LECTURE NOTES COMBINED

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George Mason University *

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Accounting

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Apr 3, 2024

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LECTURE NOTES COMBINED Chap 1 Chap 3 DR CR DR Service revenue 34,000 DR Interest revenue 2,500 CR Insurance expense 2,000 CR Operating expense 3,500 CR Rent expense 1,500 CR Dividends 2,000 CR Retained Earnings 27,500 Total 36,500 36,500 CHAP 5  Inflation vs. Deflation; o Inflationary environment (rising inventory prices)  FIFO produces the highest gross margin, which leads to the highest net income and highest income tax expense o Deflationary environment (inventory prices are decreasing)  LIFO produces the highest gross margin, which leads to the highest net income and highest income tax expense By crediting these accounts that have debit balances the balances in the account will be zero moving into the next year The amount credited to the retained earnings account will balance the transaction (as far as total debits and total credits) and should be equal to the current year’s net income ($29,500) minus the current year’s dividends paid ($2,000)

CHAP 8 Estimate Revision Practice: Machinery was purchased for $130,000 with a $10,000 salvage value and an estimated life of 6 years. 120,000/6=20,000 1. In year 5, given better information, the useful life was revised to 8 years. 2. The company uses straight-line depreciation o What will be the amount of depreciation expense in years 5-8? 130,000-80000=50,000 50,000-10,000=40,000 40,000/4 years= 10,000 per year CHAP 9

CHAP 10 Cole Company borrowed $10,000 with a 5% rate of interest for 3 years. Required annual payments are $3,672.09. Prepare an amortization table which indicates the amount of interest and principal paid each year as well as the principal balance at the end of each year. Year Payment Portion applied to interest Portion applied to principal Ending Principal Balance $10,000 1 $3,672.09 500 3,172.09 6,827.91 2 $3,672.09 341.40 3330.69 3497.22 3 $3,672.09 174.86 3497.22 0 Present value interest factor of $1 per period at i% for n periods LUMP SUM Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 2 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826 3 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751 4 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683 5 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621 6 0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.564 7 0.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 0.547 0.513 8 0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 0.502 0.467 9 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.500 0.460 0.424 10 0.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.386 11 0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 0.388 0.350 12 0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.319 13 0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 0.326 0.290

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14 0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.263 15 0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.239 16 0.853 0.728 0.623 0.534 0.458 0.394 0.339 0.292 0.252 0.218 17 0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.270 0.231 0.198 18 0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 0.212 0.180 19 0.828 0.686 0.570 0.475 0.396 0.331 0.277 0.232 0.194 0.164 20 0.820 0.673 0.554 0.456 0.377 0.312 0.258 0.215 0.178 0.149 Present value interest factor of an (ordinary) annuity of $1 per period at i% for n periods (EX. 5,000 a year for vacation so the answer has to be less than 25,000 for 5 years bc interest) Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 2 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 3 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 4 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 5 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 6 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 7 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 8 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 9 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 10 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 11 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 12 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 13 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103 14 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 15 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606 16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824

17 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.022 18 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.201 19 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 20 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.129 8.514 DISCOUNT ON A BOND Year Carrying Value beginning of year Interest Payment (stated rate * face value) Interest Expense (effective rate * carrying value) Amortization of Discount (diff between int pmt and int exp) Carrying Value end of year (always getting closer to face value) 2018 $95,000 9,000 9,814 814 95,814 2019 95,814 9,000 9898 898 96,716 2020 96,712 9,000 9,990 990 97,702 2021 97,702 9,000 10,093 1,093 98,795 2022 98,795 9,000 10,206 1,206 100,001 End $5,000 $100,000 A 5-year, $100,000 face value bond with a stated rate of 10% was sold for $107,985 on January 1, 2018. The effective rate is 8%. a. What transaction will the company record and what effect will it have on the financial statements? Debit cash 107,985 FINANCING Credit Bonds Payable 100,000 Credit PREMIUM ON BONDS PAYABLE 7,985 OPERATING

BOND SOLD AT A PREMIUM Year Carrying Value beginning of year Interest Payment Interest Expense Carrying value * effective rate Amortization of Premium Carrying Value end of year 2018 $107,985 10,000 8,639 1,631 106,624 2019 106,624 10,000 8,530 1,470 105,154 2020 105,154 10,000 8,412 1,588 103,566 2021 103,566 10,000 8,258 1,715 101,851 2022 101,851 10,000 8148 1851 $100,000 End $7,985 b. What transaction will the company record at December 31 st, Year 1 and what effect will it have on the financial statements? L-Debit Bonds payable 1,631 E-Debit Interest expense 8,639 A-Credit cash 10,000 CHAP 11  If the company issues 1,000 shares of $1 par value common stock for $14 per share what transaction will the company record and how will this transaction effect the financial statements? Debit Cash 14,000 Credit common stock (1000 shares * issued par) Credit PIC 13,000 (shares issued *amount paid over par

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