Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Introduction to Adjusting Journal Entries and Prepaid Expenses

Financial Accounting

3. Accrual Accounting Concepts

Introduction to Adjusting Journal Entries and Prepaid Expenses

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Multiple Choice

What is the first step in the process of adjusting the initial investment for flotation costs?

Record the flotation costs as an expense in the income statement

Add the flotation costs to the initial investment amount

Ignore flotation costs and proceed with the original investment value

Deduct the flotation costs from the initial investment amount

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Verified step by step guidance

Understand the concept of flotation costs: Flotation costs are the fees and expenses incurred when a company issues new securities, such as underwriting fees, legal fees, and registration costs. These costs reduce the net proceeds from the investment.

Recognize the impact of flotation costs: Flotation costs must be accounted for because they reduce the amount of capital available for the investment. Ignoring these costs would lead to an inaccurate representation of the investment value.

Determine the adjustment method: To account for flotation costs, they are deducted from the initial investment amount. This ensures that the net investment value reflects the actual funds available after covering these costs.

Perform the adjustment: Subtract the flotation costs from the initial investment amount using the formula: \( \text{Net Investment} = \text{Initial Investment} - \text{Flotation Costs} \).

Verify the adjusted value: After deducting flotation costs, confirm that the net investment value is accurate and ready for further financial analysis or reporting.