ACTG 11 Midterm #2

Calculate and record sales discounts

Debit Cash, debit Sales Discount, credit Accounts Receivable

Calculate and record credit card discounts (bank-issued)

Debit Cash, debit Credit Card Discount, credit Sales Revenue

Calculate and record credit card discounts (company-issued)

Debit Accounts Receivable, credit Sales Revenue

Calculate and record Sales Returns and Allowances (2 steps)

1. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts

2. Debit Allowance for Doubtful Accounts, credit Accounts Receivable

Record bad debt write-offs

Debit Allowance for Doubtful Accounts, credit Accounts Receivable

Calculate / record bad debt expense and ADA using percentage of sales method

Bad Debt Expense = Sales Revenue x Historic Relation between Sales and Bad Debts

Percentage of Receivables Method

1. Determine the balance of ADA using Percentage of Receivables

2. Bad debt adjustment = Difference between current and revised balance in ADA

Calculate COGS using LIFO

Calculate COGS using the units last purchased during the period

Calculate COGS using FIFO

Calculate COGS using the units first purchased during the period (or beginning inventory)

Calculate COGS using Weighted Average

Calculate COGS based on the weighted average cost of all units held for sale

Calculate Shipping Costs using any of the three methods

Only calculate shipping for the amount of units sold. If only 2/3 of a batch were sold, we add 2/3 of the shipping cost to COGS.

Calculate loss due to inventory writedowns and inventory shrinkage

Debit inventory shrinkage/writedown, credit inventory

Calculate relative effect of LIFO / FIFO / WA on gross profit and book value of inventory

Sales Revenue - Cost of Goods Sold = Gross Profit

Calculate Cost of Goods Sold

(Beginning Inventory + Purchases) = Cost of Goods Available - Ending Inventory = Cost of Goods Sold

Types of items included in manufacturer’s inventory

Raw materials, Work-in-Process (WIP), Finished Goods

Raw Materials

Items acquired for processing into finished goods

Work in Process Inventory

Goods in the process of being manufactured but not yet complete

Finished Goods Inventory

Manufactured items that are complete and ready for sale

Effect of inventory error on income statement and balance sheet items for 2 quarter income statement

1. If ending inventory is recorded lower than it actually is: COGS should be lower in 1st quarter, Gross profit higher. 2nd quarter: Beginning inventory should be higher, COGS should be higher, Gross profit lower

2. If ending inventory is recorded higher than it actually is: COGS should be higher in 1st quarter, Gross profit lower. 2nd quarter: Beginning inventory should be lower, COGS should be lower, Gross profit higher.

Calculate depreciation expense

Debit Depreciation Expense, Credit Accumulated Depreciation

Calculate Depreciation using Straight-Line Method

Depreciation Expense = (Cost - Residual Value) / Useful Life

Calculate Depreciation using Double Declining Balance Method

Depreciation Expense = Book Value x (2 / Useful Life)

Calculate Depreciable Base of an asset

Depreciable Base = Book Value - Residual Value

Calculate Amortization Expense

Debit Amortization Expense (Cost / Useful Life), credit specific intangible asset

Calculate depreciation following changes in repairs and betterments

Repairs are immediately expensed, betterments are added to the fixed asset accounts and depreciated over useful life

Calculate change in depreciation estimate following a betterment

Depreciation Expense: (BV + Betterment - SV) / Remaining Life

What costs are capitalized as intangible assets and costs that are immediately expensed

1. Costs incurred to acquire intangible assets from other other companies are capitalized. Legal and filing fees related to obtaining, defending, or enforcing a patent or copyright too

2. Costs incurred to develop intangible assets are expensed when incurred. Includes: organizational costs, M & A costs, brand development costs, research and development costs

Calculating Goodwill

Goodwill = purchase price - fair value of net assets

Calculating gain or loss on the sale of depreciable assets

Debit Accumulated Depreciation, Debit Loss/Gain on disposal of asset, Credit Asset