Thursday, February 18th, 1999
Announcements: none

Lecture notes:

Example:
Refer back to problem on 2/16/99:

During 1998 it is determined that customer A is unable to pay the $500 due to the NL Corporation.

12/1/98
The NL corporation received a 3 month note for $10,000 from a customer for the sale if merchandise.
The Interest Rate = 12%

12/31/98
Recognize the Interest earned to date.

Example:

A computer costing $8,000 was purchased on 9/1/98 (cash was paid). The following (incorrect) Journal Entry was made. What were the errors that resulted?

Income Statement
Expenses too high, Net Income too low

12/31/98 Balance Sheet
Assets too low, SE too low

d.

Allowance for Uncollectable Accounts		19,800
	Accounts Receivable		19,800

e.

Accounts Receivable		4,200
	Allowance for Uncollectable Accounts		4,200

f.

Cash		4,200
	Accounts Receivable		4,200

ACCOUNTS RECEIVABLE--XX
320,000 1,052,000 4,200	993,000 52,400 19,800 4,200
12/31/XX balance = 305,800

Bad Debt Expense		24,965
	Allowance for Uncollectable Accounts		24,965

(1,052,000 - 53,400) x 2.5% = $24,965

ALLOWANCE FOR UNCOLLECTABLE ACCOUNTS
19,800	16,700 4,200
	1,100 24,965
	12/31/XX balance = 26,065

12/31/XX Balance Sheet Preparation

Accounts Receivable	305,800
- A.U.A	- 26,065
Net Accounts Receivable	$279,735

Equipment Cost = $75,000

Estimated Life = 7 years

Estimated Salvage Value = $5,000

The Straight Line Depreciation Method has been used.

Date of Purchase = 1/1/94

Date of Sale = 12/31/98

Loss on Sale = $7,000

What was the selling price of the Equipment?

Proceeds < Book Value by $7,000

Book Value = $25,000

Selling Price = $18,000

Cash		18,000
Accumulated Depreciation		50,000
Loss		7,000
	Equipment		75,000

A company failed to prepare an adjusting entry at year-end to record Depreciation Expense. What are the effects of this error?

Income Statement
Expenses too low, Net Income too high

Balance Sheet
Assets too high, SE too high

Example:

	1/1/98	12/31/98
Equipment	65,000	75,000
Accumulated Depreciation	34,500	30,000

During 1998, Equipment costing $23,000 (Book Value = $8,300) was sold resulting in a $4,400 gain. The 1998 Depreciation Expense was $10,200.

Book Value	8,300
+ Gain	+ 4,400
Selling Price	$12,700

Cash Paid for Equipment Purchases

EQUIPMENT
Equipment Purchases 75,600	Equipment Sales 65,000
Change = 10,600

23,000

+ 10,600

Cash Paid for Equip. = 33,600

• Inventory Costing Methods
  --Cost of Goods Sold
  --Ending Inventory
  --Advantages / Disadvantages
  --Errors
  --Lower of Cost or Market
  --Gross Profit Method

• Cost Determination
• Depreciation Methods
  --Depreciation Expense
  --Book Value
  --Gain / Loss Calculations
• Intangible Assets
• Group Purchases
• Natural Resources