ACIS Chapter 9+10

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ACIS Chapter 9+10
2014-11-06 18:01:05
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  1. Long term assets
    • The resource a company had that are used in operations of a business. Fixed assets are resources that are used to generate revenue and they have a useful life of several years
    • Fixed assets, plant and equipment, plant assets
  2. Accounting for fixed assets
    • -Recorded at historical cost
    • -Cost of asset is equal to all the costs of getting that asset and making it work
    • -Reccuring expenses are not included in the cost of the asset
  3. Leasing
    • Renting equipment which conserves cash
    • Leased equiptment might not show up on a balance sheet
    • Operating leases - payment treated as an expense
    • Capital lease - company records an asset and a liability
    • Recorded as a liability
  4. Depreciation
    • An accounting process, not a valuation method
    • Cost allocating process
    • Spread the cost of an assets over the several years the business will benefit from having the asset
    • Has nothing to do with what something's worth
  5. Book value
    Cost of asset - Accumulated depreciation
  6. What we can and cannot depreciate
    • We can depreciate land improvements, buildings and equipment but not land
    • You allocating the original cost of the asset over several years
  7. Three factors in computing depreciation
    • Cost
    • Useful life
    • Salvage value
  8. Strait line method of calculating depreciation expense
    • (Cost - Salvage value)/ useful life
    • (what we orginaly paid - what we think it'l be worth)/ useful life
  9. Double declining method of calculating depreciation expense
    • (1) depreciation expense = (Cost - accumulated depreciation) x 2 / useful life
    • -multiply book value times 2 and divide it by useful life
    • (2) Depreciation expense = Book value at beginning of period x Depreciation Rate
    • Depreciation Rate = 2 / useful life
  10. Depreciation cost per unit
    depreciable cost / Total units of activity
  11. Depreciation expense
    Depreciabel cost per unit x Units of activity
  12. Capitalize
    Record an expenditure as an asset
  13. Revising remaining useful life
    Book value - Revised Salvage Value
  14. Impairment
    • The loss of a significant portion of the utility of an asset through 
    • -Casualty
    • -Obsolescence
    • -Lack of demand for the asset's services
    • Permanent imparement
  15. 3 ways to dispose of a plant asset
    • Sale
    • Retirement
    • Exchange
  16. Asset turnover
    Net sale / average total asset
  17. Current Liabilities
    • Accounts payable
    • Notes payable
    • Sales tax payable
    • Unearned sales revenues
    • Current maturities of long term debt
    • Payroll and a payroll taxes payable
  18. Payrolls and payroll taxes
    • Major headache for businesses
    • Many rules and regulations, vary by state and locality
    • Payroll processing frequently outsourced
  19. Simple Interest
    Initial investment x Interest Rate x Time
  20. Future value formula
    • Initial investment x (1 + i)n
    • i = percentage
    • n= time
  21. Future value with time tables
    Multiply the amount initially invested times the factor from the times table
  22. Present value formula
    Future Value / (1 + i)n
  23. Present value factor
    1 / (1 + i)n
  24. Annuity, future and present
    • Stream of payments
    • FV = future value of a stream of payments
    • PV = value today of a stream of payments
  25. Bonds
    • A way for corporations to borrow large sums of money from lots of different investors
    • Typically valued at $1000
    • -Face value stated, 
    • -Interest rate stated
    • -Maturity date stated
    • variable is the price of bond
  26. Bonds issued at face value
    Stated rate of interest = market rate of interest
  27. Bonds issued at a discount
    • Stated rate of interest < Market rate of interest
    • -The cash payment investors can receive from the bonds is less than the return investors can get else where. They have to sell the bonds lower
    • A valuation account, normal balance is a debit balance
    • An additional cost of borrowing recorded as additional interest expense over life
    • Amoratization of discount makes the effective interest rate equal to market rate of interest
  28. Determining the price of a bond
    • -Present value of the face value of the bonds
    • -Present value of the stream of interest payments
  29. Effective intrest method
    Calculate the interest expense by multiplying the carrying value of the bonds at the beginning of the period x the market rate of interest
  30. Bonds issued at premium
    • Stated rate of interest > Market rate of interest
    • Cash payment investors can reveive from bond is more than the return investors can get elsewhere. Now investors are willing to pay premium for the bonds
    • A valuation account, normal balance is a credit balance
    • Reduce the cost of borrowing and reduce interest expense over life
    • Amortization makes the effective interest rate equal to the market rate of interest
  31. Market rate
    stated rate, bond sells for face value
  32. Bond redemption
    • When the company that issued them buys them back 
    • Paying back the money it borrowed
  33. Long term notes payable
    • Mortgage
    • Paid back in installment payments
    • Part of payment reduces principal, part of payment is interest
    • Principal payments for the next year are classified as current liabilities
    • All payments beyond the next year are long term liabilities