Principles of Accounting 1 Fall 2015Study Guide for Final ExamSaturday, December 12th, 8:15 – 10:15 amTest Format:- Multiple choice questions (50 @ 6.25 points each). Total possible points are 312.5. - Maximum grade is 300! The extra points are to compensate for any weakness in the main test instrument and misunderstanding in the question wording. - Students need to bring their own scantrons and #2 pencils. Do not mark your scantron until you have selected your FINAL answer. Eraser marks confuse the scantron grading machine. All adverse consequences of eraser marks and mismarks are the student’s responsibility. Bring extra scantrons. - You are permitted to use a simple four-function calculator (cell phones are NOT simple four-function calculators). Instructors/exam proctors will check each student’s calculator while distributing the exams.- This is a closed book, closed note, and closed neighbor exam. You are NOT permitted to have scratch paper. You are NOT to look around during the exam. You are to keep your scantron sheet covered to the extent possible. Questions regarding the exam cannot be asked during the exam period.- You must turn in your exam and scantron with your name and the version letter ofthe exam on both. You will be asked to show a picture id when you turn in your exam and scantron. - You will have 120 minutes to complete the exam. This includes time to fill in your scantron. Pencils down at 10:15 am.- The exam covers Chapters 1 – 12. Approximately 40% of the exam will come from Chapters 1 – 9 and 60% from Chapters 10 – 12.Skills needed: Chapters 1 and 2:- Calculate components of the income statement, retained earnings statement, and balance sheet (for example, given selected financial information calculate the totalcurrent assets).- Use the accounting equation to solve for an unknown. Assets = Liabilities + Stockholders EquityChapter 3:- Analyze the effect of business transactions on the accounting equation. Each Business transaction must have a dual effect on the accounting equation. Forex: if an individual asset is increased, there must be a corresponding:a. decrease in another assetb. increase in a specific liabilityc. increase in stockholder’s equity- Identify activities as operating, investing, or financing.Financing Activities- 2 Primary sources of outside funds are:1. Borrowing money (debt financing)Amounts owed are called liabilities.Party to whom amounts are owed are creditorsNotes payable and bonds payable are different types of liabilities2. Issuing (selling) shares of stock for cash Payments to stockholders are called dividendsInvesting Activities - Purchase of resources a company needs to operate.Computers, delivery trucks, furniture, buildings, etc.(property, plant, and equipment).Resources owned by a business are called assets. Investments are another example of an investing activityOperating activitiesOnce a business has the assets it needs, it can begin its operations. Revenues- Amounts earned from the sale of products (Sales revenue, service revenue, and interest revenue)Inventory – Goods available for sale to customers. Accounts receivable- right to receive money from a customer as the result of a sale. Expenses- cost of assets consumed or service used. (cost of goods sold, selling, marketing, administrative, interest, and income taxes expense.)Net Income- when revenues exceed expensesNet Loss- when expenses exceeds revenuesLiabilities Chapter 4:- Apply the revenue recognition principle. Companies recognize revenue in the accounting period in which the performance obligation is satisfied. Revenue is considered earned when the service has been performed or when the goods have been delivered)Calculate net income from an adjusted trial balance.net income=total revenue−total expenses-- Prepare adjusting journal entries for prepaid rent and interest. Slide 16 chapter 4Chapter 5:- Interpret sales discounts.-Purchaser saves money -Seller shortens the operating cycle by converting the accounts receivable into cash earlier.- Calculate cost of goods sold under a periodic system.COGS=(beginning inventory + purchases [ during reporting period] ) – ending inventoryCOGS= (beginning inventory + purchases + freight costs – sales discounts – purchase returns & allowances) – ending inventoryChapter 6:- Calculate ending inventory using LIFO.The cost of ending inventory is obtained by taking the unit cost of the earliest goods available for sale & working forward until all units of inventory have been cost- Calculate cost of goods sold and gross profit using average cost.COGSApplies weighted average unit cost to the units on hand to determine the cost of the ending inventory.1.totalcosttotal units=en dinginventoryCOGS Avail 4 sale−ending inventory=COGSChapter 7:- Prepare a bank reconciliation.- Calculate the amount of cash to borrow based upon a cash budget.Chapter 8:- Calculate the cash received from an account receivable when a sales discount is taken.- Prepare the adjusting entry to record the estimate of bad debt expense.- Calculate the duration of a note receivable given the interest rate and interest expense.Chapter 9:- Identify items classified as property, plant, and equipment.- Calculate depreciation expense and accumulated depreciation.cost− salvage value=depreciable costdepreciable costuseful life∈ years=depreciation expense- Determine correct accounting for repairs and maintenance.Chapter 10:- Define current liability.A current liability is a debt that can reasonably be expected to be paid:1. From existing current assets or through the creation of other current liabilities, and2. Within one year/operating cycle, whichever is longer.- Prepare journal entries associated with notes payable.- Determine proper classification (current or long-term) for a note payable on the balance sheet.Notes payable are written promissory notes that usually require the borrower to pay interest.Notes due for payment within 1 year of the balance sheet date are usually classifies as current liabilitiesDebts that don’t meet both criteria are long-term liabilities - Identify the correct journal entry to record sales tax.Sales taxes is expressed as a percentage of the sales price. The selling company:- Collects the tax from the customer when the sale occurs - Periodically (usually monthly) remits the collections to the states debt of revenue. - Understand the journal entry to record payroll.- Identify the journal