acc 210 final exam

retained earnings at the end of the period is equal to

beginning retained earnings
+net income
-dividends

asset

resources belonging to a company that have future benefit to the company

advantage of corporate business

1. its ownership is easily transferable via the sale of shares of stock
2. easy to gain capital
3. unlimited life
4. owner has limited liability (owners personal resources are not at stake)

disadvantages of corporate business

1. not easy to establish
2. double taxation

authorized shares

maximum number of shares a business may issue in each class

issued shares

number of shares actually sold to stockholders

outstanding shares

number of shares actually in the hands of stockholders

preferred stock

pays a regular dividend
similar to debt
less risky than common stock
recieves priority over common stockholders

common stock

stockholders recieve financial gain from profitable company (dividends, stock appreciation)
owner rights (vote)

treasury stock

corporation purchases its own previously issued stock

stock split

Changes in par value (lowered) and number of shares outstanding (increased) noted in corporation's records

long term liabilities

are generally those obligations that extend beyond one year

Face Value/Par Value/Principal

The amount of money borrower agrees to repay at maturity

Maturity Date

Date on which the borrower agrees to pay the creditor the face value (par value, principal)

Stated Rate/Coupon Rate/Contract Rate

Rate of interest paid on the face value (par value or principal)

Market Rate/Yield Rate

-Rate of interest demanded by creditors
-A function of economic factors and the creditworthiness of the borrower

secure debt

debt provides collateral for the lender

unsecure debt

debt does not have collateral
�Also called "debenture bonds

Callable Bonds

Borrower has option to pay off the debt prior to maturity

Convertible Bonds

Lender has option to convert the bond into other securities

usual sequence of steps in the transaction recording process

analyze, journalize, post to the ledger

double entry system requires that each transaction

must be recorded in a least two different accounts

asset normal balance

debit

liability normal balance

credit

stokholders equity normal balance

credit

expense normal balance

debit

revenue normal balance

credit

ratio measures the extent by which selling prices cover all of a companys expenses

profit margin ration (income/sales)

LIFO vs FIFO

all else being equal, FIFO will yield higher income tazes than LIFO

examples of internal control procedures

using prenumbered documents
reconciling the bank statement
insistence that employees take vacations
segregation of duties

amortization

cost allocation of an intangible asset

simple interest vs. compound interest

simple interest is computed on the principal balance only

5 elements of internal control

the control environment
risk assessment
control activities
information and communication
monitoring

revenue recognition

revenue is recognized when it is:
realized or realizable
earned

straight line depreciation method

rate: (1/useful life)
expense: [(cost - residual)/(useful life)]

double declining depreciation method

rate: [(1/useful life)x(2)]
expense: declining every time (rate x book value)

units of production depreciation method

(actual usage of asset/expected usage of asset)x(cost - residual)

depreciable cost

(cost - residual)