Chapter 9
What are natural resources and give some examples?
What are natural resources and give some examples?
- Natural resources are assets that come from the earth that are consumed.
- iron ore, natural gas, diamonds, gold, coal, and timber.
How are contingent liabilities accounting for?
a) In your own word, what is a contingent liability?
is a potential liability that depends on a future event.
Long-term debts that are backed with a security interest in specific property. Is what term?
Mortgages Payable
What is treasury stock?
b) Why might a company later reacquire some of its own stock as treasury stock?
What is treasury stock?
Treasury stock is a company’s stock that it has previously issued and later reacquired.
b) Why might a company later reacquire some of its own stock as treasury stock?
Management wants to increase net assets by buying low and selling high.
Management wants to support the company’s stock price.
Management wants to avoid a takeover by an outside party by reducing the number of outstanding shares that have voting rights.
Management wants to reward valued employees with stock.
The purpose of the statement of cash flow are too
Evaluate management decisions, determine ability to pay debt and dividends, and predict future cast flow.
Assets Turnover Ratio = Net Sale Revenue / Average Total Assets
What is a Probable Contingent Liability? (2 things)
Contingencies that are reasonably possible have a greater chance of occurring but are not likely. A reasonably possible contingency should be described in the notes to the financial statements.
If a contingency is probable, a future event is likely to occur. Only contingencies that are probable and can be estimated are recorded as liabilities and have expenses accrued.
The debt-to-equity ratio is calculated as
total liabilities/ total equity
List some of a corporation’s unique characteristics:
Separate legal entity
Number of owners
No personal liability of the owner(s)
Lack of mutual agency
Indefinite life
Taxation
Capital accumulation
Operating activities are most closely related to
Current assets and current liabilities
20,000/ 11,000= 1.82
ABC Company made a cash sale of $1,000 and the company collected an additional 7% sales tax, the journal entry would be:
Date. Accounts and Explanation. Debit. Credit
Dec. 21 Cash 1,000
Sale Revenue 930
Sale Tax Payable (1,000 x 0.07) 70
Problem #2: Daniel’s bonds payable carry a state interest rate of 5%, and the market's rate of interest is 7%. This issue price of Daniel’s bonds will be at:
a discount
Give a brief explanation of the following:
Authorized stock
Issued stock
Outstanding stock
Authorized stock – The maximum number of shares of stock a corporation may issue is c
Issued stock – has been issued by the corporation.
Outstanding stock – Stock held by the stockholders is
How much free cash flow does Kalapono expect for 2024
Free Cash Flow- 100,000- 20,000- 2,000 =78,000
Company bought a new display case for $42,000 and estimate residual value to be $2,000 and useful life to be eight years. Using the street line depreciation, what is the book value of the display case after three years?
a. straight -line depreciation – (cost – residual value) / useful life
(42,000 -2,000 ) / 8 years = 5,000 per year
b. Accumulated depreciation after three years = 5,000 X 3 yrs = 15,000
c. Look up value at the end of the year three= cost accumulated depreciation = 42,000 – 15,000 = 27,000
How does a contingent liability different from a known liability? When would a contingent liability be journaled?
A contingent liability is a potential, rather than an actually, liability because it depends on a future event. Some events must happen for a contingent liability to have to be paid. contingent liability are journalized when the likelihood of an actual loss is probable and the amount of the expense can be reasonable estimate
West Virginia Power Company had 8%, 10-year bonds payable that mature on June 30, 2023. The bonds are issued on June 30,2024, and West Virginia Power pays interest each June 30 and December 31.
Requirements:
1. Will the bonds be issued at face value, at a premium, or at a discount if the market inters treat on the date of issuance if 7%? If the market interest rate is 10%?
If the market interest rate is 7%, the bonds will be issued at a premium.
If the market interest rate is 10%, the bonds will be issued at a discount.
4. Smart Touch Learning receives furniture with a market value of $20,000 in exchange for 9,000 shares of its $1 par common stock.
Date Acccounts and explanation debit credit
Furniture 20,000
Common Stock 9,000
Paid-In 11,000
Leatherman shop earn an income of $57,000 after deducting depreciation of $5,000 in all other expenses. Current asset decreased by $4,000 in current liability increased by $8,000. How much was Leatherman shop that cash provided by operating activity (indirect method)?
$74,000
. Purchase point-of-sale self-service cash registered on January 1 for $5400. This register has a useful life of 10 years in a salvage value of $400. What would be the depreciation expenses for the second year of its useful life, using the double-declining balance method?
Double declining balance depreciation = ( cost - accumulated depreciation) x2x (1/ useful life)
For the first year of the cash register:
= ( 5,4000- 0) x 2x (1/ 10 years)
For the second year of cash register:
= ( 5,4000- 1,080) x 2x (1/ 10 years)
. The restaurant made a cash sale of $4,000 subject to a 5% sales tax. Record the sales and the related sales tax. Also record the payment of the tax to the state. (Journal entry)
Date. Accounts and Explanation. Debit. Credit
Cash 4,200
Sale Revenue 4,000
Sale Tax Payable (4, 000 x 0.05) 200
Sales tax payable 200
Cash 200
Problem #5 Vasquez issued a $400,000 face value 8%, 20 -years bond at 95. What is the journal entire?
Date Accounts and Explanation. Debit. Credit
Oct. 21 Bonds payable. 400,000
cash 400,000
On March 31, ABC company purchases 1,000 shares of previously issued common stock, paying $45 per share. And then they are sells 100 of the treasury shares on April 1 for $7 each. The journal entry would be:
Date. Accounts and Explanation Debit. Credit
March 31
Treasury Stock – Common 45,000
Cash 45,000
Date. Accounts and Explanation. Debit. Credit
April 1
Cash 700
Treasury Stock – Common ($7 X 100) 700
Mountain water corporation issued common stock of $28,000 to pay off long-term notes payable of $28,000. In what section with these transactions be recorded?
Non-cash investing in financial activity, $28,000