Financial Accounting: Long-Term Assets, Liabilities, and Stockholders' Equity - Prof. Lynn, Study notes of Financial Accounting

Download Financial Accounting: Long-Term Assets, Liabilities, and Stockholders' Equity - Prof. Lynn and more Study notes Financial Accounting in PDF only on Docsity! Chapter 9: Long Lived Assets  Know the 3 methods of depreciation: o Straight line  Most used by companies as it’s the easiest o Units of activity o Double declining  Know how to recalculate depreciation given a change in factors o For example, if we’re 2 years into depreciating an asset, and decide to extend the life by 5 years, how does this change our depreciation expense recognized each year?  Sale of depreciated assets o Debit – accumulated depreciation (to zero out the account) o Credit – book value of asset o Debit/credit – either a gain or loss  Know all the journal entries associated with depreciation o Debit – depreciation expense o Credit – accumulated depreciation (contra-account) Chapter 10: Reporting Liabilities  Current Liabilities: short-term obligations that will be paid within one year or within the company’s current operating cycle o Accounts Payable o Accrued Liabilities: relate to various unpaid expenses  Accrued payroll  Payroll deductions – create liabilities for the employer; for instance, income tax taken from your paycheck is owed to the government (ie, Income Tax Payable) o Includes income tax, FICA tax, charitable donations o Subtracted from gross earnings, gives you net pay (what you deposit into your bank account for working)  Employer payroll taxes  Accrued income taxes o Notes payable o Current portion of long-term debt  If you have a loan for $24,000 to be paid at the end of 2 years, you would show the monthly portions that are owed (ie, after 1 month, owe $1,000) in the current liability section o Additional current liabilities  Sales tax payable  Unearned revenue  Long-term liabilities o Bonds  Bond pricing  Accounting for a bond issue  Face value  Premium  Discount  Reporting bond liabilities o Interest expense  Face value, discounts, premiums o Bond retirements  Retirement at maturity  Early retirement o Types of bonds  Contingent liabilities: potential liabilities that arise as a result of past transactions or events, but their ultimate resolution depends on a future event o Quick ratio o Times interest earned ratio  When this is LESS than 1, the company is NOT generating enough income to cover its interest expense  Ratios: o Quick Ratio = (Cash + short-term investments + Net A/R) / (Current Liabilities) o Times Interest Earned Ratio = (Net Income + Interest Expense + Income Tax Expense) / (Interest Expense)