Accounting 2810- Chapter 7 & 8
Accounting 2810- Chapter 7 & 8 ACCT 2810 - 001
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This 3 page Class Notes was uploaded by Seon Notetaker on Sunday March 13, 2016. The Class Notes belongs to ACCT 2810 - 001 at Auburn University taught by Jennifer Norheim Cornett in Fall 2015. Since its upload, it has received 71 views. For similar materials see Fundamentals Of Accounting in Accounting at Auburn University.
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Date Created: 03/13/16
ACCT 2810-001 Chapter 7 Fixed Assets- long term or relatively permanent assets such as equipment, machinery, buildings, and land. (A cost that has been incurred o Exist physically o Owned and used by the company in its normal operations o Not offered for sale as part of normal operations Classifying Cost: o If purchase is long lived… the item is capitalized on the balance sheet as a fixed asset or investment o If not… the item is classified and recorded as an expense o If the asset is used in normal operations…classify and record as a fixed cost o If not... classified and recorded as an investment Revenue Expenditures- Cost that benefit only the current period o Ordinary maintenance and repairs o Benefit only the current period o Increase repairs and maintenance expense Capital Expenditures- Cost that improve the asset or extended its useful life o Asset improvements o Benefit current and future periods o Increase fixed assets Depreciation- Periodic recording of the cost fixed assets as an expense o Physical depreciation- wear and tear during use or from exposure to weather o Functional depreciation- obsolescence and changes in customer needs that cause the asset to no longer provide services for which it was intended o Initial Cost – residual value = depreciation value Depreciation Methods o Straight-line method- provides for the same amount of depreciation expense each year of the assets useful life *most used Annual depreciation= cost-residual value/useful life o Double-Declining Balance Method- Provides more depreciation in earlier years over the expected useful life of the asset. 1sndstep: Straight-line percentage 2 step: Double declining-balance rate 3 step: Depreciation expense Book Value: cost – accumulated depreciation Depletion- The process of transferring the cost of natural resources to an expense account o 1 step: Depletion Rate= Cost of Revenue / Estimated Total Units of Resources o 2 step: Depletion Expense= Depletion Rate x Quantity Extracted rd o 3 Step: Depletion Rate= Cost of Resource / Estimated Total Units of Recourse Intangible Assets- Long-lived assets that are useful in the operations of business and are not held for sale. o Patents- Exclusive rights to produce and sell goods with one or more unique features o Copyright- Exclusive right to publish and sell a literary, artistic, or musical composition o Trademark- a name, term, or symbol used to identify a business and its products o Goodwill- intangible asset of a business that is created from such favorable factors as location, product quality, reputation, and manageable skill. Fixed asset turnover- measures how efficiently a company is generating sales from its property, plant, and equipment o = Net Sales/Average Net Property, Plant, and Equipment Chapter 8 Current Liabilities- Liabilities that are to be paid out of current assets and are due within short time o Receiving goods or services prior to making payment o Receiving payment prior to delivering goods or services Long-term Liabilities- Liabilities due beyond one year Contingent Liability- Potential liabilities if certain events occur in the future o Likelihood of occurring: probable, reasonably, possible, or remote o Measurement: Estimable or not estimable Note Payable o Satisfy an account payable o Purchase merchandise or other assets Taxable Income- the income of a corporation that is subject to taxes as determined according to the tax laws Temporary Differences- differences between taxable income and income before income taxes Payroll- the amount paid to employees for the services they provide during a period Gross pay- total earnings of an employee for a payroll period, including bonuses and overtime pay Net Pay- the amount the employer must pay the employee Bond- a form of an interest-bearing note. o Bond indenture- a contract between a corporation issuing bonds and the bondholders o Market rate of interest- The effective rate of interest at the time the bonds were issued o Contract rate- the periodic interest to be paid on the bonds that is identified in the bond indenture o The price the buyers are willing to pay for the bonds depends on: The face amount of the bonds due at maturity date The periodic interest to be paid on the bonds The market rate of interest Common stock- When only one stock is issued Par- shares of stock that have a monetary amount Outstanding stock- the stock remaining in the hands of stockholders Majors right that accompany ownership of a share of stock: o Right to vote in matters concerning corporation o Right to share in distributions of earnings o Right to share in assets upon liquidation Price at which stock is sold depends on a variety of factors: o Financial condition, earnings record, and dividend record of the corporation o Investor expectations of the corporations potential earning power o General business and economic conditions and prospects Premium- the excess of the issue price of a stock over its par value Treasury stock- a stock that a corporation has issued and then reacquired o Provide shares for resale to employees o Reissue as bonuses to employees o Support the market price of the stock Cash Dividend- cash distribution of earnings by a corporation to its shareholders o Sufficient retained earnings o Sufficient cash o Formal action by the board of directors Stock Dividend- a distribution of shares of stock to stockholders o does not change the the assets, liabilities, or total stockholder’s equity of a corporation Stock Split- a process by which a corporation reduces the par or stated value of its common stock and issues a proportionate number of additional shares. Earnings per share= Net income-preferred dividends/number of common shares outstanding Ratio of liabilities to total assets= Total liabilities/total assets
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