Account Study Guide Final PDF

Study Guide Chapter 7 – Long-Term (L-T) Assets Acquisitions of L-T Assets 1.​ Types of Assets​ ○​ Tangible Assets: Physical items (e.g., buildings, equipment, land). ○​ Intangible Assets: Non-physical rights or privileges (e.g., patents, trademarks, goodwill)....

Study Guide Chapter 7 – Long-Term (L-T) Assets Acquisitions of L-T Assets 1.​ Types of Assets​ ○​ Tangible Assets: Physical items (e.g., buildings, equipment, land). ○​ Intangible Assets: Non-physical rights or privileges (e.g., patents, trademarks, goodwill). 2.​ Accounting Treatment at Time of Acquisition​ ○​ Capitalized: Expenditures benefiting future periods (e.g., purchase price, freight, installation). ○​ Expensed: Costs benefiting only the current period (e.g., maintenance). 3.​ Accounting Treatment After Acquisition​ ○​ Capitalize: If benefits extend to current and future periods. ○​ Expense: If benefits only the current period. 4.​ Journal Entries​ Acquisition Example:​ Dr. Asset (e.g., Equipment) Cr. Cash/Payable ○​ Allocation of Costs After Acquisition 1.​ Depreciation (Straight-Line Method)​ ○​ Formula: Depreciation Expense=Cost−Residual ValueUseful Life\text{Depreciation Expense} = \frac{\text{Cost} - \text{Residual Value}}{\text{Useful Life}} Journal Entry:​ Dr. Depreciation Expense Cr. Accumulated Depreciation ○​ 2.​ Asset Disposition​ ○​ Sale, Retirement, Exchange ​ Record proceeds, remove the asset's book value, and calculate gain/loss. Example Journal Entry (Sale):​ Dr. Cash Dr. Accumulated Depreciation Cr. Asset Cr. Gain on Sale (or Dr. Loss on Sale) ​ Chapter 8 – Current Liabilities 1.​ Characteristics of a Liability​ ○​ Obligations due to past transactions. ○​ Current Liabilities: Settled within one year. ○​ Long-Term Liabilities: Settled after one year. 2.​ Notes Payable and Interest Expense​ ○​ Interest Formula: Interest=Principal×Rate×Time (in years)\text{Interest} = \text{Principal} \times \text{Rate} \times \text{Time (in years)} Example Journal Entry:​ Dr. Interest Expense Cr. Interest Payable ○​ 3.​ Payroll Withholdings and Employer Liabilities​ ○​ Employee Withholdings: Taxes deducted from wages (e.g., income tax, Social Security). ○​ Employer Expenses: Employer's share of taxes and benefits (e.g., FICA, unemployment taxes). 4.​ Contingencies​  ○​ Warranty Liabilities: ​ Estimate and record expected costs at the time of sale. Journal Entry:​ Dr. Warranty Expense Cr. Warranty Liability ​ ○​ Contingent Losses: ​ Record if loss is probable and estimable. ​ Disclose if loss is probable but not estimable. ​ Never record contingent gains. Chapter 9 – Long-Term Liabilities 1.​ Financing Alternatives​ ○​ Notes/Bonds Payable at Face Value: Borrowing with fixed repayment terms. ○​ Leases: Advantageous due to lower upfront costs and tax benefits. 2.​ Bond Characteristics​ ○​ Face Value: Amount repaid at maturity. ○​ Interest Payments: Periodic cash payments. ○​ Market Rate vs. Stated Rate: Determines bond issuance at premium, discount, or face. Chapter 10 – Stockholders’ Equity 1.​ Corporate Form of Ownership​ ○​ Advantages: Limited liability, transferable ownership, ability to raise capital. ○​ Disadvantages: Double taxation, regulatory requirements. 2.​ Shares​ ○​ Authorized: Maximum shares company can issue. ○​ Issued: Shares sold to investors. ○​ Outstanding: Issued shares currently held by investors. 3.​ Invested Capital​ ○​ Issuance of Stock:  ​ Record as stock account and additional paid-in-capital. Example Journal Entry (Common Stock):​ Dr. Cash Cr. Common Stock (at par value) Cr. Additional Paid-In-Capital ​ ○​ Preferred Stock: ​ Rights to dividends and liquidation preference over common stock. 4.​ Earned Capital​ ○​ Retained Earnings: ​ Increased by net income. ​ Decreased by net loss and dividends. ○​ Cash Dividends: ​ Declaration and payment reduce retained earnings. Journal Entry:​ Dr. Retained Earnings Cr. Dividends Payable ​ 5.​ Financial Reporting​ ○​ Balance Sheet: Stockholders’ equity section. ○​ Statement of Stockholders’ Equity: Tracks changes in equity accounts. Chapter 11 – Statement of Cash Flows 1.​ Activities ○​ Operating: Day-to-day operations (e.g., net income adjustments). ○​ Investing: Purchases/sales of assets. ○​ Financing: Borrowing and equity transactions.