Accounting Questions - Final Review

Front 1

Operating Lease

Back 1

Rental. No risk of ownership. Lease payments are classified as rent expense. Companies prefer this since there is no liability on the balance sheet.

Front 2

Capital Lease

Back 2

Treated as if lessee had purchased the asset. Lessee assumes rights and risks of ownership. Records an asset on the balance sheet with related liability and depreciation. Debit intereset expense w each pmt.

Front 3

Effect transaction involving own stock has on the income statement

Back 3

NONE

Front 4

Paid in capital - Account type

Back 4

Equity

Front 5

Why would a corporation require its own stock?

Back 5

Reduce number of shares outstanding, increase market value per share.
Because the market price is low.
To avoid hostile take over.
To use in employee stock option programs
To increase reported earnings per share.

Front 6

Treasury Stock - Account type

Back 6

CONTRA EQUITY. Decreases total stockholders equity. Normal balance is a DEBIT. Recorded at its re acquisition cost. NO gains or losses are ever recognized from these equity transactions.

Front 7

Dividends

Back 7

Contra equity account. Debit normal balance.

Front 8

Investments - You own less than 20%
1. When investment is acquired,
2. If any dividends are received,
3. At year-end adjusting entry
4. When investments are sold

Back 8

1. When investment is acquired, record it at cost.
(Investments/cash)
2. If any dividends are received, record them as dividend revenue (represents an asset)
(Cash/Dividend revenue)
3. At year-end, make an adjusting entry to reflect any changes in the market value of the investment
(Investments/Unrealized gain or loss)
4. When investments are sold , record cash received from the sale and any gain or loss realized from the sale.
(Cash/investments, gain on sale of investment)

Front 9

Realized gain or loss

Back 9

sale of investment. on the income st.

Front 10

Unrealized gain or loss

Back 10

changes in value. on the income st

Front 11

Investments - You own more 20%
1. When investment is acquired,
2. If any dividends are received,
3. At year-end
4. When investments are sold

Back 11

1. When investment is acquired, record it at cost (same)
2. If any dividends are received, record them as a decrease to investment (cash/investments)
3. At year-end, record you share of other company's net income as an increase to the investment account and as investment revenue (investments/investment revenue)
4. When investments are sold, record the cash received from the sale and any realized gain/loss (cash/investments, gain on sale of investments)
THE IS NO MARKET-TO-MARKET ADJUSTMENT

Front 12

cash received from dividends (cash flow section)

Back 12

operating

Front 13

inflows and outflows from buying/selling investments are classified as

Back 13

investing

Front 14

effect of unrealized gain/loss on the cash flow statement

Back 14

none

Front 15

Which of the following is prepared to identify how much of each mortgage payment is interest and how much
is principal reduction?

Back 15

mortgage amortization schedule