Chapter 9 Long-Term Assets

Chapter 9 Long-Term Assets

Cost

determination:

the

purchase price and all necessary expenditures needed to prepare the asset for its intended use Land, Building, Machinery Basket asset purchase: the total cost is separated on the basis of their relative market value
Additional
Ordinary

expenditure
repairs and maintenance

Expense

Acquisition 1. Compute cost.

Use 2. Allocate cost to periods benefited. 3. Account for subsequent expenditures.

them: lower income, lower balance of assets, expense is recognized currently.

Disposal 4. Record disposal.

Extraordinary
Capitalize

repairs and major additions

them: higher income, higher balance of assets, deferred expense Change in depreciation over the rest of assets life.

Chapter 9 Long-Term Assets

Chapter 9 Long-Term Assets

Intangible
Cost:

Depreciation: Cost allocation concept

assets:

Straight-line method Units of production Accelerated method: double declining method Total depreciation expense over the entire life of the asset is the same using any method, but the depreciation expense of each single year may be different. Recognize any unrecorded depreciation expense

purchase price, legal fees, and filing fees. Amortization Indefinite life: no amortization Limited life: straight-line amortization Amortization period is the useful life of the asset, which is the period that the asset benefits the firm.
Fixed

Asset disposal

asset turnover=

Net Sales Average Net Fixed Assets

Depreciation Journal Entry must be included

Remove the asset and the accumulated depreciation associated with the asset from books Record the cash receipts (or payment) Recognize any gain or loss

Current

liabilities (Chap 10)

payable, accrued liabilities, unearned revenue notes payable

Accounts

Short-term

Appendix C: Time value of money

Value and Present Value of a single amount (Table C.1 and C.2) Future Value and Present Value of an annuity (Table C.3 and C.4) Compounding interest
Interest Compounding Period Total

Chapter 10 Bonds Payable

Bonds: How
Face

Future

publicly traded debts to interpret the face of bond certificate

value = principle paid at maturity date, maturity date Stated rate:

Issue
interest

rate is always express on annual basis. period

payment=face value * stated rate * time

Bond

issuance
the bond issue price
price=PV of principle + PV of interest payments

rate =

Annual interest rate Number of periods per year

Computing
Issue

Record
State State

the bond issuance:

number of periods= total number of years * number of periods per year

rate = market rate, at face value, rate < market rate, at a discount, State rate > market rate, at a premium

Chapter 12 Statement of Cash Flows

Chapter 12 Statement of Cash Flows

Classifying Cash Flows

Cash flow from operating activities.

Indirect method to prepare the section of cash flow from operating activities

Cash flows that directly relate to Revenues or Expenses Purchase/sale of long-lived assets Purchase/sale of investment securities Lend cash or Receive principle repayment on maturity Issuing stock Pay dividends Borrowing cash / repay the principle

Cash flow from investing activities

Usually CA and CL are affected by operating activities (short-term investment excluded) Usually, LT assets are affected by investing activities Usually, LT liabilities and contributed capital are affected by financing activities RE=Net income (operating) dividends (financing)

Cash flow from financing activities

Cash Flow from Operating Activities Net Income noncash expenses Increase / Decrease in CA Increase / Decrease in CL Net CF from Operating Activities

+ -/+ +/-