Test 4 Flashcards by Lyndsee Frye

Book value straightline method

Year 1= cost - depreciation expense
Normal = previous book value - depreciation expense
Last year= pug in residual value

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Causes of depreciation

Physical deterioration

Obsolescence

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Accumulated Depreciation straight line method

Year 1= cost- residual value / year
Normal- year 1+ previous line
Last year= cost- residual

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When creating a depreciation table using the straight line method what two thing will be the same thought the whole table

Cost

Depreciation expense

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For 200% or double declining method what stays the same in the depreciation table

Cost

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Book value for 200% and 150% methods

Year 1= Cost- depreciation expense
Normal = previous book value- current depreciation expense
Last year= residual value

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Depreciation expense for 200% and 150% methods

Year 1 = cost x .4 or .3
Normal= book value x .4 or .3
Last year = previous book value - residual

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Record selling equipment

Debit 
-cash 
-accumulated depreciation 
Credit 
- machinery

Gain or loss on sale of machinery
Gain - credit
Loss- debit

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Accumulated depreciation for 200% or 150% methods

Year 1 = cost x .4 or .3
Normal = previous + current expense
Last year = previous + current expense

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When recording selling equipment how do you find the numbers

Cash= what it sold for
Accumulated depreciation= plugged in
Machinery= original cost
Gain or loss = all debit - all credit

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Record trading of equipment

Credit 
-vehicle : new truck 
- accumulated depreciation 
Debit 
- cash 
- vehicle : old truck

Gain or loss on trade/ exchange of asset

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When recording a trade of equipment how to find the numbers

Vehicle:new = price of new truck
Accumulated depreciation -vehicle :old truck = plug in
Cash = price of new- trade in allowance
Vehicle: old= original cost

Gain or loss on trade/ exchange of asset = all debit- all credit

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Equity vs debt financing

Equity - issuing additional share of common stock to an investor, previous stockholders percentage of ownership decreases

Debt financing- borrowing money and not giving up ownership

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Amortization table (mortgage) interest expense

Unpaid balance x monthly interest

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Amoization table principle reduction is found how?

Monthly payment- interest expense

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Amortization table unpaid balance is found how?

Last unpaid balance - principle reduction

How to get monthly interest for on bonds

Face value x % / 12

What does it mean for a bond to be issued at a discount or premium

Debt ratio

Total liabilities / total assets

How well a company is making use of outside capital

Interest coverage ratio

Times interest earned

Operating income / interest expense

Higher the better
Indicated margin of protection for creditors

How to compute the first semi annual payment

Monthly interest rate x 6

How to record the first semi animal payment of a bond

Debit
-bond interest expense
Credit
-cash

How to record issuance of bonds

Debit
-cash
Credit
- bonds payable

Numbers are the face value

How to adjust an entry for a bond

Interest per month x how many months

Debit
-bond interest expense
Credit
- bond payable

Record interest payment after adjustment

Debit -bond interest expense : same as adjusted entry -bond interest payable : cash - bond interest expense Credit -cash : same as previous cash on first payment

How to retire a bond

Debit -bonds payable Credit - cash are face value

What is constant in an amortization table

Monthly payment

Record issuance of bonds common/preferred

``` Debit -cash Credit -common/preferred stock - additional paid-in capital common/preferred stock ```

When recording issuance of bonds how to find the numbers

Cash= share x $ Common/ preferred stock = share x par value Additional paid - in= cash - common / preferred stock

Record cash decided sufficient to meet the current dividend preference on preferred stock and pay common stockholder $ per share

``` Debit -dividend- preferred stock Credit -dividend payable Debit - dividend- common stock Credit - dividend payable ```

Operating statement of cash flows

``` Cash from customers Payments for inventory Payments of interest on a note Payments for insurance premiums Cash collections from customers Payments to employees ```

Investing statements of cash flows

Cash paid for purchase of PP&E | Cash received from sale of PP&E

Financing statements of cash flow

Cash received from issuance of stock Payment of principal on a mortgage Payment of dividends to stock holders Cash received from issuing bonds

Indirect and direct method of statement of cash flows apply to

Operating activities section of the statement

Advantage for corporations

``` Existence is separated from owners Has rights and privileges Ownership can be public or private Transferability of ownership Professional management ```

Disadvantage of corporations

Heavy taxation Greater regulation Core of formation Separation of ownership and management

How to record payment from an amortization table

``` Debit -interest expense -installment note payable= principle reduction Credit - cash = monthly payment ```

Depreciation expense straight line method formula

Cost - residual value / year

When recording cash dividend to meet current dividend preference on preferred stock and pay common stock $ per share how to find the numbers

Dividend -preferred stock = % x par value = # per share x share Dividend payable in the same Dividend - common stock = #per share x share