Intermediate Accounting Quiz 2

Ch 5 and First Part of Ch 6

Annuity

Series of equal periodic payments or receipts called rents

Ordinary Annuity

End of year payments, last day

Annuity Due

Beginning of year, first day

Future Amount

The value at a future date of a given sum or sums invested assuming compound interest

Present Value

The value now (present time) of a future sum or sums discounted assuming compound interest

FVF

Table 5.1

Future value of 1

Contains the amounts to which 1 will accumulate if deposited now at a specified rate and left for a specified number of periods

One lump sum

PVF

Table 5.2

Present value of 1

Contains the amount that must be deposited now at a specified rate of interest to equal 1 at the end of a specified number of periods

One lump sum

FVF OA

Table 5.3

Future value of an ordinary annuity of 1

Contains the amount to which periodic rents of 1 will accumulate if the rents are invested at the end of each period at a specified rate of interest for a specified number of periods

Periodic rents at end of year

PVF OA

Table 5.4

Present value of an ordinary annuity of 1

Contains the amounts that must be deposited now at a specified rate of interest to permit withdrawals of 1 at the end of regular periodic intervals for the specified number of periods

Periodic rents at end of year

PV AD

Table 5.5

Present value of an annuity due of 1

Contains the amounts that must be deposited now at a specified rate of interest to permit withdrawals of 1 at the beginning of regular periodic intervals for the specified number of periods

Periodic rents at beginning of year

FV AD

Future value of an ordinary annuity factor x (1 + interest rate)

Periodic rents at beginning of year

Convert annual interest to the compounding period interest rate

Annual interest rate / Compounding periods in a year

Number of periods the interest will be compounded

Number of years x # of compounding periods in a year

Cash

Coin, currency, petty cash, available funds on deposit at the bank, and negotiable instruments such as money orders, checks, and bank drafts

Money market funds that provide checking account privileges are usually classified as cash.

Cash Equivalent

Short-term, highly liquid investments

Readily convertible to known amounts of cash

Near their maturity that they present insignificant risk of changes in value because of changes in interest rates.

Original maturity of three months or less

Treasury bills, certificates of deposit, commercial paper, and money market funds

Net Realizable Value

Accounts Receivable

- Allowance for Credit Losses

Net Realizable Value

Allowance for Credit Losses - Expected value that is uncollectible, contra asset → reduces A/R

Net Realizable Value - Net amount expected to be collected

Net Sales

Sales Revenue

- Sales Returns and Allowances

- Sales Discounts

Net Sales

Sales Entry

Dr. Accounts Receivable

_____Cr. Sales Revenue

Dr. Cost of Goods Sold

_____Cr. Inventory

Record Return Entry

Dr. Sales Returns and Allowances

_____Cr. Accounts Receivable

Dr. Returned Inventory

_____Cr. Cost of Goods Sold

Gross Method

1. Recording Sale

Dr. Accounts Receivable

_____Cr. Sales Revenue

2. Payment Within Discount Period

Dr. Cash

Dr. Sales Discount

_____Cr. Accounts Receivable

3. Payment After Discount Period

Dr. Cash

_____Cr. Accounts Receivable

Net Method

1. Recording Sale

Dr. Accounts Receivable

_____Cr. Sales Revenue

2. Payment With Discount Period

Dr. Cash

_____Cr. Accounts Receivable

3. Payment After Discount Period

Dr. Cash

_____Cr. Accounts Receivable

_____Cr. Sales Discount Forfeited

Journal Entry to Record Adj. Entry After Estimating Uncollectible Amounts

Dr. Credit Loss Expense

_____Cr. Allowance for Credit Losses

Journal Entry to Write Off an Account Once Determined Uncollectible

Dr. Allowance for Credit Losses

_____Cr. Accounts Receivable - Customer Name

Journal Entry to reinstate the Receivable and Record Receipt of Cash

If the customer pays off an account that was written off

Dr. Accounts Receivable - Customer Name

_____Cr. Allowance for Credit Losses

Dr. Cash

_____Cr. Accounts Receivable - Customer Name

Direct Write Off Method

Percentage of receivable method

Dr. Credit Loss Expense

_____Cr. Allowance for Credit Losses

Make a t-account for Allowance (Contra Asset)

Calculate Simple Interest

I = PRT

Interest = Principal x Rate x Time