's useful life). When the units-of-activity method is used, the equipment's depreciation is expressed as an amount per document produced. (Years are not relevant.) To calculate the depreciation rate per...
's useful life). When the units-of-activity method is used, the equipment's depreciation is expressed as an amount per document produced. (Years are not relevant.) To calculate the depreciation rate per...
Our Explanation of Present Value of an Ordinary Annuity uses the appropriate present value factors for discounting a stream of equal cash amounts occurring at equal time intervals. An important feature is the use of loan...
, the process costing system is more appropriate.) Process Costing Process costing is a cost accounting system for calculating the manufacturing costs (direct materials, direct labor and manufacturing overhead) of...
direct materials, direct labor, and manufacturing overhead. Manufacturers are also required to consistently follow their selected cost flow assumption. Examples of Inventory Valuation Assume that a new company purchased...
: the highest point and the lowest point. The scattergraph will reveal if either of the two points is an outlier. Regression analysis uses all of the monthly electricity bill amounts and their related number of equipment...
the returns on the owner’s cash investment to be amplified. That is, with financial leverage: an increase in the value of the assets will result in a larger gain on the owner’s cash, when the loan interest rate is...
Our Explanation of Future Value of a Single Amount will show you the power of compounded interest on a single deposit. You will see how the future value tables can be useful as well as the rule of 72.
that compared to the straight-line method, the depreciation expense will be faster in the early years of the asset’s life but slower in the later years. However, the total amount of depreciation expense during the...
Our Explanation of Payroll Accounting discusses the taxes and benefits which are withheld from employees' pay as well as the taxes and benefits that are expenses for the employers. Also provided are examples of the...
200% of the straight-line depreciation rate. The “declining-balance” refers to the asset’s book value which is declining as the asset is depreciated. (Book value or carrying value is the asset’s cost minus its...
by $91. With a time value of money of 10%, the $909 can be invested today and will grow by $91 ($909 x 10%) to be $1,000 in one year. Receiving a net amount of $1,000 in two years will have a present value of only $826....
accounts. The amounts and balances in the general ledger accounts are used to prepare the company’s financial statements. Example of General Journal and General Ledger Assume that a company depreciates its equipment...
issue bonds to finance projects, operating deficits, or to redeem older bonds that are maturing. For example, a profitable public utility might finance half of the cost of a new electricity generating power plant by...
What is DCF? In accounting, DCF refers to discounted cash flows or to the discounted cash flow techniques such as net present value or internal rate of return. DCF is a preferred method for evaluating capital...
efficient equipment or to retain its existing equipment. Net incremental cash flows are necessary for calculating an investment’s: net present value internal rate of return payback period To illustrate net incremental...
of the unique services it provided nor does it know the market value. As a result, WSC discounts the future $100,000 by using the interest rate of 20% for two years to arrive at the present value of $69,400. WSC will...
estate tax rate to be applied to the assessed values. (There could also be assessed values for personal property.) The assessed values of real estate or personal property are not necessarily equal to the property’s...
of 120 credits. Just as important as being able to take the CPA Exam is whether you can pass the CPA Exam. The CPA Exam is very rigorous and the pass rate is significantly lower than the pass rates for college...
accounting amounts to see how the investments will impact its future Internal rate of return Net present value The discounting of cash flows can be done using computer software, financial calculators, or present value...
, if a company receives $1,000 today and is able to invest the amount immediately at a rate of 10% per year, the company will have $1,100 after 365 days. If the time value of money is 10%, it also means that receiving...
that companies must provide. The cost of the workers’ compensation insurance is paid by the employer. Many view the cost as another fringe benefit and will include the cost in its fringe benefit rate. Hence, the cost...
of accounting, turnover is used to express the rate at which a company has to replace the employees who leave the company. Examples of Turnover in Financial Ratios The following are a few of the most common financial...
between interest expense and interest payable, let’s assume that a company borrows $200,000 on November 1 at an annual interest rate of 6%. The company is required to pay each month’s interest on the 15th day of the...
What is marginal cost? Definition of Marginal Cost Marginal cost is a manufacturer’s cost to produce one more unit of product. In other words, marginal cost is the change in total costs when one additional unit is...
rate, the asset will also be recorded at $50,000. A long-term asset that will be used in a business (other than land) will be depreciated based on its cost. The cost will be reported on the balance sheet along with the...
annualized rate of approximately 18%. If the customer does not have cash or a credit line available, the early payment discount may not be worth the risk of a potential bank overdraft fee. Join PRO to Track Progress...
of depreciation expense is not a source of cash, it does reduce a corporation’s taxable income. That in turn reduces a profitable corporation’s cash payments for income taxes (by the amount of the corporation’s...
by the corporation will be deductible on the corporation’s income tax return. If a corporation’s combined federal and state income tax rate is 35%, then $100,000 of interest expense will save the corporation $35,000...
. For example, if the business has total fixed expenses of $300,000 for a year and it has a contribution margin of $40 per billable hour (hourly billing rate of $100 minus variable expenses of $60 per hour), the...
. Example of Correlation Assume that during a 10-year period the number of cars sold in the U.S. moved in the same direction as the country’s rate of inflation. Even with a 10-year correlation between the two sets of...
Perhaps the most common example of the term amortization is the amortization schedule associated with a mortgage loan. For a 15-year mortgage loan with a fixed interest rate and monthly payments, the amortization...
part of the total cost increases as an activity increases and it decreases as the activity decreases. Semivariable costs are also referred to as mixed costs. The equation for a semivariable cost is Total Cost = Fixed...
with respect to the number of units produced. On the other hand, the worker compensation cost for the office staff is usually a much smaller rate and that worker compensation cost will not be variable with respect to...
the amounts established at the time that the static budget was prepared and approved.) For costs that vary with volume or activity, the flexible budget will flex because the budget will include a variable rate per unit...
and a stated interest rate of 6% per year. This means that the bond issuer is obliged to pay the following amounts: $30,000 of interest every six months until the bond matures ($1,000,000 X 6% X 6/12) $1,000,000 at...
, a company borrows $100,000 with an annual interest rate of 12%. The interest for each month is to be paid on the last day of the month. No principal payment is required until the loan comes due in two years. On July 1...
asset) and credit Interest Revenue (or Income). Example of Accrued Interest Let’s assume that on December 16, a company borrows $20,000 from its bank at an annual interest rate of 6%. The first interest payment is due...
the life of the loan because of the matching principle. Example of Amortizing Loan Costs Assume that a company incurs loan costs of $120,000 during February in order to obtain a $4 million loan at an annual interest...
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