Final Exam Review
This semester we focused our attention on assets. In particular, what costs may we capitalize to an asset, and
when/how do we allocate the costs of an asset through the income statement as an expense. With each chapter and
each topic, our over-riding objective has been to allocate the cost of using an asset [an expense] to the same period in
which we received the benefit of that asset [through revenue]. So we are always striving to match our efforts
[expenses] to our benefits [revenues].
Test 1 - 4 Questions on Final from Test 1 Material
--Know how to work your way through the Multi-Step Income Statement – getting subtotals for each section through
Net Income and ultimately through Comprehensive Income.
--What are 3 Other Comprehensive Income adjustments that a company may report on its financial statements?
--What is Accumulated Other Comprehensive Income, and where is the account located on the Balance Sheet?
Test 2 - 11 Questions on Final from Test 2 Material
Chapter 7
--Accounting for doubtful (uncollectible) accounts receivables using the Allowance method is a big topic in this chapter.
Be sure you understand how to make the period end adjusting entry using either the Balance Sheet approach or the
Income Statement approach.
--How do we write off an account using the Allowance method?
--Know how to account for the sale of Accounts Receivable by factoring those receivables to a third party on a With or
Without Recourse basis.
--Know how to account for a Non-Interest Bearing Note Receivable [a discounted Note Receivable] using the Effective
Interest Method to amortize the Discount on the Note.
Chapter 8
--Know how to calculate Ending Inventory and Cost of Goods Sold using each of the Cost Flow Assumptions [LIFO, FIFO,
and Weighted Average] in either a Perpetual or Periodic Inventory system.
--In a Periodic Inventory system, if Ending Inventory is under or overstated at the end of the period, how does that affect
all the elements of the financial statements [Assets, Liabilities, Gross Profit, Net Income, Retained Earnings] in the
current and following year?
--Know how to calculate Ending Inventory for a company using Dollar Value LIFO.
Chapter 9
--How do we account for inventory when its Market Value falls below Cost? Know how to choose a market value and
prepare an adjusting entry using an Allowance account to mark the inventory asset to market when that value is lower
than cost.
--Know how to estimate Ending Inventory and Cost of Goods Sold using the Gross Profit Method. This method requires
the Gross Profit Margin percentage [percent mark-up on sales]. If given percent mark-up on Cost, be sure to convert to
percent mark-up on sales.
--Know how to estimate Ending Inventory and Cost of Goods Sold using three different variations of the Retail Method –
Conventional Retail Method, LIFO Retail Method, and Dollar Value LIFO Retail Method.
Test 3 - 10 Questions on Final from Test 3 Material
Chapter 10
--What is the difference between a Revenue Expenditure and a Capital Expenditure? Given a list of costs for operating
assets, can you identify which costs should be capitalized and which costs should be expensed?
--Know how to allocate costs between Land, Building, and Land Improvements in a Real Estate purchase.
--How do we calculate interest costs to be capitalized during the construction period of an asset if that asset is financed
with various debt?
--How do we account for assets, gains, and losses in an Exchange of Non-Monetary Assets whether the exchange has
commercial substance or lacks commercial substance?
Chapter 11
--Know how to calculate Depreciation Expense with any one of the four Depreciation methods that we learned [Straight
Line, Activity, Double Declining Balance, or Sum Of The Years Digits] for any given year in the asset’s life and considering
partial periods when the asset is purchase at any time throughout the year.
--If an operating asset is sold midway through its life, know how to calculate Accumulated Depreciation through the date
of sale and how to calculate a gain or loss on the sale. How do we prepare that journal entry?
--How do we determine whether or not an operating asset has suffered an impairment loss, and how do we measure it?
Chapter 12
--How do we measure and record Goodwill as an asset to be reported on the Balance Sheet?
--How do we measure and record Amortization Expense for an intangible operating asset for any given year?
--How do we measure Accumulated Amortization for an intangible operating asset considering partial periods when the
asset is purchased at any time throughout the year.
--What costs may be capitalized to an intangible operating asset, and what costs must be expensed?
Chapter 17 – Investments - 15 Questions on Final from Chapter 17 Material
--How is each investment asset group [Trading, Available for Sale, and Held to Maturity] reported on the Balance Sheet at Cost or Fair Value?
--What two criteria must be met in order to group an investment asset as Held to Maturity?
--How do we calculate the value of a bond investment [its purchase price, the amount we are willing to pay]?
--Know how to prepare an amortization schedule for a bond investment - whether the bond was purchased at a
Discount or a Premium.
--Know how to prepare journal entries for bond investments using the Net Method at each cash interest payment period
throughout the bond's life given calculated amounts in the amortization table.
--Think about the following questions when you work with bond investments...
*When the Market rate is greater than the Stated rate for a given bond, will the bond be purchased at a
Discount or Premium?
*When the Market rate is less than the Stated rate for a given bond, will the bond be purchased at a Discount or
Premium?
*Using the Effective Interest Method to amortize a bond purchased at a Discount, will interest revenue reported
on the Income Statement each period be greater than or less than the cash interest payment received each
period?
*Using the Effective Interest Method to amortize a bond purchased at a Premium, will interest revenue reported
on the Income Statement each period be greater than or less than the cash interest payment received each
period?
*When we amortize a Discount using the Effective Interest Method, does the carrying value of the bond
investment increase or decrease with each cash interest period?
*When we amortize a Premium using the Effective Interest Method, does the carrying value of the bond
investment increase or decrease with each cash interest period?
*Using the Effective Interest Method, which rate do we use to calculate Interest Revenue each period - the
Market rate, or the Stated rate?
*Using the Effective Interest Method, which rate do we use to calculate the Cash Interest payments that we
expect to receive each period - the Market rate, or the Stated rate?
*If we hold the bond investment all the way to maturity, which rate of return are we guaranteed to earn on our
bond investment - the Market rate, or the State rate?
--Know how to mark the Trading and Available for Sale investment groups to Fair Value using a separate Adjustment
account. Pay attention to whether or not the Adjustment account has an existing beginning balance when considering
the adjustment required to get to the target balance.
--How will an Unrealized Gain or Loss from marking Trading Securities to fair value be reported in the financial
statements - as Income or Other Comprehensive Income?
--How will an Unrealized Gain or Loss from marking Available for Sale Securities to fair value be reported in the financial
statements - as Income or Other Comprehensive Income?
--What equity account on the Balance Sheet accumulates and retains Unrealized Gains and Losses for Trading Securities?
--What equity account on the Balance Sheet accumulates and retains Unrealized Gains and Losses for Available for Sale
Securities?
--When we sell a bond or equity investment asset, is the Gain or Loss from the sale reported as Realized or Unrealized?
If we sell an Available for Sale investment for a gain or loss, is the gain or loss from that sale reported in Income or OCI?
--We use the Fair Value Method to account for equity [common stock] investments when we own less than 20% of the
total shares outstanding from the company in which we've invested. Know how to prepare all the typical journal entries
for those equity investments: purchase of the investment, marking the investments to fair value at the end of the
period, recognizing the receipt of dividends, and sales of the investments at a gain or loss.
--We use the Equity Method to account for equity [common stock] investments when we own more than 20% but less
than 50% of the total shares outstanding from the company in which we've invested. Know how to prepare all the
typical journal entries for those equity investments: purchase of the investment, recognizing our share of the investee
company's period income or loss, recognizing the receipt of dividends.
--How are the Fair Value Method and the Equity Method in accounting for equity [common stock] investments
different?
Note:
** There will be NO IFRS questions on the final exam.
**There will be two (2) extra credit questions on the final exam over the video documentary from PBS, "Money, Power,
and Wall Street" - the first 45 minutes of the 4th Episode. The link is on my website.
**Group Work exercises are certainly a good review for these topics, but be sure you branch out to other sources when
you are studying - avoid working the same old problem over and over. That won't help you understand the material; it
only reinforces memorization. Go to the textbook, read targeted sections of the chapter. If you need extra practice on
any one topic, look in the back of each chapter for additional exercises and problems.