Exam 3 Study Guide Flashcards
(7) Be able to determine the total cost of a fixed asset. Know which expenditures are included in the purchase price.
- purchase cost
- any costs incurred to bring the asset to the location and condition needed for it to operate in the manner intended by management
(7) Be able to calculate depletion expense.
asset’s initial cost
asset’s expected useful life
asset’s estimated residual value
- total cost less salvage value and divide it by the total number of estimated units
(7) Be able to calculate gains/losses from the sale of a fixed asset.
- find accumulated depreciation
- subtract from equipment cost
- calculate gain or loss from that number^
(7) Be able to calculate straight line deprecation.
(1) Cost of the asset: $100,000.
(2) Cost of the asset – Estimated salvage value: $100,000 – $20,000 = $80,000 total depreciable cost.
(3) Useful life of the asset: 5 years.
(4) Divide step (2) by step (3): $80,000 / 5 years = $16,000 annual depreciation amount.
(7) Be able to calculate double declining depreciation.
(1) Divide “100%” by the number of years in the asset’s useful life, this is your straight-line depreciation rate.
(2) Multiply that number by 2 and that is your Double-Declining Depreciation Rate.
Depreciation continues until the asset value declines to its salvage value.
(7) What are leases?
contract for the use of an asset for a period of time
LESSOR => owns the asset
LESSEE => has rights to use the asset
(7) Be able to calculate amortization for a patent? Who is it recorded?
- amortization recorded using straight-line method
- recorded as operating expenses
(7) What is the depreciable cost of a fixed asset?
amount of an asset’s cost that is allocated over its useful life as depreciation expense
(7) What are land improvements? Be able to identify examples.
- improvements increase output and increase the fixed asset amount
- paved parking areas, driveways, fences, outdoor lighting, and so on
- land improvements have a limited life and are depreciated
(7) What is the book value of an asset?
- does not agree with the asset’s market value
- value of fixed assets after deducting the accumulated depreciation and accumulated impairment expenses from the original cost of fixed assets
(7) What values must you know in order to calculate depreciation?
- cost of asset
- salvage (residual) value of asset
- depreciation rate
- lifetime
(7) What is depletion expense?
“account is created for a portion of the cost of the resource removed”
depletion rate = cost of resource / est. total units of resource
depletion expense = depletion rate * quantity removed
(7) What are the characteristics of a fixed asset?
- tangible assets
- owned/used by company in normal operations
- not offered for sale as part of normal operations
(8) Understand what accounts are affected and by how much when stock is issued (Cash, Common Stock, and Paid-In Capital)
CASH => shares * @ value sold
COMMON STOCK => shares * par
PAID-IN CAPITAL => cash - common stick
(8) Be able to calculate gross pay for an employee.
- total earnings for the payroll period
(8) Be able to calculate net pay for an employee.
- obtained from subtracting deduction(s) from gross pay
(8) What are contingent liabilities?
potential liabilities that may arise from past transactions if certain events occur in the future
(8) When are they are recorded as a liability or in the notes?
if they are probable and estimable
(8) What are current liabilities?
liabilities due within 12 months
(8) What are long-term liabilities?
liabilities due beyond 12 months
(8) Understand what it means to issue bonds at par, at a premium, or at a discount. Understand the circumstances of each type of issuance. (Market rate in comparison to the coupon/stated rate.)
PAR => market rate = contract rate; selling price = face amount of bonds
PREMIUM => market rate < contract rate; selling price > face amount of bonds; premium = selling price - face
DISCOUNT => market rate of interest > contract rate; selling price < face amount of bonds; discount = face - selling price
(8) Be able to calculate the maturity value of a note-payable.
Maturity value = Principal x (1+ Rate x Time)
(8) Be able to calculate the price and number of shares after a stock split.
- par of each share of common stock will be original par divided by amount of split
(8) What are FICA taxes?
Federal Insurance Contribution Act
- social security
- Medicare
