Student Class Notes (ACCT3101)

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This page is designed for students to collaborate in creating a set of notes and discussion for ACCT3101. You may find it useful to refer to the Shared:How-to Guides to create and edit notes and the discussion (talk) board.


Contents

Chapter 1 Notes

Major Professional Organizations

The mission/role of the major professional organizations as it relates to accounting and professional standards:

  • FASB - Financial Accounting Standards Board establishes an improve standards of financial accounting and reporting for the guidance and education of the public, which includes issuers, auditors, and users of financial information.
  • SEC - Securities and Exchange Commission is an federal agency and to help develop and standardize financial information presented to stockholders.
  • IASB - International Accounting Standards Board
  • PCAOB - Public Company Accounting Oversight Board has oversight and enforcement authority and establishes auditing, quality control, and independence standards and rules.
  • AICPA - American Institute of Certified Public Accountants, which is the national professional organization of practicing Certified Public Accountants (CPAs), has been an important contributor to the development of GAAP
  • GASB - Government Accounting Standard Board establishes and improve standards of financial accounting for state and local government.

Statements on Financial Accounting Concepts

Go to Financial Accounting Standards Board to obtain virtually any of the FASB's publications. From the left-hand menu select Publications > Publications Available. Scroll through to find the pub of interest, such as the Concept Statements.

Chapter 2 Notes

Business vs. Nonbusiness Financial Reporting Objectives

How are the objectives of financial reporting similar between business organizations (described in SFAC #1) and nonbusiness enterprises (described in SFAC #4)?

  • The objectives are similar by stating that financial reporting should provide information that is useful to present and potential investors and creditors (business organizations) and present and potential resource providers and other users (nonbusiness enterprises) in making rational decisions.
  • Financial reporting is also similar when comparing a business organization and a nonbusiness enterprise in that information should be provided for present/potential investors, creditors and users in a business organization to assess cash receipts. In a nonbusiness organization,the present and potential resource providers should be able to assess the services that a nonbusiness organization provides and the ability to continue to provide these services.
  • Both types of organizations should provide information about the economic resources, obligations, and the effects of transactions, events, and circumstances that will change resources and interests to those resources.

Qualitative Characteristics - Application

Complete E2-2 (page 51) as a means of beginning your class notes for Chapter 2

  • Qualitative characteristic being employed when companies in the same industry are using the same accounting principles
Comparability
  • Quality of information that confirms users' earlier expectations
Feedback Value
  • Imperative for providing comparisons of a company from period to period
Consistency
  • Ignores the economic consequences of a standard or rule
Representation Faithfulness, Neutrality
  • Requires a high degree of consensus among individuals on a given measurement
Verifiability
  • Predictive value is an ingredient of this primary quality of information
Relevance
  • Two qualitative characteristics that are related to both relevance and reliability
Comparability Consistency
  • Neutrality is an ingredient of this primary quality of accounting information
Reliability
  • Two primary qualities that make accounting information useful for decision making purposes
Relevance and reliability
  • Issuance of interim reports is an example of what primary ingredient of relevance
Timeliness

Elements of Financial Statements - Application

Complete E2-3 (page 51) as a means of adding to your class notes for Chapter 2

  • Arises from peripheral or incidental transactions
Gains, Losses
  • Obligation to transfer resources arising from a past transaction
Liabilities
  • Increases ownership interest
Investment by owner (also possible are comprehensive income, revenues, gains)
  • Declares and pays cash dividends to owners
Distribution to owner
  • Increases in net assets in a period from nonowner sources
Comprehensive income (also possible are revenues, gains)
  • Items characterized by service potential or future economic benefit.
Assets
  • Equals increase in assets less liabilities during the year, after adding distributions to owners and subtracting investments by owners
Comprehensive Income
  • Arises from income statement activities that constitute the entity's ongoing major or central operations
Revenue, Expenses
  • Residual interest in the assets of the enterprise after deducting its liabilities
Equity
  • Increases assets during a period through sale of product
Revenue
  • Decreases assets during the period by purchasing the company's own stock
Distribution by owner
  • Includes all changes in equity during the period, except those resulting from investments by owners and distributions to owners
Comprehensive Income

SEC Hunt - the issue of timeliness

The SEC defines a Large Accelerated Filer as a companies with public float (market value) >=$700million. In general, how many days from the end of the fiscal year do these filers have to submit their 10-K? Be sure to provide your source.

60 days; reference source: www.sec.gov
Excellent! Another way to sort through basic information that the SEC has is to use the Fast Answers rather than Search. Under Fast Answers go to Form 10-K to find out about the 10-K and when it must be filed.

Chapter 3 Notes

Chapter 3 Recommended Assignments

Go to the Text Website and under Browse by Chapter select Chapter 3, then from the list of resources select Excel Workbook Templates. Download ch03.zip. You can then use the excel templates to complete P3-2 and P3-11.

If you have questions or issues - post them here and I or classmates will respond.

On Noah's Ark Post Closing Trial Balance for the credit side of the trial balance sheet, I am unsure of the last account title. The previous account titles that I have on the credit side are Accts Payable, Unearned Admissions Revenue, Mortgage Payable, Interest Payable, Property Tax Payable, and N.Y. Berge, Capital. If you have completed this assignment, please give me your thoughts. Thank you, Kim Avery
I put Accumulated Depreciation - Equip, Accounts Payable,Unearned Admissions Revenue,Mortgage Payable, N.Y. Berge, Capital, Interest Payable,and Property Taxes Payable.There is difference between dr and cr. And the difference is retained earnings. I don't where I can put it. Lin Liu
As part of the closing process all revenue, expense, and drawing accounts are closed to the capital account. The ending balance for the capital account should be $124,200.
Link to P3-2 Solution Media:3p-2_Solution.xls
Link to P3-11 Solution Media:3p-11_Solution.xls

Chapter 4 Notes

  • Where to find problems E4-6 and P4-1? I found E4-4 on the text website. Thank you, Kim
  • There are no Excel templates for E4-6 or P4-1. You can create your own excel file or complete the exercise/problem on paper.
  • I guess I had a "brain freeze". We talked about this in class on Thursday, so I knew the answer. Sorry for the confusion. Kim
  • On E4-6, does Market Appreciation on land above cost qualify as "Other Revenue and Gains"? Thank you, Kim
  • I consider it as other revenue and gains. Lin

Link to Chapter 4 Exercises Media:Chapter04.pdf
Link to Chapter 4 Practical Applications Media:CVS vs RAD.xls

Chapter 5 Notes

FASB Financial Statement Project

This article in the current issue of CFO was just released and discusses the FASB's Financial Statement Project
A New Vision for Accounting

Organizational Structure of Balance Sheet

Assets

  • Current Assets - cash and assets expected to be converted into cash or consumed within one year
Current Asset Type Valuation Basis Notes
Cash Fair Market Value (FMV)
Short-term Investments Trading and Available-for-Sale at FMV, Held-to-maturity at amortized cost Trading securities are always current assets, Available-for-Sale and Held-to-maturity depend on management's intent
Accounts Receivable Net Realizable Value (NRV) Show gross A/R and net of allowance for uncorrectable accounts
Inventories Lower of cost or FMV
Prepaid Expenses FMV (generally amount paid)
  • Long-term Investments - investments in financial instruments (bonds, stocks, etc.) and other assets not used in operations and intended to be held for more than one year
Long-term Invesment Asset Type Valuation Basis Notes
Available-for-Sale securities FMV
Held-to-maturity securities Amortized cost
Land and Buildings held for speculation Historical cost
Bond Sinking Funds, Pension Funds, Plant Expansion Fund FMV (generally cash value of fund)
Investments in nonconsolidated subsidiaries FMV or Equity Method FMV if < 20% of investee's stock is owned, Equity Method if between 20% and 50% of investee's stock is owned
  • Property, Plant, & Equipment - Land, buildings and other assets with useful lives of more than one year and used in operations
PP&E Asset Type Valuation Basis Notes
Property (Land) Historical cost US GAAP does not permit revaluation to market basis.
Plant & Equipment Depreciated cost Historical cost less accumulated depreciation must be disclosed in the Balance Sheet
  • Intangible Assets - Assets that lack physical substance and are not financial instruments (patents, copyrights, franchises, goodwill, trademarks)
Intangible Asset Type Valuation Basis Notes
Patents, copyrights, franchises, trademarks Purchased Intangibles - fair value of consideration given for expenditures necessary to make the intangible asset ready for its intended use.<p>

Internally Created Intangibles - capitalize only direct costs (such as legal costs) of developing the intangible.

Limited-life intangibles are written-off (amortized) systematically over their useful live or legal life, which ever is shorter.
Goodwill Excess of consideration given over FMV of net assets (Assets - Liabilities) acquired. Unlimited-life intangibles are periodically evaluated for impairment (reduction in value) and written-down at year end. Recovery of prior write-down is not permitted.
Research & Development Costs Generally expensed as incurred (not capitalized) Materials, equipment, facilities, personnel costs, contract services, indirect costs all expensed as incurred unless there is alternative future use.
Start-up costs, Initial Operating losses, Advertising costs Generally expense as incurred (do not capitalize).
Computer Software Costs Costs incurred prior to establishment of technological feasibility should be charged to R&D Expense.

Costs incurred after establishing technological feasibility (planning, designing, coding, and testing) can be capitalized and amortized to current and future periods according to either (a) ratio of current revenue to current and anticipated revenue or (b) straight-line method over remaining useful life of the asset.

FAS #86: Accounting of the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed.

Liabilities

    • Current Liabilities - obligations expected to be satisfied (paid) within one year
    • Long-term Liabilities - obligations expected to be satisfied (paid) in more than one year
  • Shareholders' Equity
    • Paid in Capital
      • Stock - Par value of stock issued and outstanding
      • Additional Paid-in Capital - Owner contributions in excess of par value
    • Treasury Stock - Represents entities own stock repurchased and appears as a negative (subtraction) in Shareholders' Equity
    • Retained Earnings - Residual claim of Shareholders<p>

Organizational Structure of Cash Flow Statement

Operating Activities (Indirect method)

  • Net income
  • + Non-cash transactions deducted on income statement to arrive at net income (depreciation, amortization, depletion)
  • + losses recognized on income statement (remove effect of loss)
  • - gains recognized on income statement (remove effect of gain)
  • +- decreases (increases) in current assets other than cash
  • +- increases (decreases) in current liabilities
  • = Net cash provided (used) from operating activities

Investing Activities

  • +- Sale of (Investment in) Non-current assets (Buildings, equipment, land)
  • = Net cash provided (used) from investing activities

Financing Activities

  • - cash dividends paid
  • +- capital stock issued (repurchased - treasury stock)
  • +- long-term debt issued (retired)
  • = Net cash provided (used) from financing activities<p>

Net increase in cash + beginning of the year cash balance = end of the year cash balance<p>

Significant non-cash investing and financing activities (i.e. issuance of stock in exchange for debt retirement) disclosed in a footnote.

Chapter 5 Solutions

Link to Chapter 5 Exercises Media:Acct3101chapter05.pdf

Chapter 6 Notes

Interest Rates

Market rate of interest (expected yield) consists of three components:

  • real-rate of interest is the real cost of borrowing/lending in an inflation-free, risk-free environment. Economists estimate real-rate of interest to be approximately 1-1/2 - 2%
  • inflation factor is the premium added to the real-rate of interest to compensate for general decline in purchasing power of currency over time. U.S. inflation factor is currently 2-3%.
  • risk factor is borrower specific and reflects the likelihood of the borrower defaulting on the loan (not making the appropriate cash payments over time).

Time Value of Money

The process of adjusting future cash flows for the effect of the real-rate of interest, inflation, and risk (collectively the market rate or expected yield) so that effective comparisons can be made between cash flows occurring in different time periods.

  • FV
  • FV of ordinary annuity
  • FV of annuity due
  • PV
  • PV of ordinary annuity
  • PV of annuity due

Chapter 6 Solutions

Link to Chapter 6 Exercises Media:Acct3101chapter06.pdf
Link to Exam #2 Solutions Media:Acct3101exam2.pdf

Chapter 7 Notes

Chapter 8 Notes

Chapter 9 Notes

Chapter 7, 8 & 9 Solutions

Link to Chapter 7, 8 & 9 Exercises Media:Acct3101chapter07_08_09.pdf
Link to Exam #3 Solutions Media:Acct3101 Chapter 7,8,9 Exam Solution.pdf

Chapter 10 Notes

Chapter 10 Solutions

Link to Chapter 10 Exercises Media:Acct3101chapter10.pdf

Chapter 11 Notes

Chapter 11 Solutions

Link to Chapter 11 Exercises Media:Acct3101chapter11.pdf

Chapter 12 Notes

Intangible Assets

  • Intangible Assets - Assets that lack physical substance and are not financial instruments (patents, copyrights, franchises, goodwill, trademarks)
Intangible Asset Type Valuation Basis Notes
Patents, copyrights, franchises Purchased Intangibles - fair value of consideration given for expenditures necessary to make the intangible asset ready for its intended use.<p>

Internally Created Intangibles - capitalize only direct costs (such as legal costs) of developing the intangible.

Limited-life intangibles are written-off (amortized) systematically over their useful live or legal life, which ever is shorter.
Goodwill, trademarks Excess of consideration given over FMV of net assets (Assets - Liabilities) acquired. Unlimited-life intangibles are periodically evaluated for impairment (reduction in value) and written-down at year end. Recovery of prior write-down is not permitted.
Research & Development Costs Generally expensed as incurred (not capitalized) Materials, equipment, facilities, personnel costs, contract services, indirect costs all expensed as incurred unless there is alternative future use.
Start-up costs, Initial Operating losses, Advertising costs Generally expense as incurred (do not capitalize).
Computer Software Costs Costs incurred prior to establishment of technological feasibility should be charged to R&D Expense.

Costs incurred after establishing technological feasibility (planning, designing, coding, and testing) can be capitalized and amortized to current and future periods according to either (a) ratio of current revenue to current and anticipated revenue or (b) straight-line method over remaining useful life of the asset.

FAS #86: Accounting of the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed.

Chapter 12 Solutions


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