Suggestions for the Final- I have composed a list of suggestions for Exam II based on my attendance in class and key points that Dr. Mazzitelli talks about. None of these are certain topics/questions on the exam and are based on my experience of accounting exams.Chapter 11. Make sure you know the equations for the balance sheet, Net Income, Retained Earnings and cash flows statements.2. Under the cash flow statement, any operating activities are on the income statement, assets are under investing activities, and liabilities and contributed capital come under financing activities.3. Management is responsible for the information in the financial statements4. Know the difference between sole proprietorships and partnerships.5. Know advantages and disadvantages of corporationsChapter 2 & 31. Know the relationships between the 3 basic equations (NI, End RE and Balance sheet)2. Read over the accounting assumptions3. Know the difference between the cash and accrual basis of accountingChapter 41. If cash precedes the recognition of revenue or expense, have a deferral2. If cash is after the recognition of revenue or expense, have an accrual3. Make sure you know a few examples of each to aid in your understanding of the two4. Adjustments NEVER involve cash, and affect both the I/S and the B/S5. Depreciation and amortization are non-cash transactionsChapter 51. Two accounting constraintsa. Materiality – is it large enough to influence decisions?b. Conservatism – always understate assets and income2. Par valuea. The amount to credit to common stock is calculated by multiplying the number of shares X PAR VALUEb. Any amount in excess of PAR VALUE is credited to Paid-In-Capital3. Three unique income itemsa. Discontinued operations, extraordinary items and the cumulative effect of change in accounting principleb. Present ALL NET OF TAXc. Extraordinary items are unusual in nature AND infrequent in occurrence4. Profitability ratioa. Return on Equity (ROE)Chapter 61. Credit card salesa. Treat credit card sales as CASH salesb. Always debit credit card discount if there is a credit card fee2. Credit Salesa. Calculate sales discount based on the credit termsb. Ex. 2/10, n/30. A 2% discount if paid within 10 days, and nothing after3. Net salesa. Net sales is derived by deducting the contra-revenue accounts from gross sales (sales returns, credit card and sales discounts)4. Bad debt expensea. First increase bad debt expense and the allowance for doubtful accounts (by the amount calculated/estimated) (dr. Bad debt exp; cr. Allowance)b. When writing off a bad debt, dr. ALLOWANCE; cr. The specific A/R c. Income is ONLY reduced when the allowance is created. There is NO impact on income, assets, liabilities, or equities from an actual WRITE-OFF***5. Receivables turnover ratio (RTO)a. A measure of liquidityb. With sales discounts, RTO should be higher6. End A/R = Beg a/r + credit sales – cash received from customers – write-off7. End Allowance for D/A = beg. Bal + bad debt exp – write-offs8. Internal controlsa. Separate duties of handling and recording cash9. Bank reconciliation: Look at SI handoutChapter 71. Periodic vs. Perpetual inventory a. Periodic debits a purchases accountb. Perpetual debits an inventory account2. LIFO (Last-in, First-out) (fashion, automobiles)a. Is more conservativeb. LIFO conformity: Must use LIFO for BOTH tax and accounting purposesc. Does a better job of matching the cost of replacementd. In a period of rising prices LIFO results in a higher COGS, lower ending inventory, lower NI3. FIFO (First-in, Last-out) (grocery stores)a. Learn how to compute FIFO ending inventory and COGS4. Lower of Cost or Market (LCM)a. Use LCM when LIFO or FIFO isn’t specified, and different costs are given to you (market cost, purchase cost etc)b. ALWAYS use the LOWER of cost or marketc. May be applied to the entire inventory or to each item separatelyd. However, when applied to each item separately, will get the lowest cost (more conservative)5. Inventory Turnover Ratio (ITO)a. COGS/Avg. InventoryChapter 81. Acquisition cost includes:a. Purchase priceb. Taxes paid at time of purchasec. Transportation chargesd. Installation costse. Setup costs to prepare for usef. NOT INSURANCE2. Capital & Revenue expendituresa. Capital expenditure: an asseti. Extraordinary repair: increase usefulness or extend life of the assetb. Revenue expenditure: an expense (benefits current accounting period)i. Ordinary maintenance (painting)3. Know the differences between depreciation, depletion and amortization4. Book value = Acquisition cost – accumulated depreciationa. Know how to find the book value at the end of a stated year5. Disposal of Assetsa. Gain/Loss = Sale price – BV at date of saleb. If sold for more than the BV, we credit the gain on salec. If sold for less than the BV, we debit the loss on saled. ALWAYS depreciate the asset up to the date of salee. I’m pretty sure that there will be a problem where the asset is sold right in the middle of the year!6. Straight line depreciationa. S/L = (Cost – Salvage/Residual value)/estimated useful life (# of years)7. Double declining balancea. DDB = First find the S/L per yearb. Then find the S/L rate (S/L amount per year/cost-salvage/residual)c. If the question asks for double the S/L rate, then multiply the S/L rate by 2d. Use this new rate X the cost for the DDB amount for year 1e. For year 2, use the same rate found in 3 X (cost – accum. depreciation)8. Units of Productiona. Units of prod. = (cost – salvage/residual value)/estimated life (# of units)Chapter 91. Current Assets: less than 1 year2. Current Liabilities: less than 1 year3. Current ratio: most important measure of liquiditya. CR of at least 2 is preferred4. Time value of Moneya. Two things to ask:i. Are you looking for a PV or a FV?ii. Is it a single payment or a series of payments?b. If it is a sum you are looking to invest TODAY, it is a PVc. If it is a sum you are hoping to get in the future, use FVd. If you have bought equipment for $100,000 on account. Find the amount to assign in your books for that equipment today.i. Use the PV tableChapter 101. Make sure you know the difference between bonds sold at adiscount and bonds sold at a premium2. If a $1,000 bond is sold at 96, it means that the $1,000 bondwas sold for 96% of $1,000 or .96 X $1,000 = sold for $960, which means that thebond was sold at a discount of $403. If a $1,000 bond is sold at 104, it means that the $1,000 bond was
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