Spring 2017 | Joana Marinova Monday, April 24th, 1:30 pm Study Union ACG 2021 Spring 2017 | Joana Marinova Monday, April 24th, 1:30 pm

Content Chapter 8: Current Liabilities Chapter 9: Bonds Chapter 10: Stockholder’s Equity Chapter 11: Statement of Cash Flows

Chapter 8: Current Liabilities

Account Definition Main Category Normal Balance Financial Statement Accounts Payable Amounts owed for products or services purchased on account Liability Credit Balance Sheet Short-term N/P and Interest Calculation Use to borrow cash or purchase asset due within 1 year Sales Tax Payable Collected from customer to be remitted periodically to gov. Deferred Revenue Business receives cash before services or product are provided to customers Current Portion long-term debt Amount of long term debt due within 12 months Warranty Liability account set up when warranty expense is recognized and used to account for warranty work performed in the future Contingent Liability Uncertain situation that might result in a loss

Sample Balance Sheet

Short Term Notes Payable On 11/1/16, Pegasus Corporation purchases land for $200,000. 40% cash payment and 60% promissory note due in 10 months. Annual interest rate is 8%. Principle and Interest are due at maturity. Prepare journal entries for initial transaction, interest accrued after 5 months, and at maturity.

Apple receives $600 for the sale of an iPad, of which 7% is for sales tax. Record the transaction. Sales Tax Payable

Deferred Revenue On December 31, 2016, Starbucks sold $21 million in gift cards. As of March 31, 2017, Starbucks redeemed 30% of its deferred revenue. Record the initial transactions on 12/31, and the redemption on 3/31.

Current Portion of Long-Term Debt Pegasus purchased a building on January 2 by signing a long-term note for $600,000 for 10 years. How much long-term debt do they owe if the current portion of long debt is $49,000?

Warranty Black & Gold Bikes has a three-year warranty on bike products. They estimate that their warranty liability would be 20% of sales. The warranty costs for 2015 are $33,000. If sales were $350,000 in 2015, how much warranty liability does Black & Gold have left for the next two years?

Contingent Liability

Contingent liability (Cont.) Contingent loss that is reasonably possible to occur and can be estimated Contingent loss that is probable to occur and can be estimated Contingent loss that is reasonably possible to occur and cannot be estimated Contingent loss that is remotely possible to occur and can be estimated

Chapter 9: Bonds

Vocab Definition Bond Formal debt instrument that obligates the borrower to repay a stated amount at a specified maturity date Principle Amount (Face Value) Stated amount that borrower is obligated to pay back Stated Interest Rate (Coupon Rate) Rate on the face of the bond Market Rate (Effective Interest Rate) True interest rate used by investors to value bond issues Carrying Value Carrying value is the original  cost of an asset, less the accumulated amount of any depreciation or amortization, less the accumulated amount of any asset impairments

Par, discount and Premium Stated Rate Market Rate Bonds Issued at 5% < 8% Discount = Face Amount > 4% Premium

Effective Interest Method Calculate Interest Payment (Hint: actual credit to Cash) Face Value * States Interest * Time Period Calculate Interest Expense Carrying Amount * Market Interest Time Period Difference between Interest Payment and Interest Expense is either credited (discount) or debited (premium) to Bonds Payable Calculate new carrying amount after discount or premium is amortized. Effective Interest Method

Bond Definitions Bond Characteristic Definition Secured Backed by collateral Unsecured Not backed by collateral Term Matures on a single date Serial Matures in installments Callable Can pay off bonds early Convertible Lender can convert bonds to common stock

Amortization Schedule Par Pegasus Corporation issues a 5-year, 10%, $1,000 serial bond at par on January 1st, 2017. Record the entry of the sale, and the first two interest payment on 6/30/17 and 12/31/17. Amortization Schedule Date Cash Interest Paid Interest Expense Change in Carrying Value Carrying Value

Amortization Schedule Discount Pegasus Corporation issues a 5-year, 10%, $1,000 serial bond for $926.40. The market rate is 12%. Record the entry of the sale, and the first two interest payment on 6/30/17 and 12/31/17. Amortization Schedule Date Cash Interest Paid Interest Expense Change in Carrying Value Carrying Value

Amortization Schedule Premium Pegasus Corporation issues a 5-year, 10%, $1,000 serial bond for $1,039.60. The market rate is 9%. Record the entry of the sale, and the first interest payment on 6/30/17 and 12/31/17. Amortization Schedule Date Cash Interest Paid Interest Expense Change in Carrying Value Carrying Value

Note Payable Pegasus Corporation is overbooked with events so they decide to acquire the Live Oak ballroom for more event space. It borrows $50,000 from SGA by agreeing to a, 5%, 5- year note. Loan Payments are $506.40 a month. Record the issuance of the installments and the first two monthly payments.

Leases Operating leases – lessor owns asset and lessee uses asset temporarily Capital leases – lessee buys an asset and borrows the money through a lease to for the asset Which financial statement do these belong under and what category do these belong under?

Chapter 10: Stockholder’s Equity

Stockholder’s equity Paid in capital Earned capital- Retained earnings Total amount stockholder’s have invested in the corporation Common Stock Preferred Stock Additional Paid-in Capital Earned capital- Retained earnings Amount the corporation has earned through profitable operation and has not given back to stockholders (investors) Treasury Stock – Contra-Equity The corporation buys back its own stock

Common Stock 4 Rights Vote Receive dividends Share in distribution of assets Preemptive right to maintain % of ownership even in stock split Common Stock

Preferred Stock Receive dividends first (fixed) 4 Rights Vote Receive dividends Share in distribution of assets Preemptive right to maintain % of ownership even in stock split Receive dividends first (fixed) Receive assets first in liquidation Preferred Stock

Stock definitions Issued = Authorized – Unissued Type Definition Authorized Shares available to sell Issued Shared actually sold (included treasury stock) Outstanding Shares held by investors (excluded treasury stock) Issued = Authorized – Unissued Outstanding = Issued – Treasury Stock

Par value of stocks Arbitrary amount assigned by a company to a share of its own stock

No par vs. Par Pegasus Corporation authorized to issue 40,000 shares common stock. On January 15, 2017, Pegasus issued 10,000 share at $15 per share. What is the journal entry? Pegasus Corporation authorized to issue 40,000 shares of $0.01 par common stock. On January 15, 2017, Pegasus issued 10,000 share at $15 per share. What is the journal entry?

Treasury stock Why corporations repurchase their own stock? Boost earnings per share Boost underpriced stock To distribute surplus cash without paying dividends To offset issuance of shares under stock- based compensation plans Treasury stock

Treasury Stock Example Pegasus Corporation reacquired 5000 shares of treasury stock in 2012 at a price of $30 per share and resold the treasury stock in 2013 at a price of $40 per share. Record the issuance of treasury stock and the resale.

Cash Dividends Examples Pegasus Company earned net income of $200,000 during the year ending on 12/31/16. On 12/15/16, Pegasus declared the annual cash dividend of $0.50 on common stock (50,000 shares outstanding). Pegasus paid the dividends on 1/4/17. Journalize the initial declaration and payment. Retained earnings (debit), dividends payable (credit) Dividends payable (debit), cash (credit)

Chapter 11: Statement of Cash Flows

Rules Income Statement & Balance Sheet Operating Activities Cash Inflows (+) Cash Outflows (-) Sale of good or services Inventory Collection of interest and dividends Operating Expenses Interest Income Taxes Income Statement & Balance Sheet Current Assets and Current Liabilities

Rules Balance Sheet Long-Term Assets Investing Activities Cash Inflows (+)  Cash Outflows(-)  Sale of Investments Purchase of Investments Sale of Long-Term Assets Purchase of Long-Term Assets Collection of Notes Receivable Lending with Notes Receivable Balance Sheet Long-Term Assets

Long-Term Liabilities & Stockholder’s Equity Financing Activities Cash Inflows (+)  Cash Outflows (-)  Issuance of Bonds or Notes Payable Repayment of Bonds or Notes Payable Issuance of Stock Acquisition of Treasury Stock Payment of Dividends Rules Balance Sheet Long-Term Liabilities & Stockholder’s Equity

Statement of Cash Flows

Acquisition of equipment $24,000 Payment of dividends $2,000 Net Income $47,000 Increase in A/P $7,000 Depreciation Expense $8,000 Acquisition of equipment $24,000 Payment of dividends $2,000 Sale of treasury stock $3,000 Increase in A/R $4,000 Payments of long term debt $9,000 Collection of N/P $6,000 Proceeds from sale of land $36,000 Loss on sale of land $12,000 Decrease in inventories   Under the indirect method, what is the net cash provided by operating activities? How much net cash was used for investing activities? How much net cash was used for financing activities? What was the original coast of the land?

Thank you and Good luck on your exam!