Conceptual Framework
This assumption says the economic activity can be identified with a particular unit of accountability
What is the economic entity assumption?
A company's ability to convert its assets to cash to meet its current liabilities
What is liquidity?
Calculate EPS for a company who had 100,000 shares of common stock outstanding in January, sold 60,000 more shares on September 1, and had net income for the year of 240,000.
$2.00
Lewis is selling a product with some of the transaction price depending on the outcome of a future event. There is a 75% chance that the event will result in $100,000 of consideration to Lewis, and a 25% chance that the event will result in $40,000 of consideration to Lewis. Using most likely amount, what is the estimated outcome?
$100,000
Sales Returns is what type of account? Is it increased with a debit or credit?
Contra Revenue; increased with a debit
This assumption says a company can divide its economic activities into artificial time periods
What is the periodicity assumption?
Inflow of assets from ongoing or major activities
What is revenue?
What is non-operating income?
Revenues, expenses, gains, and losses not related to the primary revenue-generating activities of the company.
Jada wrote a contract that involves two separate performance obligations. Jada cannot estimate the stand-alone selling price of product A. Product B has a stand-alone selling price of $100. The price for the combined product is $120. How much of the transaction price would be allocated to the performance obligation for delivering product A?
(Use residual approach)
$20
ABC Company has a credit balance in its allowance for uncollectible accounts of 12,000 before adjustment. The balance in gross accounts receivable is 600,000. ABC's management estimates that 10% of accounts receivable will not be collected. What journal entry should ABC record to adjust its allowance for uncollectible accounts?
Debit bad debt expense 48,000; Credit Allowance for uncollectible accounts 48,000
3 components of relevance
What is predictive value, confirmatory value, and materiality?
amounts resulting from buying back previously issued shares of the company's stock but not retiring them
What is treasury stock?
A change in accounting estimate calls for a company to use...
(either the retrospective approach, modified retrospective approach, or prospective approach)
What is the prospective approach?
Calculate the future value at the end of 3 years for $12,500 compounded semiannually at a 10% (annual) rate.
n=6 i=5%
FVF= 1.34010
12,500 x 1.34010 = $16,751.25
(calculator may give you $16,751.20)
ABC Company had a debit balance in its allowance for uncollectible accounts of 12,000 before adjustment. The balance in gross accounts receivable is 600,000. ABC's management estimates that 10% of its accounts receivable balance will not be collected. What journal entry should ABC record to adjust its allowance for uncollectible accounts?
Debit bad debt expense 72,000; Credit allowance for doubtful accounts 72,000
2 fundamental characteristics of conceptual framework
What is relevance and faithful representation?
Obligations that are due to be settled in more than one year (or operating cycle, if longer)
What are long term liabilities?
If an error is material it requires a _____ _____ adjustment
prior period
Calculate the present value of a $240,000 payment received 2 years from now at an annual discount rate of 8%
n=2 i=8%
PVF= 0.85734
240,000 x 0.85734 = $205,761.60
(calculator may give you 205,761.32)
A company records sales of $160,000, of inventory costing $80,000. All sales were paid in cash. During the year, goods with a sales price of $16,000 and cost of $8,000 were returned. What entries should be made to record sales returns of the year?
Sales returns debit 16,000; Cash credit 16,000; inventory debit 8,000; cost of goods sold credit 8,000
3 components of faithful representation
What is completeness, neutrality, and free from error?
Result from the sale of goods or services on account
What are accounts receivable?
What is the appropriate classification on the SCF for the sale of equipment for cash?
Investing
FV= 80,000
PV = 44,421
i = 4%
Solve for n
n = 15
ABC company recorded sales of 120,000 and experienced returns of 9,000. Cost of goods sold totaled 72,000 (60% of sales). ABC Company estimates that 8% of all sales will be returned. Complete the year-end adjusting journal entries to account for anticipated sales returns (assume all sales are made in cash- so there are no receivables outstanding).
Debit sales returns, 9,600; Credit refund liability 9,600
Debit inventory- estimated returns 5,760; Credit cost of goods sold 5,760