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Accounting 200 Exam 3 Study GuideAppendix DFUTURE VALUE OF 1FV= P x (1+i)^nFV= Future ValueP= Principali= Interest rate for one periodn= Number of periods-Instead of using this formula you can use the Future Value of 1 Table (seen below) to multiply the principle value by to find the future value of a sum of money. Example: You invest $5000 in a savings account that pays 8% interest. You do not touch the money for 10 years. How much is it worth when you withdrawal the money?2.15892 x $5000 = $10,794.60 NOTE: You find the “2.15892” by going to the table under 8% interest and 10 periodFUTURE VALUE OF ANNUITY- Annuity: Equal dollar amount deposited over a fixed period of time - An example of an annuity is if I were to deposit $2000 per year into a savings account for my retirement fund- Use the Future Value of an Annuity Table to calculate:Example: You save $400 each year for 9 years at an 8% interest rate400 x 12.48756 = $4995.02NOTE: If interest were compounded “semi-annually” you would DOUBLE the periods, in this case would become 18, and you would DIVIDE 8% by 2 to get .04.PRESENT VALUE OF 1- -Present Value: An estimate of how much a future sum of money is currently valued at- PV = FV ÷ (1+ i)^n- Instead of using the formula you can use the Present Value of 1 Table- Example: A 6yr old child will receive $6,000,000 in 20 years with an 8% discount rate. What is the Present Value? (or “How much do the parents needto invest?”).21455 x 5,000,000 = $1,072,750PRESENT VALUE OF ANNUITY- Present Value of an Annuity: the current amount of a series of future payments- Example: Assume you will receive $2,000 annually for 5 years when the discount rate is 8%.3.99271 x 2,000 = $7,985.42Chapter 10NOTES PAYABLE- Note Payable: A loan made to record an entity’s obligation to pay back moneyExample: Assume on October 1, 2012 Company X signs a $100,000, 13%, 3 month note maturing on January 1st with JP Morgan Chase. Journal Entry to show Company X received the cash:Oct 1 Cash 100,000Note Payable 100,000Then interest is accrued by Company X.Dec 31Interest Expense 3,250Interest Payable 3,250NOTE: The “Interest Expense” is calculated by multiplying the amount of time that has passed: (3/12) x (.13) x 100,000 = $3,250Then on January 1st the note is paid at maturityJan 1 Notes Payable 100,000Interest Payable 3,250Cash 103,250BONDS- Secured Bonds: Bonds that are backed by assets- Unsecured Bonds: Bonds that are not backed by assets- Convertible Bonds: Bonds that can be convertible into stock- Callable Bonds: Bonds that the issuing company or government can buy back before maturityExample: Company X issued a $4,000,000 bond on January 1st, 2013 with a contract rate of 8% and 10 years. Interest payments are paid semi-annually. Company X must record receiving the $4,000,000 on their books.Jan 1 Cash 4,000,000Bond Payable 4,000,000Company X must record the payment of interest at July 1, 2013July 1 Interest Expense 160,000Cash 160,000NOTE: Interest expense is calculated by multiplying 4,000,000 x .08 x ½. You use theCONTRACT RATE only to calculate the interest payment. Then, 5 years after the bond is issued the market rate rises to 10%. When this happens what is now the Present Value of the bond?PV of Bond (AKA: Carrying Value) = (160,000 x 7.72173) + (4,000,000 x .61391)PV of Bond (AKA C.V.) = (Present Value of Interest) + (Present Value of Principle)NOTE: “7.72173” is found on the PV of Annuity Table using 5% and 10 periods. 5% because 10%/2 equals 5% and 10 Periods because there are still 5 years of semi annual payments LEFT.NOTE: “.61391” is found on the PV of 1 Table using 5% and 10 periods for the same reasons as listen above.PV of Interest = 1,235,476.80 + PV of Principle = 2,455,640 = $3,691,116.80 ^^Discount^^Chapter 11CORPORATIONS AND COMMON STOCK- Corporationso Advantages Separate Legal Existence Limited Liability of Stockholders Transferable Ownership Rights Ability to Acquire Capital Continuous Lifeo Disadvantages More Taxes Ownership Separation Federal Regulations- Authorized Stocko The number of shares a corporation is allowed to sell as it is stated in their charter- Issued Stocko The number of shares a corporation has sold to individuals- Par Valueo The value of a stock before it goes public as an IPOo Means nothing unless you are an accountant and you must account forthe money made or lost relative to the par valueExample of when a corporation sells stock for more than what the par value is: Corporation X sells 200,000 shares of $3 par value stock for $13 each.Cash 2,600,000Par Value 600,000Additional PIC 2,000,000NOTE: PIC means “Paid in Capital”TREASURY STOCK- Treasury Stocko Stock that a corporation buys back from the open market that was once theirso Decreases Stocker Holder’s Equity and decreases AssetsExample a Corporation buys Treasury Stock: Corporation X decides to purchase 12,000 shares of it’s stock at $15.Treasury Stock 180,000Cash 180,000NOTE: Treasury Stock is a CONTRA ASSET, that is why the purchase of treasury stock decreases stockholder’s equity and assetsPREFERRED STOCK AND DIVIDENDS- Preferred Stocko Very similar to common stocko Has priority to dividends, including dividends in arrears (dividends pass due)o Has priority to assets if the company had to liquidate assets- Dividendso Cash distribution to share holderso Must have 3 things to distribute dividends: Retained Earnings Adequate Cash Declared Dividendso When dividends are declared- announced by a corporation- a journal entry is requiredExample of when a corporation first declares dividends will be distributed: Corporation X plans to distribute $3 dividends to 200,000 shares.Cash Dividends 600,000Dividends Payable 600,000Then when the time comes for Corporation X to distribute the dividends here is the Journal Entry:Dividends Payable 600,000Cash 600,000Chapter 12- Statement of Cash Flowso Information on this statement allows investors to see: Ability to generate cash in the future Ability to pay dividends or meet obligations Reasons for differences between N/I & net cash from Ops. Cash investing/financing transactions during a periodo There are 3 parts to a Statement of Cash Flows:- Operating Activities:o Inflows:  Cash Sales Interest Received Dividends Receivedo Outflows: Purchasing Supplies Taxes to Gov. Wages Expense Salaries Expense Interest Paid- Investing Activities:o Inflows: Sale of PPE

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UA ACCT 200 - Exam 3 Study Guide

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