Business Administration 2257 Study Guide - Final Guide: Preferred Stock, Accrued Interest, Issued Shares

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MANUFACTURING INVENTORY
Raw Materials:
O/B RM found on last year’s COGM
document
Find T/B
E/B FM – FIFO
Plug – DR WIP RM
WIP:
O/B WIP found on last year’s COGM
document
Find T/B WIP
E/B WIP = pRM (given) + pDL (given) + pFOH
opFOH = Partial Proxy x Total FOH
(in WIP)
Total Proxy (add all in WIP)
Plug – DR Finished Goods
Finished Goods:
O/B Finished Goods found on last year’s
income statement
Find T/B
E/B = weighted avg. cost usually
Plug – DR COGS expense
Look for “spread evenly” – proxy
MERCHANDISE INVENTORY
Specific Identification – value everything at
unique market price
Weighted Average Cost – COGAFS x E/B in
units
UAFS (in chart)
FIFO – oldest inventory is sold first; E/B is
valued at most recent price
DEPRECIATION
Straight Line = HC – RV x n
UL 12
Units of Production = HC – RV x Units
Used
Total Units
Declining Balance = HC – AD x n
UL 12
LEASES
Operating Leases – treated as expense
Do not transfer risks and rewards
DR Lease Expense, CR Cash/AP/Prepaid
Lease
Finance Leases – treated as asset w/ liability
(1) Reasonably certain the asset will be
transferred/purchased
(2) Lease duration extends for majority of
asset’s economic life
(3) At inception of lease, PV of lease payments
= all of value of asset
(4) Leased asset is specialized and can only be
used by lessee without modification
DR Asset under lease, CR Lease Obligation
At Time of Purchase:
i = interest
n-1 = number of payment dates
BV = one payment x PV factor + one
payment
DR Asset under lease, CR Lease obligation
First Payment – no transaction
Second/Third…Payment:
Check for payable
Expense = Net obligation x i x n/12
Obligation = annual disbursement – payable
– expense
SHOULD DR Lease Interest Expense/Payable,
DR Lease Obligation, CR Cash
DO (DR Lease Payable) DR Lease Expense CR
Obligation
At FYE:
(1) Accrue interest
= Net Lease Obligation x i x (n/12)
DR Interest Expense, CR Interest Payable
(2) Depreciate the asset – shorter of UL or life
of lease
DR Depreciation expense, CR A/D Asset
under lease
Lease End:
DR Depreciation Expense, CR Leased Asset
STOCKS (WE ISSUE)
$5.50 cumulative, convertible, non-callable,
no par value, preferred shares
$5.50 = dividend rate
cumulative = dividends are owed each year,
even if not paid
No par value = price per share is determined
by market
Issuance of stock for cash:
Already done – update # of shares
DR Cash, CR Common/Preferred Stock
Issuance of stock for asset:
DR Asset, CR Common/Preferred Stock,
update # of shares
Conversion of preferred stock to common
stock:
DR Preferred Stock, CR Common Stock
Always use Preferred Stock BV
Conversion value = value in PS x % of shares
converting
Cash Dividends:
Distribute pref. dividends first - can only be
declared once a year
Date of declaration:
= price per share x # of shares
DR Retained Earnings, CR Dividends Payable
Date of payment – no trans.
DR Dividends Payable, CR Cash
Preferred dividends in arrears:
No entry until declared
Make note of # of dividends in arrears in a
memo
Once declared:
= price per share x # of shares x # of
years to be paid for
DR Retained Earnings, CR Dividends
Payable
Stock dividends:
On date of declaration:
New shares issued = # shares
outstanding x % dividend declared
Market price = new shares issued x price
per share (on date of declaration)
DR Retained Earnings, CR SDD
On date of distribution:
DR Stock Dividend Distributable, CR
Common Stock
Stock Split:
Update # of shares
Stock Repurchase:
BV x % converted
If purchase price < book value SHOULD
DR Common Stock, CR CC or R/E, CR Cash
If purchase price > book value SHOULD
DR Common Stock, DR CC or R/E, CR Cash
Contr. Cap. Is debited only if the account
already exists and has a CR balance, if not,
DR R/E
IGNORE MARKET VALUE – USE BV
BONDS (WE ISSUE)
Issuance of Bonds Payable:
Table 1 – one-time payment
Table 2 – recurring payments
Bond price = FV x % stated OR
PV (principal) = FV x PV factor (table 1)
PV (interest) = FV x interest rate x 6/12 x PV
factor (table 2)
Bond price = PV (principal) + PV (interest)
To record – already done:
DR Cash, CR Bond Payable
Interest on Bonds Payable:
Interest Expense = CV x market rate x n/12
DR Bond Interest Expense
Interest Payment = FV x coupon rate x n/12
CR Cash/Bond Interest Payable
Amortization = interest expense – interest
payment
DR/CR Bond Payable
Bond Retirement/Recall:
(1) Accrue interest and amortize
Interest Expense = CV x market rate x
n/12
Interest Payment = FV x coupon rate x
n/12
Amortization = expense – payment
(2) Calculate cash paid to retire/recall
= disbursement – interest payment from
step 1
(3) Calculate CV
= (T/B Bonds Payable pre recall x %
recalled ) +/- amortization
(4) Gain/Loss:
= Cash - CV
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