Accounting 1120

Final Study GuideAccounting 11201. What is depreciation? Which plant asset is not depreciated?Depreciation is the allocation of a plant assets cost to expense over its useful life. It is NOT a process of valuationIt does NOT mean that the business sets aside cash to replace an asset when it is used up

LAND is not depreciated.2. Amount of accumulated Depreciation32,000-4,000=28,00028,000 / 4 (years of useful life) = 7,000

YearAccumulated DepreciationTotalMay 1, 2008 April 30, 20097,0007,000May 1, 2009 April 30, 20107,00014,000May 1, 2010 April 30, 20117,00021,000May 1, 2011 December 31, 2011 (8 months) = 7,000 / 12=583.333* 8 = 4,666.674,666.6725,666.67(B)3. Long-Term/Short-Term LiabilitiesLong Term LiabilitiesObligations not expected to be paid within the longer of one year or the company's operating cycle

Short Term LiabilitiesObligations that will be paid within one year or less4. Accrued Interest Expense4,000*.06*2/12 = $405. Characteristics of a PartnershipCharacteristicAdvantage/DisadvantageLimited LifeDisadvantageMutual AgencyDisadvantageUnlimited LiabilityDisadvantageCo-Ownership of PropertyAdvantageNo Partnership Income TaxAdvantage6. Balance of Retained EarningsBeginning Retained Earnings + Net Income = New Balance Retained Earnings72,000+8,000 = $80,000

Retained Earnings Dividend Payment80,000-7,450 = 72,5507. Journal Entry for Sale of Common StockJournal Entry Sale of Common StockCash (12,000 shares * $11 market price)132,000Common Stock (12,000*8 (par value))96,000Paid-in Capital in Excess of Par (12,000 *3)36,0008. Journal Entry for Issuance of BondsJournal Entry Issuance of BondsCash183,750*Premium on Bonds Payable8,750Bonds Payable175,000*175,000*1.059. Statement of Cash Flow SectionsCash flows from operating activitiesDepreciation, increases and decreases in inventory, accounts receivable, accounts payable, accrued liabilities

Cash flows from investing activitiesAcquisition or sale of plant assets

Cash flows from financing activitiesNotes payable, stocks (including dividends, treasury stock), bonds borrowing money and repaying creditors10. Journal Entry to Record Warranty ExpenseJournal Entry Warranty ExpenseWarranty Expense (225,000*.03)6,750Estimated Warranty Payable (or Liability)6,75011. Amounts Received in AdvanceAmounts received in advance from customers for future products or services are __liabilities___.12. Partnership Equity Balance$72,000 (agreed upon market value of the asset) 15,000 (note payable secured by the asset) = 57,00013. Cumulative Preferred Stock Dividends1,500 (shares) * 25 (par value) * .04 = 1,500 dividends owed to preferred stockholdersFirst year paid 1,100 dividends still owe 400Second year paid 400 from last year + 1,500 from this year = 1,90014. Stock SplitThe par value = $4 ($12 / 3)Number of shares outstanding = 45,000 (15,000 * 3)Market Value = $8 ($24 /3)15. Journal Entry to Record Stock DividendJournal Entry Stock Dividend DeclarationRetained Earnings 25,000 (shares) * 18 (market value) * .12 (stock dividend %)54,000Common Stock (25,000*10*.12)30,000Paid-in-Capital in Excess, Common24,00016. Depreciation32,000-2,000=30,00030,000/10 = 3,000Three years of straight line depreciation = 9,000

30,000-9,000 = 21,00021,000/5 = 4,20017. Treasury Stock100*3 (profit made on stock 33-30=3) $300100*-2 (loss from selling stock 28-30 =-2) = -200Balance = $10018. Gain/Loss$7,500 6,800 = $700 loss19. Journal Entry to Record Payment of NoteJournal Entry Payment of NoteNote Payable8,000Interest Expense120Interest Payable120Cash 8,24020. Issuing BondsDiscountPremiumDiscountPremium21. DepreciationUse the depreciation worksheet in Excel22. Net Income - PartnershipStephanieJenniferLoriSalaries40,00060,00047,00010% Interest Allowance30,00022,00026,00070,00082,00073,000= 225,000300,000-225,000 = 75,00025,00025,00025,000TOTAL SALARY95,000107,00098,000=300,00022. Journal Entry to Record Income Summary Closing EntryJournal Entry Income Summary Closing EntryIncome Summary300,000Stephanie, Capital95,000Jennifer, Capital107,000Lori, Capital98,00023. PayrollINCOME6,100 (monthly salary) * 12 = 73,20073,200 * .05 = 3,660 BonusTotal Salary and Bonus 73,200+3,660 = 76,860

DEDUCTIONSFederal Income Tax 810*12 = 9,720+932 = 10,652.00State Income Tax 80*12 = 960+70 = 1,030.00FICA Tax 76,860*.08 = 6,148.80United Fund 76,860*.01 = 768.60Insurance $20*12 = 240.00TOTAL DEDUCTIONS 18,840.0023. PayrollGross Pay = $76,860Total Deductions = -18,840Net Pay = $58,02024. Issuing StockCash Received 2,000*35 = 70,000Common Stock 2,000*2 = 4,000Paid-in-Capital in Excess of Par = 66,000 (70,000-4,000)

Journal Entry Issuing StockCash70,000Common Stock4,000Paid-in-Capital in Excess of Par66,00024. Issuing StockEquipment Received 80,000Inventory Received18,000Preferred Stock 3,000*3090,000Paid-in-Capital in Excess of Par = 8,000 (98,000-90,000)

Journal Entry Issuing StockEquipment80,000Inventory18,000Preferred Stock90,000Paid-in-Capital in Excess of Par, Preferred Stock8,000