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Financial Accounting Final
FAF
49
Aerospace Engineering
Undergraduate 1
12/10/2013

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Term
Bank Reconciliation (Bank Statement)
Definition
Bank Statement :

Add:
Deposits in Transit

Deduct:
Outstanding Checks

Add/Subtract Bank Erros

Corrected Bank Balance
Term
Bank Reconciliation (Company Books)
Definition
Add:
Collection of Note
Interest Revenue

Deduct:
NSF Check
Bank Service Charges
Company Books :

Add/Subtract Company Errors

Corrected Bank Book Balance
Term
Balance sheet presentation of accounts receivable
Definition
Balance Sheet:

Cash

Accounts Receivable 3,000,000
Less: Allowances for Doubtful Accounts (300,000)

Net Realizable Value of Accounts Receivable: 2,700,000
Term
Journal Entry for Accounts Receivable
Definition
DR Accounts Receivable
CR Sales (or Service Revenue)
Term
Journal Entry for Bad Debt Expense
Definition
DR Bad Debt Expense
CR Allowances for Doubtful Accounts
Term
What is bad debt expense?
Definition
Bad debt expense is the amount not collected at the end of the year
Term
What is the realizable value?
Definition
The realizable value is the amount of cash expected to be collected at year end.
Term
Barton Co. estimates $3000 of its A/R will prove uncollectable. The total accounts receivable balance at December 31, 2013 is $278,000
Definition
Barton, Co.
Partial Balance Sheet
December 31, 2013

Cash

Accounts Receivable $278,000
Less : Allowances for D/A 3,000

Net Realizable Value of Accounts Receivable $275,000
Term
Formula for Interest Revenue
Definition
Total payment x interest % x n/360

n=number of months that have passed
Term
Why are ratios computed?
Definition
Ratios are computed to evaluate the liquidity (how quickly the asset can be converted to cash) of a company's accounts receivable
Term
Formula for the Receivables Turnover Ratio
Definition
Net Credit Sales -------------------- Average Net Receivables The turnover ratio is used to asses the liquidity of the ratio's. It shows how often the accounts receivable is converted to cash.
Term
Formula for the average collection period
Definition
365 Days
----------------------
Receivables Turnover Ratio

The Average Collection Period is the average amount of time that a receivable is outstanding. It is useful is determining how efficient management has been in granting credit to produce sales.
Term
How is Aquisition Computed
Definition
Decline in Asset Value
-------------------
Assets Useful Life
Term
Aquisition Cost - What will be included in the cost of the asset?
Definition
A) Aquisition - Compute cost
B) Use - Assets useful life and subsequent expenditures
C) Disposal - Record disposal
Term
What is deprecation?
Definition
Allocating cost of plant asset to expense (Moving from balance sheet to income statement). Deprecation requires three values: Cost, Salvage Value, Useful Life
Term
Formula for Deprecation Rate
Definition
100% x useful life
Term
Formula for strait-line method
Definition
(Cost- Salvage or Residual Value)
----------------------------
Useful Life Measured in Years

The strait-line method maximizes net income and when using this method, deprecation is the same each year for the assets useful life.
Term
Using the strait-line method, calculate and journalize:

A delivery truck cost $10,000 and has an estimated residual value of $1,000 at the end of its estimated useful life in 5 years.
Definition
(10,000 - 1000)
-------------- = 1,800/year
5 Years

Journalizing to Record Anual Deprecation

Dec. 31 DR Deprecation Expense 1800
CR Accumulated Deprecation 1800
Term
Sale of Assets - Recording Journal Entries With Gains or Losses:

On September 30, 2013 Evans Company sells a machine that originally cost %100,000 for %60,000. The machine was placed in service on January 1, 2010. Using the strait-line method, it was deprecated with an estimated salvage value of $20,000 and a useful life of 10 years.
Definition
A) Annual Deprecation
(100,000 - 20,000)
---------------- = $8000
10 Years

B) Deprecation to September 30, 2013
9/12 x 8000 = $6000

C) Determine Book Value of Assets:
Cost 100,000
Accumulated Deprecation 30,000
(3 years x 8,000) + 6000 --------
Book Value 70,000
Cash Received 60,000
-------
Loss on Disposal of Asset ($10,000)

D) Recording the Sale of the Plant Asset:
Sept. 30 Cash 60,000
Accumulated Deprecation - machine 30,000
Loss on Disposal of Asset 10,000
Machine 100,000
Term
Balance Sheet Presentation of Property, Plant, and Equipment - LOSS
Definition
DR Cash x
DR Accumulated Deprecation - machine x
DR Loss on Disposal of Asset x
CR Machine x
Term
Balance Sheet Presentation of Property, Plant, and Equipment - GAIN
Definition
DR Cash x
DR Accumulated Deprecation - machine x
CR Gain on Sale x
CR Machine x
Term
Formula for ASSET Turnover Ratio
Definition
Net Sales
---------
Average Total Assets
Term
Formula for Return on Assets
Definition
Net Income
-----------
Average Total Assets
Term
Notes Payable are classified as __?
Definition
Notes Payable are classified as current liabilities
Term
Formula for Interest Expense :
Definition
Note Payable x Interest % x m/12

m = # of months that have passed
Term
Prepare the Journal Entry for Issuing the Note Payable
Definition
To record note to bank:
DR Cash x
CR Notes Payable x
Term
Record Repayment of Note and Interest:
Definition
To record payment of note:
DR Notes Payable x
DR Interest Expense x
CR Cash x
Term
Current Liabilities - Short-term Notes Payable

Burrow Inc. borrowed $100,000 Sept. 1, 2009, by signing a 12%, 6 month note payable.
Definition
A)
Sept. 1 Cash 100,000
Notes Payable 100,000
Dec. 31 Interest Expense 4000
(100,000 x .12 x 4/12 months)
Interest Payable 4000

B) Journal
March 1 DR CR
Notes Payable 100,000
Interest Payable 4,000
Interest Expense 2,000 (Record Jan. and Feb. Interest)
Cash 106,000
Term
Formula for the Times Interest Earned Ratio
Definition
(Net Income + Interest Expense +Income Tax Expense)
----------------------------------------------
Interest Expense

The Times Interest Earned Ratio shows the amount of resources generated for each dollar of interest expense. (Higher the Better)
Term
Formula for Times Interest Earned
Definition
Income before interest and income taxes
-----------------------------------
Interest Expense
Term
Bonds are what kind of securities?
Definition
Bonds are Debt Securities
Term
Advantages of bonds
Definition
1) Do not affect stockholder control
2) Interest on bonds is tax deductible
3) Bonds can increase return on equity
Term
Issuing Bonds at Face Value. Journalize:

"Devor Corporation 100, five year, %10, $1000 bonds dated January 1, 2010 at 100."
Definition
Jan. 1
DR Cash 100,000
CR Bonds Payable 100,000
Term
What kind of account is a discount account?
Definition
A discount account is a contra-liability account.
Term
Bonds Discounts and Premiums. Journalize:

"On Jan. 1, 2005, Candlestick, Inc., sells 100,000, 5 year, %10 bonds, at 98 with interest payable on Jan.1."
Definition
Jan. 1
DR Cash 98,000
DR Discount on Bonds Payable 98,000
CR Bonds Payable 100,000
Term
What kind of account is a premium account?
Definition
A premium account is an Adjunct account and is added to bonds payable on the balance sheet.
Term
Journalize a bond sold at premium:
Definition
DR Cash
CR Premium on Bonds Payable
CR Bonds Payable
Term
Formula for Interest payment:
Definition
Interest Payment = Bond face value x Stated interest rate
Term
Recording Interest Payments With Amortization of Premium or Discount. Journalize:

"Devor Corporation issues 100, 5 year, $1000 bonds dated Jan. 1, 2010, at 100."
Definition
Jan. 1
DR Cash 100,000
CR Bonds Payable 100,000
(1000 x 100)

Dec. 31
DR Bond Interest Expense 10,000
CR Cash 10,000
(100,000 x 10%)
Term
Show the balance sheet presentation for bonds
Definition
Long-term Liabilities
-Bonds Payable --------------- 1,000,000
-Less: Discount on bonds payable (80,000) ___920,000
------------------------------------ ---------
Term
Formula for Bonds Discount Amortization:
Definition
Bonds Discount Amortization

Bonds Discount
--------------
Number of Interest Periods
Term
What happens to the payments throughout the payment of a long-term notes payable?
Definition
With each payment, the interest portions get smaller and the principle portions get larger.
Term
Stockholders Equity
How do you find the number of shares of common stock issued?
Definition
Common stocks par value x # of shares issued
Term
Stockholders Equity
How do you find the number of shares of common stock issued?
Definition
# of total shares - preferred stock - treasury stock
Term
Stockholders Equity
How do you find the total amount of Paid-In Capital?
Definition
Total (Common + Preferred) stock + Paid-In Capital
Term
Stockholders Equity
How do you find the Treasury cost per year?
Definition
Total Treasury Stock
------------------
Shares of common stock owned by treasury
Term
Stockholders Equity
How do you find the total amount of stockholders' equity?
Definition
Add all up - treasury
Term
What is a stock split and how is it calculated?
Definition
# of shares after Stock Split = Shares x stock split

Stock Split is issuing additional shares. After the split, equity is the same as before.
Term
What happens after a corporation retires stock?
Definition
After a corporation retires stock its assets and equity are always reduced by the amount paid for the retiring stock.
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