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# Spring 2014 Acc 221 – Exam #3 – Review Guide

Exam Question #: 1
Calculating the Purchase Cost of Long Term Fixed Assets

## [ ] Pages 320 to 323 in Spiceland

[ ] Spiceland Homework Chapter 7: Exercise: 7-2 – Problem: 7-1A
 Record the entire purchase price + costs necessary to put the asset into
action
 Capitalizing is recording an expenditure as an asset opposed to an
expense account
 Debit the asset being purchased for its value (equipment, land, etc.)
 Credit cash or accounts payable depending on the transaction

Exam Question #: 2
Calculating Gain or Loss on the Disposal of a Fixed Asset

## [ ] All 3 Tabs – in the: Disposal of Fixed Assets.xls handout

[ ] Pages 341 to 344 in Spiceland
[ ] Spiceland Homework Chapter 7: Exercise: 7-17 – Problem: 7-8A
 A gain is selling an asset for more than its book value (cost of asset – acc.
Depreciation)
o Credit to a revenue account
 A loss is selling an asset for less than its book value
o Debit to expense account
 Calculate the depreciation for the time period given
o Subtract the depreciation from the original cost to figure out if it is a
gain or loss

##  Exam Questions #: 3, 4 and 5

 Calculating and Recording: Straight Line Depreciation – Double-Declining-
Balance Depreciation – Activity-Based Method Depreciation

##  [ ] All 5 Tabs – in the: Straight Line - DDB Depreciation.xls handout

 [ ] All Tabs – in the: Activity Based Depreciation.xls handout
 [ ] Pages 330 to 339 in Spiceland
 [ ] Spiceland Homework Chapter 7: Review Questions: 6, 17, 22 – Exercise: 7-11 –
Problem: 7-5A
 Record the purchase with a debit to the asset and credit to cash, then record each yrs.
depreciation expense (debit depreciation expense, credit accumulated depreciation)
 Accumulating Depreciation is a contra asset account with a normal credit balance
o Debit depreciation expense
 Straight-Line Depreciation: allocate equal amount of the depreciable cost of each
year of the asset’s service life
o Depreciation Expense= (asset’s cost – residual value) / service life
 Depreciable cost is the numerator of the fraction
 1/service life = depreciation expense
o Dep. cost * dep. rate = depreciation expense Accum. Dep &Book value
 Pg. 333
 Double-declining-balance depreciation:
o Higher in earlier years and lower in later years
o Dep. Rate= 2/service life
o Beg. Book value * dep. Rate = dep. Expense Acc. Dep. & Book Value
o The depreciation expense of the last year will be manipulated so that the
total dep. Expense = residual value
 Pg. 335
 Activity-based depreciation
o Dep. Rate = (book value – residual value) / total units expected to be
produced
o Unit is given for each year
o Unit * dep. Rate = dep. Expense Acc. Dep. & Book value
 Pg. 336

Exam Question #: 6
Conceptual – When Goodwill Becomes an Asset

## [ ] Pages 327 to 328 in Spiceland

 Intangible asset that records the value of a company as a whole
 Recorded in the balance sheet ONLY when we purchase it as part of the
acquisition of another company
 The purchasing company records the goodwill equal to the purchase price less
the fair value of the net assets acquired, minus the value of all the liabilities
assumed
 Because of its difficulty, its recording is only done as a part of the acquisition of
another company

Exam Questions #: 7
Sales Taxes Payable Liability – Unearned Revenue Liability
[ ] Pages 378 to 381 in Spiceland
[ ] Spiceland Homework Chapter 8: Review Questions: 11, 12 – Exercise: 8-10
Problems: 8-5A, 8-6A
[ ] Solid Footing Pages 98 to 100
 When a sale is made prior to rendering the service, unearned revenue liability
account is effected
o Debit cash, credit unearned revenue
o Debit unearned revenue and credit sales revenue when service is
performed
 Taxes that are collected must be recorded in the sales tax payable liability acct.
o Debit cash, credit sales revenue AND sales tax payable
o Debit sales tax payable, credit cash when the tax is submitted to the gov.
o Can be recorded in one transaction
 Liability accounts have normal credit balances

Spring Acc 221 – Exam #3 – Review Guide and Check List Page 2

Exam Questions #: 8
Calculating the Selling Price of a Bond and the Required Journal Entry to Record
the Issuance of the Bond

## [ ] Facts Tab – in the: Bonds - Selling Price, Amort, Entries.xls handout

[ ] Selling Price-Semi-Annual Pmt Bond.xls handout
[ ] Par Entries Tab, Disc Entries Tab, Prem Entries Tab – in the: Bonds - Selling
Price, Amort, Entries.xls handout
[ ] Bond Homework Problems #: 1, 2, 9
[ ] Bond Homework Problems #: 6. A. 1. – 7. A. 1. – 8. A. 1.
 Debit cash, credit bonds payable for the selling price of the bond
 Payment amount * table factor = Present value (One for annuity and one for
single payment)
o Add the two values to get selling price
 Discount if effective rate > stated rate
 Premium if effective rate < stated rate
 If bond is semi-annual, 1.) divide the annual interest rate by 2 when calculating
the payment amount 2.) multiply the term by 2 to get the number of periods of
payment 3.) Divide the effective interest rate by 2 when calculating
 Issuance of bond= debit to cash, credit to bonds payable for the selling price of
the bond
 PAR: Record each of the interest payments annually and additional final payment
in the last year= debit to interest expense, credit to cash
o Final payment is a debit to bonds payable for initial price of bond, credit to
cash
 DISCOUNT: debit cash and credit bonds payable for the selling price of the bond
o Debit interest expense (total interest), credit bonds payable (additional
costs) and cash (set annual interest)
o Final record is debit to bonds payable and credit to cash for the normal
selling price (same for all bonds)
 PREMIUM: debit cash and credit bonds payable for the selling price
o Debit interest expense and bonds payable (additional payment needed to
equal set rate), credit cash (set rate)
o Final record is debit to bonds payable and credit to cash for the normal
selling price (same for all bonds)

Exam Questions #: 9
Recording the Maturity of a Bond

[ ] Par Entries Tab, Disc Entries Tab, Prem Entries Tab – in the: Bonds - Selling
Price, Amort, Entries.xls handout
[ ] Bond Homework Problems #: 6. A. 3. – 7. A. 3. – 8. A. 3.

 Debit bonds payable, credit cash for the original face value

Exam Question #: 10
Determining Outstanding Shares of Common Stock

## [ ] Page 463 in Spiceland

 Authorized is the total number of shares available to sell
 Issued stock is the number of shares that have been sold to investors
 Outstanding stock is the number of shares held by investors
 Treasury stock= repurchased shares
 Issued stock – treasury stock = outstanding stock
Exam Question #: 11
The Effects of Recording Par Value Common Stock on the Accounting Equation

## [ ] Page 464 to 466 in Spiceland

[ ] Spiceland Homework Chapter 10: Exercises: 10-3, 10-9
 When par value or stated value is issued, we debit cash and credit common
stock (par value per share) and credit additional paid-in capital for the portion
above par value (difference)
 Recorded as credit in the equity section… no overall affect compared to a no-par
value stock
 Always the difference between cash and stock
 However, a credit to an equity account will decrease overall net income

Exam Questions #: 12
Required Journal Entry to Record the Issuance of Par Value Common Stock

## [ ] Page 464 to 466 in Spiceland

[ ] Spiceland Homework Chapter 10: Exercises: 10-3, 10-9
 Debit cash for number shares * price per share
 Credit common stock for # of shares * par value
 Credit paid-in capital in excess of par value for the remaining amount

Spring Acc 221 – Exam #3 – Review Guide and Check List Page 3

Exam Question #: 13
Calculating Goodwill

[ ] Goodwill.xls handout
[ ] Page 327 to 328 in Spiceland
[ ] Spiceland Homework Chapter 7: Exercise: 7-6 – Problem: 7-3A
 Cash paid now + total liabilities assumed – total assets (at fair value) = goodwill

## Exam Questions #: 14, 15, and 16

Payroll Taxes and Payroll Tax Expense
Calculating and Recording – Salaries Expense and Related Liabilities and
Payroll Tax Expense and Related Liabilities

## [ ] Real-World Payroll Tab – in the: Payroll and Payroll Taxes.xls handout

[ ] Payroll and Payroll Taxes – Self Test.xls handout
[ ] Pages 375 to 378 in Spiceland
[ ] Spiceland Homework Chapter 8: Exercise: 8-9 - Problem: 8-4A
 If it is a contribution from the employer OR employee it gets recorded in the
salaries expense as credits to accounts payable.. debit to salaries expense
(Separated into 2 different ones… one for employees and one for employee)
 FICA= social security + medicare

Exam Questions #: 17
Calculating the Selling Price of a Bond

## [ ] Facts Tab – in the: Bonds - Selling Price, Amort, Entries.xls handout

[ ] Selling Price-Semi-Annual Pmt Bond.xls handout
[ ] Par Entries Tab, Disc Entries Tab, Prem Entries Tab – in the: Bonds - Selling
Price, Amort, Entries.xls handout
[ ] Bond Homework Problems #: 1, 2, 9

Exam Questions #: 18
Journal Entries and Bond Amortization Schedule for Discount Bonds or Premium
Bonds

[ ] Disc Amort Tab – in the: Bonds - Selling Price, Amort, Entries.xls handout
[ ] Disc Entries Tab – in the: Bonds - Selling Price, Amort, Entries.xls handout
[ ] Bond Homework Problem #3
[ ] Bond Homework Problem #6
[ ] Prem Amort Tab – in the: Bonds - Selling Price, Amort, Entries.xls handout
[ ] Prem Entries Tab – in the: Bonds - Selling Price, Amort, Entries.xls handout
[ ] Bond Homework Problem #4
[ ] Bond Homework Problem #7

## Discount: Debit interest expense, credit bonds payable and cash

Premium: Debit interest expense and bonds payable, credit cash