HADM 2230: Prelim 2 Formulas

Formulas

Net Sales Formula

Sales Revenue - Sales Discounts - Sales Returns and Allowances

Allowance for Doubtful Accounts Balance

Beginning Balance + Bad Debt Expense - Write-offs = Ending Balance

Bad Debt Expense (Percentage of Credit Sales Method)

Credit Sales x Bad Debt Loss Rate = Bad Debt Expense

Receivables Turnover Ratio

Net Sales divided by Average Net Trade Accounts Receivable

Average Collection Period

365 divided by Receivables Turnover Ratio

Cost of Goods Sold Equation

Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold

Goods Available for Sale

Beginning Inventory + Purchases = Goods Available for Sale

Average Cost per Unit

Cost of Goods Available for Sale divided by Number of Units Available for Sale

Inventory Turnover Ratio

Cost of Goods Sold divided by Average Inventory

Average Days to Sell Inventory

365 divided by Inventory Turnover Ratio

Depreciable Cost

Cost minus Residual Value

Straight-Line Depreciation

(Cost - Residual Value) x (1 divided by Useful Life) = Annual Depreciation Expense

Units-of-Production Unit Rate

(Cost - Residual Value) divided by Estimated Total Production = Unit Rate

Units-of-Production Depreciation

Unit Rate x Actual Production for Period = Depreciation Expense

Double-Declining-Balance Depreciation

(Cost - Accumulated Depreciation) x (2 divided by Useful Life) = Depreciation Expense

Change in Depreciation Estimate

(Net Book Value - New Residual Value) x (1 divided by Remaining Life) = New Annual Depreciation Expense

Book Value

Cost - Accumulated Depreciation

Fixed Asset Turnover Ratio

Net Sales divided by Average Net Fixed Assets

Goodwill

Purchase Price of Business - Fair Value of Net Assets Acquired

Impairment Loss

Net Book Value - Fair Value (only when NBV exceeds Estimated Future Cash Flows)

Gain or Loss on Disposal

Proceeds - Net Book Value at Date of Disposal

Depletion Rate

Total Cost of Natural Resource divided by Estimated Total Units Available

Depletion Expense

Depletion Rate x Units Extracted During Period

Basket Purchase Allocation

(Asset Market Value divided by Total Market Value of All Assets) x Total Purchase Price

Acquisition Cost

Purchase Price - Discounts + All costs to acquire and prepare for use

Working Capital

Current Assets - Current Liabilities

Current Ratio

Current Assets divided by Current Liabilities

Accounts Payable Turnover

Cost of Goods Sold divided by Average Accounts Payable

Days to Pay Payables

365 divided by Accounts Payable Turnover

Interest for a Period

Principal x Annual Interest Rate x (Number of Months divided by 12)

Present Value of a Single Amount

(1 divided by (1 + i) to the power of n) x Future Amount

Deferred Tax Liability

Timing Difference x Corporate Tax Rate (21 percent)