Lecture 05 - February 4 - Midterm Review.docx

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Western University
Business Administration
Business Administration 2257
Baldwin Wallace

Accounting review Apple 48% of their revenue in 2012 was from the iPhone. They’re thinking about putting out a low-cost iPhone (have to consider manufacturing and profit) Midterm 10 t/f, 15 multiple choice (8-10) – terminology goes well with t/f and multiple choice Analysis question including calculations Accounting cycle/adjusting entries Bonus Bring a pencil, calculator and accounting paper I-clicker review Current liabilities: accounts payable, 90 day notes payable, taxes payable Current liabilities: unearned revenue, current portion of long-term debt, interest payable Current asset: interest receivable 100,000 loan – 25,000 due in 2011, 75,000 due in 2013 Current liability: 25,000 Long-term liability: 75,000 Long term liability: 20 year bonds not accounts payable Bonds of 25 million, taking 25 years to mature – coupon rate 4.25% and market of 3.95% Market prices goes up if the interest rate goes down (you won’t find interest like that in the market place, so people will pay more for it) Bonds of 10 million, maturing in 2026 – coupon rate 2.75% - Can they deduct $275,000 of interest expense if the bonds are outstanding? Yes they can. Lease a food cart for 6 months and then returned it. Lease payment was $650 a month, with a purchase price of 10,000 This should not be recorded as a capital lease, but an operating lease (because you’re not using 75% or more of the thing’s life/price) In the previous question, you are the lessee Companies prefer operating leases because they don’t impact the debt/equity ratio The equity part of the debt-to-equity ratio includes common shares and retained earnings Bond terms: face value, callable, junk (if a bond is issued by a company and it is given a low rating, it is called junk) $600,000 for a boat which is good for 20 years, residual value of $40,000. Annual depreciation $28,000 Same as before but declining balance at 20% $120,000 Debit depreciation expense and credit accumulated depreciation to record depreciation expense Depreciation never involves cash because it is an adjusting entry Goodwill cannot be recorded based on financial success and Oscar nominations Goodwill comes from buying another company Policy is to get cars tuned up every month. This should not be capitalised. This is routine maintenance but it is not seriously extending the useful life Accumulated depreciation and allowance for doubtful accounts are contra accounts. Contra accounts are recorded on the opposite side that they usually are (i.e. assets are usually debits, but a contra asset is credit) Hudson Bay Company sold Zellers lease locations to Target, but not the brand. Also Wal-Mart got some leases too. Sloppy seconds, they wanted But yea, I can se
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