Accounting 1120
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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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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

    • It does NOT mean that the business sets aside cash to replace an asset when it is used up

  • LAND is not depreciated.


2. Amount of accumulated Depreciation

32,000-4,000=28,000

28,000 / 4 (years of useful life) = 7,000


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


4. Accrued Interest Expense

4,000*.06*2/12 = $40


5. Characteristics of a Partnership


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


7. Journal Entry for Sale of Common Stock


8. Journal Entry for Issuance of Bonds


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


10. Journal Entry to Record Warranty Expense


11. Amounts Received in Advance

Amounts received in advance from customers for future products or services are __liabilities___.


12. Partnership Equity Balance

$72,000 (agreed upon market value of the asset) – 15,000 (note payable secured by the asset) = 57,000


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


14. Stock Split

The par value = $4 ($12 / 3)

Number of shares outstanding = 45,000 (15,000 * 3)

Market Value = $8 ($24 /3)


15. Journal Entry to Record Stock Dividend


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


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


18. Gain/Loss

$7,500 – 6,800 = $700 loss


19. Journal Entry to Record Payment of Note


20. Issuing Bonds

Discount

Premium

Discount

Premium


21. Depreciation

Use the depreciation worksheet in Excel


22. Net Income - Partnership


22. Journal Entry to Record Income Summary Closing Entry


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


23. Payroll

Gross Pay = $76,860

Total Deductions = -18,840

Net Pay = $58,020


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)


24. Issuing Stock

Equipment Received 80,000

Inventory Received18,000

Preferred Stock – 3,000*3090,000

Paid-in-Capital in Excess of Par = 8,000 (98,000-90,000)


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