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A 201

by: Edward Wuckert I

A 201 BUS

Edward Wuckert I
GPA 3.89

Anna Jensen

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Anna Jensen
Class Notes
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This 0 page Class Notes was uploaded by Edward Wuckert I on Sunday November 1, 2015. The Class Notes belongs to BUS at Indiana University taught by Anna Jensen in Fall. Since its upload, it has received 27 views. For similar materials see /class/233447/bus-indiana-university in Business at Indiana University.


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Date Created: 11/01/15
Accounting Review Chapter 2 The financial statements 1 The statement of cash flows More practice on pg 52 a Cash related to operating activities sales rent interest suppliers employees selling activities taxes b Cash related to investing activities investment securities property equipment sale of longterm investments c Cash related to financing activities issuing equity payments on short term notes and long term debt dividends Chapter 3 The Measurement Fundamentals 1 Assumptions a Economic Entity b Stable Dollar c Fiscal Period d Going Concern 2 Valuation a Present Value b Fair Market Value c Replacement Cost d Historical Original Cost Account Value Historical Lower of Cost or Market Current Fair Market Value 3 Principles a Objectivity b Matching c Revenue Recognition d Consistency Chapter 4 The mechanics of Financial Accounting 1 Assets a Current Cash marketable securities accounts receivable inventory prepald expense b Noncurrent Longterm notes receivable longterm investments property plant and equipment intangibles goodwill 2 Liabilities 8 a Current Accounts payable accrued expenses unearned income taxes payable current maturities of long term debt b NonCurrent Longterm debt bonds payable Shareholder s Equity a Contributed Capital Preferred stock common stock additional paid in capital b Earned Capital Retained earnings Debits and Credits a Natural Debit Assets Expenses b Natural Credit Liabilities Equity Revenue ContraAccounts a Accumulated Depreciation b Discount on Bond Payable Matching Principle Efforts of a period expenses should be matched against benefits of same period revenues a Accrual Accounting Recognize revenue when earned and expenses when incurred AdjustingJournal Entries a Necessary to achieve Accrual Accounting b Will never involve cash c Accrued Expenses Example Employees worked the last week of December earning 100000 but will not be paid until January d Deferred Expense Example Corporation purchased office supplies costing 3000 The office recorded the asset when purchased At the end of the year the company used 1000 of the supplies e Deferred Revenue Example Corporation received 8000 from a customer in 2008 for work to be completed in 2009 Closing Entries Temporary accounts are used to accumulate the transactions of only one accounting period a Revenues Expenses GainsLosses Dividends Declared Chapter 5 Using Financial Statement Information 1 Ratios a Capital Structure Leverage How much assets come from debt or equity the larger the number means debt b Current Ratio Can the company pay its bills Around 11 is good larger than that means a lot of cash or a ton of inventory c Quick Ratio Ability to pay off liabilities d AR Turnover How often people pay 30 days is good e Return on Assets How much was made on assets adjusted for interest f Earnings per share The larger the better Chapter 6 The current asset classification cash and accounts receivable 1 Cash Discounts a Terms 210 9 2 discount of paid within 10 days Cash 196 I Cash Discount I 4 I I I Accounts Receivable I I 200 I 2 Allowance for Doubtful Accounts a Of Credit Sales Method The company estimates 5 to be uncollectible I Bad debt expense I 500 I I Allowance for Doubtful Accounts I I 500 I b Aging Method Table of accounts receivable and estimated of uncollectible c Recording the actual WriteOff of Bad Debt Filing bankruptcy I Allowance for Doubtful Accounts I 200 I I Accounts Receivable I I 200 I d Recovering a Bad Debt previously WrittenOff Allowance for Doubtful Accounts Cash 200 Chapter 7 Merchandise Inventory 1 Acquiring and Capitalizing lnventory a FOB Shipping The minute inventory leaves the suppliers door b FOB Destination Belong to company when the inventory reaches the door c Consignment Sales You own until sale 2 Selling lnventory a FIFO Method First In First Out Largest Gross Profit b LIFO Method Last In First Out Smaller Gross Profit Tax purposes c LIFO Reserve FlFOLlFO times Tax Bracket Money Saved 3 Valuating lnventory Lower of Cost or Market Historical Replacement NRV NRVNormal LCM Cots Cost Profit Inventory 125 100 150 120 120 4 Inventory Write Down I Loss on inventory write down I 5 I lnventory I 5 Chapter 8 Investments in Equity Securities 1 MarkToMarket lt20 Ownership a Trading Securities Short term sale within3 0 days b AvailableForSale Securities Sale is longer than 30 days c Both require marktomarket d RealizedUnrealized GainsLosses Realized GainsLosses for both securities affect net income ii Unrealized GainsLosses affect net income for trading securities iii Unrealized GainsLosses affect equity for AFS Securities 2 Equity Method 2050 Ownership I Long Term Investment in Equity Security I 100 I Cash 100 a Long Term Investment Account i Increases when the company declares Net Income I Long Term Investment in Equity Security I 1000 I Income from LT Investment I I 1000 ii Decreases when the company declares Dividends I Dividend Receivable I 200 I I Long Term Investment In I I 200 I 3 Purchase Method gt50 Ownership a Their assetsIiabilitiesetc become yours Current Assets 300 Property Plant Equip 200 Other Assets 100 Goodwill Plug Number 250 Current Liabilities 200 Long Term Liabilities 150 Cash 300 Common Stock 200 Chapter 9 LongLived Assets 1 Depreciation Methods a Straight Line b Accelerated Methods i DoubleDeclining Balance ii Sum of the Year s Digits c Activity Method 2 Capitalize the FMV of the asset including shipping installation training etc 3 To Record Depreciation I Depreciation Expense I 1000 I quot 39 39 Depreciation I I 1000 4 To Dispose of an Asset I quot 39 39 Depreciation I 3000 I I Loss on Retirement I 2000 I Equipment I I 5000 5 Selling of an Asset Cash Accumulated Furniture 6 TradeIns of Dissimilar Assets Accumulated Loss on TradeIn Chapter 10 Introduction to Liabilities 1 Short term Debt Company A borrows 12600 from a Loan Company with a FV of 15000 Cash 12600 I Discount on Note Payable I 2400 Plug Number I Notes Payable I I 15000 a Make entries to accrue interest expense I Interest Expense I XX Discount on Notes Payable I I XX 2 Current Liabilities a Third Party Collections Dell sells a computer in Indiana for 1000 Sales tax is 7 Total cash collected by Dell is 1070 Cash 1070 I Sales Tax Payable I I 70 I Sales I b Incentive Compensation I Bonus Expense I I I Bonus Liability I I I 3 Contingencies An existing condition situation or set of circumstances involving uncertainty as to possible gain or loss to an enterprise 3 options Accrue and recognize lossliability Disclose in the financial statement footnotes ignore a Remotely Possible Ignore b Reasonably Probable Disclose c Highly Probable i Estimable Accrue ii Not Estimable Disclose I Contingent Loss I 1000000 I Contingent Liability 1000000 4 Warranties a To recognize contingent liability Estimated 10 of sales I Warranty Expense I 1000 I I Contingent Warranty Liability I I 1000 I b When claims are made I Contingent Warranty Liability I 350 I I Cash 350 Chapter 11 Long Term Liabilities Notes amp Bonds 1 Figuring Out Bonds a Calculate Interest Paid Face Value Stated Rate b Calculate PV of Bond Use Tables 4 5 for Lump sum and Ordinary Annuity c Calculate Discount on Bonds Payable Keep a Ttable d Calculate Interest Expense Book Value Effective Interest Rate 2 Example A company issued 100 twoyear bonds each with a 1000 face value The bonds have an annual stated rate of 9 and an effective rate of 10 a Interest Paid 100000 009 90000 b PV of Bond PV 9000TabIe Value of 173554 100000TabIe Value of 082645 PV98265 Present value is the PROCEEDS or CASH received Cash 98265 I Discount on Bond Payable I 1735 I Bond Payable 100000 c Interest Expense 1000001735O10 982640 I Interest Expense I 9826 I I Discount on Bond Payable I I 826 I Interest Paid I 9000 3 Bond Redemption 98 means 98 a Use Bond Payable value and what is left of Discount Bond Discount on Bond Cash Paid Gain Chapter 12 Shareholder39s Equity 1 Common Stock amp Preferred Stock a Common Stock that has a Par Value of 100 issued 2000 for 3500 Cash 3500 I Common Stock I I 2000 APIC 1000 2 Treasury Stock Stock repurchased by the company a APIC is credited when TS is reissued at a higher price than what it was purchased for vice versa if it is reissued lower 3 Stock Options Pg 252 4 Stock Splits Pg 252 Chapter 14 The Statement of Cash Flows 1 Cash Flows from Operating Activities a Direct Method b Indirect Method i If the change in assets increases net income decreases ii If the change in liabilities increases net income increases iii Steps 1 Begin with Net Income 2 Adjust for Noncash charges to noncurrent assets a Add depreciation amortization losses on sale of assets b Subtract gains on sales of assets 3 Subtract increase in current assets other than cash 4 Add increase in current liabilities


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