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

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

3. Chapter 8: Current Liabilities

4. 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

5. Sample Balance Sheet

6. Short Term Notes Payable
On 11/1/16, Pegasus Corporation purchases land for $200, % 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.

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

8. 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.

9. 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?

10. 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?

11. Contingent Liability

12. 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

13. Chapter 9: Bonds

14. 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

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

16. 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

17. 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

18. Amortization Schedule
Par
Pegasus Corporation issues a 5-year, 10%, $1,000 serial bond at par on January 1st, 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

19. Amortization Schedule
Discount
Pegasus Corporation issues a 5-year, 10%, $1,000 serial bond for $ 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

20. Amortization Schedule
Premium
Pegasus Corporation issues a 5-year, 10%, $1,000 serial bond for $1, 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

21. 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 $ a month. Record the issuance of the installments and the first two monthly payments.

22. 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?

23. Chapter 10: Stockholder’s Equity

24. 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

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

26. 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

27. 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

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

29. 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?

30. 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

31. 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.

32. 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)

33. Chapter 11: Statement of Cash Flows

34. 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

35. 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

36. 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

37. Statement of Cash Flows

38. 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?

39. Thank you and Good luck on your exam!