A direct journal entry made to retained earnings to correct a prior-year accounting error. Examples include a mathematical error, an improper application of an accounting principle; an error due to incorrect information. It does NOT include an error in estimation. Prior year errors in estimation are corrected through compensating entries made in the current year. A measurement of a company’s structure of fixed and variable costs. Companies with higher fixed costs and lower variable costs have higher operating leverage, which results in greater potential profits and increased risk of loss with any changes in volume.

Current assets include cash and any other asset expected to be used up or converted to cash within the next year. Current assets typically include any short-term investments in securities, accounts receivable, inventory, supplies and prepaid expenses.

Unfortunately, measuring the physical use of most assets is rarely as easy as with a limousine. Accelerated depreciation creates a lower book value, especially in the early years of ownership. First, to establish account balances that are appropriate at the date of sale, depreciation is recorded for the period of use during the current year. In this way, the expense is matched with any revenues earned in the current period. Determine the guiding accounting rule that helps ascertain which costs are capitalized in connection with property and equipment and which are expensed.

Management’s Report On Financial Information

An amount determined by dividing fixed costs for a period of time by the volume of units produced or sold during that period. Even though fixed costs do not change in total with changes in volume, the calculated fixed costs per unit increase and decrease with lower and higher volume, respectively. This explains why businesses with substantial fixed costs of operations may experience significant fluctuations in profits with changes in volume. A person, group or organization.

In addition, assets are worth more when they are organized and managed in a way that generates a profit. It is rare to find a profitable company for sale at a price less than its book value. Sometimes referred to as the “quick ratio.” The acid-test ratio is used in financial statement analysis as a more stringent measure of a company’s liquidity than the current ratio. The ratio is calculated by adding amounts of selected current assets which are most liquid, and dividing that total by the amount of total current liabilities. There is no standardization in the assets to be used in the numerator for this ratio.

Treasury Stock

It makes for fairer and more accurate accounting records and helps to express a true approximation of the company’s total value. TRUE-FALSE STATEMENTS 1.All plant assets must be depreciated for accounting purposes. 2.When purchasing land, the costs for clearing, draining, filling, and grading should be charged to a Land Improvements account. 3.When purchasing…

• Land improvements.
• It was estimated that it would have a $15,000 salvage value at the end of its 5-year useful life.
• The true cost of equity financing is difficult to determine because the valuation of ownership rights can be very subjective.
• It measures how much profit was generated from the shareholders investment.

A method of accumulating product costs used by manufacturers of standardized products made in separate manufacturing processes or factories. For example, a cereal manufacturer that utilizes a separate factory to make a particular brand of cereal will use process costing to determine that cereal’s cost per box manufactured. This method accumulates all product costs for a process or factory over a period of time and then divides that total by the number of units produced during that period to determine the cost per unit of production. An asset arising from the payment of business costs in advance of the actual period in which those costs will benefit company operations. For example, insurance premiums are usually paid in advance of the period of insurance coverage.

Selling And Administrative Expenses

Different from the carrying value, the fair value of assets and liabilities is calculated on a mark-to-market accounting basis. In other words, the fair value of an asset is the amount paid in a transaction between participants if it’s sold in the open market. A willing buyer and seller have agreed upon this value. Due to the changing nature of open markets, however, the fair value of an asset can fluctuate greatly over time. the book value of a plant asset is always equal to its fair market value. Let’s say company ABC bought a 3D printing machine to design prototypes of its product. The 3D printing machine costs $50,000 and has a depreciation expense of $3,000 per year over its useful life of 15 years under the straight line basis of calculating depreciation and amortization. Accumulated depreciation reflects the decrease in value of a company’s assets over time and from continued use, such as manufacturing equipment.

• Furniture includes office equipment, desks, cupboards and conference tables.
• Natural resources are frequently referred to as wasting assets because a.
• Expected repairs and maintenance.
• A department or organizational unit in which the assigned manager has control over and is accountable for the costs incurred in the operation of that department or unit.
• NetSuite’s financial management solution provides real-time visibility into all of your company’s fixed assets and expedites financial transactions.
• You could certainly calculate the book value of a personal asset, like a car.

When a bond is trading below its par or stated value. This occurs when the stated bond rate is lower than the current market rate. To make the effective rate of the bond the same as the current market rate, it must be issued at a discount. A continuing payment that has a fixed annual amount.

Assets Cost Less Accumulated Depreciation

The annual amortization rate is a. Residual value is not subtracted from capital asset cost in determining amortization expense under the declining-balance method of amortization. Using the units-of-activity method of amortizing factory equipment will generally result in more amortization expense being recorded over the life of the asset than if the straight-line method had been used. Net tangible assets are calculated as the total assets of a company, minus any intangible assets, all liabilities and the par value of preferred stock. To illustrate, assume that a delivery truck with a historical cost of $35,000 and accumulated depreciation to date of $30,000 (book value of $5,000) is sold for cash; in Case 1 for $7,000 and in Case 2 for $4,000.

A profitable company. The amount of sales generated by each dollar invested in total assets. New assets need to be purchased. The company may be in financial difficulty. The net book value of a capital asset is the difference between the a.

Generally assumed when 20-50% of the outstanding common stock of another company is owned. However, other criteria may also be considered when making this determination.

Issued Stock

Any cost flow assumption may be selected for use in a company’s accounting records, regardless of the actual physical flow of goods to customers. However, the assumption selected must be applied consistently over time. The cost flow assumption made for financial reporting purposes must also be used for income tax purposes. Any costs incurred in the marketing of a company’s goods or services to customers. These costs include any salaries, wages and commissions paid to employees or representatives of the company that are involved in product marketing, sales or sales support. Even costs incurred in shipping or delivering goods to customers and any bad debt expenses would be properly considered part of a company’s selling costs. Selling costs do not include product costs.

Legal Expense. An Intangible Loss account. The Patent account. An operating expenditure account. Goodwill can be recorded a.

Sales Price

Corporate owners are also taxed personally on company profits to the extent those profits are distributed as dividends. As a result, corporate profits paid as dividends face “double taxation.” The system of accounting designed to provide a company’s financial information to users who are external to the company’s management.

• The developer creating a software product to sell has limited capitalization opportunities.
• Some companies are involved in providing both goods and services.
• If the company were to then sell the machine at its current market price of $90,000, the business would record a gain on the sale of $10,000.
• The difference between the standard or budged variable manufacturing overhead and the actual variable manufacturing overhead that results from inefficient use in indirect materials, indirect labor.
• Contribution margin per unit is calculated by dividing a company’s total contribution margin by the number of units sold .
• Supplies used in support of a manufacturing company’s production process are accounted for as manufacturing overhead costs and are reflected as an expense through cost of goods sold.
• The CPA recommends that Webworks use the straight-line method with a four-year life for the equipment and a five-year life for the furniture.

Unsecured loans typically refer to loans for which no collateral is provided. A level of performance or rate of improvement an organization would like to achieve on a given measure in a balanced scorecard. Also referred to as “subordinated debentures.” Subordinated bonds are unsecured bonds designated as having some inferior legal status relative to the claims of other creditors in their rights to repayment. Actionable plans intended to affect performance in targeted strategic objectives in a balanced scorecard. The amount of profit or loss produced by one segment or component of a business. Bonds that pledge specific assets as collateral in the event of an issuer’s default.

A form of business ownership in which a single individual owns all of the business assets, bears all of the business liabilities, and is the sole beneficiary of any net income or losses from business operations. A major disadvantage of a proprietorship form of ownership is the lack of any separate legal liability between the business and the owner. This means that if claims exist against the business and the business has insufficient resources to satisfy those claims, the personal assets of the owner may be taken to satisfy those claims.

None of the above. The cost of a purchased building includes all of the following except a. Closing costs. Real estate broker’s commission. Remodeling costs. All of these are included. When an entire business is purchased, goodwill is the excess of cost over the book value of the net assets acquired.

$7,000 gain. They can be referred to as operating expenditures. A retroactive change in the amount of periodic amortization recognized in previous years. That no change be made in the periodic amortization so that amortization amounts are comparable over the life of the asset. That the amount of periodic amortization be changed in the current year and in future years.

On July 1, 2001, Marlin Company purchased the copyright to Bodine Computer Tutorials for $81,000. It is estimated that the copyright will have a useful life of 5 years with an estimated residual value of $6,000. The amount of Amortization Expense recognized for the year 2001 would be a. $16,200. The cost of successfully defending a patent in an infringement suit should be a. Charged to Legal Expenses. Deducted from the book value of the patent.

Analysts will often times measure the operating performance not by net income but rather by EBITDA. EBITDA is an acronym for Earnings Before interest, taxes, depreciation and amortization.