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Accounting 1120

Accounting 1120. Final Study Guide. 1. What is depreciation? Which plant asset is not depreciated?. Depreciation is the allocation of a plant asset’s cost to expense over its useful life. It is NOT a process of valuation

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Accounting 1120

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  1. Accounting 1120 Final Study Guide

  2. 1. What is depreciation? Which plant asset is not depreciated? • Depreciation is the allocation of a plant asset’s cost to expense over its useful life. • It is NOT a process of valuation • It does NOT mean that the business sets aside cash to replace an asset when it is used up • LAND is not depreciated.

  3. 2. Amount of accumulated Depreciation 32,000-4,000=28,000 28,000 / 4 (years of useful life) = 7,000

  4. 3. Long-Term/Short-Term Liabilities • Long Term Liabilities • Obligations not expected to be paid within the longer of one year or the company's operating cycle • Short Term Liabilities • Obligations that will be paid within one year or less

  5. 4. Accrued Interest Expense 4,000*.06*2/12 = $40

  6. 5. Characteristics of a Partnership

  7. 6. Balance of Retained Earnings • Beginning Retained Earnings + Net Income = New Balance Retained Earnings • 72,000+8,000 = $80,000 • Retained Earnings – Dividend Payment • 80,000-7,450 = 72,550

  8. 7. Journal Entry for Sale of Common Stock

  9. 8. Journal Entry for Issuance of Bonds

  10. 9. Statement of Cash Flow Sections • Cash flows from operating activities • Depreciation, increases and decreases in inventory, accounts receivable, accounts payable, accrued liabilities • Cash flows from investing activities • Acquisition or sale of plant assets • Cash flows from financing activities • Notes payable, stocks (including dividends, treasury stock), bonds – borrowing money and repaying creditors

  11. 10. Journal Entry to Record Warranty Expense

  12. 11. Amounts Received in Advance Amounts received in advance from customers for future products or services are __liabilities___.

  13. 12. Partnership Equity Balance $72,000 (agreed upon market value of the asset) – 15,000 (note payable secured by the asset) = 57,000

  14. 13. Cumulative Preferred Stock Dividends 1,500 (shares) * 25 (par value) * .04 = 1,500 dividends owed to preferred stockholders First year – paid 1,100 dividends – still owe 400 Second year – paid 400 from last year + 1,500 from this year = 1,900

  15. 14. Stock Split The par value = $4 ($12 / 3) Number of shares outstanding = 45,000 (15,000 * 3) Market Value = $8 ($24 /3)

  16. 15. Journal Entry to Record Stock Dividend

  17. 16. Depreciation 32,000-2,000=30,000 30,000/10 = 3,000 Three years of straight line depreciation = 9,000 30,000-9,000 = 21,000 21,000/5 = 4,200

  18. 17. Treasury Stock 100*3 (profit made on stock 33-30=3) $300 100*-2 (loss from selling stock 28-30 =-2) = -200 Balance = $100

  19. 18. Gain/Loss $7,500 – 6,800 = $700 loss

  20. 19. Journal Entry to Record Payment of Note

  21. 20. Issuing Bonds Discount Premium Discount Premium

  22. 21. Depreciation Use the depreciation worksheet in Excel

  23. 22. Net Income - Partnership

  24. 22. Journal Entry to Record Income Summary Closing Entry

  25. 23. Payroll INCOME 6,100 (monthly salary) * 12 = 73,200 73,200 * .05 = 3,660 Bonus Total Salary and Bonus – 73,200+3,660 = 76,860 DEDUCTIONS Federal Income Tax 810*12 = 9,720+932 = 10,652.00 State Income Tax 80*12 = 960+70 = 1,030.00 FICA Tax 76,860*.08 = 6,148.80 United Fund 76,860*.01 = 768.60 Insurance $20*12 = 240.00 TOTAL DEDUCTIONS 18,840.00

  26. 23. Payroll Gross Pay = $76,860 Total Deductions = -18,840 Net Pay = $58,020

  27. 24. Issuing Stock Cash Received 2,000*35 = 70,000 Common Stock 2,000*2 = 4,000 Paid-in-Capital in Excess of Par = 66,000 (70,000-4,000)

  28. 24. Issuing Stock Equipment Received 80,000 Inventory Received 18,000 Preferred Stock – 3,000*30 90,000 Paid-in-Capital in Excess of Par = 8,000 (98,000-90,000)

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