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Final

# bu227 final notes.pdf

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Department
Business
Course
BU227
Professor
Dwayne Moore
Semester
Fall

Description
CHAPTER 8: Reporting & Interpreting Cost of Sales & Inventory periodic -> purchases, carries over to end of period perpetual -> inventory, recorded at every sale Beginning Inventory + Purchases . Cost of goods available for sale - Ending Inventory . Cost of sales Speciﬁc identiﬁcation: speciﬁc cost of item sold is added to cost of sales FIFO METHOD: cost of most recent purchases are in ending inventory - begin adding [# of units] from the most recent date, until you have reached the # of units of ending inventory - whatever is left over from the least recent purchase, multiply that by \$/unit and add to what beginning inventory was - that equals the cost of sales * ﬁfo method has been proven to have lower cost of sales, & higher ending inventory, gross inventory, income tax expense, and proﬁt AVERAGE COST METHOD: - cost available for sale / # of units = weighted average cost - Multiply the weighted average cost to ending inventory to get cost of that - Multiply the weighted average cost to cost of sales to get cost of that - if you’re a private company who doesn’t rely on outside shareholders, you are more likely to use the weighted average cost method - More public companies who do rely on outside shareholders, will use FIFO net realizable value = selling price - additional cost to get it to customer’s hand - said to be conservative when a “holding” loss is recognized in the current period rather than the period when it was sold Chapter 9: Reporting & Interpreting Property, Plant, & Equipment; Natural Resources; and Intangibles - acquisition cost includes purchase price and all expenditures needed to prepare it for its intended use (does not include ﬁnancing charges and cash discounts) * land is not depreciated - if land is bought for \$X and building is bought for \$Y (appraised values), divide each from X+Y to see the percentage and multiply that from the actual total cost it was bought for to get it’s separate assigned cost - Ordinary repairs & maintenance (revenue) - Additions and improvements (capital) - regarding depreciation -> carrying amount (asset cost - accumulated depreciation) = book value STRAIGHT- LINE METHOD: - depreciation expense per year = (cost - residual value)/useful life in years UNITS-OF-PRODUCTION METHOD: i. Depreciation rate = (cost - residual value)/life in units of production ii. Depreciation expense = depreciation rate x # of units produced in a year DECLINING BALANCE METHOD (accelerated depreciation): - annual depreciation expense = net book value x (2/useful life in years) * if estimates change, depreciated is calculated by (book value at date of change - residual value at date of change)/remaining useful life - if carrying am’t > recoverable am’t, asset is impaired - Impairment loss = carrying am’t - recoverable am’t - Gain (+SE) = cash received - book value - unit depletion rate = (acquisition & development cost - residual value)/ estimated recoverable units - depletion cost for a period = unit depletion rate x # of units extracted - regarding goodwill -> if purchasing another company, goodwill is calculated by taking assets - liabilities = net assets, difference of that and purchasing price = goodwill value Chapter 10: Reporting & Interpreting Current Liabilities - accrued liabilities -> expenses that have been incurred before end of an accounting period but have not yet been paid E.g. Wages payable, interest payable - deferred revenues -> revenues that have been collected but not earned - Reported as a liability E.g. Warranty payable - when either the am’t or the timing of the liability is uncertain, it is referred to as provision - Use Provision for Product warranty (L) and Warranty Expense (E) accounts - E.g. Estimated liabilities for warranties, legal & tax disputes that arise in the ordinary course of business, closing of stores - contingent liability is a possible liability that is created as a result of a past event - working capital = current assets - current liabilities - Important to managers/analysts b/c they have a direct impact on cash ﬂows from operating activities x x x x e l b a y a p d n x x x x h s x x x x h s s e r a h S d e u x x x x ) A ( h x x x x h x x x x s e r a h s n o m Chapter 6: Communicating & Interpreting Accounting Information - ty
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