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Financing and Investing transactions: Involve setting up a company so it can conduct operations Operating transactions: Entail the actual conduct of operations (normal everyday core activities)

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Preferred shareholders have rights not shared by common shareholders. Receipt of dividends – confers the right, if dividends are declared by the corporation’s board of directors Cumulative preferred stock means that missed dividends must be paid at a later date (dividends in arrears) Claims on assets in case of liquidation – higher priority than...

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Companies under U.S. GAAP and IFRS may choose to use the fair market value option vs. the effective interest method. Most companies choose to disclose the fair market value of the debt in the notes to the financials rather than to revalue the liability. Companies also disclose in the notes other financial instruments such as the guarantee of cre...

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Warranties A promise by a manufacturer or seller to ensure the quality or performance of the product for a specific period of time Record estimated expense and liability when products are sold (matching concept): Warranty Expense xx Contingent Warranty Liability xx As costs are incurred (usually in subsequent periods), charge expenditure to w...

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Acquisition cost is the fair market value (FMV) of the acquired asset or the FMV of what was given up to acquire the asset. FMV of what is given up is typically used as this is frequently cash. General Rule: Capitalize (add to an asset account) the costs to acquire the asset and bring it to its serviceable or usable condition and location. Dr. A...

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Companies may purchase equity securities in small amounts to earn investment income and not exert influence. These are passive investments. Passive investments use the mark-to-market rule. Assets are carried at their current market value. Changes in value of securities are recorded as income or loss on the income statement.

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Applying the lower-of-cost-or-market rule to ending inventory is accomplished by comparing the cost allocated to ending inventory with the market value of the inventory. If the market value exceeds the cost, no adjustment is made and the inventory remains at cost. If the market value is less than the cost, the inventories are written down to market...

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Note that we do not know in any given period which A/Rs will not be collected. Therefore, we must estimate uncollectibles. There are two methods: 1. Percentage of sales 2. Aging schedule of accounts receivable Both methods are used to estimate for an adjusting journal entry at the end of the period. This entry ensures that bad debt expenses a...

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Which of the following ratios would be of primary importance to a supplier in deciding to extend credit for goods delivered. a. Earnings per share b. Debt to equity ratio c. Accounts receivable turnover d. Quick ratio

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Example: purchase of equipment. Journal Entry at time of purchase: Equipment xx Cash xx Adjustment at end of the period (for the portion that has been used): Depreciation Expense xx Accumulated Depr. xx

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