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1

Journal Entries under the Equity Method Pg. 4-4, 4-7
a) Acq of investment at cost (BUY)
b) Investor income (Company Earns Money)
c) % of cash dividend (Investee get paid)
d) Record Amort/Depre/Impair of excess of BV and purchase price (Amortize/Depre/Imapir of excess)

*When company earns money, the investment of investee goes up b/c of significant influence; when company pays dividends, investment goes down
a) Invest: debit includes BV, PP&E, goodwill
Cash: credit
b) Invest: debit
Equity in earnings: credit (I/S acctg goes to non-
operating)
c) Cash: debit
Invest: credit b/c paid out of dividends and lowers invest
since it comes out of retained earnings (b/c owns >20%)
d) Equity in earnings: debit include goodwill, PP&E (from the write up from BV, FMW, and purchase price (I/S acctg) => comes from non-operating
Invest: credit (B/S acctg)

2

Journal Entries under the Cost Method Pg. 4-5, 4-7
a) Buy the investment
b) Investor income (Company Earns Money)
c) Record % of cash dividend (Investee gets paid)
d) Record Amort/Depre/Impair of excess of BV and purchase price (Amortize/Depre/Imapir of excess)

*When company earns money, the investment of investee doesn't change b/c no significant influence
a) Invest: debit
Cash: credit
b) No entry because only owns comes from non-
operating (Not credit invest b/c owns b/c they dont have significant
influence in company

**No change in investment in T-acctg

3

Changes in ownership Pg. 4-7
a) Equity to Cost
b) Cost to Equity

a) Prospective: cost method going forward
b) Retrospectively apply equity method b/c now have to add journal entries for record % of cash dividend & record amort/depre/impair

4

Journal Entry Trading Securitites Pg. 5-2
a) To purchase investment
b) Unrealized gain
c) Unrealized loss

*Significance?

a) Invest in Trading Securities: debit
Cash: credit
b) Mkt adj - Trading securities (B/S): debit
Unrealized gain (I/S): credit
c) Unrealized loss (I/S): debit
Mkt adj - Trading securities (B/S): credit

*Since its I/S it is "this year only"

5

Journal Entry Available for Sale Pg. 5-3
a) To purchase investment
b) Unrealized gain
c) Unrealized loss

*Significance?

a) Invest in Trading Securities: debit
Cash: credit
b) Mkt adj - AVS securities (B/S): debit
Unrealized gain (B/S): credit
c) Unrealized loss (B/S): debit
Mkt adj - AVS securities (B/S): credit

*Think of DENT pg. 2-3
*Since its B/S it is cumulative balance Pg. 5-3 (Get NET)

6

Journal Entry on Fair Value Hedge Pg. 6-4
The asset then dropped in price

Its your asset:
Inventory: debit (b/c our asset)
Cash: credit

Decline in price:
Loss on market decline in inventory: debit
Inventory: credit

Hedge for loss:
Receivable on derivative: debit (B/S)
Gain on fair value hedge: credit (I/S)

**No NET income b/c hedge

7

Journal Entry on Cash Flow Hedge Pg. 6-5

Its your asset:
Inventory: debit (b/c our asset)
Cash: credit

Decline in price:
Loss on market decline in inventory: debit
Inventory: credit

Hedge for loss:
Other comprehensive income-loss on cash flow hedge: debit
(Goes to OCI b/c DENT) B/S
Payable on derivative: credit

8

Journal Entry on foreign currency: buying equipment Pg. 6-2 update

Equipment: debit
Due to X Company: credit
(convert from spot rate)

*Goes to income statement (remeasure)

9

Journal Entry on financial instruments DENOMINATED in foreign currency Pg. 6-2 update

Foreign currency exchange loss: debit
Due to X Company: credit

*Goes to income statement (remeasure)

10

Journal Entry on Inventory (Perpetual)

At the time of purchase

At sales occur

*Ongoing, real-time count

Inventory: debit
A/P: credit

A/R: debit
Sales Revenue: credit
COGS: debit
Inventroy credit

11

Journal Entry on Inventory (Periodic)

At the time of purchase

At year end

*Physical inventory count

Purchase: debit
COGS (plug at year end): debit
Purchases: credit

12

Journal Entry on buying and selling inventory

a) Buying

b) Selling

a) Inventory: debit
A/P: credit

b) A/R: debit
Sales Revenue: credit

COGS: debit
Inventory: credit

13

Journal Entry on Life insurance in finding life insurance expense Pg. 4-7

If there is dividend received? Also include in addition

Cash surrender value: debit
Insurance expense: debit
Cash: credit

Cash: debit
Insurance expense: credit

14

Journal Entry for Propery, Plant, and Equipment?

*Reason for journal entry?

Asset: debit; include purchase price, legal fees, delinquent taxes, title insurance, transportation (freight in), installation, test runs, and sales taxes
Cash: credit

*Because we are capitalizing since we are matching the cost of the aseet with the period's benefit

15

Journal Entry for Lump Sum Purchases Pg. 8-1

Land: debit
Building: debit
Cash: credit

16

Journal Entry for Asset Retirement Obligation Pg. 8-3

Accretion Expense: debit
ARO Liability: credit

17

Journal Entry for asset as a donation Pg. 8-3

Land: debit
Other income (Contribution Revenue): credit

18

Journal Entry for capitalization of interest; interest from money used to build asset Pg. 8-3

Building WIP: debit
Interest Expense: debit
Cash: credit

19

Journal Entry for repairs and maintenance expense Pg. 8-5

Repairs and Maintence Expense: debit
Cash: credit

20

Journal Entry how to sell an asset and replace with new asset Pg. 8-5

Accummulated Depreciation: debit
Loss: debit
Asset: credit

Asset: debit
Cash: credit

21

Journal Entry to record depreciation Pg. 8-6

Depreciation Expense I/S: debit
Accumulated Depreciation: credit (B/S contra asset account => reduction of asset)

22

Journal Entry to Selling an asset Pg. 8-10

Cash: debit
Accumulated Depreciation: debit
Loss: NONE
Asset: credit
Gain: NONE

*Assume cash received is book value

23

Journal Entry of Disposal of fixed assets Pg. 8-14

Cash: debit
Loss on sale: debit
Accumulated depreciation: debit
Asset: credit

24

Journal Entry for Impairment loss Pg. 8-12

Loss on Impairment (I/S): debit
Accumulated Depreciation: credit

25

Journal Entry for Accured revenue Pg. 9-6 Def
Journal Entry for Accured expense

*Significance?

Revenue that is earned but not received
Receivable: debit
Revenue: credit (I/S)
Then receive...
Cash: debit
Receivable: credit

Expense that is incurred but has not been paid
Expense: debit (I/S)
Payable: credit
Then pay...
Payable: debit
Cash: credit

*Income statement is "hit" at different times

26

Journal Entry for Deferred Revenue Pg. 9-6 Def
Journal Entry for Deferred expense

*Significance?

Money that you received but have not earned
Cash: debit
Deferred Revenue: credit (liabitility)
When you earn it...
Deferred Revenue: debit
Revenue: credit (I/S)

Something you paid but is not yet expensed
Deferred Expense: debit (pre-paid) => (asset)
Cash: credit

Expense: debit (I/S)
Deferred Expense: credit

*Income statement is "hit" at different times

27

Journal Entry for Prepaid Insurance Pg. 9-7

Insurance Expense: debit
Prepaid insurance: debit
Cash: credit

28

Journal Entry for Royalties Pg. 9-8

Royalty expense: debit
Prepaid royalties: debit
Accured royalties: credit
Cash: credit

29

Journal Entry for Life Insurance Pg. 9-8

Cash surrender value: debit
Life insurance: debit
Cash: credit

30

Journal Entry for Goodwill impairment loss Pg. 9-4

Impairment loss: debit (I/S: income from continuing operations)
Goodwill: credit