Thursday, February 11th, 1999
Announcements: Do not do Exercise #8 in chapter 11 homework.

Lecture notes:

Beginning Inventory =	$275,000
Net Purchases =	$325,000
Trans In =	$20,000
Net Sales =	$650,000
Gross Profit =	20% of Sales

Sales	650,000
- Cost of Goods Sold	- 520,000
Gross Profit	130,000

Beginning Inventory	275,000
+ Purchases	325,000
+ Trans In	20,000
Cost of Goods Avail for Sale	620,000
- Ending Inventory	100,000
Cost of Goods Sold	520,000

Inventory Item	Total Cost		Total Market Value		Lower of Cost or Market
P	5,000	4,000		4,000
S	2,000	2,100		2,000
N	1,800	800		800
L	2,500	3,100		2,500
	10,500	10,000		9,300
		($500 loss)		($1,200 loss)

Adjusting Entry

Current Liabilities--a liability that is due within 1 year or the operating cycle, whichever is longer.

Operating Cycle--timeframe that elapses between the purchase of inventory and conversion of that inventory into cash.

Examples:
--accounts payable
--notes payable
--accrued liabilities (interest, wages)
--dividends payable
--taxes payable (income, sales, property, payroll)
--current portions of long term debt
--unearned revenues
--warranty liability
--contingent liability

Examples:
--bonds payable
--notes payable
--unearned revenue
--warranty liability

1/1/98
A delivery van costing $30,000 was purchased. The following estimates were developed on 1/1/98:

Estimated Life =	5 years
Estimated Residual Value =	$5,000
Estimated Mileage =	100,000 miles

Depreciable Basis

Cost - Residual / Salvage Value

30,000 - 5,000 = 25,000 (expense, decline in value)

25,000 / 5 = $5,000 depreciation expense per year

Depreciation Expense		5,000
	Accumulated Depreciation		5,000
	(contra-asset account)

Cost	30,000
- Accumulated Depreciation	- 5,000
Book Value	$25,000

$20,000

Assume that the van was driven a total of 15,000 miles during 1998.

25,000 / 100,000 miles = $0.25 per mile

15,000 x $0.25 = $3,750

$26,250

Depreciation Expense		3,750
	Accumulated Expense		3,750

Double Declining Balance Method
(asset declines more in earlier years that in later years)

Depreciation Expense = (Book value at beginning of period) x (twice straight line rate of depreciation)

Date	Depreciation Expense	Book Value
1/1/98		30,000
12/31/98	12,000	18,000
12/31/99	7,200	10,800
12/31/00	4,320	6,480
12/31/01	1,480	5,000

1/1/01
The van is sold for $12,000. Assume that Straight Line Depreciation has been used.

Cost	30,000
- Accumulated Depreciation	- 15,000
Book Value	$15,000

If proceeds > Book Value, a gain is recognized.
If proceeds < Book Value, a loss is recognized.

Cash		12,000
Accumulated Depreciation		15,000
Loss		3,000
	Van		30,000