Acct 500 Final

Front 1

Definition of Acquisition cost - must meet what 2 requisites

Back 1

all the costs that are NORMAL and NECESSARY to acquire an asset and prepare for intended use

Front 2

Acquisition cost - give 4 examples of acquisition costs.

Back 2

1. purchase price

2. taxes paid at time of purchase (sales tax eg)

3. transportation costs

4. installation costs

Front 3

interest borrowed to finance construction of an asset vs interest borrow to finance the purchase of an asset : which is a depreciation asset (what is the term for it) and which is an expense

Back 3

interest borrowed to finance construction = capitalization of interest (part of acquisition costs), avg accum expenditures over the lift of the contruction

interest borrowed to purchase an asset = expense (treated as investing activity /1 time hit to income statement)

Front 4

is sales tax included in acquisition costs?

Back 4

yes

Front 5

name the 3 depreciation methods and how accountants decide which is best to use. which do companies use to benefit net income vs tax

Back 5

1. straight line - simple, + Net income, used by most businesses (most used on income statement)

2. double declining balance (tax purposes - depre hits hard in beginning) - subset of accelerated depreciation method

3. units of production (best when know units of life of item, hours, miles etc)

*need to try and allocated costs of asset with revenue generated as closely as possible

Front 6

can a company use two different depreciating methods for financial vs tax purposes?

Back 6

yes - due to differing goals

Front 7

acquisition and or sale of asset is operating or investing activity on cash flow statement?

Back 7

investing - sort of a "1 time" activitity

Front 8

for sale of asset, if I get a gain or loss from the sale of the asset, what section is that gain/loss posted in on the statement of cash flows

Back 8

operating activities . because the gain/loss was already reflected an gain/revenue on income statement, we need to REMOVE the cash associated with it from the operating section of the cash flow statement

Front 9

are legal fees to protect/acquire patent included in amortization even if fees incurred after patent acquired - true or false

Back 9

true

Front 10

can you capitalize research and development? if not, why not

Back 10

no- R&D must be treated as a 1 time expense. similar to advertising/marketing, it is too difficult to quantify future benefit to company and therefore too difficult to accurately amortize

Front 11

definition of contingent liability

Back 11

obligation with oucome unknown .

an accrued account that must be presented on balance sheet if PROBABLY and amount can be REASONABLE ESTIMATED

Front 12

quick ratio calc vs current ratio. how do they help investors decide if they want to invest?

Back 12

quick = (cash + AR )/current liabilities

current = (cash + AR + inventory + gift card/prepayments)/ current liaiblities

ability of company to pay off current outstanding liabilities /liquidity. good current >2, good quick >1.5

Front 13

examples of current assets accounts are?

Back 13

-taxes payable

-wages/salaries payable

-accounts payable

-notes payable

-current portion of long term debt: (10 yr /1000 per year...must record the 1000 accrued this year as current and then 9000 as long term liability)

Front 14

name two methods of charging interest on notes payable and the calculation difference between the two

Back 14

1. interest due at note's due date ; 10000*15%= 850. 850/10850 = rate

-->>recorded as expense at due date

2. discounting a note: recorded upfront contra accnt to notes payable (discount on notes payable) --->>typically more expensive than looks since 10,000*.15% int = 850. but actual interest rate = 850/8500

Front 15

in statement of cash flows, what is the one time , can record current liability activity in financing section?

Back 15

when notes payable is used to finance borrowings or repayments

Front 16

what is impact of current liabilities on cash flow statement

Back 16

incr in current liabilities -->> increase cash

(expense has been recognized but no cash outflow yet)

decrease in current liability -->> decrease cash

(cash payment of a current expense)

Front 17

simple interest formula

Back 17

INT earned = principal * int rate *time (years)

Front 18

compound interest

Back 18

FV = PV (1+int rate/number pds per yr)^ t (# of years)

Front 19

present value of single amnt formula is

Back 19

PV = FV (1+int)^-t

or

PV = FV (factor)

Front 20

present value of an annuity (installations of $ x every y time periods) formula

Back 20

PV = FV (factor)

OR

PV = SUM [FV (1+int)^n + FC (1+int)^n+1..etc]

Front 21

Effective interest method- will b tested on this!!!

Back 21

Amortiz table

Front 22

how does a company buying treasury stock affect the balance sheet?

Back 22

treasury stock is contra equity account. reduces total contributed capital AND retained earnings in stock holders equity side of balance sheet. on asset side, reduces cash accordingly. when company buys it own stock, it is contracting the size of the company thru reducing equity of stockholders (to avoid takeovers)

Front 23

how does buying and selling of treasury stock affect the income statement

Back 23

it doesn't. the firm is just engaging in transactions of its own stock and affecting its own cash...never impacts its income

Front 24

how do you calculate book value per share

*hint there is a tricky twist to this

Back 24

total stockholder equity/ # of shares outstanding

**MUST REPRESENT COMMON STOCK ONLY

stock holder equity must take out preferred stock value and arrers

# of shares outstanding must take out preferred stock too

Front 25

what is formula for market value per share

Back 25

selling price on stock market as indicated by most recent transactions

Front 26

what is definition of "net assets" (this is tricky)

Back 26

total assets of firm MINUS total liabilities...ei total stockholder equity

S/E = A - L

Front 27

market value of stock dividends is calculated how

Back 27

% dividend payout * shares outstanding*current value per share

Front 28

100 shares issue/outstanding, $10 par

5% stock dividend paid out w current value of share at $17

how would you reflect on S/E statemnt

Back 28

common stock dividends distributable = $10 par *100*5% = $50

additional paid in capital - common = ($17-10) * 5% * 100 = $35

Front 29

what accounts on balance sheet does stock dividends affect

Back 29

retained earnings (decrease)

dividend distributable (increase)

addnl paid in capital (increase)

DOES NOT IMPACT LIABILITY section at all

Front 30

what is difference between small stock dividend and large stock dividend

Back 30

small < 20% of # of shares outstanding - reflect at fair market value (par + APIC)

large > 20% of # shares outstanding - must reflect at par value (no APIC) . very similar to stock split. good bc reduces avg price per share = lower stock price = more investors

Front 31

Statement of shareholders equity- wat is format?

Back 31

Balance sheet horizontal

Front 32

Consolidated statemnt of comprehensive income- wats on here

Back 32

Gains from exchange rate movemnt

Gain loss from fuel derivatives

Non operating income not indivative of future income of company

Front 33

Review direct method on operating expenses

Back 33

Include accrued liab , depreciation, prepaymnts

Front 34

When prepaymnts go up does cash go up or down

Back 34

Down. Wages payable

Front 35

When prepaymnts go up does cash go up or down

Back 35

Down. Wages payable

Front 36

When accrued liab goes up does cash go up or down

Back 36

Up . Wages payable accnts payable

Front 37

Roa formula

Back 37

S

Front 38

Roe

Leverage

asset turnover

Margin ratio formula!!

Back 38

S

Front 39

cash equivalents must be maturity within how many months

Back 39

3

Front 40

short term investments is maturity w in how long

Back 40

1 year

Front 41

allowance for doubtful accounts holds a debit or credit balance

Back 41

credit - contra account

Front 42

chapter 7 alllow for doubtful account - account receivalbe approch- explain steps

Back 42

1. find out Y/E AR balance

2. Y/E AR balance * % projected = target allowance for bad debt for yaer

3. net out BOY Allow bad debt - actual write offs + x = target allowance

3. solve for x to get projected bad debt expens for the year

Front 43

net realizable value in account receivable - what is the formula

Back 43

Accounts receivalbe - allowance for doubtful accounts = net realizable value