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Recovery of Bad Debts Journal Entries Example

Offer Details: For example, cash may be received against a written-off account receivable when the customer’s financial situation improves or when its assets are liquidated to pay its debts, etc. In case of bad debts that were written-off directly, the subsequent recovery results in an increase in cash and decrease of bad-debts expense for the current period.

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Bond Discount Amortization Journal Entries & Example

Offer Details: Bond discount amortization is the process through which bond discount written off over the life of the bond. There are two primary methods of bond amortization: straight-line method and effective interest rate method. An amortization schedule lists bond payments, bond discount amortization and interest expense for each period.

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Factoring of Accounts Receivable Journal Entries, Example

Offer Details: Factoring of accounts receivable is the practice of transferring the ownership of accounts receivable to a company specialized in receivable collection, in exchange for immediate cash. In other words, the company that originally owns the receivables, sells them to another company called “factor” and receives immediate cash.

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Natural Rate of Unemployment Formula Factors

Offer Details: An economy will high proportion of young worker will tend to have higher natural unemployment rate. It is because younger workers are more likely to switch jobs or being laid-off. Government Policies such as Minimum Wage. Government policies such …

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Cost of Capital Explanation, Formula & Example

Offer Details: Cost of capital is the opportunity cost of funds available to a company for investment in different projects. The most common measure of cost of capital is the weighted average cost of capital, which is a composite measure of marginal return required on all components of the company’s capital, namely debt, preferred stock and common stock.. Most companies are for-profit entities which must

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Put Option Definition Payoff Formula Example

Offer Details: Put option is an option that gives its holder the right to sell an asset, say bond or stock, at a specified exercise price at the exercise date. Its payoff equals the exercise price minus the price of the underlying asset. Value of a put option (or simply put) depends on the market price of the underlying asset (the stock, bond, etc.) relative to the exercise price (also called the strike price).

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Payoff Matrix Definition Presentation Example

Offer Details: In game theory, a payoff matrix is a table in which strategies of one player are listed in rows and those of the other player in columns and the cells show payoffs to each player such that the payoff of the row player is listed first.. Payoff of a game is incremental gain/benefit or loss/cost that accrue to a player by executing its strategy given the strategy of the other player.

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Binomial Option Pricing Model Formula & Example

Offer Details: The terminal pay-off of a call or put option after different price movements can be worked by multiplying the up and down factor for every price move. The following table summarizes the different pay-off situations. Period 1 Price Period 2 Price Underlying Price at Expiration Call Option Payoff Put Option Payoff; Up: Up: uuS:

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Sell-or-Process-Further Decision Example

Offer Details: A decision whether to sell a joint product at split-off point or to process it further and sell it in a more refined form is called a sell-or-process-further decision. Joint products are two or more products which have been manufactured from the same inputs and in …

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Oligopoly Models Cournot vs Stackelberg vs Bertrand

Offer Details: Despite the significant advantage of cartelization, cartels are rarely successful. First, because collusion and price-fixing are illegal in most jurisdictions. Second, individual firms have an incentive to cheat the cartel. Since every individual firm can be better off if they cheat the cartel, a cartel is inherently unstable. Cournot Model

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Straight Line Method of Bond Discount/Premium Amortization

Offer Details: Through the process of amortization, this difference is written off against periodic interest receipts. Example. Company DS issued 5-years 8%-annual coupon bonds with …

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Amortized Cost of Financial Assets and Liabilities Example

Offer Details: Amortized cost is an investment classification category and accounting method which requires financial assets classified under this method to be reported on balance sheet at their amortized cost which equals their initial acquisition amount less principal repayment plus/minus amortization of discount/premium (if any) plus/minus foreign exchange differences (if any) less impairment losses (if any).

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Disposal of Fixed Assets Journal Entries & Examples

Offer Details: Disposal of fixed assets is accounted for by removing cost of the asset and any related accumulated depreciation and accumulated impairment losses from balance sheet, recording receipt of cash and recognizing any resulting gain or loss in income statement.. A company may need to de-recognize a fixed asset either upon sale of the asset to another party or when the asset is no longer …

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Gain or Loss on Early Retirement of Bonds

Offer Details: A bond is said to be retired early when either the issuer or bondholder redeems the bond in exchange of cash before its original maturity date. It often results in a gain or loss because in many cases, redemption/retirement value is different from the carrying amount.

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Bad Debts Percentage of Credit Sales Method Example

Offer Details: Percentage of sales method is an income statement approach for estimating bad debts expense. Under this method, bad debts expense is calculated as percentage of credit sales of the period. The percentage to be applied to credit sales is calculated on the basis of past experience and other factors such as change in credit policy.

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Notes Receivable Definition, Journal Entries & Example

Offer Details: At the end of December when DEF pays off the notes receivable, the following journal entry is needed: Bank ($3,000,000+$20,000+$20,133) 3,040,133: Notes receivable: 3,040,133: As at 31 December, the note receivable from ABC is classified as a non-current asset because it is due after 12 months from 31 December. Interest receivable on the note

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Relevance and Faithful Representation Definition & Example

Offer Details: Trade-off between relevance and faithful representation. In many cases, it is easy to present information which is both relevant and which presents the transactions faithfully but in some instances, we might need to strike a balance between both requirements.

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Valuation Allowance in Deferred Tax Example

Offer Details: Valuation allowance is a contra-account to a deferred tax asset account which shows the amount of deferred tax asset with a more than 50% probability of not being utilized in future due to non-availability of sufficient future taxable income.. Valuation allowance is just like a provision for doubtful debts. It decreases the book value of the deferred tax asset to a value which a company

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Warranty Payable Calculation Journal Entries Example

Offer Details: Some companies may elect to directly write off any warranty related payments/replacements in the period in which they occur. However, such as policy is against the matching principle. If FD had opted for this accounting policy, it would not make the journal entries shown above, thereby not reporting any warranty payable.

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Unusual and Infrequent Items in the Income Statement

Offer Details: If a holding company has 300 subsidiaries globally and it disposes off a couple companies during a year, the gain or loss might not be unusual or infrequent because the company’s main operations involve acquisition and disposal of subsidiaries.

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Initial Investment Formula Example

Offer Details: Initial investment is is the amount required to start a business or a project. It is also called initial investment outlay or simply initial outlay. It equals capital expenditures plus working capital requirement plus after-tax proceeds from assets disposed off or available for use elsewhere.y.

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Preferred Stock Features, Types & Journal Entries

Offer Details: Callable preferred stock issues are those that may be retired at the option of the issuer. In such cases, the issuer pays off the whole amount of the preferred stock. Journal entry for callable preferred stock. If company A pays off the $3,000,000 preferred stock at the end of 12th year, the transaction would be recorded as follows:

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Bank Overdraft Definition, Presentation, Example

Offer Details: If this is the case, any change in bank overdraft balances is not reported as a cash inflow or outflow rather the overdraft balance is netted off from cash and cash equivalents and a reconciliation is shown in the notes to the financial statements. Example. Earth Inc. has four bank accounts: Account A and B which are maintained at Mars Bank.

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Revaluation of Fixed Assets Journal Entries Examples

Offer Details: If a revalued asset is subsequently valued down due to impairment, the loss is first written off against any balance available in the revaluation surplus and if the loss exceeds the revaluation surplus balance of the same asset the difference is charged to …

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Short Run vs Long Run Examples

Offer Details: A firm engaged in labor-intensive janitorial services may have quite a short long-run say 1 month because it can scale its operations up and down by hiring and firing employees and buying off-the-shelf equipment that it needs.

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Preparation of Consolidated Financial Statements

Offer Details: Determine the acquisition date i.e. the cut-off date on which the control is effective; Determine the fair value of the (purchase) consideration transferred whether in the form of cash or stock of the parent, identify contingent consideration, if any; Determine the acquisition date fair value of the net identifiable assets of the subsidiary;

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Bond Discount and Premium Calculation & Example

Offer Details: Where c is the periodic coupon rate (i.e. annual coupon rate divided by coupon payments per year), F is the face value of the bond, r is the periodic bond yield and t is the total number of coupon payments till maturity.. The total amount of bond discount is directly proportional to the difference between the coupon rate and bond yield (i.e. market interest rate) and the time to maturity.

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Adjustment for Inflation in NPV Calculation

Offer Details: Net present value (NPV) is a technique that involves estimating future net cash flows of an investment, discounting those cash flows using a discount rate reflecting the risk level of the project and then subtracting the net initial outlay from the present value of the net cash flows.

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Plan Assets Definition and example

Offer Details: Plan assets are presented in the balance sheet at their fair value where they are netted off against plan liabilities to determine the pension asset/liability. Reconciliation between opening and closing plan assets. Reconciliation between opening plan assets and closing plan assets would look like …

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Decision to Add or Drop Product Line or Department Example

Offer Details: A decision whether or not to continue an old product line or department, or to start a new one is called an add-or-drop decision. An add-or-drop decision must …

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Marginal Product of Labor Calculation Graph Example

Offer Details: Marginal product of labor (MPL) is the increase in total production that occurs when labor increases by one unit, but all other inputs remain the same.

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Out of the Money (OTM) Option Definition Example

Offer Details: Out of the money (OTM) option is an option that has zero intrinsic value and the holder of such an option is better off letting the option expire worthless. An out of money call option has exercise price higher than the price of the underlying asset. The holder of a call option is interested in buying the underlying asset.

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Retained Earnings Journal Entries Examples

Offer Details: Retained earnings (also known as accumulated earnings) is a component of shareholders equity which represents the amount of net income left-over with the company since its incorporation after periodic distribution to shareholders in the form of dividends.

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Negative Amortization Definition Formula Example

Offer Details: Negative amortization is where the principal balance on a loan increases initially because the periodic payments being made are not enough to pay off the interest accrued on the loan. The unpaid interest is added to the principal balance of the loan and periodic payments are …

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Loan Amortization Formula

Offer Details: Loan amortization is the process through which principal balance of amortized loans is paid off through periodic payments over the life of the loan.Amortized loans are loans whose periodic repayments include both a principal repayment and interest component.. There are several types of loans, some require periodic payment of interest and a bullet payment of principal at the end of the …

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Leasing Advantages and Disadvantages

Offer Details: Off-balance sheet financing: For companies who are already high on debt, leasing provides a means of obtaining financing without worsening their debt ratio i.e. obtaining off-balance sheet financing. Even though due to change in accounting standards, most of the lease liabilities are brought on balance sheet, there are still some exceptions

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Basket Purchase Calculation and Journal Entries

Offer Details: Karakorum, Inc., a manufacturer of sports equipment, is in financial distress and has decided to sell off its golf division to Himalaya, Inc. for $40 …

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Pocket IFRS Brief Top-Level Summaries

Offer Details: Entities recognize government grants only when they are reasonably certain they will meet the associated conditions. Expense-related government grants are recognized in the periods in which the associated expense is recognized, and asset-related government grants are either netted-off from the associated asset or presented as a deferred amount.

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Present Value of a Perpetuity Formula Example

Offer Details: Let’s say a government wants to set up an endowment that will off $1 million each year in scholarship for ever. This constitutes a perpetuity because the payment is fixed, there is equal duration between each payment, i.e. one year and there are infinite number of payments. Some models treat different investments and liabilities are perpetuities.

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Assignment of Accounts Receivable Journal Entries, Example

Offer Details: Assignment of accounts receivable is an agreement in which a business assigns its accounts receivable to a financing company in return for a loan. It is a way to finance cash flows for a business that otherwise finds it difficult to secure a loan, because the assigned receivables serve as collateral for the loan received.

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EBITDA Calculation Margin Strengths and Limitations

Offer Details: EBITDA stands for earnings before interest, taxes, depreciation and amortization. It is worked out by adding taxes, interest expense and depreciation and amortization to net income. It is a measure of standardized operating performance because it excludes the effects of differences in capital structure, taxation and accounting estimates of different companies.

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