Unit #3 Exam Review (Chapters 8-10)
Chapter 8
Objective 1: Explain Account Receivables
1. Define:
1. Account Receivable:
2. Note Receivable:
3. Trade Receivable:
4. Other Receivable:
Review: A company sold merchandise on account for $5,000 with the terms 2/10, n/30. The customer
returns $500 worth of merchandise after 2 days, and pays the amount due on day 8.
1. Record the sale.
2. Record the return.
3. Record the receipt of payment.
Objective 2: Valuing Accounts Receivable
1. Define:
Term Definition
Direct Write-Off Method
Allowance Method
Cash (net) realizable value
Percentage of receivables basis
Aging the accounts receivable
Factor of accounts receivable
Allowance for Doubtful Accounts
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Type of Account: Normal Balance: Financial Statement:
Accounts Receivable
Notes Receivable
Allowance for Doubtful Accounts
Bad Debt Expense
2. Direct Write Off Method:
1. How is it done?
2. When is it done?
3. What is the journal entry when the account is uncollectible?
Debit
Credit
3. Allowance Method:
1. How is it done?
2. When is it done?
3. What is the journal entry when the amount is estimated?
Debit
Credit
4. What is the journal entry when an account is uncollectible?
Debit
Credit
Allowance Method Example:
a. During the year, a company has credit sales of $300,000. Of this amount, $50,000 of receivables
remains uncollected at year end. The company estimates 2% of receivables will be uncollectible. The
balance in the Allowance for Doubtful accounts is a $200 debit balance. Prepare the period end
adjusting journal entry:
What is the cash realizable value of the accounts receivable?_________ - _________ = ___________
b. What if the balance in the Allowance for Doubtful accounts is a $200 credit balance instead? Prepare
the period end adjusting journal entry:
What is the cash realizable value of the accounts receivable?_________ - _________ = ___________
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c. The company determines that a receivable balance from XYX Co. is not collectible and management
authorizes a write-off of $350.
4. Factoring A/R and Credit Card Sales
Record Sale of Receivables to a Factor
Debit
Debit
Credit
Record Credit Card Sale
Debit
Debit
Credit
Objective 3: Notes Receivable
1. Define:
1. Maker:
2. Payee:
3. Interest Calculation:
4. Honoring of note:
2. Determining Maturity Dates: Omit the date of the note, but include the due date. (you need to
know how many days each month has)
Example: $10,000, 5%, 90 day note, issued on July 1
July 2-31= 30 days
August 1-31= 31 days
Total is 61 so far. 90-61= 29. Note is due on September 29th
3. Compute the Interest:
Example: $10,000, 5%, 90 day note, issued on July 1
$10,000 * 5% * (90/360) = $125
4. Record the issuance of a note to settle on open account:
Example: $10,000, 5%, 90 day note, issued on July 1
10,000
10,000
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5. Record note paid in full on September 29th:
Example: $10,000, 5%, 90 day note, issued on July 1
10,125
10,000
125
Chapter 9
Objective 1: Accounting for Plant Assets
1. Define and provide examples:
a. Plant asset:
b. Historical cost principle:
c. Land Improvements:
d. Buildings:
e. Equipment:
f. Ordinary Repairs:
g. Capital Expenditures:
2. Explain and give examples of costs that get assets “ready for intended use”:
Objective 2: Depreciation Methods
1. Define:
Term Definition
Depreciation
Book Value
Cost
Useful Life
Salvage Value
Straight-line
Units-of-Activity
Declining Balance
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Term Definition
Impairment
2. Journalize Depreciation
DEBIT
CREDIT
Objective 3: Disposal of Plant Assets
1. Define:
a. Gain on Disposal: Cash Received for the sale of asset > book value of the asset
b. Loss on Disposal: Cash Received for the sale of asset < book value of the asset
2. Journal Entries:
a. Gain on Disposal:
DEBIT
DEBIT
CREDIT
CREDIT
b. Loss on Disposal:
DEBIT
DEBIT
DEBIT
CREDIT
c. Retirement of fully depreciated asset:
DEBIT
CREDIT
d. Retirement of asset prior to full depreciation:
DEBIT
DEBIT
CREDIT
INSERT REVISING PERIOD DEPRECIATION – PAGE 9-15
Objective 4: Natural Resources and Intangible Assets
1. Define:
Term Definition
Natural Resource
Depletion
Intangible asset
Amortization
Goodwill
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2. Equation for Depletion Cost per Unit:
3. Journal Entry for Depletion
DEBIT
CREDIT
4. Equation for Amortization of Intangible Asset:
5. Journal Entry for Amortization
DEBIT
CREDIT
DEPRECIATION EXAMPLE: Provide equations in the boxes below
Depreciable Cost
Book Value
Straight Line
Units of Activity
Declining Balance
Revised Depreciation
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Depreciation Examples:
Straight Line Example
The New Times Company purchased a new machine on January 1, 2017. The new machine cost $120,000,
had an estimated useful life of five years, and an estimated salvage value of $15,000 at the end if it’s useful
life. It was expected that the machine would produce 210,000 widgets during its useful life. The company used
the machine for exactly three years. During these three years, the annual production of widgets was 80,000,
50,000, and 30,000 units, respectively. On January 1, 2020, the machine is sold for $45,000.
Equation:
Depreciation Calculation:
Journal Entry:
Total Accumulated Depreciation:
Sale:
Units-of-Activity Example
The New Times Company purchased a new machine on January 1, 2017. The new machine cost
$120,000, had an estimated useful life of five years, and an estimated salvage value of $15,000 at the
end if it’s useful life. It was expected that the machine would produce 210,000 widgets during its
useful life. The company used the machine for exactly three years. During these three years, the
annual production of widgets was 80,000, 50,000, and 30,000 units, respectively. On January 1,
2020, the machine is sold for $45,000.
Equation:
Depreciation Calculation:
Journal Entry Y1:
Journal Entry Y2:
Journal Entry Y3:
Total Accumulated Depreciation:
Sale:
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Declining Balance Example
The New Times Company purchased a new machine on January 1, 2017. The new machine cost
$120,000, had an estimated useful life of five years, and an estimated salvage value of $15,000 at the
end if it’s useful life. It was expected that the machine would produce 210,000 widgets during its
useful life. The company used the machine for exactly three years. During these three years, the
annual production of widgets was 80,000, 50,000, and 30,000 units, respectively. On January 1,
2020, the machine is sold for $45,000.
Equation:
Depreciation Calculation:
Journal Entry Y1:
Journal Entry Y2:
Journal Entry Y3:
Total Accumulated Depreciation:
Sale:
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Objective 5: Review of Classified Balance Sheet
1. Understand the different classifications of the balance sheet
Chapter 10
Objective 1: Explain accounting for current liabilities
1. Define:
1. Current Liability:
2. Long-term Liability:
3. Notes Payable:
2. Journal Entry to record issuance of Note Payable
DEBIT
CREDIT
3. Formula to compute interest expense on Note Payable:
X X =
Journal Entry to record accrual of Interest Expense
DEBIT
CREDIT
Journal Entry to record payment of Note Payable and Interest
DEBIT
DEBIT
CREDIT
4. Sales Tax Payable
Journal Entry to record payment of Sale and Sales Tax Payable
DEBIT
CREDIT
CREDIT
Formula to compute sales based on total receipts:
/ =
5. Unearned Revenues:
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Journal Entry to receipt of cash
DEBIT
CREDIT
Journal Entry to record revenue earned
DEBIT
CREDIT
6. Define Long-Term Debt and the section of the balance sheet where it belongs:
7. Payroll
Journal Entry to record Payroll Expense
DEBIT
CREDIT
CREDIT
CREDIT
CREDIT
Journal Entry to record payment of payroll
DEBIT
CREDIT
Journal Entry to record Employer Payroll Expense and Liability
DEBIT
CREDIT
CREDIT
CREDIT
Objective 2: Characteristics of Bonds
1. Define:
Term Definition
Bond
Secured Bond
Unsecured Bond
Convertible Bond
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Term Definition
Callable Bond
Face Value
Contractual / Stated Rate
2. Formula to calculate bond price:
X =
Objective 3: Accounting for Bonds Transactions
1. Bonds at Face Value
Journal Entry to record sale of bond
DEBIT
CREDIT
Journal Entry to record accrual of interest
DEBIT
CREDIT
Formula to calculate interest:
X =
Journal Entry to record payment of interest
DEBIT
CREDIT
2. Discount or Premium on Bonds
Define:
1. Premium:
2. Discount:
Bonds at Discount
Journal Entry to record sale of bond with discount
DEBIT
DEBIT
CREDIT
Total cost of borrowing:
+ =
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Bonds at Premium
Journal Entry to record sale of bond with premium
DEBIT
CREDIT
CREDIT
Total cost of borrowing:
- =
3. Redeeming Bonds
Journal Entry to redemption of bond at maturity
DEBIT
CREDIT
Redemption of bond before maturity
Steps:
1
2
3
Define:
1. Carrying Value:
Journal Entry to redemption of premium bond before maturity with a gain
DEBIT
DEBIT
DEBIT
CREDIT
Journal Entry to redemption of a discounted bond before maturity with a loss
DEBIT
CREDIT
CREDIT
CREDIT
Objective 4: Accounting for Long-Term Notes Payable
1. Define:
1. Mortgage:
Journal Entry to mortgage loan
DEBIT
CREDIT
Journal Entry to record installment payment
DEBIT
DEBIT
CREDIT
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2. Lease:
Journal Entry to lease arrangement
DEBIT
CREDIT
Objective 5: Liabilities Reported and Analyzed
1. Presentation: Review Liabilities section of balance sheet.
2. Analysis
3. Define and provide equation for:
Term Definition
Working Capital
Current Ratio
Debt to Assets Ratio
Times Interest Earned
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