ACCT Final Exam Study Guide
ACCT Final Exam Study Guide ACCT 2101
Popular in Principle of accounting
Popular in Department
This 12 page Study Guide was uploaded by Varsha Mandiga on Tuesday June 14, 2016. The Study Guide belongs to ACCT 2101 at Georgia State University taught by Kris J. Clark in Summer 2016. Since its upload, it has received 14 views.
Reviews for ACCT Final Exam Study Guide
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 06/14/16
Principles of Accounting 1 Summer 2016 Study Guide for Final Exam Test Format: MCQ (50 @ 6.25 points each). Total possible points are 312.5. Maximum grade is 300! Students need to bring their own scantrons and #2 pencils. You are permitted to use a simple fourfunction calculator You will be asked to show a picture id when you turn in your exam and scantron. You will have 120 minutes to complete the exam. This includes time to fill in your scantron. The exam covers Chapters 1 – 12. Approximately 40% of the exam will come from Chapters 1 – 9 and 60% from Chapters 10 – 12. Skills needed: Chapters 1 and 2: 1) Calculate components of the income statement, retained earnings statement, and balance sheet (for example, given selected financial information calculate the total current assets). Income Statement shows revenues. Revenue expenses= Net Income Retained Earnings to calculate you take: Beginning Retained Earnings+ Net Income Dividends= Ending Retained Earnings Remember that Current Assets include: Cash, Investments, Accounts Receivables, Inventory, and Prepaid Expenses. 2) Use the accounting equation to solve for an unknown. Assets= Liability + Stockholder’s Equity Stockholder’s Equity= Common Stock+ Retained Earnings Retained Earnings= Revenues – Expenses Dividends Chapter 3: 1) Analyze the effect of business transactions on the accounting equation. Remember the accounting equation; Assets= Liabilities + Stockholder’s Equity Note that transactions can affect two accounts or either side of the equation or one the same side of the equation such as the purchase of equipment where assets increase with the equipment, but also decrease with the loss of cash. 2) Identify activities as operating, investing, or financing. Operating activities are activities that include the daytoday operation of the company. Investing activities are activities that deal with the purchase or sale of longterm assets that assist in operating activities or in the procurement or sale of investment securities. Financing activities are the borrowing of money, issuing of stock and payment of dividends. Chapter 4: 1) Apply the revenue recognition principle. Note that revenue is recognized when a service is performed. 2) Calculate net income from an adjusted trial balance. Net income is calculated after all adjusted expenses have been subtracted from all revenues. 3) Prepare adjusting journal entries for prepaid rent and interest. Note the amount of time that is passed when preparing adjusting journal entries for rent and interest and conduct the proper calculations. Chapter 5: 1) Interpret sales discounts. Ex: 2/10, n/30= 2% discount if paid within ten days, otherwise net amount due within 30 days. Ex: 1/10 EOM= 1% discount if paid within first 10 days of next month Ex: n/10 EOM= Net amount due within the first 10 days of the next month. 2) Calculate cost of goods sold under a periodic system. Beginning Inventory + Net Purchases (Purchases + Freight – Purchase returns and allowances – purchase discounts) – ending inventory = COGS Chapter 6: 1) Calculate ending inventory using LIFO and Calculate cost of goods sold and gross profit using average cost. Remember that with LIFO the last inventory that comes in is the first that is sold. Meaning that you subtract the total units sold wish the units that were sold first to determine how many units are available and multiply by the corresponding unit cost. Chapter 7: 1) Prepare a bank reconciliation. Note that for the bank you add deposits and subtract outstanding checks. For the books you add notes collected by banks and subtract bounced checks and service charges. Books must be equal to banks. 2) Calculate the amount of cash to borrow based upon a cash budget. Cash budget contains three sections—cash receipts, cash disbursements, and financing—and the beginning and ending cash balances. Know that cash receipts= receivables you collect. Cash disbursements= payments we need to make (expenses) Chapter 8: 1) Calculate the cash received from an account receivable when a sales discount is taken. Be aware that sales discount is a debit that is subtracted from the total amount that is supposed to be received in accounts receivable. Upon that subtraction you get the cash received from the transactions. 2) Prepare the adjusting entry to record the estimate of bad debt expense. 3) Calculate the duration of a note receivable given the interest rate and interest expense. Chapter 9: 1) Identify items classified as property, plant, and equipment. Property is land and all necessary costs incurred in preparing the land for its intended use. (Attorney fees, real estate broker commissions, etc.) Plants are buildings and all costs related with purchase or constructions. Fixed Asset Equipment includes assets used in operating activities and all cost incurred in acquiring the equipment and preparing it for use. (Sales tax, freight charges, cash for purchase etc.) Fixed Asset 2) Calculate depreciation expense and accumulated depreciation using straightline depreciation. Take the cost of the equipment – salvage value and divide that number by the life of the equipment to find the depreciation expense. To calculate accumulated depreciation you multiply the depreciation expense by the amount of time that has passed. Hinshaw Company purchased a new machine on October 1, 2014, at a cost of $89,200. The company estimated that the machine has a salvage value of $8,000. The machine is expected to be used for 71,100 working hours during its 6year life Straightline method: $89,200 – $8,000 = $13,533 per year 6 2014 depreciation = $13,533 x 3/12 = $3,383 3) Determine correct accounting for repairs and maintenance. Ordinary Repairs expenditures to maintain the operating efficiency and productive life of the unit. Repairs and maintenance are expenses and you debit them. Chapter 10: 1) Define current liability. Liabilities that will be paid within one year or operating cycle. These can be paid from existing current assets or through the creation of other current liabilities. Include: notes payable, accounts payable, unearned revenues, taxes, salaries, wages, and interest. 2) Prepare journal entries associated with notes payable. Illustration: First National Bank agrees to lend $100,000 on September 1, 2014, if Cole Williams Co. signs a $100,000, 12%, fourmonth note maturing on January 1. When a company issues an interestbearing note, the amount of assets it receives generally equals the note’s face value. Sept. 1 Cash 100,000 Notes payable 100,000 Illustration: If Cole Williams Co. prepares financial statements annually, it makes an adjusting entry at December 31 to recognize interest. Dec. 31 Interest expense 4,000 * (100,000 * 12% * 4/12) Interest payable 4,000 Illustration: At maturity (January 1), Cole Williams Co. must pay the face value of the note plus interest. It records payment as follows. Jan. 1 Notes payable 100,000 Interest payable 4,000 Cash 104,000 3) Determine proper classification (current or longterm) for a note payable on the balance sheet. Any notes or money payable in one year is a current note payable; after a year or one business cycle it is a longterm note payable. 4) Identify the correct journal entry to record sales tax. Illustration: The March 25 cash register readings for Cooley Grocery show sales of $10,000 and sales taxes of $600 (sales tax rate of 6%), the journal entry is: Mar. 25 Cash 10,600 Sales revenue 10,000 Sales tax payable 600 Illustration: Cooley Grocery rings up total receipts of $10,600. Because the amount received from the sale is equal to the sales price 100% plus 6% of sales, (sales tax rate of 6%), the journal entry is: Mar. 25 Cash 10,600 Sales revenue 10,000* (10,600/1.06 = 10,000) Sales tax payable 600 5) Understand the journal entry to record payroll. 6) Identify the journal entry for unearned revenues. Illustration: Superior University sells 10,000 season football tickets at $50 each for its fivegame home schedule. The entry for the sales of season tickets is: Aug. 6 Cash 500,000 Unearned ticket revenue 500,000 As each game is completed, Superior records the earning of revenue. Sept. 7 Unearned ticket revenue 100,000 Ticket revenue 100,000 7) Calculate the selling price of a bond. Ex: Face Value= $1000 selling at 98. Bond is equal to $980 Ex: Face Value= $1000 selling at 102. Bond equals $1020 Move decimal place of what the bond is selling for left twice (98 to .98) and multiply by face value. 8) Based on interest rates, determine if a bond would be sold at a premium (above face value) or a discount (below face value). Review WileyPLUS exercise 1014 9) Calculate the gain or loss on the redemption of a bond. It is a loss if the debit is less than credit. Conversely it is a gain if debit is greater than the credit. Review Chapter 10 slide 39 Chapter 11: 1) Interpret the corporate characteristic of limited liability. Stockholders are only liable for how much money they put into the company. 2) Understand the journal entry to record the issuance of common stock and calculate total shares issued. Total Shared Issued= Common stock issued= common stock outstanding + treasury stock 3) Define treasury stock. Corporation’s ownership of its own stock that it bought from shareholders and is not retired. Treasury stock is a contra stockholders’ equity account, not an asset. Treasury Stock decreases by the same amount when the company later sells the shares. Corporations purchase their outstanding stock: 1. To reissue shares to officers and employees under bonus and stock compensation plans. 2. To increase trading of the company’s stock in the securities market. 3. To have additional shares available for use in acquiring other companies. 4. To increase earnings per share. Another infrequent reason is to eliminate hostile shareholders. 4) Calculate preferred stock dividends. Illustration: Scientific Leasing has 5,000 shares of 7%, $100 par value, cumulative preferred stock outstanding. Each $100 share pays a $7 dividend (.07 x $100). The annual dividend is $35,000 (5,000 x $7 per share). If dividends are two years in arrears, preferred stockholders are entitled to receive the following dividends in the current year. Common Stock Outstanding = Common Stock Shares Issued Treasury Stock (Shares) The Stated Value of the Common Stock = Common Stock/Common Stock Shares Issued ($ per share) The Par Value of the Preferred Stock = Preferred Stock/Preferred Stock Shares Issued ($ per share) 5) Identify the declaration date, record date, or payment date associated with dividends. Declaration Date is when the board authorizes dividends. Record date is when shareholders are eligible for a dividend. Payment date is the day the company issues divided checks. 6) Identify the journal entry to record the declaration of a dividend. You debit cash dividends and credit dividends payable. Illustration: On Dec. 1, the directors of Media General declare a $0.50 per share cash dividend on 100,000 shares of $10 par value common stock. The dividend is payable on Jan. 20 to shareholders of record on Dec. 22: December 1 (Declaration Date) Cash dividends 50,000 Dividends payable 50,000 7) Define retained earnings. Net income that a company retains for use in the business. Net income increases Retained Earnings and a net loss decreases Retained Earnings. A debit balance in Retained Earnings is identified as a deficit. 8) Calculate total paidin capital and Calculate total stockholders’ equity. First calculate capital stock and additional paid in capital. Capital stock = preferred stock + common stock Additional paid in capital = excess of par value + excess of stated value Total paid in capital = capital stock + additional paid in capital Retained Earnings + Total paid in capital – treasury stock = Stockholder’s Equity Chapter 12: 1) Identify the purpose of the Statement of Cash Flows and the three classifications of cash flows. The purpose of the Statement of Cash Flows are: o Entity’s ability to generate future cash flows. o Entity’s ability to pay dividends and obligations. o Reasons for the difference between net income and net cash provided (used) by operating activities. o Cash investing and financing transactions during the period. Three classifications are: o Operating: Includes the cash effects of transactions that create revenues and expenses. They thus enter into the determination of net income. o Investing: Cash transactions that involve the purchase or disposal of investments and property, plant, and equipment. Lending money and collecting the loans. o Financing: Obtaining cash from issuing debt and repaying the amounts borrowed. Obtaining cash from stockholders, repurchasing shares, and paying dividends. 2) Distinguish among operating, investing, and financing activities. 3) Identify the relationship between net income and operating cash flows during the maturity phase. In the maturity phase net cash provided by operating activities and net income are about the same. Cash generated from operations typically exceeds investing needs. Thus, companies start to pay dividends, retire debt, or obtain treasury stock. 4) Using the indirect method, calculate net cash provided by operating activities and net cash provided by investing activities. Remember that as assets increase you subtract and as they decrease you add. Liabilities are the opposite. Cashfows fromoperating activities: Netincome $ 145,000 Adjustments to reconcilenetincometo netcash provided by operatingactivities: Depreciation expense 9,000 Loss ondisposal ofplantassets 3,000 Decreasein accounts receivable 10,000 Increasein inventory (5,000) Increaseinprepaidexpenses (4,000) Increasein accounts payable 16,000 Decreasein incometaxes payable (2,000) Netcash provided by operating activities 172,000 Cashfows frominvestingactivities: Purchaseofbuilding (120,000) Purchaseofequipment (25,000) Saleofequipment 4,000 Netcash usedby investingactivities (141,000) Cashfows fromfnancing activities: Issuanceof commonstock 20,000 Paymentof cashdividends (29,000) Netcash usedby fnancingactivities (9,000) Netincreasein cash 22,000 Cashatbeginningofperiod 33,000 Cashatend of period $ 55,000 Review Chapter 12 slide 44 and/or WileyPLUS exercises 124 & 125 5) Calculate free cash flow. Free Cash Flow= Cash Provided by Operating Activities – Capital Expenditures – Cash Dividends Eg. Suppose during 2014, Cypress Corporation reported net cash provided by operating activities of $89,071,000, cash used in investing of $43,123,000, and cash used in financing of $7,301,000. In addition, cash spent for fixed assets during the period was $25,810,000. Average current liabilities were $256,034,000, and average total liabilities were $265,901,000. No dividends were paid. Ans: Free Cash Flow: $89,071,000$25,810,000 = $63,261,000
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'