Long-Term Assets
Name an example of an intangible asset that is not subject to amortization
Trademark with indefinite life, Goodwill
What does a current ratio of <1.0 mean?
You have less current assets than current liabilities. You do not have enough in current assets to pay your current liabilities.
What is an advantage of debt financing?
Interest is tax deductible
What type of account is Treasury Stock?
Contra-Equity
What are the two preferences of preferred stock?
1) Right to dividends first
2) Get distribution of assets before common stock shareholders if company dissolves
Company U bought equipment for $100,000 with a 7 year useful life and $23,000 residual value. They use the straight-line method for depreciation. What is the journal entry to record the depreciation expense in Year 2?
Dr. Depreciation Expense 11,000
Cr. Accumulated Depreciation 11,000
(100,000-23,000)/7 = 11,000
What are the two components of ROA?
Profit Margin and Asset Turnover
Laptops R Us offers 1 year warranties for all laptop sales. During January Laptops R Us sold 2,000 laptops at $700 each. Laptops R Us estimates that 3% of laptops will have a warranty claim and the cost of a warranty claim is $50 per laptop. What journal entry should Laptops R Us record in January?
Dr. Warranty Expense 3,000
Cr. Warranty Liability 3,000
(2,000 x .03 x 50) = 3,000
A company issues 50,000 shares of $1 par value common stock for $6 per share. What is the journal entry?
Dr. Cash 300,000
Cr. Common Stock 50,000
Cr. APIC 250,000
What is the formula to calculate goodwill?
Purchase Price - FV of net assets
OR
Purchase Price - (FV of Assets - FV of Liabilities)
OR
Purchase Price - FV of Assets + FV of Liabilities
Footwear Inc. acquires a copyright for $48,000 with a remaining legal life of 6 years and expects to use it for 3 years. What is the journal entry to record the expense for Year 2?
Dr. Amortization Expense 16,000
Cr. Copyright 16,000
(48,000/3) = 16,000
Given the following information: cash $1,000,000; A/R $800,000; inventory $500,000; goodwill $2,000,000; A/P $1,750,000; bonds payable $450,000. What is the current ratio (round to two decimal places)?
1.31
(1,000,000+800,000+500,000)/1,750,000
On January 1, Yellowjackets Inc. borrows $250k from the bank signing a 3%, 1-year note. Interest is due at maturity. What is the journal entry on January 1?
Dr. Cash 250,000
Cr. Notes Payable 250,000
A company has beginning retained earnings of $40,000. They had revenue of $100,000, COGS of $40,000, and other operating expenses of $10,000. They issued $15,000 of cash dividends during the year. What is ending retained earnings?
$75,000
40,000 + (100,000 - 40,000 - 10,000) - 15,000
On June 1, Year 1 Torero Blue bought equipment for $10,000 with a 3 year useful life and $1,000 residual value. They use the straight-line method for depreciation. What is the depreciation expense for Year 1?
$1,750
(10,000 - 1,000)/3 x (7/12) = 1,750
On January 1, Company Z bought equipment for $10,000 with a 5 year useful life and $1,000 residual value. They use the double-declining balance method for depreciation. What is the balance in accumulated depreciation at the end of Year 2?
$6,400
Year 1: (10,000 - 0) x (2/5) = 4,000
Year 2: (10,000 - 4,000) x (2/5) = 2,400
A company has revenue of $350,000, COGS of $125,000, and tax expenses of $70,000. Their stock price is $13.60 per share. They have weighted average shares of common stock outstanding of 31,000. What is Price-Earnings ratio (round to two decimal places)?
2.72
(350,000-125,000-70,000)/31,000 = 5
13.60/5
On June 1, Spider Inc. issues bonds paying 4.5% interest for $1,000,000. The bonds are due in 10 years and interest is paid annually on December 31.What is the journal entry on December 31?
Dr. Interest Expense 26,250
Cr. Cash 26,250
1,000,000 x .045 x (7/12)
A company issues 100,000 shares of $1 par value common stock for $5 per share. Then they buy back 20,000 shares at $2 per share. Subsequently, they resell 10,000 shares at $1 per share. What is the journal entry for the resell of the shares?
Dr. Cash 10,000
Dr. APIC 10,000
Cr. Treasury Stock 20,000
Keyboard Inc. has a lawsuit against them for unfair labor practices. The former employees have not estimated how much in wages they are owed. However, management believes they are not likely to have to pay any amount. What is management required to do?
Do Nothing. Disclosure not required - Likelihood of payment is remote and amount of payment is not reasonably estimable.
Red Cardinal Inc. purchased a printer on January 1, Year 1 for $8,000, with estimated useful life of 5 years and residual value of $3,000. At the beginning of Year 4, they sold the printer for $6,000. Assuming they use Straight-Line Depreciation, what is the journal entry for the sale?
Dr. Cash 6,000
Dr. Accumulated Depreciation 3,000
Cr. Printer 8,000
Cr. Gain on Sale of Printer 1,000
(8,000-3,000)/5 = 1,000 per year
Blue Hats has a times interest earned ratio of 5, net income of $75,000, tax expense of $5,000. What is the interest expense for Blue Hats?
$20,000
(75,000 + 5,000 + x) / x = 5
80,000 + x = 5x
x = 20,000
Power Inc. has $850,000 in cell phone sales for the year. Power offers a 6 month warranty on cell phones. Based on historical experience, they estimate warranty costs will be 6% of sales. Customers send in warranty claims for $50,000 for that year. What amount should Power report as warranty liability at the end of the year?
$1,000
(850,000 x .06 = 51,000) - 50,000 = 1,000
A company has 300,000 shares of common stock authorized. They issue 100,000 shares of $1 par value common stock for $5 per share. They buy back 30,000 shares at $3 per share. Then they resell 10,000 shares at $3 per share. They declare a $0.50 dividend per share and pay the dividend on the same date. What is the journal entry for the dividends?
Dr. Dividends 40,000
Cr. Cash 40,000
(100,000 - 30,000 + 10,000) x 0.50
What do companies usually do as the final stage to obtain equity financing?
Go Public!
Initial Public Offering (IPO)