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Austin Community College
ExamplesExamples
Financial accounting math concepts
Actual Accounting Examples
Some of the concepts may be new you.
Don’t worry – you will cover these in detail.
For now – let’s focus on the math concepts.
Tools
Use your calculator
Print the narrative
DepreciationDepreciation
• Applies to assets:used in businessexpected to benefit the business for more
than one year • Represents the allocation of cost over the life of the
asset $ $ $ $$
Units of Output Method
Allocate cost based on output
machine hours
copies made
miles driven
Units of Output Method
Facts:Cost of Photocopier: $60,000Estimated total copies: 2,000,000
Computation
CostEstimated Copies
$60,0002,000,000
Depreciation per copy
3 cents or$0.03 per copy
$0.03 per copy -- Uses
• Allocate the cost of the photocopier–Based on actual copies made
• Determine the cost of making one copy– External – setting the selling price– Internal – developing a budget and
recording depreciation
Current RatioCurrent Ratio
• Measure of liquidity–How quickly can a company pay its current
debt• Amounts due within one year
Current
Classified Balance Sheet provides data
Current AssetsCashAccounts ReceivableMerchandise Inventory
Current LiabilitiesAccounts PayableSalaries PayableRent Payable
Current Ratio
Current Assets$500,000
Current Liabilities$250,000
= 2
Interpretation: For every $1 of current liabilities, the company has $2 of current assets.
Gross Profit
Net Sales (Cost of Goods Sold)Gross Profit
• Amount of each net sales dollar–Available to cover operating costs–Provide for net income
Gross Profit Margin
Net Sales (Cost of Goods Sold)Gross Profit
• The relationship of Gross Profit to Net Sales–Decimal–Percentage
Gross Profit Margin
Net Sales
Less: Cost of Goods Sold
Gross Profit
100%$200,000
125,000
$ 75,000 37.5%
75,000/200,000 = .375
.375 X 100 = 37.5 %
Sales TaxSales Tax
• Sales Tax Rate: 8.25%• Gross Taxable Sales: $96,000What is the total amount due from customers?
Sales TaxSales Tax
8.25 % = .0825
96,000 X 8.25 % = 7,920
96,000 X .0825 = 7,920
OR
$96,000 + $7,920 = $103,920
One Step ComputationOne Step Computation
96,000 X 108.25 % = 103,920
96,000 X 1.0825 = 103,920
OR
What IfWhat If
• Sales Tax Rate: 8.25%• Amount Collected: $103,920What is the total amount of taxable sales?
What IfWhat If
Taxable Sales
Amount Collected
1 +Sales Tax Rate
? X 1.0825 = 103,920
? X 1.0825 = 103,920 1.0825 1.0825
Taxable Sales = 96,000
Employer Payroll TaxEmployer Payroll Tax
• Taxes are withheld from employees’ wages• Employers also have to pay taxes• One common employer payroll tax• FUTA – .8% of the first $7,000
• You will cover additional taxes later.
Federal Unemployment Tax (FUTA)Federal Unemployment Tax (FUTA)
Jones Inc - First Quarter 2008Total payroll: $15,400FUTA: .8% of the first $7,000 of wages
Compute the FUTA liability
Federal Unemployment Tax (FUTA)Federal Unemployment Tax (FUTA)
.8% is less than 1 %
To convert .8% to a decimal:
Move the decimal two places to the left
.8% .008
Federal Unemployment Tax (FUTA)Federal Unemployment Tax (FUTA)
7,000 X .008 = 56
1% is .017,000 X .01 = 70Thus we know the answer must be less than 70.
70 X 80% = 56
Purchase Price AllocationPurchase Price Allocation
• A corporation purchases land and building for $850,000.
• Tax Appraisal – Land $ 270,000 Building $ 650,000
Determine the amounts to be allocated to the land and building
Purchase Price AllocationPurchase Price Allocation
Item Appraised Value
% (rounded to 1 decimal place)
LandBuildingTotal
$ 270,000
$ 650,000100 %
70.7 %29.3 %
$920,000
270/920 X 100 = 29.3478260869565
650/920 X 100 = 70.6521739130435
Allocation of Purchase PriceAllocation of Purchase Price
Item AllocatedAmount
LandBuilding
Total
850,000 X .293
850,000 X .707
249,050 + 600,950
$ 249,050
600,950
$ 850,000
SummarySummary
• Proper Tools– Calculator, Excel, Pencil and Paper
• Reasonable answer• Practice• Help– Instructor/Tutor– Classmates, friends, family