ACCT 2310 - L.

Young
Review for Comprehensive Final Exam

New Material (approximately 25% of final exam)

I.Chapter 10
A. Issuance of bond with a discount or premium
1. Amortization using straight-line method
- amortization of the discount – amount of total discount/number of period =
amortized discount payment for each period to be added with interest payment
- amortization of a premium decreases the interest expense over the period – calculate
total premium / number of periods = amortized payment of premium – this is then
used as part of the bond interest payment
2. Journal Entry on interest payment date.
- debit bond interest expense, credit cash – for issuer
- for bond holder – debit cash, credit bond interest revenue
3.Balance of premium or discount at maturity.

B.Installment notes with equal total payments (principle payments increase, interest decreases)
1. Calculation of payment amount
2. Amortization table to determine amount of principal and interest paid
3. Journal entries at issuance and payment dates
4. Understanding of change in component of payment over time (interest portion
decreases and principal portion increases)
C. Installment notes with equal principal payments
- principle payment is consistent, but interest payment on top of that decreases with each
period
D. Calculation of amount of principal payments
E. Amortization table to determine amount of principal and interest paid

II. Chapter 11

1. Characteristics of a corporation including advantages and disadvantages.

- Advantages
o Separate Legal Entity
o Limited Liability of Stockholders
o Transferable Ownership Rights
o Continuous Life
o Stockholders are not corporate agents
o Ease of Capital Accumulation
- Disadvantages
o Government Regulation
o Corporate Taxation
- Stockholders > Board of Directors > Pres. VP, etc > Employees

2. Characteristics of a general partnership including advantages and disadvantages (see class

notes) shit

3. Rights of stockholders
- Vote at stockholder’s meetings
 - Sell stock
- Purchase additional shares of stock
- Receive dividends (if any)
- Share equally in assets after creditors are paid in a liquidation

4. Basics of Capital Stock including terminology.

Know difference in “Authorized,” “Issued,” “Treasury” and “Outstanding”
(Know how to calculate amount “Outstanding.”)
(Know which amount to use for calculation of dividends and EPS.)

5. Issuance of common stock with par value, no-par value, or stated value – know journal
entries
- Par value is an arbitrary value assigned upon issuing of the stock
- Par value does not equal market value
- Par value stocks
o Debit cash, credit Common stock for par value stock issued, credit
Contributed capital excess of par (value of stock over par)
o If contribution is non-cash simply debit the asset and credit for its value

6. Preferred stock: nature of preferences (dividend preference and liquidation preference)

- separate class of stock – has priority over common shares in dividend
distributions (has a stated dividend rate) and distribution of assets in case of
liquidation …normally has no voting rights

7. Know order of payments upon liquidation to creditors and stockholders (see class notes).
shit

8. Preferred stock: cumulative versus noncumulative; be able to determine amount of

dividend preference and calculation of the allocation of dividends to common and
preferred. (For example, E11-5 and 6)
- Cumulative – dividends in arrears must be paid dividends on common stock (most
preferred stock is cumulative)
- Non-cumulative – undeclared dividends from past or currents years do not have to
be paid in future years
- If Non-cumulative -% of outstanding preferred stocks is paid out of dividends to
the preferred stock holders – then remainder of dividends from the current year goes
to common stock
- If Cumulative - % of outstanding preferred is paid out for current years, as well as
past years unpaid – the remainder is then given to common stock
- Participating vs. Non-participating – participating there is no cap and preferred can
be paid excess after common is paid an equal amount to preferred, while in non-
participating the cap on dividends paid out which is usually the state preferred rate

9. Cash dividends:
Know significance of date of declaration, date of record, and date of
payment.
(When do they become a liability?)
(Who determines whether they will be paid or not and timing of payment?)
 10. Treasury stock transactions:
Know journal entries for purchasing and reissuing.
Know what types of account both “Treasury stock” and “Contributed
Capital, Treasury stock” are.

11. Earnings per Share: Be able to calculate

Portions of Chapter 11 NOT ON FINAL

Stock dividends, pg 451- 453
Stock splits, pg 453
Reporting Income and Equity, pg 456 to 457
Stock options, pg 460
Statements of Ret Earn, pg 460
Statement of stockholders equity, pg 461
Page 462 -464

Material Studied Prior to Exam #3 (approximately 75% of exam)

III.Chapter 1
A.Generally Accepted Accounting Principles (GAAP)
- rules that financial accounting is governed by….financial accounting standards
board and the s.e.c.
B.Principles of Accounting – pages 9 and 10.
- objectivity principle (independent unbiased evidence), cost principle (actual cost),
going-concern principle (assumption that business will continue operating), monetary unit
principle (express transaction in monetary units, or money), revenue recognition principle
(recognized when received/not necessarily cash/sum of cash and plus cash value of items
received), business entity (accounted for separately from other businesses),
C.Accounting Equation and Transaction Analysis (effect of business transactions on the
accounting equation)
- Assets = Liabilities + Equity
(Equity = Common stock – Dividends + Revenues – Expenses)
Must always remain balanced
D.Financial Statements – Format and preparation of the Income Stmt., Balance Sheet, Stmt of
Ret. Earnings
Income Statement: Revenues – Expenses = Net income
Retained Earnings: Previous Retained Earnings plus Net Income less Dividends
equals Retained Earnings
Balance Sheet: Assets on left, Liabilities and Equity on right
E.Demonstration problem at end of chapter.
F.Not covered was the Statement of Cash Flows.

IV.Chapter 2
A.Accounting books and records – Account, ledger, trial balance
Account = record of increases and decreases in a specific asset, liability, or whatever
Ledger = record containing all accounts of the company
B.Assets, liabilities, revenues, expenses, equity, dividends accounts
Assets = land, buildings, cash, accounts receivable, notes receivable, prepaid stuff, etc
And yeah – not gonna list all of these – I know them
 C.Double-Entry Accounting/Characteristics of an Account
1.debits and credits
T accounts - left and right…debits increase assets and so on
2.Normal balances of each account type, increases and decreases of each account type
D.Accounting Process – Journal entries/Posting to Ledger/Trial Balance/Financial Statements
Balance ledgers are typically used instead of T accounts – but whatever
E.Demonstration problem at end of chapter.

V.Chapter 3
A.Accrual Basis versus Cash Basis
Transactions are recorded when incurred (accrual basis), not when cash is exchanged
(cash basis)
B.Accounting Period Concept
Quarterly, Semiannual, Annual
C.Adjustment Process – Deferrals and Accruals
Deferrals - Paid or received cash before expense (prepaid) or revenue (unearned) was
incurred
Accruals – Paid or received cash after expense or revenue was incurred
D.Revenue is recognized when earned and expenses matched with revenues (matching
principle)
E.Closing Entries (all temporary accounts are closed)
Temporary accounts may include income statement accounts (revenue and
expense), dividends accounts, and the income summary account….expenses and revenues
closed to the income summary account – income summary closed to retained earnings
account…dividends closed to retained earnings (which is permanent)
F.Post-Closing Trial Balance
G.Overall Accounting Cycle – Journal entries/Posting to Ledger/Trial
Balance /Adjustments/Adjusted Trial Balance /Financial Statements/ Closing
Entries/Post-Closing Trial Balance
H.Demonstration problem at end of chapter.

VI.Chapter 4 – Merchandising Operations

A.Significance of inventory and determination of inventory cost.
B.Different format of income statement (including calculation of gross profit and key steps in
the Multi-step income statement)
Sales:
Less: discounts and returns
Net Sales
-Cost of Goods Sold
Gross Profit from Sales
Operating Expenses
General/Admin. Expenses
Total Expenses
Net Income
C.Journal entries for sales and purchases – summary on page 164.
D.Treatment of freight by buyer versus seller.
FOB shipping point – ownership transfers at carrier, paid by buyer
FOB destination – ownership transfers upon delivery, paid by seller
- If buyer pays for shipping, just counted as a credit/debit to inventory
E.Treatment of purchase discounts.
 On discounts received – credit inventory received, cash, and debit full amount of
payable- On returns – credit inventory and debit payable, ditto on allowances
- For sellers- discounts and allowances have their own accounts that are debited when
these are incurred – contra revenue accounts
- When a sale is made – debit COGS (what kind of account is this? Contra revenue?)
and credit inventory, debit acct. receivable and credit sales
F.Demonstration Problem II on page 171

VII.Chapter 5 – Inventories
A.Inventory Costing under Perpetual System using Specific Identification, FIFO, LIFO, and
weighted average methods.
FIFO - first in first out – assumes costs flow in the order occurred
LIFO – last in first out – assumes costs flow in reverse order occurred
Weighted Average – assumes costs flow at an average of the costs available
Specific Identification – Cost of specific units are added to COGS when sold
B.Financial Statements Effects of Costing Methods
Weighted Average – smoothes out pricing changes
FIFO – ending inventory approximates current replacement cost
LIFO – better matches current cost of goods sold with revenue (can understate income
in a time of rising costs…overestimate in a time falling cost – exact opposite for FIFO)
--- if LIFO is used for tax purposes it must be used in financial statements
C.Lower of Cost or Market rule (LCM)
- Inventory must be reported at market value if it is lower than cost – this market
value is called current replacement cost – not marked up if market is higher though
- can be applied to individual items – groups of items – or the entire inventory
D.Demonstration problem at end of chapter.

VIII.Chapter 6 – Cash and Internal Controls

A.Purpose and principles of internal control
- Purposes
o protect assets
o ensure reliable accounting
o promote efficient operations
o urge adherence to company policies
- Principles
o Establish responsibilities
o Maintain adequate records
o Insure assets and bond key employees
o Separate recordkeeping from custody of assets
o Divide responsibility for related transactions
o Apply technological controls
o Perform regular and independent reviews
B.Limitation of internal control
- human error and human fraud
- cost of internal control must not exceed benefits
C.Preparation of a bank reconciliation and related journal entries
Bank Statement Balance
- deduct: outstanding check
- add: deposits in transit
 - add or deduct bank errors – rare
Book Balance
- deduct: NSF (non-sufficient funds) check
- deduct: Bank service charge
- add: Interest earned in checking account
- add: Collections made by the bank
- add or deduct book errors – more common than bank errors
 the book and bank balances should be equal following adjustments
D.See homework.

IX.Chapter 7 – Receivables
A.Allowance Method of Accounting for Receivables – know entries using the percent of
receivables method (page 285).
- separate accounts for each customer
- direct write-off – debit bad debt expense, credit account receivable that is deemed
uncollectible
- allowance estimates total bad debt expense for the year – debit bad debt expense,
credit allowance for doubtful accounts (contra-asset) – can be done as percent of
sales, percent of receivable, or aging accounts – need to know percent receivable
- estimate bad debt expense as a percent of accounts receivable by crediting that
amount to allowance for doubtful accounts, then credit unadjusted balance in
allowance for doubtful accounts = estimated bad debt expense for the year which will
be debited as a bad debt expense
- to write of in allowance method – simply debit to allowance, and credit receivable
account
B.Accounting for Notes Receivable including interest accrual at year-end
- Notes Receivable (debit) recorded on sale (credit)…then upon payment interest is
recorded as a revenue credit and cash is debited for amount paid
- If unable to pay it transfers over to account receivable
- If not yet paid – interest may be recorded as interest receivable (debit) and int.
revenue (credit)
- When paid – debit cash – credit appropriate interest revenue (if not yet recorded as
receivable), interest receivable (writing it off), and note receivable (also writing it off)
C.See homework.

X.Chapter 8 – Long-Term Assets

A.Nature of fixed assets and cost concept of recording
- land, buildings, machinery, equipment, etc
- cost includes purchase and costs of preparing for use
B.Purpose of recording depreciation (matching by allocation of cost to periods of useful life)
- depreciation is the allocation of cost to an expense of the useful life of the asset,
recorded during the accounting period in which the company benefited from its use
C.Depreciation methods – Straight-line, declining balance, units of production
- Straight line –
o Depreciation expense for period = (cost – salvage value)/useful life in periods
- Units of Production –
o Depreciation per unit= (cost-salvage value)/total units of production…
o Depreciation expense = depreciation per unit x # of units produced in period
- Declining balance (tends to put depreciation really high on front end, so repair
 expense is mostly in the later life)
o Take straight-line rate of depreciation (as a percentage of cost-salvage)
o Multiple this rate by 2 – so its twice as fast in the first year as the straight line
and depreciate at that percent of value all the way down – but not past salvage
value
D.Terms – cost, salvage value, book value, depreciation expense, accumulated depreciation
I know this wasn’t on the sheet – but I’d like to remember it anyways – Capital
expenditures are major overhauls and extend life of asset, revenue expenditures are
regular maintenance and repairs, don’t extend life, don’t increase productivity
E.Disposal by discarding or selling
1.Calculation of gain or loss and 2. Entry to record
- Debit/Credit Gain or loss (unless trade, no gains)
- Debit Accumulated Depreciation to write off
- Debit Cash received
- Debit new item received if traded
- Credit Item to remove as asset
- Record gain or loss based on comparison between cash received and book value
- Book value = cost – accum. Dep.
F.Exchanging (Trading) – defer gain, record loss
G.Method used for natural resources
- Depletion per unit = (cost – salvage value)/total units of capacity
- Depletion expense = depletion per unit x units extracted and sold in period
H.See homework.

XI.Chapter 9 – Current Liabilities

A.Accounting for short-term notes payable – at issue date, interest accrual, and on date paid
off.
- issue date – don’t record interest of any kind – just the cash (debit) and note payable
(credit)
- interest accrual – interest expense (debit), interest payable (credit)
- at maturity – notes payable (debit), interest payable (already recorded as expense)
(debit), interest expense (not yet recorded) (debit), cash (credit)
B.Contingent liabilities. See rules on page 364 for reporting if remote, possible, or probable.
C.Nature of payroll deductions for employee and employer.
- employee – FICA, Medicare, Federal Income Tax, State/Local Income Tax,
Voluntary Deductions
- employer – owe withheld amounts to appropriate government agency as payables –
part of salary expense – pay equal amounts of FICA and Medicare withheld – also
pay unemployment tax Federal and State – FUTA and SUTA – these are payroll tax
expenses
- health, dental, vacation time, bonus plans, etc

XII.Chapter 10 – Long-term Liabilities

A.Bonds
1.Terminology related to bonds
- secured/unsecured, term/serial, registered/bearer, convertible/callable
- company sells bonds to underwriter, who sells them to investors – a trustee monitors
2.Recording issuance of bonds and any related premium or discount.
- when market rate is below par value bond will sell at a premium (because the issuer
 will be paying more interest than market – sell for more to make up for it)
- when market rate is above par value bond will sell at a discount (because interest rate
is below market value, investor won’t get the return the market demand)
- debit cash, discount on bonds payable / credit premium on bonds payable, bonds
payable
3.Understand what causes issuance at a premium(stated rate above market rate) or discount
(stated rate below market rate)
4.Determination of amount of cash interest payment (use stated rate)
- principle x % interest x period (6/12 if semiannual and so on) = interest payment
- debit bond interest expense, credit cash
5.Calculation of issue price using present value tables.
- PV of I on the principle, and PV of Annuity of I on the interest – add these numbers
together = issue price
-
XIII.Appendix B
A.Calculation of the PV or FV of $1 as studied using tables
B.Calculation of the PV or FV of an annuity as studied using tables