ACCT 200 1st EditionExam 2 Study Guide: Lectures: 11-14Lecture 11Sales discount – incentive to pay quickly2/10 n/30 means customer receives 2% discount if they pay within 10 days; no discount if over 10 days (still must be within 30 days)Sales discount – contra revenue account; debit balance; reduces revenuesWrite-off means the company is never going to receive the moneyBalance of uncollectible accounts means either:-overestimated last period-still waiting on some accounts receivableAcct receivable transactions:SalesSales returnSales discountTrade discountCollection from customer w/out discountReceivables – value on balances at “true” collectible value=net realizable valueSet up contra asset account - - allow for uncollectible accountsLecture 12Matching bad debt expense is recorded in same year as revenuesH Jones company goes bankrupt so $1000 they owe will never get paid“write off the account” – removes acct receivable and reduces allowance for uncollectable acctAllow for uncollectable acct 1000Acct receivable 100090,000 in acct receivable5% uncollectable90,000*.05=4500 in allow acct as end balanceE 5-18Walmart – begin acct receivable 1715; end acct receivable 2662; net credit sales 312,427Find receivables turnover ratioStep 1 – average – (1715+2662)/2=2188.5Step 2 – calculate turnover – net credit sales/average acct receivable – (312,427/2188.5=142.759 times)Step 3 – average collection period – 365/turnover – (365/142.759=2.6 days)Important notes:Interest rates are always annual for this class; don’t forget to adjust calculations for interest based on how many months are includedKnow accrued interest (slides 5-38, 5-39) for examLecture 13Cost of goods sold – only expense that doesn’t have the word expenseWalmart buys pencils for $.80, sells for $2 - $.8 is cost of goods soldSpecific identification – won’t have to do calculations; just know definitionFIFO – best methodLIFO – good for tax purposes to save money; 10-15% of companies use LIFO; isn’t allowed internationallyWeighted-Average Cost – simplestIf costs are risingLIFO – lowest end inventory, highest COGS, lowest net incomeFIFO – highest end inventory, lowest COGS, highest net incomeWeighted Average Cost – in the middle for allPurchase transactions – company is buying inventory to resell later to customersBuy inventory on acct terms 2/10 net 30 $30003/1 Inventory 3000Acct payable 3000Look at purchase and $200 is damaged so we send it back3/2 Acct payable 200Inventory 200Pay balance due and take discount (balance due=3000-200=2800)2800*.02=56 off amount due3/8 Acct payable 2800Cash 2744Inventory 56(Why credit inventory for discount? Inventory account before entry has 2800 in it; pay 2744 for inventory, so we want inventory account to match what we paid, so we have to reduce inventory by 56 to get it to match)Last piece of purchase side – freight charges to get the purchase – this will increase the cost of the inventory3/2 Inventory (amount of freight)Cash/acct payable (amount of freight/shipping costs)Sell $5000 worth of items to Jones company, cost of inventory was 2200, terms 2/10 net 30This transaction has 2 parts: sales and remove inventory/COGS3/1 Acct receivable 5000Revenue 5000Cost of Goods Sold 2200Inventory 22003/8 customer pays and takes discount offered (5000*.02=100 off balance owed)Cash 4900Sales Discount 100Acct receivable 5000Lecture 14(Freight in/getting purchases – always part of inventory; freight out/to customers – always delivery expense)Sell books for 300 (cost is 2060: 2000-40 discount+100 freight)5/15 Acct receivable 3000Revenue 3000COGS 2060Inventory 2060COGSBegin inventory + purchase – purchase returns – purchase discount + freight charges – end inventory=COGSMulti-Step Income StatementSales revenue 250,000-sales returns/discounts 0Net sales= 250,000-COGS -180,000Gross profit= 70,000Expenses – Selling -50,000Admin -30,000General -40,000Total expenses= 120,000Operating income=gross profit-total expenses=70,000 - 120,000= -50,000 (operating loss)+gain on land sale 100,000+interest income 0-interest expense 0Income before taxes=operating income+100,000=50,000Income tax expense=20,000Net income=30,000Miscellaneous:What is NOT included in operating expenses:Gain/loss on sale of ______ (e.g. land)Interest income/revenueInterest expenseNon-operating items: income tax expenseInventory value changes – example, iPhone 4 value goes down when iPhone 5 comes out Take loss right awayIf inventory falls below cost, change to market valueLecture 15Test – ch 5-7; ch 6 is like 2 chapters and will be treated as such on testKnow multi-step income statement (net sales, gross profit, total operating expenses, operating income, income before taxes, net income), balance sheet (net acct rec, total current assets, net long term assets, total assets, total current liabilities, total liabilities, total equity and total liabilities + equityGoodwill:Buy entire business: equipment 100, patent 10, debts -7, cash 5Worth 108Pay 12012 is goodwillHave to negotiate to find goodwillBE 7-3Pay 14 million for all existing shares of stock of a companyFair value of assets 11.3Fair value of debts 1.5Price paid 14Net value of assets 11.3-1.5=9.8So goodwill is 14-9.8=4.2 (millions)BE 7-5Annual maintenance on equipment – expenseRemodeling of offices – capitalize and add to costImprovement to shipping and receiving area (improves productivity) – capitalize and add to costAddition of security system – capitalize as its own assetBE 7-7Cost of equipment 35,000Estimated salvage 5000Useful life 10 yearsPurchased on Sept 1, 2010Give depreciation for 2010 and 2011:Annual depreciation=(35,000-5000)/10=(cost-salvage)/life=3000 per full yearIn 2010, only owned for 4 months, so 3000*(4/12)=10002011=30002012=3000Journal entry:12/31/10 depreciation expense 1000accumulated depreciation 1000Book value at 12/31/10=35,000-1000=34,00012/31/11 depreciation expense 3000accumulated depreciation 3000Book value at 12/31/11=35,000-(1000+3000)=31,000 OR could think 34,000 prior year-3000 this year=31,000Lecture 17Cost of tangible asset: all costs to get it ready for its intended use: purchase price, any one time costs (sales tax, customization, testing, installation)Does NOT include: annual costs for annual license or annual insuranceCost of intangible asset: initial costs to purchase it plus legal defense costs ongoing; costs once itis