Test 4 Flashcards
Book value straightline method
Year 1= cost - depreciation expense
Normal = previous book value - depreciation expense
Last year= pug in residual value
Causes of depreciation
Physical deterioration
Obsolescence
Accumulated Depreciation straight line method
Year 1= cost- residual value / year
Normal- year 1+ previous line
Last year= cost- residual
When creating a depreciation table using the straight line method what two thing will be the same thought the whole table
Cost
Depreciation expense
For 200% or double declining method what stays the same in the depreciation table
Cost
Book value for 200% and 150% methods
Year 1= Cost- depreciation expense
Normal = previous book value- current depreciation expense
Last year= residual value
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
Record selling equipment
Debit -cash -accumulated depreciation Credit - machinery
Gain or loss on sale of machinery
Gain - credit
Loss- debit
Accumulated depreciation for 200% or 150% methods
Year 1 = cost x .4 or .3
Normal = previous + current expense
Last year = previous + current expense
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
Record trading of equipment
Credit -vehicle : new truck - accumulated depreciation Debit - cash - vehicle : old truck
Gain or loss on trade/ exchange of asset
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
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
Amortization table (mortgage) interest expense
Unpaid balance x monthly interest
Amoization table principle reduction is found how?
Monthly payment- interest expense
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
