Exam 3 Study Guide

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Exam 3 Study Guide

Study Guide
Miami University, Oxford
Acc 221 - Intro to Financial Accounting
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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 ACC 221 1st Edition 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. ...

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