1. The characteristics of the corporate form of business.
2.About the term "cash dividend".
Basic Accounting Equation
Assets = Liabilities +Stockholders’ Equity
* Investments by stockholders and revenues increase stockholders’ equity (credit).
* Dividends and expenses decrease stockholder’s equity (debit).
* The purpose of earning revenues is to benefit the stockholders.
* The effect of debits and credits on revenue accounts is the same as their effect on stockholders’ equity.
Expenses have the opposite effect: expenses decrease stockholders’ equity
3.Which accounts have debit or credit balances
Assets | | | | |
| Cash (Debit) | | | ...view middle of the document...
Expenses are recognized only when cash is paid.
Prohibited under generally accepted accounting principles (GAAP)
1. Prepaid expenses: Expenses paid in cash and recorded as assets before they are used or consumed.
2. Unearned revenues: Cash received before service are performed.
1. Accrued revenues: Revenues for services performed but not yet received in cash or recorded.
2. Accrued expenses: Expenses incurred but not yet paid in cash or recorded.
5. The meaning and implications of using FIFO, LIFO, and weighted average cost-flow assumptions.
Allocates cost of goods available for sale on the basis of weighted-average unit cost incurred.
Applies weighted-average unit cost to the units on hand to determine cost of the ending inventory
Last-In, First-Out (LIFO)
* Costs of the latest goods purchased are the first to be recognized in determining cost of goods sold.
* Seldom coincides with actual physical flow of merchandise.
* Exceptions include goods stored in piles, such as coal or hay.
First-In, First-Out (FIFO)
* Costs of the earliest goods purchased are the first to be recognized in determining cost of goods sold.
* Often parallels actual physical flow of merchandise.
* Companies determine the cost of the ending inventory by taking the unit cost of the most recent purchase and working backward until all units of inventory have been costed
6. How to calculate depreciation using the straight-line method.
Assume the delivery truck was purchased on April 1, 2014
| | | | | | | | | Current | |
| Depreciable | | | | Annual | | Partial | | Year | Accum. |
Year | Cost | | Rate | | Expense | | Year | | Expense | Deprec. |
2014 | $ 12,000 | x | 20% | = | $ 2,400 | x | 9/12 | = | $ 1,800 | $ 1,800 |
2015 | 12,000 | x | 20% | = | 2,400 | | | | 2,400 | 4,200 |
2016 | 12,000 | x | 20% | = | 2,400 | | | | 2,400 | 6,600 |
2017 | 12,000 | x | 20% | = | 2,400 | | | | 2,400 | 9,000 |
2018 | 12,000 | x | 20% | = | 2,400 | | | | 2,400 | 11,400 |
2019 | 12,000 | x | 20% | = | 2,400 | x | 3/12 | = | 600 | 12,000 |
| | | | | | | | | $ 12,000 | |
Journal entry: | | | | | | | | | |
2014 | Depreciation expense | | | 1,800 | | | |
| Accumulated depreciation | | | | 1,800 | |
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7. The journal entry for the issuance of bonds (at par, discount, or premium) and for the issuance of stock (at par or...