Accounting Final

Topics Covered (Chapters 8-11)

Chapter 8: Reporting and Analyzing Receivables

  • Receivables Overview:

    • Understand what receivables are (notes and accounts) and how and why they operate.

  • Uncollectible Receivables:

    • Know the direct write-off method vs the allowance method for handling uncollectible receivables.

  • Accounts Receivable Aging Schedule:

    • Purpose and explanation of how this schedule works.

  • Sale of Receivables to a Factor:

    • Understand the process and accounting involved.

  • Notes Receivable:

    • How to calculate and journalize Notes Receivable, including:

      • The initial note

      • Interest calculation

      • Adjusting entries

      • Payment entries

Chapter 9: Reporting and Analyzing Long-Lived Assets

  • Accounting for Plant Asset Expenditures:

    • Explanation of how expenditures for plant assets are recorded.

  • Depreciation:

    • How to calculate and journalize depreciation.

    • Understand the different depreciation methods (e.g., straight-line, declining balance).

    • Know why each method may be used.

  • Sale/Disposal of Plant Assets:

    • How to journalize the sale or disposal of a plant asset.

    • Calculation of gain/loss on sale/disposition.

    • How to journalize the transactions related to the sale/disposal.

Chapter 10: Reporting and Analyzing Liabilities

  • Current Liabilities:

    • Learn the characteristics and accounting for current liabilities.

  • Bonds:

    • Understand the major characteristics of bonds and related terminology.

  • Terms in Liabilities:

    • Be familiar with the key terms related to liabilities and bonds discussed in this chapter.

Chapter 11: Reporting and Analyzing Stockholders’ Equity

  • Characteristics of a Corporation:

    • Describe the major features of a corporation.

  • Stock Issuance:

    • Understand how to account for the issuance of common stock, preferred stock, and treasury stock.

  • Dividends and Stock Transactions:

    • Learn how to account for cash dividends, stock dividends, and stock splits.

  • Stockholders’ Equity Reporting:

    • How stockholders' equity is reported and analyzed in financial statements.

Important Notes for Exam Preparation:

  • Review key accounting concepts for receivables, long-lived assets, liabilities, and stockholders' equity.

  • Practice calculating and journalizing the various transactions, including depreciation, sale/disposal of assets, and the issuance of stock.

  • Focus on understanding the application of methods (e.g., straight-line depreciation, aging schedule) and the terminology specific to each chapter.

  • Utilize the review session for any questions or clarification before the exam.

Good luck on your final exam!

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include answers and explanations and notes so that i cna learn it all and understnd it

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Final Exam Review Guide for Introduction to Financial Accounting
Fall 2024
Professor Geoff Cook

Final Exam Details

  • Date and Time: Saturday, December 14, 2024, at 11:30 AM

  • Location: DSB Room 201

  • Exam Duration: 60–90 minutes

  • What to Bring:

    • A functional computer

    • A calculator

    • Scrap paper (optional)

  • Review Session: Wednesday, December 11, 2024, at 7:00 PM on Zoom (Opportunity for questions)

Topics Covered (Chapters 8-11)

Chapter 8: Reporting and Analyzing Receivables
1. Receivables Overview

  • What are Receivables?

    • Receivables represent amounts owed to the company by customers or other entities. They can be in the form of accounts receivable (amounts owed by customers on credit) or notes receivable (formal written promises to pay, usually with interest).

    Example:

    • If a company sells goods to a customer on credit, it creates an account receivable. If the customer signs a note to pay the company back with interest, that is a note receivable.

2. Uncollectible Receivables: Direct Write-off Method vs. Allowance Method

  • Direct Write-off Method:

    • This method directly writes off uncollectible accounts as an expense when deemed uncollectible.

    • Not generally accepted for financial reporting (except for small businesses) because it doesn't match expenses to the period in which the revenue was earned.

    Example:

    • If a customer owes $500 but can’t pay, you write off the $500 as bad debt.

  • Allowance Method:

    • This method estimates uncollectible accounts in advance and creates an allowance for bad debts (a contra-asset account).

    • This method better matches expenses to revenues and is required by GAAP.

    Example:

    • If you estimate that 2% of your accounts receivable will be uncollectible, you create an allowance for doubtful accounts for that amount.

3. Accounts Receivable Aging Schedule

  • The aging schedule categorizes accounts receivable based on how long they have been outstanding.

  • It helps estimate the amount of bad debts by determining which accounts are at risk.

    Example:

    • Accounts overdue for 30 days might be considered less risky than those overdue for 90 days.

4. Sale of Receivables to a Factor

  • Companies can sell their receivables to a third-party factor at a discount to get cash quickly.

  • The factor then collects the receivables directly from the customers.

    Example:

    • A company sells $10,000 in receivables to a factor at a 5% discount. The company receives $9,500, and the factor takes responsibility for collecting the receivables.

5. Notes Receivable: Calculation and Journal Entries

  • Initial Note:

    • When the note is created, record it as a Notes Receivable.

    • Example:

      • Debit Notes Receivable $1,000

      • Credit Sales Revenue $1,000

  • Interest Calculation:

    • Interest is typically calculated as:
      Interest=Principal×Rate×Time\text{Interest} = \text{Principal} \times \text{Rate} \times \text{Time}Interest=Principal×Rate×Time

    Example:

    • For a $1,000 note with 6% annual interest for 1 year:
      Interest=1,000×0.06×1=60\text{Interest} = 1,000 \times 0.06 \times 1 = 60Interest=1,000×0.06×1=60

  • Adjusting Entry (for interest):

    • Debit Interest Receivable $60, Credit Interest Revenue $60.

  • Payment Entry:

    • Upon receiving payment:

      • Debit Cash $1,060 (Principal + Interest)

      • Credit Notes Receivable $1,000

      • Credit Interest Receivable $60

Chapter 9: Reporting and Analyzing Long-Lived Assets
1. Accounting for Plant Asset Expenditures

  • Plant assets include land, buildings, and equipment. These assets are depreciated over time unless they are land (which isn't depreciated).

  • Expenditures include the costs incurred to acquire and prepare the asset for use (purchase price, installation, transportation, etc.).

2. Depreciation: Calculation and Methods

  • Depreciation: The allocation of the cost of a plant asset over its useful life.

    Methods of Depreciation:

    • Straight-Line Depreciation:

      • Depreciation is the same amount each year. Annual Depreciation=Cost−Salvage ValueUseful Life\text{Annual Depreciation} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Useful Life}}Annual Depreciation=Useful LifeCost−Salvage Value​

    • Declining Balance Method:

      • Depreciation is higher in the earlier years and decreases over time. Depreciation Expense=Book Value at Beginning of Year×Depreciation Rate\text{Depreciation Expense} = \text{Book Value at Beginning of Year} \times \text{Depreciation Rate}Depreciation Expense=Book Value at Beginning of Year×Depreciation Rate

    • Units of Production Method:

      • Depreciation is based on the asset's usage, like hours operated or units produced.

3. Sale/Disposal of Plant Assets

  • When you sell or dispose of an asset, calculate the gain or loss as:
    Gain/Loss=Selling Price−Book Value\text{Gain/Loss} = \text{Selling Price} - \text{Book Value}Gain/Loss=Selling Price−Book Value

    Journal Entry for Sale of Asset:

    • If the asset is sold for more than its book value (gain):

      • Debit Cash (selling price)

      • Debit Accumulated Depreciation (for the amount of depreciation taken)

      • Credit Equipment (original cost)

      • Credit Gain on Sale (if applicable)

Chapter 10: Reporting and Analyzing Liabilities
1. Current Liabilities

  • Current liabilities are obligations that must be settled within one year (e.g., accounts payable, short-term loans, accrued expenses).

2. Bonds: Major Characteristics

  • Bonds are long-term debt instruments issued by companies to raise capital.

    • Face Value: The amount the issuer will pay at maturity.

    • Coupon Rate: The interest rate the issuer will pay to bondholders.

    • Maturity Date: The date when the bond will be repaid.

3. Liabilities Terms

  • Convertible Bonds: Bonds that can be converted into stock.

  • Callable Bonds: Bonds that the issuer can redeem before maturity.

Chapter 11: Reporting and Analyzing Stockholders’ Equity
1. Characteristics of a Corporation

  • Corporations are legal entities separate from their owners, with the ability to issue stock, raise capital, and limit the liability of shareholders.

2. Issuance of Stock

  • Common Stock: Represents ownership in the company.

  • Preferred Stock: Has priority over common stock for dividends and in case of liquidation.

  • Treasury Stock: Stock that has been repurchased by the company.

3. Dividends and Stock Transactions

  • Cash Dividends: Cash payments to stockholders.

    • Journal entry:

      • Debit Retained Earnings

      • Credit Cash

  • Stock Dividends: Additional shares given to stockholders.

    • Journal entry:

      • Debit Retained Earnings

      • Credit Common Stock

  • Stock Splits: Increases the number of shares but does not affect the total value of the stock.

4. Reporting and Analyzing Stockholders' Equity

  • Stockholders' equity is reported on the balance sheet and consists of common stock, preferred stock, additional paid-in capital, retained earnings, and accumulated other comprehensive income.

Key Concepts to Review:

  • Depreciation Methods: Be able to calculate and journalize depreciation for various methods.

  • Receivables Management: Understand how to account for uncollectible receivables and sale of receivables.

  • Plant Assets: Know how to handle the sale/disposal of assets and how to calculate depreciation.

  • Liabilities: Understand the characteristics of current liabilities and bonds.

  • Stockholders' Equity: Review the issuance of stock, dividends, and how to report equity on the balance sheet.