1. FINAL STUDY GUIDE Accounting 1120

2. 1. What is depreciation? Which plant asset is not depreciated? Depreciation is the allocation of a plant asset’s cost to expense over its useful life.  It is NOT a process of valuation  It does NOT mean that the business sets aside cash to replace an asset when it is used up LAND is not depreciated.

3. 2. Amount of accumulated Depreciation 32,000-4,000=28,000 28,000 / 4 (years of useful life) = 7,000 YearAccumulated Depreciation Total May 1, 2008 – April 30, 20097,000 May 1, 2009 – April 30, 20107,00014,000 May 1, 2010 – April 30, 20117,00021,000 May 1, 2011 – December 31, 2011 (8 months) = 7,000 / 12=583.333* 8 = 4,666.67 4,666.6725,666.67 (B)

4. 3. Long-Term/Short-Term Liabilities Long Term Liabilities  Obligations not expected to be paid within the longer of one year or the company's operating cycle Short Term Liabilities  Obligations that will be paid within one year or less

5. 4. Accrued Interest Expense 4,000*.06*2/12 = $40

6. 5. Characteristics of a Partnership CharacteristicAdvantage/Disadvantage Limited LifeDisadvantage Mutual AgencyDisadvantage Unlimited LiabilityDisadvantage Co-Ownership of PropertyAdvantage No Partnership Income TaxAdvantage

7. 6. Balance of Retained Earnings Beginning Retained Earnings + Net Income = New Balance Retained Earnings  72,000+8,000 = $80,000 Retained Earnings – Dividend Payment  80,000-7,450 = 72,550

8. 7. Journal Entry for Sale of Common Stock Journal Entry – Sale of Common Stock Cash (12,000 shares * $11 market price)132,000 Common Stock (12,000*8 (par value))96,000 Paid-in Capital in Excess of Par (12,000 *3)36,000

9. 8. Journal Entry for Issuance of Bonds Journal Entry – Issuance of Bonds Cash183,750* Premium on Bonds Payable8,750 Bonds Payable175,000 *175,000*1.05

10. 9. Statement of Cash Flow Sections Cash flows from operating activities  Depreciation, increases and decreases in inventory, accounts receivable, accounts payable, accrued liabilities Cash flows from investing activities  Acquisition or sale of plant assets Cash flows from financing activities  Notes payable, stocks (including dividends, treasury stock), bonds – borrowing money and repaying creditors

11. 10. Journal Entry to Record Warranty Expense Journal Entry – Warranty Expense Warranty Expense (225,000*.03)6,750 Estimated Warranty Payable (or Liability)6,750

12. 11. Amounts Received in Advance Amounts received in advance from customers for future products or services are __liabilities___.

13. 12. Partnership Equity Balance $72,000 (agreed upon market value of the asset) – 15,000 (note payable secured by the asset) = 57,000

14. 13. Cumulative Preferred Stock Dividends 1,500 (shares) * 25 (par value) *.04 = 1,500 dividends owed to preferred stockholders First year – paid 1,100 dividends – still owe 400 Second year – paid 400 from last year + 1,500 from this year = 1,900

15. 14. Stock Split The par value = $4 ($12 / 3) Number of shares outstanding = 45,000 (15,000 * 3) Market Value = $8 ($24 /3)

16. 15. Journal Entry to Record Stock Dividend Journal Entry – Stock Dividend Declaration Retained Earnings 25,000 (shares) * 18 (market value) *.12 (stock dividend %) 54,000 Common Stock (25,000*10*.12)30,000 Paid-in-Capital in Excess, Common24,000

17. 16. Depreciation 32,000-2,000=30,000 30,000/10 = 3,000 Three years of straight line depreciation = 9,000 30,000-9,000 = 21,000 21,000/5 = 4,200

18. 17. Treasury Stock 100*3 (profit made on stock 33-30=3) $300 100*-2 (loss from selling stock 28-30 =-2) = -200 Balance = $100

19. 18. Gain/Loss $7,500 – 6,800 = $700 loss

20. 19. Journal Entry to Record Payment of Note Journal Entry – Payment of Note Note Payable8,000 Interest Expense120 Interest Payable120 Cash8,240

21. 20. Issuing Bonds Discount Premium Discount Premium

22. 21. Depreciation Use the depreciation worksheet in Excel

23. 22. Net Income - Partnership StephanieJenniferLori Salaries40,00060,00047,000 10% Interest Allowance30,00022,00026,000 70,00082,00073,000= 225,000 300,000-225,000 = 75,00025,000 TOTAL SALARY95,000107,00098,000=300,000

24. 22. Journal Entry to Record Income Summary Closing Entry Journal Entry – Income Summary Closing Entry Income Summary300,000 Stephanie, Capital95,000 Jennifer, Capital107,000 Lori, Capital98,000

25. 23. Payroll INCOME 6,100 (monthly salary) * 12 = 73,200 73,200 *.05 = 3,660 Bonus Total Salary and Bonus – 73,200+3,660 = 76,860 DEDUCTIONS Federal Income Tax 810*12 = 9,720+932 = 10,652.00 State Income Tax 80*12 = 960+70 = 1,030.00 FICA Tax 76,860*.08 = 6,148.80 United Fund 76,860*.01 = 768.60 Insurance $20*12 = 240.00 TOTAL DEDUCTIONS 18,840.00

26. 23. Payroll Gross Pay = $76,860 Total Deductions = -18,840 Net Pay = $58,020

27. 24. Issuing Stock Cash Received 2,000*35 = 70,000 Common Stock 2,000*2 = 4,000 Paid-in-Capital in Excess of Par = 66,000 (70,000- 4,000) Journal Entry – Issuing Stock Cash70,000 Common Stock4,000 Paid-in-Capital in Excess of Par66,000

28. 24. Issuing Stock Equipment Received 80,000 Inventory Received18,000 Preferred Stock – 3,000*3090,000 Paid-in-Capital in Excess of Par = 8,000 (98,000- 90,000) Journal Entry – Issuing Stock Equipment80,000 Inventory18,000 Preferred Stock90,000 Paid-in-Capital in Excess of Par, Preferred Stock8,000