ACC 221 1st Edition Exam 3 Study Guide Lectures 21 31 Lecture 21 March 18 Fixed Assets What are fixed assets Long term assets that the company intends to use up and are never resold This can include equipment land buildings company cars and trucks They create up to five asset accounts We show wear on them through depreciation What is the purchase price This is the total amount of money paid to place the item into service This may include purchase price tax and any fees Dr Truck Cr Cash Lecture 22 March 20 Operating Costs and Expenses What are operating costs and expenses Appear on income statement expenses once capital asset is put into service matinence This is basically the difference between maintaining the life expenses v extending the life of the asset capital cost If unsure of where something goes should consider it an operating expense and decrease the assets Lecture 23 March 30 Asset Depreciation What are the main depreciation accounts Accumulated depreciation Permanent account shows the total value of depreciation over time rolls over to next accounting period and builds upon itself Depreciation expense Temporary account emptied into retained earnings as an expense at the end of the accounting cycle Book value Book value is a calculated cost found based on the balance sheet Original cost of asset accumulated depreciation Stop depreciation when book value residual value You may use different types of depreciation for financial reporting and tax returns government does not regulate this What is straight line depreciation Depreciates evenly over time Full cost residual value estimated life Adjusting entry Dr depreciation expense Cr Accumulated depreciation What is double declining depreciation Front loaded expenses make payments larger in the beginning years to gain a tax advantage 1 life of loan x 2 1 5 2 5 x money left to depreciate Adjusting dr depreciation expense Cr Accumulated depreciation Must know when to stop depreciating adjust final year to get the exact depreciation amount to equal residual value cannot be above or below residual value at the end What is activity based depreciation Depreciation is based on usage of the asset Fully depreciated when reaching 100 000 miles cost residual value life 110 000 5 000 100 000 1 05 mile How do you remove assets No gain or loss Dr Cash amount equipment worth 66 000 Dr accumulated depreciation amount depreciated 44 000 Cr Equipment total 110 000 Gain on sale Dr Cash 76 000 Dr Accumulated depreciation 44 000 Cr Equipment 110 000 Cr Gain on disposal on fixed assets 10 000 Loss on sale Dr Cash 56 000 Dr Accumulated depreciation 44 000 Dr Loss on disposal of fixed assets 10 000 Cr Equipment 110 000 Lecture 24 April 1 Goodwill What is goodwill Intangible asset help to make a company more valuable by adding a variety of aspects including brand recognition logo reputation customer loyalty trained employees and location Goodwill will be zero when the amount you pay equals the amount of hard assets you receive You cannot have negative goodwill Total value paid physical assets received goodwill Put on the asset sheet through acquisitions if the company has never been purchased there is no goodwill to show How do you put goodwill into the accounting system Dr cash accounts receivable inventory property equipment and goodwill Cr Accounts payable notes payable and cash Lecture 26 April 6 Payroll What are the types of payroll liabilities Payroll taxes until payday place salary payable into liabilities section On payday pay off liabilities with cash Take our taxes prior to payday Total salary expense without withholding any Dr salaries expense Cr Salaries payable FICA Tax Social security and Medicare 15 3 employee and employer Calculated as percentage wages earned Dr tax expense Cr FICA tax payable To payoff Dr FICA taxes payable Cr Cash Add expense columns total assets of payroll Federal state income tax Individual to each person Dr salaries payable Cr Federal state income tax payable Unemployment tax you pay depends on how often you lay off employees Pay state unemployment tax payable and a small federal amount Sales tax 100 7 sales tax pay 107 Dr Cash 107 Cr Sales Revenue 100 Cr Sales tax payable 7 May also compute 107 1 07 original price Lecture 27 April 8 Bonds What are bonds Long term liabilities method of borrowing using more than one lender What is compounding interest Borrow 10 000 6 annual interest outstanding 3 years Dr interest expense Cr Interest payable for each year Year 1 10 000 6 600 10 600 owed Year 2 10 600 6 636 11 236 owed Year 3 11 236 6 674 16 11 910 16 owed What are table factors Determine amount owed to bank Look up in table using the interest rate and number of periods What is pay demand When selling a bond to market if interest rate is lower the cost of borrowing is lowered making the total value larger than the face value letting you borrow more borrowing on premium If interest rate increases you will borrow less borrowing on discount If interest rate is the same on initial and day of sale you will borrow the expected amount borrowing on par What are the journal entries when market is buying bonds Dr cash Cr Bonds payable use calculated selling price Lecture 29 April 13 Bonds Cont What are discount bonds Sold 290 000 6 annual rate less than face value Face value interest rate 17 400 Payment promised in bond agreement 15 000 Actual promised 2 400 Add difference to bond liability End of terms liability face value Pay 15 000 now save extra 2 400 for last payment Dr interest expense 17 400 Cr Cash 15 000 Cr Bond payable 2 400 What are premium bonds Bond liability 310 000 above face value 4 annual interest rate 310 000 4 12 400 Payment promised in bond agreement 15 000 Actual promised 2 600 Add difference to bond liability Pay 15 000 now reduce bond payable by 2 600 By end of term liability face value of 300 000 Dr interest expense 12 400 Dr Bond payable 2 600 Cr Cash 15 000 What are par bonds Sold 300 000 liability face value 300 000 interest rate amount originally promised in bond agreement All payments will be exactly 15 000 and there is no adjusting to get liabilities face value of 300 000 by end of term Dr bond payable 300 000 Cr Cash 300 000 What is maturity Payments Pay off bond payable with cash will equal face amount of bond after amortization schedule Amount paid amount borrowed actual interest Dr bond payable face value Cr Cash What is semiannual interest 300 000 at 10 over 2 years 5 over 4 payments 300