ACC Exam Review

  1. What happenes to Plant Assets, Nastural Resources, and Intangible Assets over time?
    • Plant Assets = Depreciate
    • Natural Resources = Depletion
    • Intangible Assets = Amortization
  2. Land vs. Land Improvements
    • Land is NOT Depreciated
    • But
    • Land Improvements DO Depreciate
  3. What is a Lump sum purchase or "Basket purchase"
    When you purchase a group of assets for a single price
  4. Capital Expenditures vs. Expenses
    • Capital Expenditures
    • -Debited to an asset account
    • -Increase asset’s capacity or efficiency
    • -Extend useful life
    • Expenses
    • -Debited to an expense account
    • -Maintain asset in working order
    • - Ex. Oil changes, tires, batteries, Patching a roof
  5. Accidently recording a Capital Expenditure as an Expense does what?
    • -Overstates Expenses
    • -Understates Net Income
    • -Understates Capital
    • -Understates assets (Equipment)
  6. What are the 3  methods for Depreciation?
    • 1. Strait Line: Equal amounts per period
    • 2. Units of Production:Different amounts; based upon usage
    • 3. Declining-balance: Decreasing amount over time as it ages
  7. What is the Strait-Line Depreciation equation?
    (Cost – Residual value) × 1/life × #/12
  8. What is "Net Book Value"?
    • The carrying value of an asset as it
    • depreciates
  9. What is the Double Declining Balance method?
    • - More depreciation expense near the
    • start of an asset’s life
    • - More depreciation expense near the
    • start of an asset’s life
    • -Less depreciation expense as it ages

    (Cost - Accumilated Depreciation x 2/Life x #/12)
  10. When to use Strait Line Depreciation
    • - For Assets that generate revenue evenly over time
    • - ex. Depreciating a building
  11. When to use Units of Production
    • - For Assets that are subject to wear and tear from use
    • - ex. Natural resources like Coal and Oil
  12. When to use Double-declining-balance
    • - For Assets that produce more revenue in their early years
    • - ex. Computers
  13. When is an Asset Fully Depreciated?
    • - Asset has reached the end of its estimated life
    • (Asset never reported below residual value)
  14. What is FICA, SUTA, & FUTA tax?
    • -FICA (Employer tax): Employer matches amount withheld from employees’ pay
    • -SUTA (State Unemployment tax): Usually 5.4% of first $7,000 paid to each employee
    • -FUTA (Federal Unemployment tax): Usually 0.8% of the first $7,000 paid to each employee
  15. What are  the 2 parts of Bonds
    • Principal: amount to be paid back at maturity
    • Interest: amount paid to bondholders over the
    • life of the bond based on the stated interest rate on the bond
  16. What is a Authorized stock?
    • How many shares of a class of stock a
    • corporation may issue
  17. What is Outstanding Stock?
    • Stock that is held by its stockholders
    • (The outstanding stock of a corporation represents 100% of its ownership)
  18. What are the rights of Common Stock?
    • Vote—voting on corporate matters
    • Dividends—receive a proportionate part of dividend declared
    • Liquidation—receive a proportionate part of assets remaining
    • Preemption—maintain their proportionate ownership
  19. What are the rights of Preferred Stock?
    • -Receive dividends before common stock holders
    • -Fixed dividend amount
    • -Upon liquidation, receive assets before common stock holders
    • (Still have same rights of Common stock holders)
  20. What is Par value for stocks?
    • - Arbitrary amount assigned to a sehare of stock
    • - Set when the corporate charter is filed
    • - Usually set low as to avoid legal
    • difficulties
  21. What is a Premium?
    When an amount is received above Par value
  22. Order of Equity Accounts
    Preferred stock , Common stock, Retained earnings
  23. Market Value of Stock
    • - Price at which a person can buy or sell a share
    • - Most important to shareholders
  24. Liquidation Value of Stock
    - Amount guaranteed to preferredstockholders if company liquidates
  25. Book Value of Stock
    • - If preferred stock exists, subtract preferred equity from total equity to compute book value of common shares
    • (Amount of equity per share of stock)
  26. What is the Rate of Return for Total Assets
    (Net Income + Interest Expense) / Average Total Assets
  27. What is the Rate of Return on Common Stockholders’ Equity?
    (Net income – Preferred dividends) / Average common stockholders’ equity
  28. Income Tax Expense vs. Income Tax Payable
    • Income Tax Expense: Income before tax on the income
    • statement  x Income tax rate
    • Income Tax Payable: Taxable income from the IRS filed tax return  x Income tax rate
    • (Depreciation methods differ)
  29. What is a Stock Dividend?
    • - A distribution of a corporation’s own stock
    • - Affects only stockholders’ equity accounts
    • (does not give any assets to the shareholders)
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ACC Exam Review