WGU D104 Intermediate Accounting II Units 4-6 WITH complete expert solutions already graded A+

Asset Turnover Ratio

net sales/average total assets

Profit Margin Ratio

net income/total sales

Rate of return on assets

net income/average total assets

Current ratio

current assets/current liabilities

acid-test ratio

(cash + short-term investments + net receivables) / current liabilities

rate of return on common stock equity

(net income - preferred dividends) / average common stockholders' equity

payout ratio

cash dividends / (net income - preferred dividends)

book value per share

common stockholders' equity / outstanding shares

sum-of-the-years'-digits method

Accelerated depreciation with higher depreciation cost in beginning and lower charges in the end. Numerator is the # of years of est. life remaining at the 1st of the year, denominator is sum of the years individually. (e.g. 5/15, 4/15, 3/15, 2/15, 1/15)

Variable charge depreciation method (activity method or units-of-activity/ production approach)

((cost - salvage value) X current units) / total estimated units

activity method

(actual activity in period / total estimate activity) X (cost - salvage value)

double declining balance method

An accelerated depreciation method that computes annual depreciation by multiplying the depreciable asset's decreasing book value by a constant percent that is two times the straight-line depreciation rate.

Multiple assets group depreciation method

Assets similar in nature and have approx. same useful lives. Total of the annual depreciation expense for all assets in the group / total cost of the assets.

Multiple assets composite depreciation method

Assets are dissimilar and have different lives. Total annual depreciation expense of all assets / total cost of all assets.

Composite life

(Original cost - salvage value) / total annual depreciation

Composite depreciation rate

Total annual depreciation of all assets / total cost of all assets.

Journal entry for gain on sale of composite depreciation equipment

Debit cash & accumulated depreciation (subtract gain), credit equipment.

Impairment

If the carrying amount exceeds the undiscounted future cash flows. Loss = carrying amount > fair value.

Journal entry for impairment

Debit impairment loss, credit accumulated depreciation

When is the restoration of an impairment loss permitted?

When an assets is held for disposal. Impairment loss is reported at the lower of cost or net realizable value (fair value - cost to sell/dispose) not to exceed amount of initial impairment loss.

Depletion base for natural resources

(cost to acquire + cost to explore + cost to develop i.e. intangible costs + cost to restore). Tangible costs to extract resources depreciated separately.

Natural resources depletion rate

(depletion base - salvage value) / total units to be recovered.

Natural resources depletion expense

(depletion rate X units of usage) / extracted

Journal entry to record ore extracted

Debit inventory (ore), credit mineral mine

Journal entry to record the ore sold

Debit cost of goods sold, credit inventory (ore)

Journal entry to record depletion expense for mine

Debit depletion expense, credit accumulated depletion

Types of current liabilities

Accounts payable, notes payable, dividends payable, customer advances/deposits, unearned (deferred) revenues, sales tax payable, current maturities of long-term debt

Journal entry to record issuance of a note

Debit cash, credit notes payable

Journal entry to record payment of the note at maturity

Debit notes payable, debit interest expense, credit cash

Journal entry to record issuance of a zero interest bearing note

Debit cash, debit discount on notes payable, credit notes payable

Journal entry to record payment of a zero interest bearing note at maturity

Debit notes payable, credit cash

Journal entry to record sale of gift certificate booklet

Debit cash, credit unearned gift card revenue

Journal entry to record redemption of gift cards

debit unearned gift card revenue, credit sales revenue

Journal entry to record a sale with sales tax and a loss on sales tax

Debit cash, debit loss on sales tax collection, credit sales revenue, credit sales tax payable

Journal entry to record payment to the sales tax agency

Debit sales tax payable, credit cash

Journal entry to record a sale when sales tax is not segregated

Debit cash, credit sales revenue

Journal entry to record payment to sales tax agency when sales tax is not segregated with a loss on sales tax

Debit sales revenue, debit loss on sales tax collection, credit cash

Journal entry to record sale with segregated sales tax and a gain on sales tax

Debit cash, credit gain on sales tax collection, credit sales revenue, credit sales tax payable

Journal entry to record payment to sale tax agency with sales tax segregated

Debit sales tax payable, credit cash

Journal entry to record payment to sales tax agency if sales tax is not segregated and there is a gain on sales tax

Debit sales revenue, credit gain on sales tax collection, credit cash

Journal entry to record accrued interest expense

Debit interest expense, credit interest payable

Journal entry to record a long term loan with payment due during the current fiscal year

Debit cash, credit current maturities of long term debt, credit note payable

Long term debt due on demand

Considered a current liability or will be due on demand within a year.

Long term debt that matures within one year and is to be converted into stock should be reported as?

Noncurrent and accompanied with a note explaining the method to be used in its liquidation.

Companies should accrue an estimated loss from a loss contingency by:

A charge to expense and a liability recorded only if it is probable (70% or more) and reasonably estimated.

Contingencies usually accrued

Collectability of receivables, obligations related to product warranties and product defects, and premiums offered to customers.

Contingencies not accrued

Risk of loss or damage of enterprise property by fire, explosion or other hazards, general or unspecified business risks, or risk of loss from catastrophes assumed by property and casualty insurance companies including reinsurance.

Contingencies that may be accrued

Threat of expropriation of assets, pending or threatened litigation, actual or possible claims and assessments, guarantees of indebtedness of others, obligations of commercial banks under standby letters of credit, agreements to repurchase receivables that have been sold.

How are gain contingencies recorded?

They are not recorded / accrued until realized. However, they are disclosed in the notes when a high probability exists they will be realized.

How to record a contingent warranty liability that is probably and estimable, but not fulfilled?

Debit warranty expense and credit warranty liability.

Journal entry to record warranty liability at the point of sale

Debit warrant expense, credit warranty liability

Journal entry to record warranty costs incurred

Debit warranty liability, credit cash, inventory, accrued payroll

Journal entry to record the revenue recognized on the service type warranty

Debit unearned warranty revenue, credit warranty revenue

Service type warranty

Sold separately from the product. It's recorded as a separate performance obligation in an unearned warranty revenue account. It's recognized on a straight line basis over the warranty period.

Journal entry to record bond issuance at par/face/ maturity value

Debit cash, credit bonds payable.

Journal entry to record issuance of bond at discount

Debit cash, debit discount, credit bonds payable

Journal entry to record issuance of bond at premium

Debit cash, credit premium, credit bonds payable

Journal entry to record bond interest payment mid-year

Debit interest expense, credit cash

Journal entry to record bond interest payment end of the year

Debit interest expense, credit interest payable

Journal entry to record bond interest payment end of the year with a discount

Debit Interest expense, credit discount on bonds payable, credit interest payable

How is a discount on a bond amortized?

Calculate discount rate by multiplying the percent discount by face value of bond. Divide by term and calculate the current portion during bond interest payment.

Journal entry to record bond interest payment mid year with a discount

Debit interest expense, credit discount on bonds payable, credit cash.

Journal entry to record interest expense on a bond at premium mid year

Debit interest expense, debit premium on bonds payable, credit cash.

Journal entry to record interest expense on a bond at a premium at the end of the year

Debit interest expense, debit premium on bonds payable, credit interest payable

Journal entry to record the issuance of a bond with a discount dated 1/1/20 on 3/1/20

Debit cash, debit discount on bonds payable, credit bonds payable, credit accrued interest payable.

When interest payment dates of a bond are May 1 and Nov. 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be

Increased by accrued interest from May 1 to June 1.

Bond issuance costs should

Be accumulated in a deferred charge account and amortized over the life of the bonds.

Is there a gain on a bond held to maturity?

There is no gain or loss on bonds held to maturity because the maturity value is exactly equal to the carrying amount of the bond.

Journal entry to record a reacquisition price on a bond when it is less than the current net carrying value and purchased at a premium

Debit bonds payable, debit unamortized premium on bonds payable, credit cash, gain on early extinguishment of bonds.

Journal entry to record a reacquisition price on a bond when it is more than the current net carrying value and purchased at a discount

Debit bonds payable, debit loss, credit the unamortized discount on bonds payable, credit cash.

The generally accepted method of accounting for gains or losses from the early extinguishment of debt treats any gain or loss as

a difference between the reacquisition price and the net carrying value of the debt which

should be recognized in the period of redemption.

Journal entry to record a retirement of bonds when the reacquisition price is greater than the carrying value

Debit bonds payable, debit the unamortized premium on bonds payable, debit loss on bonds redemption, credit cash.

Journal entry on retirement of bonds with a discount and loss

Debit bonds payable, debit loss on redemption of bonds, credit discount on bonds payable, credit unamortized bond issue costs, credit cash

Journal entry to record a note for a loan with five even installments

Debit cash, credit current maturities of long term debt (for current year installment), credit long term debt (remaining installment)

How much should be recorded in the mortgages payable account on closing with 4 points upon closing

Points reduce cash received, but do not affect the basis of the mortgage liability.

How much should be recorded in the cash account on closing with 4 points upon closing

Face value less the points percentage.

Journal entry to record interest on a note

Debit interest expense, credit cash.

Premium on bonds payable is what kind of liability

Long term liability

Times interest earned ratio

(Net Income + Interest Expense + Income Tax Expense) / Interest Expense

Times interest earned ratio measures what

The ability of a company to pay its debt obligations. It indicates the margin of safety provided to creditors.

Debt to assets ratio

total liabilities / total assets

Debt equity ratio

total liabilities/total equity

The preemptive right enables a stockholder to

receive the same amount of dividends on a percentage basis as the preferred stockholders.

Stockholders' equity is comprised of

Capital stock (common and preferred), additional paid in capital, retained earnings, treasury stock as a contra account.

Stockholders' equity is generally classified into two major categories

earned capital and contributed capital.

Stock may be issued in exchange for cash, property or services. How is it recorded?

Property or service is recorded at the fair or market value of the stock. If the fair or market value is not available, the fair or market value of the property or services received is used.

Journal entry to record the exchange of stock for land if the fair value of the land is unknown

Debit land, credit common stock, credit additional paid-in capital (fair value of stock vs par value).

Journal entry to record the exchange of stock for land if the fair value of the stock is unknown.

Debit land, credit common stock, credit additional paid-in capital (fair value of land vs par value of stock).

Journal entry to record the exchange of stock for land if the fair value of stock and land are unknown, but an appraiser values the land.

Debit land, credit common stock, credit additional paid in capital.

Direct costs incurred to sell stock such as underwriting costs, accounting, and legal fees, and printing cost should be shown as

a debit to additional paid in capital.

Purchase of treasury stock

Debit treasury stock (cost), credit cash.

Sale of treasury stock above cost

Debit cash, credit treasury stock (cost), credit paid in capital from treasury stock.

Sale of treasury stock below cost

Debit cash, debit paid in capital from treasury stock (remove any previous credit balance in this account), debit retained earnings (plug figure to balance debit and credit columns), credit treasury stock (cost).

Journal entry for dividends at the declaration

Debit retained earnings, credit dividends payable.

Journal entry for payment of dividends

Debit dividends payable, credit cash.

Journal entry for a partial return of stockholders' investment

At declaration, debit retained earnings, debit paid in capital in excess of par - common stock, credit dividends payable.

Journal entry declaring a property dividend with the fair value method

Debit retained earnings, credit to property dividends payable at an amount equal to the fair value of the distributed property.

Journal entry to record a gain on investment when a company declares a property dividend

Debit investment in stock, credit gain on investment.

Journal entry at payment date of dividends with gain on investment (fair value)

Debit property dividends payable, credit investment in stock.

What shares are part of dividend declaration?

Shares issued - shares held as treasury stock.