ACIS 2115 Study Guide - Midterm Guide: Accrual, Cash Flow, Income Statement

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mauvepug276

11 Mar 2016

School

Virginia Tech

Department

Accounting and Information Systems

Course

ACIS 2115

Professor

Lynn Almond

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Document Summary

When the allowance method of accounting for uncollectible accounts is used, bad debt expense is recorded: in the same year as the credit sale. Long-term assets fixed assets, plant and equipment, plant assets. The resources a company has that are used in the operations of a business. Fixed assets are resources that are used to generate revenue and they have a useful life of several years. Book value = cost of the asset accumulated depreciation (contra asset account, credit balance). Land we do not depreciate land. We do depreciate land improvements, buildings, and equipment. Recording depreciation expense and accumulated depreciation does not mean you are setting aside money to use to replace the asset in the future. It means you are allocating the original cost of the asset over several years. How do we calculate depreciation: straight line (most common) Depreciation expense = (cost salvage value) / useful life.

Related Questions

Before you begin this assignment, it will be helpful if you review

McDonald'sMcDonald's

Corporation

20152015

annual report

(https://www.sec.gov/Archives/edgar/data/63908/000006390816000103/mcd-12312015x10k.htm ).

McDonald'sMcDonald's

Corporation is the world's leading global food service retailer with more than 36,000 locations worldwide in more than 100 countries. The corporation operates and franchises

McDonald'sMcDonald's

restaurants, which serve menu items such as the Big Mac, Chicken McNuggets, and McFlurry desserts. In addition,

McDonald'sMcDonald's

also serves McCafe beverages and pastries.Read the requirements

Requirement 1. Where would

McDonald'sMcDonald's

Corporation report plant assets on its financial statements? How are plant assets reported and what is the value as of December 31,

20152015 ?

(Enter any amounts in millions, to the nearest tenth of a million, X.X, as shown in the financial statements.)

Plant assets are reported at	cost	on the	consolidated balance sheet.
The gross value of plant assets at December 31, 2015 is $		37,692.4	(in millions).

Requirement 2. Does

McDonald'sMcDonald's

Corporation depreciate its plant assets? How do you know? What is the depreciation method used and the useful lives?

No,

McDonald'sMcDonald's

Corporation does not depreciate its plant assets. We know this because there is no difference between the cost and net value of the plant assets as shown on the consolidated balance sheet. This is reasonable given that the company's only category of plant assets is land, which is not depreciated. As such, no depreciation method is in use.

Yes,

McDonald'sMcDonald's

Corporation depreciates its plant asset. We know this because information about depreciation can be found in the Notes to the Consolidated Financial Statement and an accumulated depreciation and amortization balance is shown on the consolidated balance sheet. The company use the straight-line method to depreciate assets with the following estimated useful lives: up to 40 years for buildings, the lesser of the useful lives of assets or lease terms for leasehold improvements, and three to 12 years for equipment.

Yes,

McDonald'sMcDonald's

Corporation depreciates its plant asset. We know this because information about depreciation can be found in the Notes to the Consolidated Financial Statement and an accumulated depreciation and amortization balance is shown on the consolidated balance sheet. The company use the double-declining-balance method to depreciate assets with the following estimated useful lives: up to 30 years for buildings, five to 10 years for leasehold improvements, and three to 12 years for furniture and equipment.

Yes,

McDonald'sMcDonald's

Corporation depreciates its plant asset. We know this because information about depreciation can be found in the Notes to the Consolidated Financial Statement and depreciation expense is reported on the consolidated statement of income. The company use the double-declining-balance method to depreciate assets with the following estimated useful lives: up to 40 years for buildings, the lesser of the useful lives of assets or lease terms for leasehold improvements, and three to 12 years for equipment.

Property, plant and equipment (fixed assets) are valued at historical cost, the cost of the asset plus transportation and setup cost. The costs of fixed assets are capitalized based on the companyâs capitalization policy (threshold for determining fixed assets) and expensed over time referred to as depreciation expense. Do you think fair market value should be used instead?

rubykoala569

Write an assessment of the company's financial performance,using ratios to support your conclusion. What can you concludeabout the company's liquidity, solvency, and profitability? Be sureto include the ratios calculation to support your conclusion.

Use the financial statements provided below to calculate thefollowing financial ratios:

	2012	2011
1. Current Ratio	10.915	6.715
2. Quick Ratio	11.307	7.524
3. Long-Term Debt-to-Equity Ratio	2.785	3.834
4. Debt-to-Equity Ratio	2.785	3.834
5. Long-Term Debt Ratio	2.866	3.988
6. Accounts Receivable Turnover Ratio (Assume that60% of Sales are Credit	25.491	8.908
7. Inventory Turnover Ratio (Assume 2011 beginninginventory was -0-.)	-0.715	-0.450
8. Asset Turnover Ratio	0.163	0.076
9. Gross Profit Percentage	0.731	0.806
10. Net Profit Margin Percentage	0.375	0.311
11. Return on Assets	0.061	0.024
12. Return on Equity	0.237	0.118

Get Your Motor Runnin'

Compartive Balance Sheets

	2012	2011
Assets
Current Assets
Cash	$198,456	$147,333
Accounts Receivable	4,000	5,000
Allowance for Uncollectible Accounts	(250)	80
Supplies	200	250
Inventory	35,000	32,000
Total current assets	237,406	184,663
Property, Plant, and Equipment
Equipment	60,000	15,000
Accumulated Depreciation - Equipment	(14,000)	(1,000)
Vehicles	35,000	35,000
Accumulated Depreciation - Vehicles	(4,800)	(2,400)
Building	684,375	684,375
Accumulated Depreciation - Building	(25,000)	(12,500)
Land	46,875	46,875
Land Improvements	23,750	23,750
Accumulated Depreciation - Land Improvements	(2,539)	(663)
Total PP&E	803,661	788,437
Total Assets	$1,041,067	$973,100

Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable	$20,000	$24,000
Wages Payable	1,000	500
Warranties Payable	750	500
Notes Payable	0	2,500
Total current liabilities	21,750	27,500
Long-term Liabilities
Bonds Payable	750,000	450,000
Mortgage Payable	0	300,000
Total long-term liabilities	750,00	750,000
Total liabilities	771,750	777,500
Stockholder's Equity
Common Stock	125,000	125,000
Paid-in capital in excess of par - common	25,000	25,000
Preferred Stock	40,000	20,000
Paid-in capital in excess of par - preferred	25,000	15,000
Less: Treasury Stock	(3,000)	(3,000)
Paid-in capital - treasury stock	500	500
Retained Earnings	56,817	13,100
Total stockholders' equity	269,317	195,600
Total liabilities and stockholders' equity	$1,041,067	$973,100

Get Your Motor Runnin'

Comparative Income Statements

	2012	2011
Service Revenue	$93,693	$50,230
Sales	76,250	24,000
Cost of Goods Sold	(45,750)	(14,400)
Gross Margin	$124,193	$59,830

Operating Expenses:
Advertising Expense	$7,500	$5,000
Bad Debt Expense	330	0
Depreciation Expense - Equipment	13,000	5,667
Depreciation Expense - Vehicles	2,400	2,400
Depreciation Expense - Building	12,500	12,500
Depreciation Expense - Land Improvements	1,876	663
Wages Expense	22,870	10,500
Total Expenses	60,476	36,730
Net Income	$63,717	$23,100

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ACIS 2115 Study Guide - Midterm Guide: Accrual, Cash Flow, Income Statement

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