ACCT 1201 Financial Accounting Reporting Final Exam Study Guide Chapters 6 12 Topics Financial Statement Indicators Current ratio o Current Assets Current Liabilities Average days in inventory o COGS Avg Inventory Earnings per share P E ratio o Market Value per Share EPS o Net Income Dividends on Preferred Stock Avg Outstanding Shares Chapter 6 Cash and A R Bank reconciliation Ending cash balance Additions Interest paid by the bank Error in recording payment Deductions NSF checks Bank service charges Company s Books Bank Statement Ending cash balance Additions Deposit in transit Deductions Outstanding checks Ending correct cash balance Ending correct cash balance Determining gross profit To write of an uncollectible direct write off method o Credit to Accounts Receivable Credit balance subtract AFDA from uncollectible percentages Allowance method of accounting for bad debts o Aging of accounts receivable o Percentage of sales o Net realizable value Chapter 7 Merchandise Inventory Cost flow assumptions o FIFO Most recently purchased units First costs into inventory are the first costs out to COGS Income tax expense will be higher than under LIFO Gross margin will be higher than under LIFO COGS will be lower than under LIFO When inventory prices are falling will result in a higher gross o LIFO profit than FIFO o Weighted Average cost o Impact of fluctuating prices Inventory Errors Cost of inventory sum of all the costs incurred to bring the inventory to its intended use less any discounts and allowances 2 10 n 302 o 2 discount within 10 days 30 days total to payback without discount Chapter 8 Property Plant and Equipment Acquisition cost Depreciation contributes to earning revenue Depreciation methods o Straight line o Units of Production to allocate the cost of a tangible asset to the periods in which its use Purchase Price Salvage Value Useful Life in Years Purchase Price Salvage Value of Total Units that x Actual Units Used o Double declining balance Y1 Purchase Price Type of Decline Useful Life in Years Y2 Purchase Price Y1 Type of Decline Useful Life in Years o Disposal of PPE Voluntary Disposals Involuntary Disposals Disaster Accident Sale Trade in Retirement Disposal Process 1 Depreciation adjusting entry 2 Journalize the disposal a Determine if cash was paid received 3 Write off asset cost 4 Write off the accumulated depreciation 5 Gain or loss on disposal Expenditures o Capital Expenditure asset such as equipment or buildings repairs o Revenue Expenditure an amount spent to acquire or improve a long term an amount that is expense immediately routine Definite Life Amortize Straight line o Copyrights o Patents Indefinite Life Not amortized Tested for impairment o Goodwill o Trademarks Chapter 9 Current Liabilities and the Time Value of Money TVMC Contingent liability event not an effective liability until some future event occurs Time Value of Money a potential liability that has arisen as the result of a past interest that is associated with the use of money over time Cash Notes Payable Interest Expense Interest Payable Interest Expense Interest Payable Cash Subject to Estimate Not Subject to Estimate Probable Liability Notes Possible Notes Notes Remote No disclosure No disclosure Present Value current value of an amount to be received in the future a future amount discounted for compound interest The worth to you today of receiving that amount some time in the future Annuity series of consecutive payments Equal dollar amount each interest period Interest payments of equal length Equal interest rate each interest period Chapter 10 Long term Debt Why Bonds Instead of Stock 1 Stockholders maintain control 2 3 Interest expense is tax deductible Impact on earnings is positive But Risk of bankruptcy Negative impact on cash flows Stated interest rate vs market yield rate o Premium o Par o Discount Coupon Rate Market Rate Coupon Rate Market Rate Coupon Rate Market Rate Characteristics of convertible bonds Determining proceeds at issuance Recording issuance of bonds Amortization of premium or discount o Straight line method Interest Expense o May be converted to common stock or other securities of the issuer equal dollar amount allocated to each interest period Discount on Bonds Payable Cash o Effective interest method market rate of interest that existed on the date bonds were sold multiply the current unpaid balance times the Interest Expense Discount on Bonds Payable Cash Balance sheet presentation carrying value Schedule Interest Interest Expense Amortization Book Value Chapter 11 Stockholders Equity Analysis of stockholders equity Accounting for treasury stock Par value has nothing to do with market value o When a company repurchases its own stock total assets decrease and total equity decreases o Doesn t count when calculating EPS subtract from other shares o Purchasing treasury stock Treasury Stock Cash Cash dividend preferences Stock dividends o Distribution will Increase contributed capital Decrease retained earnings Not effect total SE Stock splits o 2 for 1 double shares but cut par value in half Ex 2 for 1 stock split 1 00 shares of 5 par value common stock 2 000 shares at 2 50 for a balance of 5 000 Chapter 12 Statement of Cash Flows Format of the statement of cash flows Cash flow activities vs non cash flow activities Cash flows from operations direct vs indirect method reports the components of cash flows from operating activities as o Direct gross receipts and gross payments starts with net income from the income statement and then eliminates noncash items to arrive at net cash inflow from operating activities o Indirect Determination of net cash flows from o Operations indirect method earnings from normal operations cash inflows outflows directly related to Net income Collection of cash dividend Collection of an account receivable Cash received for interest Cash paid for interest Cash paid for inventory o Investing cash inflows outflows related to the acquisition or sale of productive facilities and investments in the securities of other companies Purchase of land in exchange for a long term note payable Sale of an operation asset for cash Purchase of a patent Sale of a short term marketable security o Financing financing owners creditors for the enterprise cash inflows outflows related to external sources of Issuance of capital stock common stock for cash Payment of a cash dividend previously declared Purchase of land in exchange for a long term note payable
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