entries used to prepare temporary accounts for a new fiscal period --> the company transfers temporary account balances to Retained Earnings (which is a permanent account)

types of PPE

land land improvements buildings equipment

debit

left side of an account. indicates an increase to asset, expense, or dividends account, and a decrease to liability, stockholders' equity, or revenue accounts

payee

lender - party to whom the payment is made to

Investing activities include..

lending $ and collecting on those loans acquiring and disposing of PPE, Intangibles, Investments

Auditor's Report

letter from the independent outside auditor stating that it is the auditor's opinion regarding: (1) The fairness of the presentation of financial position and results of operations (2) Their conformance with GAAP

current liabilities are payable within...

one year from the balance sheet date

financial accounting

measurement of business activities of a company and communication of those measurements to external parties for decision making purposes

Days in inventory (definition)

measures the average number of days inventory is held; represents the approximate time it takes a company to sell its inventory once they have it in their store

inventory turnover (definition)

measures the number of times on average the inventory is sold during the period

Which operating cycle is typically longer, merchandising or service?

merchandising

The operating cycle of a __________ company ordinarily is longer than that of a ___________ company.

merchandising; service

credit losses

money a company does not receive from its customers who purchased goods/services on account

Accounts Receivable

money that customers owe you for something you sold them or a service you provided. - CA

notes receivable

money that is owed to the company; comes with more of a formal agreement and is stronger than accounts receivable

Notes Payable

money you owe a bank

Calculating take home pay:

monthly salary - all withholdings

long-term liabilities are payable in...

more than one year

net loss

net income when expenses>revenue

merchandising operations income measurement

net sales - COGS = gross profit gross profit - operating expenses = net income

Gross profit

net sales - cost of goods sold

What happens when you keep a fully depreciated asset, no salvage value?

no additional depreciation is taken even if the asset is still being used

street earnings

non-GAAP earnings -pro forma -shows up on MD&A

unlimited life

not amortized such as goodwill, trademarks, and trade names

when a company borrows cash from a bank, the bank requires the company to sign a note promising to repay the amount borrowed plus interest. the borrower reports its liability as ___ ___

notes payable

what obligations do firms most frequently report as current liabilities?

notes payable, accounts payable, payroll liabilities

for the bank, its ___ ___ rather than a note payable, and it generates ___ ___ rather than interest expense

notes receivable, interest revenue

long-term liabilities

obligations that the company expects to pay after one year - bonds payable, long-term notes payable, mortgages payable, pension liabilities, lease liabilities

Which buckets are expected to have higher loss rates?

older buckets

allowance method step 2

once you figure out how much is uncollectible, debit Bad Debts Expense and credit Allowance for Doubtful Accounts (through an adjusting entry at end of period)

what kind of business activity is paying rent for the current period

operating

what kind of business activity is providing services to customers

operating

when recording contingent liabilities, the loss is reported in the income statement as either an...

operating or nonoperating expense

3 things on cash flows

operations, investing,financing

the normal balance for a contra account is the

opposite of the accounts they are offsetting

Contra-accounts have increases, decreases and normal balances ____________ account it offsets.

opposite to the

equity

owner with voting rights, no repayment or interest promised, return potentially unlimited

Stockholders' Equity

owners' claims to resources

long-term liabilities

paid in more than one year

current liabilities

paid within one year

Examples of limited life intangibles

patents, copyrights, customer lists, franchises , licenses, leaseholds

Dividends

payments of cash from a corporation to its stockholders - always debit

financial statements

periodic reports published by the company for the purpose of providing information to external users

financing we...

provide/use

Examples of investing activities

purchase of a building proceeds from sale of equipment

acid-test ratio=

quick assets / current liabilities

acid-test ratio equation

quick assets/current liabilities

Market / Yield Rate

rate based on the price investors pay to purchase a bond

operations we...

receive/spend

matching principle

recognize expenses in the same period as the revenues they help to generate

criteria for reporting a contingent liability

recognize the likelihood of a payment and the amount of payment

cash- basis accounting

record revenue at the time cash is received and expenses at the time cash is paid

revenue recognition principle

record revenue in the period of time in which it's earned

Revenue Recognition Principle

record revenue when service is provided

accural- basis accounting

record revenues when earned (revenue recognition) and expenses with related revenues (expense recognition)

State/ Coupon rate

stated interest rate

stockholders' equity

stockholders', or owners', claims to resources, which equal the difference between total assets and total liabilities

What methods must companies use for tax?

straight line or Modified Accelerated Cost Recovery System (MACRS)

In reality, which method is most frequently used for depreciation?

straight-line

Purpose of accounting

summarize and communicate, primarily for investors and creditors

percentage of receivables method

take a percentage of the ending value of accounts receivable. ie. 12% * $200,000 AR = $24,000 uncollectible the 24,000 represents the ending balance in the Allowance

A feature common to both stock splits and stock dividends is

that there is no effect on total stockholders' equity

decision usefulness

the ability of the information to be useful in decision making

comparability

the ability of users to see similarities and differences between two different business activities

After we prepare closing entries, what does the new balance in Retained Earnings represent?

the accumulated earnings of the company that you have NOT distributed to the owners of the firm as dividends this balance is the ending balance on the RE statement

The balance in Retained Earnings after closing accounts represents

the accumulated earnings of the company that you have NOT distributed to the owners of the firm as dividends. --> it is carried over to the balance sheet as "Retained Earnings" and is the ending balance on the retained earnings statement.

Companies do closing entries in the general journal, after

the last adjusting entry.

operating cycle

the length of time between when the raw materials are received to the time when the company is paid for the finished product

Management Discussion and Analysis (MD&A)

the management of the company talks about various financial aspects of the company - contained in annual report

issued stock

the number of shares sold to investors; includes treasury shares

Depreciation

the practice of spreading the cost of the asset over the years that you expect to use the asset rather than taking a big expense in one year - these assets are generally expensive and they are used for a long period of time.

Financial Accounting Standards Board FASB

the private sector body given the primary responsibility to work out the detailed rules that become GAAP.

depreciation

the process of allocating the cost of a long term asset to expense over its useful life

obsolescence

the process of becoming out of date before the asset physically wears out

posting

the process of transferring the debit and credit information from the journal to individual accounts in the general ledger

discount rate

the rate at which someone would be willing to give up current dollars for future dollars. considered a contra liability which is debited

capitalizing

the recording of expenditures as assets and charging them to expense by a systematic allocation over a number of years by depreciation

generally accepted accounting principles (GAAP)

the rules of financial accounting

international financial reporting standards (IFRS)

the standards being developed and promoted by the international accounting standards board

authorized stock

the total number of shares available to sell, stated in the company's articles of incorporation

consistency

the use of similar accounting procedures either over time for the same company or across companies at the same point in time

Present Value

the value today of receiving some larger amount in the future

consignment goods are not considered part of a the Real Real's inventory because

they are not owned by the Real Real

high growth companies often pay no dividends because

they want to retain part of their profits to allow for further expansion

entity assumption

things have to belong to you or the business which are 2 different entities (every accounting transaction has a specific entity)

equity

things that we've given/transferred to the business or made and kept

liabilities

things we owe

assets

things we own

Maturity Date or Term

time between when the bond is issued and when it matures

Why do most companies use straight-line depreciation on their financial statements?

to maximize net income

Why do most companies use an accelerated depreciation method on their tax returns?

to minimize income taxes

Net income identity/ income statement identity

total revenues - total expenses = net income

Which of the following intangible assets would not be subject to amortization?

trademarks with an indefinite life...intangible assets with indefinite lives (unknown or not determinable) are not amortized.

Examples of Indefinite Life Intangibles

trademarks, trade-names, goodwill

auditors

trained individuals hired by a company as an independent pasty to express a professional opinion of the conformity of that company's financial statements with GAAP

Operating activities include

transactions that result in revenues, expenses, gains, and losses that determine NET INCOME

external transactions

transactions the firm conducts with a separate economic entity

External transaction

triggered by a 'real' exchange with an outside party (every cash transaction is external)

Book value or carrying value is equal to the original cost of the asset minus the current balance in the accumulated depreciation true false

true

Depreciation in account is the process of allocating to expense the cost of an asset over its service life true false

true

In an activity-based depreciation method, we allocate an asset's cost based on its use true false

true

Land improvements are recorded separately, unlike land, these assets are subject to depreciation true false

true

Straight line depreciation assumes that the benefits we derive from the use of asset are the same each year: true false

true

T/F: current liabilities may include contingent liabilities

true

Many intangible assets are not recorded on the balance sheet at their estimated market values true false

true (Eli Lilly example research and development example)

operating expenses

typical costs involved in operating a business, such as rent, utilities, and salaries.

A contingent liability is an existing _________ situation that might result in a loss depending on the outcome of a future event.

uncertain

Debenture ( Unsecured vs secured)

unsecured= bonds are not backed by collateral , issued on good faith of company secured=bonds are backed by collateral

Which of the following subsequent expenditures would NOT be capitalized:

unsuccessful legal defense on an intangible asset

expenses we...

use

investing we

use/provide

understandability

users must understand the information within the context of the decision they are making

Companies can choose to use more than one method to determine the costs of inventory and COGS when

valuing different types of inventory.

Liabilities

various payables with be among the most liquid/current liabilities (employees don't want to wait more than a year to get paid)

When do we expense internally generated intangibles such as R & D and advertising ?

we expense them as we incur them

historical cost principle

we put things on the balance sheet for the $ we spent on them then, not the cost now -- don't adjust for inflation

If the likelihood of payment is only reasonably possible rather than probable...

we record no entry but make full disclosure in a note to the financial statements to describe the contingency

If the likelihood of payment is probable & one amount within a range appears more likely...

we record that amount

When no amount within the range appears more likely than others...

we record the minimum amount & disclose the range of potential loss

Stockholder's/Shareholder's/Owner's Equity

what the owners of the firm own - owner's claim on the assets - comprised of common stock and retained earnings

accrued revenue

when a company has earned revenue but hasn't yet received cash or recorded an amount receivbable

accrued expense

when a company has incurred an expense but hasn't yet paid cash or recorded an obligation to pay

unearned revenues

when a company receives cash in advance from a customer for products or services to be provided in the future

When does depreciation stop under the declining method?

when the asset's book value equals the expected salvage value

Volt Electronics sells equipment that includes a three-year warranty. Repairs under the warranty are performed by an independent service company under a contract with Volt. Based on prior experience, warranty costs are estimated to be $25 per item sold. Volt should recognize these warranty costs:

when the equipment is sold

honored notes receivable

when the maker (the party who promised to pay) pays back the note in full + interest at its maturity date

Is LCM done when you sell the inventory or when the price decline occurs?

when the price decline occurs

Accounts Payable

when you buy something from a supplier or vendor and you owe them money. - CL

allowance method step 3

when you know that a customer is not going to pay, write-off that customer's account

Current (asset or liability)

will be settled in less than a year

financing are transactions...

with lenders and owners

stable-monetary unit assumption

working in USD, no inflation

Why might Allowance have a debit balance?

write-offs during the year have exceeded the provisions you set for bad debts

After we prepare closing entries, all temporary accounts have a ________ balance.

zero

Bonds

• Debt instruments used by issuer to borrow money directly from capital markets. • Obligation to pay specified amounts of money at maturity and at periodic "interest" payments • Contain various rights and preferences

selling expenses

Expenses that are incurred directly in the selling of merchandise.

debits increase

Expenses, Assets, Dividends (DEAD)

When the cost of inventory is rising, ________ will show the lowest COGS and the highest gross profit

FIFO

Which method shows the highest ending inventory?

FIFO

Which method shows the highest net income?

FIFO

FIFO vs LIFO gross profits when costs are rising

FIFO - higher gross profits in the first period LIFO - higher gross profits in the second period

Ranking of 3 cost methods when costs are rising

FIFO - lowest COGS & highest gross profit Average cost - middle LIFO - highest COGS and lowest gross profit

Goods in transit are included in a company's inventory when

FOB on destination

Goods in transit are not included in a company's inventory when

FOB on shipping

On maturity day, carrying value must equal

Face amount

Information necessary to price a bond

Face amount, terms in years, interest rate, market rate, frequency of payments (annual, biannual, quarterly), present value of dollar table, and present value of ordinary annuity

TF: The most generally accepted value used in accounting is market value.

False

Employee payroll costs

Federal and state income taxes Employee portion of social security and Medicare Employee contributions for health, dental, disability, and life insurance (FICA) Employee investments in retirement or savings plan

Employer payroll costs

Federal and state unemployment taxes (FUTA, SUTA) Employer matching portion of social security and Medicare to employee Employer contributions for health, dental, disability, and life insurance (FICA) Employer contributions to retirement or savings plans

Which of the following is not withheld from an employee's salary?

Federal and state unemployment taxes.

How do you calculate Retained earnings?

Net income minus dividends/ Revenues minus expenses minus dividends

liquidity

a company's ability to pay for its near-term obligations/debt

Current asset

Asset expected to be used or converted into cash within one year or within an operating cycle.

On October 1, 2018, Stripes Inc. lends $100,000 to another company and accepts a 24-month, 6% note. What is the amount of interest revenue Stripes will report in its 2018 income statement?

$1,500

Region Jet has a $50 million liability at December 31, 2018, of which $10 million is payable in 2019. In its December 31, 2018 balance sheet, the company reports the $50 million debt as a:

$10 million current liability and a $40 million long-term liability on the balance sheet.

GRAPH #17 Given the information in the table below, what is the company's gross profit?

$100,000

On November 1, 2018, The Bagel Factory signed a $100,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2019. The Bagel Factory should report interest payable at December 31, 2018, in the amount of:

$1000 [($100,000 × 6%) × 2/12] = $1,000.

Calculate the interest on a 60-day note with a face value of $1,000 that was issued on June 12 with a 15% annual interest rate.

$1000 x 0.15 x (60/360) = $25

Kansas Enterprises purchased equipment for $60,000 on January 1, 2018. The equipment is expected to have a five-year life, with a residual value of $5,000 at the end of five years. Using the straight-line method, depreciation expense for 2019 and the book value at December 31, 2019 would be:

$11,000 and $38,000.

horizontal analysis equation

(current year amount - prior year amount)/ prior year amount

*NOTE* the more frequent the rate of compounding leads to a higher Fv*

* NOTE* the more frequent the rate of compounding leads to a higher Fv*

How to find the maturity date of a promissionary note?

-Count the number of months/days from the day of issue -Exclude the day the note was issued -Count the day the note is due

Balance sheet organization/order

- Assets first, then liabilities, then SE - Assets and liabilities are listed in order of liquidity

Assets

- Cash is the most current/liquid asset (top of every balance sheet) - Various receivables are current assets (generally, don't let customers wait more than a year to pay) - property, plant, and equipment is a major long term asset

Relationship between income statement and balance sheet

- Every revenue linked to/balanced by increase in an asset (A/R or cash) or a decrease in liability (deferred revenue) - every expense linked to decrease in an asset (e.g. prepaid rent or cash) or increase in a liability (e.g. salaries payable) - transactions with owners (dividends, common stock) stop the arrow going right to left. - affect cash and SE without affecting revenues/expenses

debits and credits

- debit means left, credit means right - asset up = debit - liability or shareholders equity up = credit - asset down = credit - liability or shareholders equity down = debit

Hayes Corporation issues 100 shares of its $1 par value common stock for $15 per share. The entry to record the issuance will include a:

- debit to cash $1,500 -credit to additional paid in capital 1,400 -credit to common stock of $100 -all of these

retained earnings identity

- net income earned in period - dividends paid out in period = change in retained earnings - total retained earnings = total net income earned - total dividends paid out

revenues, expenses, and dividends

- think how they contribute to shareholder's equity: - revenue = credit - expenses, dividends = debit

service company operating cycle

-> cash -> perform services -> accounts receivable -> receive cash -> cash

Advantages of the corporate form of business include which of the following?

-Ability to raise capital -Ability to transfer ownership -Limited Liability

For notes receivable journal entries, how do you know if you're supposed to credit Interest Receivable or Interest Revenue?

-If you haven't done adjusting entries, then you only credit interest revenue -If you have done adjusting entries, then you credit interest receivable for the amount you've already adjusted for, and you credit interest revenue for the amount you haven't adjusted for

The Retained Earnings balance reported on the balance sheet typically is not affected by:

-Net income -Net loss -Dividends paid -ALL OF THE ABOVE

4 inventory cost methods

-Specific Identification -FIFO -LIFO -Average Cost

land improvements

-any structural additions to the land (driveways, parking lots, landscaping, etc) -recorded separately from land because they are depreciated -land lasts indefinitely

Which plant assets does depreciation apply to?

-buildings, land improvements, and equipment -NOT land

Which of the following is not a potential feature of preferred stock?

-convertible -redeemable -cumulative -They are all potential features of preferred stock

disadvantages of direct write-off method

-doesn't do a good job of matching bad debt expenses with the sales revenue from the same period -accounts receivable in the balance sheet is not really the amount that the company expects to receive

Allowance method step 3: write-off uncollectible accounts

-done through a journal entry -reduces allowance -DR Allowance for the uncollectible amount -CR Accounts Receivable - person

How to calculate cash paid for bonds and Present value of ordinary annuity

1)Find PV of face amount PV = face amt x PVF (use table 2 to find PVF in textbook) 2)Find PV of ordinary annuity of interest payments PVOA = interest payments x PVFOA (use table 4 to find PVFOA in textbook) 3) add both PVOA to PV to get Cash paid for the bonds

building cost includes what?

-purchase price -closing costs -broker's commission -costs to make the building ready for its intended use -fees during construction (contractor's fees, building permits, architect's fees)

what does the equipment cost include?

-purchase price -sales taxes -freight charges -insurance during transit time to buyer -costs for assembling -installing and testing the equipment

After we prepare closing entries, what is the balance of all temporary accounts?

0

Sony introduces a new compact music player to compete with Apple's iPod that carries a two-year warranty against manufacturer's defects. Based on industry experience with similar product introductions, warranty costs are expected to be approximately 1% of sales. By the end of the first year of selling the product, total sales are $29.3 million, and actual warranty expenditures are $130,000. What amount (if any) should Sony report as a liability at the end of the year?

1) 29,300,000 X 0.01% = 293,000 - (293,000 - 130,000) = 163,000 Answer: 163,000

Three methods of long-term asset disposal

1) Selling the asset which can result in gain or loss 2) Retiring the asset which occurs when asset is no longer useful and can't be sold 3) Exchanging the asset for another asset from another company

How do you record an external transaction?

1) determine account affected by transaction 2) determine how the transaction affects the accounting equation 3) is the transaction a debit or credit to the account balance 4) record journal entry 5) post transaction to T-account in ledger 6) prepare trial balance

Journal entries for payroll

1) gross payroll/salaries and wages 2) total fringe benefits 3) payroll expense/employer taxes

Lower-of-Cost-or-Market Method

1) look for the price of the Quantity that is lower 2) Find total LCM and compare to cost and if LCM is lower than JE. DR cost of goods sold CR inventory

Step for bank reconciliation

1) reconcile the bank's cash balance 2) reconcile the company's cash balance 3) adjust the company's cash account balance

Journal entry for collecting on a write off

1) reverse the write off CR allowance for bad debt DR accounts receivable with customer name 2)record receipt of collection DR cash CR accounts receivable

plant asset disposals (3 ways)

1. Retire the asset 2. Sell the asset 3. Exchange it for another asset

recovery of a write-off

1. Reverse the entry made when writing off the account 2. Journalize the collection of accounts receivable in a normal manner

accounting cycle steps

1. Transaction documentation 2. Journalize the transactions 3. Post to ledger accounts 4. Prepare a trial balance 5. Journalize and post adjusting entries 6. Prepare an adjusted trial balance 7. Prepare financial statements 8. Journalize and post closing entries 9. Prepare a post-closing trial balance

perpetual inventory systems use physical count of inventory to

1. check the accuracy of their continuous records 2. see how much of their inventory is damaged or stolen.

periodic inventory systems use physical count of inventory to

1. determine how much inventory it has on hand (since it does not track this on a continuous basis), 2. determine the COGS for the period.

preferred stock rights

1. dividend preference 2. liquidation preference 3. no voting rights 4. receive preference over common stock holders 5. convertible, cumulative, redeemable

employee costs: (aka withholdings)

1. federal & state income taxes 2. social security & medicare (FICA) 3.health insurance (also dental, disability, life) 4. retirement/saving plans

list of "withholdings" (employee costs)

1. federal & state income taxes 2. social security & medicare (FICA) 3.health insurance (also dental, disability, life) 4. retirement/saving plans

employer costs:

1. federal & state unemployment taxes 2. social security & medicare (FICA) 3.health insurance (also dental, disability, life) 4. retirement/saving plans

3 characteristics of Plant Assets (PPE/Fixed Assets)

1. have a physical substance 2. used in operations of a business 3. not intended for sale to customers

3 characteristics of liabilities

1. probable future sacrifices of economic benefit 2. arising from present obligations to other entities 3. resulting from past transactions/events

the cost of the land includes what?

1. the cash purchase price 2. closing costs such as title and attorney's fees 3. real estate broker's commissions 4. accrued property taxes 5. costs of making the land ready for its intended use (ie. clearing, draining, demolition, removal costs)

After a company counts up how much inventory it has left, it needs to determine

1. the cost of this ending inventory and 2. the cost of the inventory it sold (COGS)

annual report contains

1. the four financial statements 2. Management Discussion and Analysis (MD&A) 3. Notes to the Financials Statements 4. Auditor's Report

criteria for reporting a contingent liability

1. the likelihood of the payment -probable -reasonably probable -remote (slight chance) 2. the amount of the payment -reasonably estimable -not reasonably estimable

common stock rights

1. voting rights 2. paid dividends last 3. can proxy votes

The balance sheet of Hidden Valley Farms reports total assets of $450,000 and $550,000 at the beginning and end of the year, respectively. Net income and sales for the year are $100,000 and $800,000, respectively. What is Hidden Valley's asset turnover?

1.6 times

depreciation rate

100%/useful life

The balance sheet of Hidden Valley Farms reports total assets of $450,000 and $550,000 at the beginning and end of the year, respectively. Net income and sales for the year are $100,000 and $800,000, respectively. What is Hidden Valley's profit margin?

12.5%

Red Company has the following information: Net credit sales = $400,000 Net income = $100,000 Average total assets = $80,000 Average accounts receivable = $20,000 What is Red's average collection period (rounded to the nearest whole day)?

18 days

How to calculate average collection period

365 days / receivable turnover ratio

How to calculate average days in inventory

365/ inventory turnover ratio

Days in Inventory =

365/inventory turnover ratio

GRAPH #26 What is Nu's gross profit ratio?

40%

Pizza Shop sells toaster ovens with a one-year warranty to fix any defects. For the current year, 100 toaster ovens have been sold. By the end of the year 4 ovens have been fixed for an average of $80 each. Management estimates that 5 more of the 100 sold will need to be fixed next year for an estimated $80 each. For how much should Pizza Shop report warranty liability at the end of the current year?

400

FICA taxes

7.65% (6.2% +1.45%) social security & medicare taxes

Beverage International reports net credit sales for the year of $240,000. The company's accounts receivable balance at the beginning of the year equaled $20,000 and the balance at the end of the year equaled $30,000. What is Beverage International's receivables turnover ratio?

9.6

working capital

= current assets - current liabilities

Depreciable value

= purchase price - salvage value (salvage value is estimate of worth at end)

credit

=debt=loans=lending=bonds=liability

equity

=ownership=investor=shares=stock=shareholder

Balance sheet identity (same as accounting identity)

A = L + E

Treasury Stock

A corporation's own stock that it has repurchased

When a company issues 25,000 shares of $1 par value common stock for $10 per share, the journal entry for this issuance would include:

A credit to Additional Paid-in Capital for $225,000

When a company issues 25,000 shares of $1 par value common stock for $10 per share, the journal entry for this issuance would include:

A credit to Common Stock for $25,000

Sales taxes collected by a company on behalf of the state and local government are recorded by:

A credit to a liability account

When a company collects sales tax from a customer, the event is recorded by:

A debit to Cash and a credit to Sales Tax Payable.

The accounting equation is affected by

A dual effect: what you do to one side, you do to the other

Statement of cash flows

A financial statement that provides financial information about the cash receipts and cash payments of a business for a specific period of time.

Alliance Products purchased equipment that cost $120,000. It had an estimated useful life of four years and no residual value. The equipment was depreciated by the straight-line method and was sold at the end of the second year of use for $65,000 cash. Alliance should record:

A gain of $5,000.

Working captial

A large positive capital is an indicator of liquidity

Deferred Revenue

A liability created when a business collects cash from customers in advance of completing a service or delivering a product.

Amortization

A method for computing equal periodic payments for an installment loan.

direct write-off method

A method of accounting for bad debts that involves charging receivable balances to Bad Debt Expense at the time receivables from a particular company are determined to be uncollectible. Bad Debts Expense will show the actual losses the company has incurred from uncollected accounts receivable

A company's liquidity refers to its:

Ability to pay currently maturing debts

cash realizable value (AKA accounts receivable, net)

Accounts Receivable - Allowance for Doubtful Accounts

Net Realizable Value (NRV)

Accounts receivable - allowance for bad debt The remaining amount you expect to convert into cash after you've determined how much is uncollectible from accounts receivable

__________ receivable is money that customers owe you for something you sold them or a service you provided. __________ receivable in general is just a loan.

Accounts, notes

___________ payable: when you buy something from a supplier or vendor and you owe them money; _____________ payable: you owe money to a bank

Accounts; notes

How to calculate acid - test ratio

Acid-test ratio = (cash + current investments + accounts receivable ) / accounts receivable

Fringe benefits

Additional employee benefits paid for by the employer

fringe benefits

Additional employee benefits paid for by the employer

If a company issues 1,000 shares of $1 par value common stock for $20 per share, which of the following accounts would be credited?

Additional paid-in capital

The disadvantages of the corporate form of business include:

Additional taxes

Adjusting entries are on Dec 31, 2013

Adjusting entries are on Dec 31, 2013

Double declining method

Aka Accelerated method More depreciation is taken out in the earlier years of the asset. 2/ EUL in years x (Book Value) = Depreciation expense Book value = cost - accumulated depreciation

Sarbanes Oxley Act of 2002

Aka Public Company Accounting Reform and Investor Protections Act of 2002 Establishes guidelines for internal controls and for auditor-client relations. Applies to all companies.

Activity based method

Aka Units of production/output 1) Depreciation rate = cost-Salvage/ estimated total activity/output/use 2) Depreciation Expense = Depreciation rate x actual activity of asset

Residual value

Aka salvage is the amount the company expects to receive from selling the asset at the end of it service life

permanent accounts

All asset accounts All liability accounts Stockholders' equity accounts

basic accounting equation

Assets = Liabilites + Stockholder's Equity

Which of the following is not a liability? a)notes payable b)current portion of long-term debt c) an unused line of credit d) deferred revenue

An unused line of credit

Accounting identity

Assets = Liabilities + Owner's Equity

When treasury stock is acquired, what is the effect on assets and stockholders' equity?

Assets and stockholders' equity decrease

Prepaid expenses

Are assets

Land improvements

Are temporary in nature and subject to depreciation

Away Travel filed suit against West Coast Travel seeking damages for copyright violations. Away Travel's legal counsel believes it is probable (but not certain) that Away Travel will win the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should Away Travel report this litigation?

As a disclosure only. No receivable is reported. - A contingent gain is not recorded until the gain is certain.

Weighed average cost

Assumes that both cost of goods sold and ending inventory consist of a random mic of all the goods available for sale. Each item is priced the same. Cost goods available for sale / # of units available for sale =price of all inventory per unit

Which method shows the most stable earnings over a number of years?

Average Cost

Secured bonds

Backed by collateral

If we had a debit balance in Allowance of 1200 at the start of the year instead of a credit balance, and an ending Allowance of 24,000, what is the Bad Debts Expense?

Bad Debt Expense = 24,000 + 1,200 = 25,200

Adjusting entry for aging method

Bad debt expense = difference between estimated ending balance and beginning balance DR Bad debt expense CR Allowance

Cash from the Cash Flow Statement flows into Cash in the __________ Statement

Balance Sheet

Ending Retained Earnings from the Retained Earnings Statement flows into the __________ Statement

Balance Sheet

the four financial statements

Balance Sheet Income Statement Retained Earnings Statement Cash Flow Statement

Acid - test ratio

Based on more conservative measures Quick assets are readily convertible into cash

How to find COGS under a periodic system?

COGS = beginning inventory + purchases - ending inventory

Inventory Turnover =

COGS/Average Inventory

Limits of internal control

Can't fix bad employees Can't fix collusion Top level employees can override internal controls Cannot ensure success

Internally developing a patent

Capitalize for legal and filing fees

Purchasing a patent

Capitalize for purchase price plus legal and filling fees

_____________ are not an expense so they do not go in the Income Summary.

Dividends

Preferred stock is called preferred because it usually has two preferences over common stock. These preferences related to:

Dividends and distributions of assets if the corporations is dissolved

Dividend Yield is calculated as:

Dividends per share divided by the stock price

The declaration and issuance of a stock dividend:

Does not change total assets, liabilities, or total stockholders' equity

On December 18, Intel receives $255,000 from a customer toward a cash sale of $2.55 million for computer chips to be completed on January 23. The computer chips had a total production cost of $1.55 million. What journal entries should Intel record on December 18 and January 23? Assume Intel uses the perpetual inventory system. Record the cost of goods sold.

Dr. COGS 1,550,000 Cr. Inventory 1,550,000

journal entry: Apple Inc. sells an iTunes gift card to a customer for $100. Apple records the sale of the gift card as follows:

Dr. Cash 100 Cr. Deferred Revenue 100

journal entry: Suppose you buy lunch in the airport for $15 plus 10% sales tax. The airport restaurant records the transaction this way:

Dr. Cash 16.50 Cr. Sales Revenue 15 Cr. Sales Tax Payable 1.50

Record the issuance of note. On August 1, 2021, Trico Technologies, an aeronautic electronics company, borrows $19.8 million cash to expand operations. The loan is made by FirstBanc Corp. under a short-term line of credit arrangement. Trico signs a six-month, 8% promissory note. Interest is payable at maturity. Trico's year-end is December 31.

Dr. Cash 19,800,000 Cr. Notes Payable 19,800,000

On December 18, Intel receives $255,000 from a customer toward a cash sale of $2.55 million for computer chips to be completed on January 23. The computer chips had a total production cost of $1.55 million. What journal entries should Intel record on December 18 and January 23? Assume Intel uses the perpetual inventory system. Record advance receipt of cash.

Dr. Cash 250,000 Cr. Deferred Revenue 250,000

Record the issuance of the note by Precision Castparts. Precision Castparts, a manufacturer of processed engine parts in the automotive and airline industries, borrows $40.7 million cash on October 1, 2021, to provide working capital for anticipated expansion. Precision signs a one-year, 9% promissory note to Midwest Bank under a prearranged short-term line of credit. Interest on the note is payable at maturity. Each firm has a December 31 year-end.

Dr. Cash 40,700,000 Cr. Notes Payable 40,700,000

The football stadium has a seating capacity of 80,000, expandable to 111,000 with standing-room-only capacity. The new stadium cost $1.15 billion, making it one of the most expensive sports stadiums ever built. They hold eight regular season games at home; an average ticket sells for about $100 a game. Assume the Cowboys collect $48 million in season ticket sales prior to the beginning of the season. Record the sale of $48 million in season tickets prior to the beginning of the season.

Dr. Cash 48 Cr. Deferred Revenue 48

EBITDA

Earnings before interest, taxes, depreciation, and amortization

Which of the following statements is not true regarding earnings per share?

Earnings per share is useful in comparing earnings performance across companies at the same point in time.

Differences between employee and employer payroll costs

Employee pays income tax Employer pays unemployment taxes (FUTA, SUTA)

closing entries

Entries at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholders' equity account, Retained Earnings.

Expense recognition principle

Expenses are reported or recognized with the revenue that they helped generate.

Patents

Exclude right to manufacture a product or use a process Lasts for 20 years

3 ways to price a bond

Financing calculator, excel, and value tables

FIFO

First in, First out (balance sheet approach) Assumes first unit of inventory that is purchased by the company is the first one the company sells. Calculated earliest to latest inventory.

How to calculate Gross profit ratio

Gross profit/ Net sales

Do you want the inventory turnover ratio to be high or low?

High

The statement of stockholders' equity shows:

How each equity account changed over time

Service life

How long the company expects to receive benefits from the asset before disposing of it

LIFO

Last in, First out (income statement approach) Assumes last unit of inventory that's purchased by the company is the first one the company sells. Calculated latest to earliest inventory.

Convertible

Lender can convert bonds to common stock

Retained Earnings

Portion of profits (Net Income) that owner reinvests into the firm - represents portion of SE that has been accumulated through the profitable operation of the company

Given a choice, most companies would prefer to report a liability as long-term rather than current because:

It may cause the firm to appear less risky to investors and creditors. It may reduce interest rates on borrowing. It may cause the company to appear more stable, commanding a higher stock price for new stock listings.

Which one of the following regarding the book value of an asset is correct?

It reflects the original cost of the asset less accumulated depreciation.

Why doesn't stockholders' equity equal the market value of equity?

It's related to the use of historical cost to report many long-term assets and the expensing of value generating costs such as research and development and advertising.

Inventory

Items a company intends to sell to customers and includes items that not yet finished products.

On June 1, the board of directors declares a cash dividend to be paid on June 30 to shareholders of record on June 15. On which date would the company record a credit to the Dividends Payable account?

June 1

When the cost of inventory is rising, ________ will show the highest COGS and the lowest gross profit.

LIFO

Which method shows the lowest income tax expense?

LIFO

Assets =

Liabilities + Stockholder's Equity

contingent liabilities

Liabilities that may arise from past transactions if certain events occur in the future.

Assets are either claimed by creditors (____________) or owners (_____________)

Liabilities; Stockholder's Equity

Unearned revenues

Liability account used to record cash received in advance of the sale or service. DR cash CR unearned revenues DR unearned revenues CR Service revenue

Current liability

Liability expected to use cash or be fulfilled within one year or within on operating cycle.

T-account approach

Literal T's. Starting balance on left/right depending on whether it's a debit/credit account. Each transaction entered sequentially on the left /right depending on debit/credit. Final balance calculated at the end reported on left/right.

Do we want days in inventory to be high or low?

Low

Advantages of the corporate form that have led to the growth of this form of business ownership include all of the following expect:

Low government regulation

Return on equity is calculated as:

Net income dividend by average stockholders' equity

Retained Earnings represent a company's:

Net income less dividends since the company first began operations

The statement of stockholders' equity shows:

More information than the stockholders' equity section in the balance sheet

Amortization

Moving the cost of an asset to an expense. Ex: journal entries to record when used assets become an expense

gross profit =

Net Sales - COGS

How to calculate receivables turnover ratio

Net credit sales / average accounts receivable

Cash Flows - Direct Method

Operating Activities identifies and summarizes major classes of operating cash receipts and cash disbursements

Cash Flows - Indirect Method

Operating Activities starts with net income followed by adjustments which convert net income from an accrual to a cash basis **For changes in Notes Payable, DO NOT adjust net income. Do we have the cash? yes(increase in cash asset)/no (decrease in cash asset)

Income before income taxes =

Operating income + non-operating revenues - non-operating expenses.

What goes on the Statement of Cash Flows?

Operating, Investing, and Financing activities

GRAPH #3: On July 8, Ray Inc. sold 100 printers to Office Rental Company at $600 each and offered a 2% discount for payment within 10 days. On July 15, Office Rental Company paid the full amount in cash. What should Ray Inc. record on July 15?

Option C

Issued stock refers to the number of shares:

Outstanding plus treasury shares

The correct order from the smallest number of shares to the largest number of shares is:

Outstandstanding, issued and authorized

How to calculate present value

PV = face amount x PVF%, n PVF can change depending on the frequency of payments New PVF = interest rate/ frequency of payments (biannual, quarterly) Then find PVF on the table given Multiple term of years by 2 = n Term of years is 5 Market rate is 12% Payments are made semi-annually Ex: (6%, 10 years)

The issuer of a 100% common stock dividend (large stock dividend) to common stockholders should credit common stock for an amount equal to the:

Par value of the shares issued

The issuer of a 100% common stock dividend (large stock dividend) to common stockholders should debit stock dividends for an amount equal to the

Par value of the shares issued

Intangible assets that can be amortized

Patents, copyrights, trademarks (with definite life), franchises

Franchises

Pay for the right to use franchisor's name and to sell its products

What is the difference between long term and current liabilities

Payable within one year or one operating cycle

Auditors

People hired by companies to come and check the accuracy of a company's financial statements

Types of Deferrals

Prepaid expenses, depreciation, and unearned revenue

Control activites

Preventative controls and detective controls

Current ratio

Ratio of 1 or higher often reflects an acceptable level of liquidity The higher the ratio, the grater the company's liquidity

Manufacturing companies

Raw materials are used to make finished goods

Detective controls

Reconciliation, performance reviews, audits

Cash basis

Recorded when cash if earned (not used by GAAP)

Accrual basis

Recorded when revenues is earned (used by GAAP)

Both cash dividends and stock dividends:

Reduce retained earnings

How does uncollectible affect the accounting equation

Reduces assets, retained earnings, and net income. Increases expenses. It increases expenses because you're writing it off as a bad debt expense.

On November 6, Coleman Corp. acquired 1,000 shares of its $2 par value common stock for $27 each. On November 20, Coleman Corp. reissued 400 shares for $30 each. Which of the following is correct regarding the effect of the journal entry for the reissued shares?

Stockholders' Equity increases

Statement of Shareholders' Equity

Statement disclosing the source of changes in the shareholders' equity accounts.

Outstanding common stock specifically refers to:

Stock in the hands of stockholders

The Retained Earnings balance reported on the balance sheet typically is not affected by:

Stock splits

which of the following statements about treasury stock transactions is true?

Stockholder's equity is reduced when treasury stock is acquired

Solvency

The ability of a company to pay all its liabilities

Depreciation Expense

The allocated cost for the period

The current portion of long-term debt is:

The amount that will be paid within the next year

Which of the following is a contingency that should be recorded?

The company offers a two-year warranty and the expenses can be reasonably estimated.

Sales allowances

a reduction of sales revenues for the return of or allowances for unsatisfactory goods Sales Returns & Allowance X Accounts Receivable X No impact on Inventory or Cost of Goods Sold since the goods are not returned.

retained earnings

cumulative amount of net income earned over the life of the company that has been kept (retained) in the business rather than distributed to stockholders as dividends (not retained)

Maturity date

The date the bond is supposed to be finished paying off through interest payments

Issue date

The date the bond was issued

Goodwill

The whole value of the company over the value of the company's net assets. Purchase price- fair value of the net assets acquired = Good will

Deferred revenues and sales tax payable typically are reported as ____________ liabilities.

current

How to calculate debt to equity ratio

Times interest earned ratio = (net income + interest expense + tax expense) / interest expense

Purpose of Adjusting Journal Entry

To make sure income statement is correct and balance sheet is correct

Common stockholders usually have all of the following rights expect:

To participate in the day to day operations

expensing

To record an expenditure as an expense, as opposed to capitalizing the expenditure.

How to calculate ending inventory

Total amount of units available for sale - Cost of goods sold = Ending inventory

Common stock

Total amount paid in by stockholders for shares they purchase

The balance in retained earnings at the end of the year represents:

Total earnings less payments to owners over the life of the company

Financing activites

Transactions designed to finance the business through borrowing and owner investment Change in long term liabilities Change in Stock holders Equity (Common stock, Dividends paid, retained earnings)

Credit sales

Transfer products and services to the customer today and collect payment in the future

Closing entries

Transfer temporary accounts to retained earnings and then reduce those accounts to zero

Posting

Transferring information on a journal entry to a general ledger

The corporation's own stock that has been issued and then repurchased by the company is referred to as:

Treasury Stock

Collusion

Two or more people acting together to circumvent internal controls

t-account

a simplified form of a general ledger account with a space at the top for the account title and two sides for recording debits and credits

Which of the following subsequent expenditures would not be capitalized?

Unsuccessful legal defense of intangible assets.

Straight line depreciation method

Used for amortization expenses of intangible assets Cost-Salvage / EUL in years = Depreciation expense

Salvage

Whatever you can save from the asset to reduce the cost of the asset.

Merchandising company

Wholesaler or retailer that purchases finished goods and sells them.

Trademark

Word, slogan, or symbol that identifies a company, product, or service. Renewable every 10 years

How to calculate working capital

Working capital = current assets - laibilties

merchandising company

a company that resells tangible products previously bought from suppliers

service company

a company that sells intangible services rather than tangible products

Is the total depreciation the same over the 3 methods?

Yes

Do balance sheet accounts, such as cash and notes payable, carry over into the next period?

Yes - the balance sheet is just a snapshot in time.

Woods Company made an ordinary repair to a delivery truck at a cost of $500. Woods' accountant debited the asset account, Equipment. Was this treatment an error, and if so, what will be the effect on Woods' financial statements?

Yes, the error overstated assets and net income.

Journal entry of inventory purhcase

You are purchasing inventory for your company DR inventory CR accounts payable (or form of payment)

Journal entry for inventory sale

You are selling inventory from your company 1)record the sale DR accounts receivable (or other form of payment) CR sales revenue 2)reduce the inventory account DR cost of goods sold CR Inventory

unearned revenue examples

You received cash but haven't earned the revenue. A deferral bc you now owe services to customers in the future ex. Newspaper subscriptions, Gift cards. Airplane tickets, College tuition

The balance sheet of Sand Sportswear reports total equity of $500,000 and $650,000 at the beginning and end of the year, respectively. The return on equity for the year is 20%. What is Sand Sportswear's net income for the year?

[($500,000+$650,000)/2] = $575,0000 ($575,000*20%) = $115,000 $115,000

sole proprietorship

a business owned by one person

journal

a chronological record of all transactions affecting a firm

ethics

a code or moral system that provides criteria for evaluating right and wrong behavior

notes payable is recorded each time...

a company borrows money under a credit line

verifiability

a consensus among different measurers

sales discounts

a contra-revenue account used to record discounts given to customers for early payment of their account

leasehold

a contracts where the owner gives the renter the right to use the property for a specific period of time, acquired leaseholds are limited life intangible assets

Franchises and Licenses

a contractual agreement under which the franchisor grants the franchisee, within a specific geographic area the right to - sell certain products/services -use trademarks/ trade names - perform certain functions

statement of cash flows

a financial statement that measures activities involving cash receipts and cash payments over an interval of time

balance sheet

a financial statement that presents the financial position of the company on a particular date

income statement

a financial statement that reports the company's revenues and expenses over an interval of time

statement of stockholders' equity

a financial statement that summarizes the changes in stockholders' equity over an interval of time

EBIT

a firm's earnings before interest and taxes are deducted

chart of accounts

a list of all account names used to record transactions of a company

adjusted trial balance

a list of all accounts and their balances after we have updated account balances for adjusting entries

post closing trial balance

a list of all accounts and their balances at a particular date after we have updated account balances for closing entries

trial balance

a list of all accounts and their balances at a particular date, showing that total debits equal total debits

Costello Company purchased a computer that cost $10,000. It had an estimated useful life of 5 years and no residual value. The computer was depreciated by the straight-line method and was sold at the end of the second year of use for $5,000 cash. Costello should record:

a loss of $1,000.

Single amount

a lump sum amount either held currently or expected at some future date

dishonored notes receivable

a note that is not paid in full at maturity if the payee expects the maker to pay her back eventually, the payee transfers this amount to accounts receivable

liability

a present responsibility to sacrifice assets in the future due to a transaction or other event that happened in the past

sales allowance

a price reduction granted for damaged goods kept by the customer

Working Capital

current assets - current liabilities

working capital=

current assets - current liabilities

current ratio=

current assets / current liabilities

Assuming a current ratio of 1.00 and an acid-test ratio of 0.75, how will the purchase of inventory with cash affect each ratio? a) Increase the current ratio and increase the acid-test ratio. b) No change to the current ratio and decrease the acid-test ratio. c) Decrease the current ratio and decrease the acid-test ratio. d) Increase the current ratio and decrease the acid-test ratio.

b) No change to the current ratio and decrease the acid-test ratio.

Common current liabilities include: a) Notes payable due in two years b) Deferred revenues c) Sales tax payable d) Prepaid insurance e) The current portion of long-term debt

b, c, e

Payroll withholdings ______. (Select all that apply.) a) increase the amount of cash an employee receives b) are amounts subtracted from employees' gross earnings to determine their net pay c) are amounts added to employees' gross earnings to determine their net pay d) decrease the amount of cash an employee receives e) are voluntary

b, d

Liabilities are on

balance sheet

assets are on

balance sheet

equity is on

balance sheet

classified balance sheet

balance sheet that groups a company's assets and expenses at the time cash is paid

3 different statements we focus on

balance sheet, income statement, cash flows

assets represent probable future ____

benefits

Term

bond issue matures on a single date, most common

which of the following financing alternatives has the highest preference of payment in a case where the company liquidates its assets?

bonds

which of the following has the lowest expected return to the investor?

bonds

(double declining method) depreciation expense =

book value * double declining rate

annual depreciation expense (declining method) =

book value at beginning of year * declining-balance depreciation rate

maker

borrower - party making the promise to pay

partnership

business owned by two or more persons

perpetual system

business would keep an up-to-date record of the inventory that I have in on hand. - determine the cost of goods sold each time a sale occurs.

continuity assumption

businesses are assumed to go on forever, will extend owner's lifetime

FOB shipping point

buyer pays freight costs; buyer owns the items when they are placed on the truck/carrier

The income statement compares ____ and ____ for the current period to assess the company's ability to ___ __ ___ from running its _____

revenues, expenses, earn a profit, operations

credit

right side of an account. indicates a decrease to asset, expense, or dividends account, and an increase to liability, stockholders' equity, or revenue accounts

Notes payable is classified as a liability that has which of the following effects? a) Creates revenue on the income statement b) Creates deferred revenue on the income statement c) Creates interest expense on the income statement d) Creates an asset on the balance sheet

c

Which of the following are not required payroll withholdings? a) Medicare taxes b) Social Security c) Federal unemployment tax (FUTA) d) Charitable contributions e) State unemployment tax (SUTA) f) Federal income tax

c) Federal unemployment tax (FUTA) d) Charitable contributions e)State unemployment tax (SUTA)

losses on the sale of a long term asset for cash:

are the excess of the book value over the cash received

notes receivable is an ____ that creates ____ ____

asset, interest revenue

what are prepayments considered?

assets generally

intangable assets

assets without physical substance - goodwill, patents, etc.

what 3 things do balance sheets have

assets, liabilities, equity

Debt

creditor with no voting rights , repayment generally with interest, specified payments

Valuation of bonds is dependent on ..

cash flows market rate

anything 'payable' (accounts payable, salary payable)

cash paid after expense incurred

credit sale (accounts receivable incurred then paid off)

cash paid after revenue earned

deferred revenue transaction

cash paid before revenue earned

dividends

cash payments to stockholders

unearned revenues

cash received and a liability recorded before services are performed - deferral

deferred revenue (unearned revenue)

cash that you have received before revenue is earned ex. college tuition

quick assets

cash, current investments, accounts receivable

SE end - SE beg =

change in CS + NI - D

statement of cash flows

change in cash as a result of operating, investing, and financing activities

statement of stockholders' equity

change in owners' claims to resources

deferred revenue

collect cash before performing service

which of the following has the highest expected return to the investor?

common stock

which of the following is the most likely to have voting rights?

common stock

sale of receivables

companies choose to sell their bad accounts receivables to a factor

allowance method (definition)

companies estimate the amount of uncollectible accounts receivable at the end of each accounting period -allows companies to match estimated expenses with the revenues in the same accounting period -estimated uncollectibles are recorded in an adjusting entry at the end of each period

Lower of Cost or Market (LCM)

companies value inventory at the lower of cost or market (ie. cost or market price, whichever is lower) in the period in which the price decline occurs

commercial paper

company borrows form another company (instead of a bank), the note is referred to as ________

Callable

company is able to buy the bond back or pay it off early

It's sometimes tempting to decrease cash as a way of recording an investor's initial investment. However, remember we account for the transactions from the _____ perspective, and the company received cash from the stockholder—an increase in cash.

company's

Stockholder rights

right to vote, right to receive dividends, right to share in the distribution of assets

3 factors used in computing depreciation

cost useful life salvage value

book value

cost - accumulated depreciation

depcreciable cost

cost of asset - salvage value

Weighted Average Unit Cost =

cost of goods available for sale / total units available for sale

expenses

cost of providing costs and services

Which of the following subsequent expenditures would be capitalized:

cost that increase the service life of an asset

the factors used to compute depreciation expense are an asset's:

cost, residual value, and service life

expenses are

costs of selling products or services

paid utility expenses 100 cash

credit cash debit utility expense

paid creditor 300 cash on account

credit cash 300 debit accounts payable 300

pays admin 3000 salary for october

credit cash 3000 debit salaries/wages expense 3000

Purchased a building for $1,000,000. Half of this was paid in cash and took out a bank loan for the remaining amount.

credit cash 500000 credit notes payable 5000 debit buildings 1000000

returned inventory to supplier for full credit, 2000

credit inventory 2000 debit accounts payable 2000

credit sales vs collections on account

credit sales gets debited to accounts receivable collections on account gets credited to accounts receivable

performed consulting services for 6800 on account

credit service revenue 6800 debit accounts receivable 6800

close the revenue and expense accounts by

crediting/debiting the balances to this Income Summary account

assets =

liabilities + equity

A(n) _____________ is a probable future sacrifice of economic benefits arising from present obligations to transfer assets or provide services as a result of past transactions or events

liability

Even though the term revenue appears in the account title for deferred revenue, this is NOT a revenue account. Deferred indicates that the company has yet to provide services even though it has collected the customer's cash. The company owes the customer a service, which creates a _____

liability

deferred revenue

liability that arises when a company receives payment in advance of providing the product or service its selling

notes payable is a ____ that creates ____ ____

liability, interest expense

Advantages of a corporation

limited liability, ability to raise capital and transfer ownership

post-closing trial balance

lists only the permanent accounts, since the temporary accounts have been closed.

intangible assets

long term, intangible property used in the ordinary course of business

the contingent liability is recorded only if a...

loss is probable & the amount is reasonably estimable

commercial paper interest rates are usually _______ than a bank loan

lower

less risky firms have...

lower interest rates on borrowing command higher stock prices for new listings

Large stock dividends and stock splits are issued primarily to:

lower the trading price of the stock per share

premium

market price < face value / stated rate

discount

market price > face value/ stated rate

The issuer of a 5% common stock dividend (small stock dividend) to common stockholders should credit common stock for an amount equal to the

market value of the shares issued

In accounting, goodwill:

may be recorded when a company purchases another business

Acid test ratio (quick ratio)

measure of current assets available to pay current liabilities

Gain contingencies usually are recognized in a company's income statement when:

the gain is certain

we record contingent gains when...

the gain is certain

gift card breakage

point in time when gift cards expire

dividends have ____ debit and ____ credit

positive, negative

expenses have ____ debit and ____ credit

positive, negative

contingent liability

possible liability for which payment is contingent upon another event

a liability is a...

present responsibility to sacrifice assets in the future due to a transaction or other event that happened in the past

a contingent liability is recorded only if a loss is...

probable & the amount is reasonably estimable

liabilities are (1) ___ (2) ____ (3) ____

probable future sacrifices of economic benefits, arising from present obligations to other entities, resulting from past transactions or events

income statement

profitability of the company

operating involves transactions

related to revenues and expenses

Balance sheet

reports the assets, liabilities, and stockholder's equity at a specific date Y - assets = liabilities + stockholder's equity. - helps judge how much debt and/or other obligations a company has

Retained earnings statement

reports the changes in retained earnings over X period of time (the net income retained in the corporation in the period) - Ending Retained Earnings (end of Year X) = Beginning Retained Earnings (start of Year X) + Net Income (during Year X) - Dividends (during Year X) - help investors monitor a company's dividend payment practices.

Income Statement

reports the profitability of the company over X period of time - includes any revenues or expenses the company incurred over X - Net income = Revenues - Expenses - A company's past net income can provide useful information for predicting future net income - can help creditors predict a company's future earnings

depreciable cost

represents the total amount subject to depreciation

balance sheet

resources equal creditors' and owners' claims to those resources

assets

resources of a company

assets are

resources of a company

Dividends are reported on the _____________ statement.

retained earnings

always credit

revenue

revenue recognition principle

revenue is recognized when the performance obligation is satisfied - only put on income statement if earned revenue: subtract unearned rev from earned rev

income =

revenues - expenses

accrued revenue

revenues that you have earned but not been paid for ex. not paid for consulting services

Accruals

revenues that you have earned but not been paid for, or expenses that you have incurred but not paid out.

credits increase

revenues, common stock, and liabilities

2 things on income statement

revenues, expenses

what 2 things do income statements have

revenues, expenses

what affects retained earnings?

revenues, expenses, and the payment of dividends

Specific Identification

the inventory costing method that identifies the cost of the specific item that was sold -> very rarely used

liabilities represent probable future _____ of benefits

sacrifices

Net sales =

sales - sales returns and allowances - sales discounts

revenues are

sales of products or services

net sales

sales revenue - (sales returns and allowances + sales discounts)

sales tax payable

sales taxes collected from customers by the seller

What does the Book Value (end) for the last year represent?

salvage value

FOB destination

seller pays freight costs; seller owns the items until the items reach the buyer

types of expenses

selling, administrative, marketing, interest,

Subordinate vs. Senior

senior = first bond paid subordinate= second bond paid, possible for it to be senior and subordinate if there is a third bond

Revenue is not recognized until

services or goods have been performed/delivered

When the cost of inventory is rising, weighted average will show

the average of the COGS and the gross profit of LIFO and FIFO

Closing entries are done after

the company prepares its financial statements.

book value

the cost of any depreciable asset - its related accumulated depreciation

expenses

the cost of assets consumed or services used in the process of generating revenues - always debit

COGS

the cost of goods sold; what you pay for what you sell

prepaid expense

the costs of assets acquired in one period that will be expenses in a future period

interest payable is the fraction from

the current year

interest receivable is the fraction from

the current year

Liquidity

the ease with which an asset can be converted into cash

periodicity assumption

the economic life of an enterprise (presumed to be indefinite) can be divided into artificial time periods for financial reporting

Companies generally only close entries at

the end of the annual accounting period so that all temporary accounts will have data for the entire fiscal year.

The stockholders' equity section in the balance sheet shows:

the ending balance in each stockholders' equity account

journal entry

the format used for recording business transactions

most liabilities require...

the future sacrifice of cash

interest expense is the fraction from

the future year

interest revenue is the fraction from

the future year


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