PofA Final Exam

Accelerated depreciation method:

A depreciation method that expenses more of the asset’s cost near the beginning of its useful life

Accumulated depreciation:

The total depreciation expense charged against an asset since it was acquired

Acquisition cost:

The total cost incurred to acquire and prepare an asset for use, including purchase price, shipping, installation, etc.

Depreciation expense

The portion of a fixed asset’s cost allocated as an expense during a specific period

Book value

The asset’s original cost minus accumulated depreciation

Double-declining-balance method

An accelerated depreciation method that doubles the straight-line rate and applies it to the asset’s book value

Fixed assets

Long-term tangible assets used in the operations of a business

Salvage or residual value

The estimated value of an asset at the end of its useful life

Straight-line method

Depreciates an equal amount each year over the useful life of the asset

Units-of-production method

Depreciation bases on the actual usage or production output of the asset

Capital expenditure

Costs that improve an asset or extend its useful life, which are capitalized rather than expensed

Current liability

Obligations due within one year

Notes payable

Written promise to pay a certain amount in the future

Gross pay

Employee earnings before deductions

Net pay

Take-home pay after withholdings

Interest expense

Cost incurred for borrowed funds

Current portion of long-term debt

The amount of a long-term debt due within the next year

Withholdings and payroll taxes

Deductions from employee earnings (FICA, income tax)

Authorized shares

Maximum shares a company can issue

Issued shares

Shares distributed to shareholders

Outstanding shares

Issued shares currently held by shareholders (not repurchased)

Par value

A nominal value assigned to shares

Paid-in capital in excess of par

Amount received over par value

Common stock

Equity ownership in a corporation

Treasury stock

Company’s own stock repurchased

Retained earnings

Profits not distributed as dividends

Dividends

Profit distribution to shareholders

Stock dividends/splits

Non-cash equity changes affecting share counts and price

Accounting

The process of recording, summarizing, and reporting financial transactions

What is the accounting equation?

Assets = Liabilities + Equity

What is the difference between Balance sheet vs. Income Statement

BS shows financial position at a point in time; IS shows performance over a period

Operating

Core business activities

Investing

Buying/selling long-term assets

Financing

Borrowing/repaying debt, issuing stock/dividends

Accrual basis accounting

Revenues/expenses are recorded when earned/incurred, not when cash is exchanged

Unearned revenue adjusting entry

Debit unearned revenue, credit revenue

Current ratio

Current Assets / Current Liabilities

Working capital

Current Assets - Current Liabilities

Gross profit

Net sales - Cost of Goods Sold (COGS)

Gross profit percentage

Gross Profit / Net sales x 100

Net realizable value (NRV) of Accounts Receivable

Accounts Receivable - Allowance for Doubtful Accounts

Ending Retained Earnings equals Beginning Retained Earnings…

Plus Net income minus Dividends

AZ Co. has 100,000 authorized shares, 40,000 issued shares, and 10,000 Treasury shares. How many shares are outstanding?

30,000

Bonds issued at a discount example

The company receives less cash than the face value of the bond

Statements about installment notes payable

Each payment reduces the principal

When calculating the present value of bonds with present value tables, you should use what?

Use the market rate

A 100,000 bond was issued at 109. What is true about the bond?

The company received $109,000 cash

Accounts payable are:

Amounts owed to suppliers for products and services purchases on credit

Where would unearned cash received for services to be performed in the future appear in the financial statements?

Balance Sheet: Current Liability

Selling equipment would be an example of what kind of cash flow activity?

Investing

All taxes paid by the employer based on the employees’ gross pay except

Federal Income Tax

Accelerated depreciation method?

Double-Declining Balance

How is book value of equipment calculated?

cost of the equipment minus the accumulated depreciation

What would not be included in the cost of land?

Next year’s property taxes

What has a normal credit balance

Accumulated Depreciation

Where does sales tax paid by customers appear in the financial statments?

As a current liability on the balance sheet

The payment on an installment note would include a:

A debit to notes payable

The carrying amount for a bond sold at a premium is:

Higher than the face amount

What has an overall impact of decreasing total equity?

Cash Dividend

The journal entry to record depreciation expense includes a credit to:

Accumulated Depreciation

The journal entry to declare a cash dividend would include

A credit to dividends payable

Stock that entitles the holder to a fixed dividend, whose payment takes priority over other forms of stock is called:

Preferred Stock

What is NOT a financing activity?

Paying rent expense

What does the ending balance in Retained Earnings represent

Net income accumulated since the business began minus cumulative dividends

If the coupon rate is higher than the market rate, the bond sells at a __?

Premium

If the coupon rate is lower than the market rate, the bond sells at at ___?

Discount

If he coupon rate is equal to the market rate, the bond sales at a ___?

Face Value