ACCT 200 1st Edition Lecture 16 Outline of Last Lecture I Costs of Tangible Intangible Assets II Slide 29 Key Terms Review III Similar Problem to Homework 2 IV E 7 16 V Gains Losses on Disposal VI BE 7 10 Outline of Current Lecture I Recordings and Transactions II Selling Inventory III Valuation Allowance Method IV Set Up Allowance for Bad Accounts V Notes Receivable and Interest Entries VI Receivable Turnover VII LIFO FIFO Average Cost VIII Inventory IX Multi Step Income Statement X Miscellaneous Terms and Equations XI Long Term Assets XII Develop Cost of Tangible Assets XIII Basket Approach XIV Costs Paid After Purchase XV Depreciation Current Lecture Use study guide McGraw Hill practice problems old activities Recordings and transactions ch 5 Record a sale on account terms 2 10 net 30 Dr acct receivable 2000 cr sales 2000 Customer returns 200 of items purchased Dr sales returns and allowances 200 cr acct receivable Customer pays and takes discount Balance due 2000 200 1800 02 36 sales discount Dr cash 1764 dr sales discount 36 cr acct receivable 1800 Sell inventory when making sale cost of inventory sold is 1000 Dr acct receivable 2000 cr sales 2000 Dr cost of goods sold 1000 cr inventory 1000 Valuation allowance method of receivables method Acct receivable 100 000 begin allowance for uncollectable accts 100 cr balance 5 estimated uncoll accts mgmt makes the estimate Questions that might be asked What is the ending allowance for uncoll accts contra asset 100 000 05 5000 end balance What is the amount of bad debt expense End bal beg cr bal 5000 100 4900 exp What is the journal entry to record the bad debt expense Dr bad debt expense 4900 cr allow for uncoll accts 4900 What is net acct receivable or net realizable value Acct rec end allow balance 100 0005000 95 000 if beginning balance in allowance is a debit overdrawn bad debt exp end bal beg bal end begin balance Set up allowance for bad accts When it goes bad we do a write off eliminate acct from our records Dr allow for uncoll accts cr acct rec decrease both accts Notes rec and interest entries Issue a note lend money 50 000 5 interest rate issue on 3 1 10 due 2 28 11 1 year 3 1 dr notes rec 50 000 cr cash 50 000 Accrue interest due 12 31 10 50 000 05 10 12 2083 12 31 dr interest rec 2083 cr interest rev 2083 Pay off loan at 2 28 2 28 dr cash 52 500 cr interest rec 2083 cr interest rev 417 2500 total interest 2083 cr notes receivable 50 000 Receivable turnover Beg acct rec 100 end acct rec 110 sales 1380 sales return 2 sales discount 8 Net sales avg acct rec 1380 2 8 105 13 0476 times Avg collection period 365 turnover 365 13 05 27 9693 days Ch 6 LIFO FIFO avg cost Units cost unit total cost Beg inv 100 3 300 Purchase 400 4 1600 Purchase 200 4 5 900 Purchase 300 5 1500 TOTAL 1000 On hand 150 4300 Calculate sold 850 1000 150 FIFO Calc value of 850 units sold 100 3 400 4 200 4 5 partial sold 150 5 remaining in inv 150 5 COGS 3550 remaining on hand inv 750 end inv LIFO Calc value of 850 units sold 300 5 200 4 5 partial sold 350 4 remaining in inv 50 4 100 3 COGS 3800 remaining on hand inv 500 Avg cost method Find avg cost unit total cost total units 4300 1000 4 3 avg cost unit COGS 850 4 3 3655 end inv 150 4 3 645 Comparisons of methods If costs are rising LIFO has lowest end inv highest COGS value lowest net income FIFO has highest end inv lowest COGS value highest net income Avg cost method is in the middle for all Appendix B Inventory errors If we overstate end inv then COGS is understated profits are overstated and also opposite Don t need to know how to correct or anything else just know impact of error for current year Purchase entries for inv Purchase inv for 3000 terms 2 10 net 30 terms implies it s bought on acct Dr inv 3000 cr acct payable 3000 Return 500 damaged items Dr acct payable 500 cr inv 500 Pay and take discount 3000 500 2500 due 2500 02 discount 50 discount Dr acct payable 2500 cr cash 2450 cr inv 50 Freight charges to get inv freight in Dr inv 100 cr cash 100 Balance in inv at this point is 3000 500 50 100 2550 Calculate COGS beg inv purchases purchase returns purchase discounts freight in end inv Multi step income statement gross profit operating income net income before taxes Gross profit rate net sales COGS net sales gross profit net sales Profit margin ratio net income net sales Lower of cost or market Permanent decline in value of inv below sales price market then reduce value of inv to market price Inv turnover ratio COGS avg inv Days in inv 365 turnover Types of long term assets Tangible building land equipment vehicles Intangible copyrights patents trademarks goodwill Know in general what they all are definition of goodwill Develop cost of tangible assets Anything to get it ready for its intended use purchase price sales tax installation initial test anything initial first cost Doesn t include annual insurance annual license Intangibles legal costs to get it recorded future legal costs to defend it purchase cost Research and development are expensed Basket approach activity 7 FMV of asset total FMV cost of all assets cost of the specific asset Book value cost accumulated depreciation make sure to check dates how many months year Costs paid after purchase Expense them regular maintenance costs car oil change Add them to asset capitalize them complete new roof add a whole bedroom to my house redo the engine Intangibles ongoing legal costs get added to all intangibles Depreciation cost salvage life annual depreciation First year not a full year annual depreciation fraction of year owned Dr dep exp cr accum dep contra asset Gains and losses gain revenue loss expense