Financial Accounting Exam 2 Formulas

Weighted Average Cost Per Unit (Depreciation)

Cost of Goods Available for Sale/Number of Units Available for Sale

Gross Profit Ratio

Gross Profit/Net Sales

Inventory Turnover Ratio

Cost of Goods Sold Expense/Average Inventory

Average Inventory (for Inventory Turnover Ratio)

(Beginning Inventory + Ending Inventory)/2

Average Days in Inventory

365/Inventory Turnover Ratio

Straight-Line Depreciation

Depreciation Expense = (Original Cost - Salvage Value)/Service Life

Activity-Based Depreciation

Depreciation Expense = ((Original Cost - Salvage Value)/Estimated Total Units to be Produced)*Actual Units Produced)

Double-Declining Balance Depreciation

Depreciation Expense = ((Original Cost - Accumulated Depreciation)/Service Life)*2

How to know if an asset is impaired?

Cash flows < Book Value

Impairment Loss =

NBV - Fair Value

Return on Assets

Net Income/Average Total Assets

Average Total Assets

(Beginning Balance + Ending Balance)/2

<20% of stock owned

Insignificant Influence -> Fair Value Method

20%-50% of stock owned

Significant Influence -> Equity Method

>50% of stock owned

Controlling Influence -> Consolidated Statements Method

Fair Value Method - investment income

% owned * dividends

Does fair value method recognize unrealized gain/loss

YES!

Equity Method - Net Income/Dividends

Net Income: by % and add to investment CV; Dividends: by % and subtract from investment CV

Are dividends revenue under the equity method?

NO

consolidated statements method

- add two companies to make one

- investor is parent company and investee is subsidiary copmany

- the investee is called non-controlling minority interest, other is called controlling interest

BOND! table thing

Date, Cash, Interest, Amort, BV

Cash - Bond table

Stated Rate * Face Value

Interest - Bond Table

Market Rate * BV

Amort - Bond Table

Interest - Cash

BV - Bond Table

Last BV + Amort

Employer Payroll Taxes

Unemployment taxes (federal + state), FICA

Contingent loss that is probable & estimable

Record and disclose

Contingent loss that is reasonably possible

disclose only

Contingent loss that is remote

NOthing

Contingent gain that is probable & estimable

Disclose only

Contingent gain that is reasonable possible

don't record (optional disclosure)

Contingent gain that is remote

NOTHING!!!!

Estimated Warranty Pay

Beg + % of sales - Claim = End

Current Ratio

Current Assets/Current Liabilities

Acid Test Ratio

(Cash + Current Investments + Accounts Receivables)/Total Current Liabilities

Working Capital

= Total Current Assets - Total Current Liabilities

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