Term
| A current liability is debt with two key characteristics |
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Definition
1. It is expected to be paid using current assets or creation of new current liability.
2. It will be paid within one year. |
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Term
| Current liabilities include |
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Definition
| short-term notes payable, current portion of long-term debt, accounts payable, unearned revenue, and accrued liabilities for taxes, salaries and interest. |
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Term
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Definition
| Obligations in the form of a promissory note |
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Term
| Who has the legal claim of debt with the promissory note? |
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Definition
| the holder has legal claim of the debt |
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Term
| Equation to calculate interest with notes payable |
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Definition
| Interest = Face value of note X Interest Rate X Time in Terms of a Year |
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Term
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Definition
the other side of the transaction from a note
receivable. It can replace an accounts payable or to borrow
funds from a bank. N/P has interest expense attached to it. |
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Term
| To record issuance on account (notes payable) |
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Definition
Accounts payable $$
Note payable $$ |
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Term
| To record issuance when borrowing money from bank (notes payable) |
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Definition
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Term
| To record payment when matures (notes payable) |
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Definition
Note payable $$
Interest expense $$
Cash $$ |
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Term
| When is a specific rate note included with notes payable |
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Definition
If the note is discounted, a specific interest rate is not included.
The creditor sets the rate, then interest is deducted from the face
of the note with the remaining funds being issued to borrower. The
distributed funds are called proceeds. Interest expense on a
discounted note is recorded when note is issued. |
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Term
| To record issuance of a discounted note from purchase of merchandise |
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Definition
Merchandise inventory $$
Interest expense $$
Note payable $$ |
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Term
| To record payment (notes payable) |
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Definition
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Term
| Which part of long term debt is included in the current liabilities section |
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Definition
With a long term note, the portion of the note due within 12 months
of the financial statements date is included in the current liabilities
section of the balance sheet. The remainder of the debt is included
under the long term liabilities section. |
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Term
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Definition
potential future obligations resulting from
past transactions when certain events occur. |
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Term
If the liability is probable and the amount of the liability can be
reasonably estimated, then the contingent liability should be recorded |
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Definition
Expense account $$
Payable account $$ |
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Term
| The Journal entry if the liability is probable or can not be estimated |
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Definition
If the liability is not probable or can not be estimated, then the details
of the contingent liability should be disclosed in the notes to the financial
statements. No entry is recorded. |
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Term
| Employee pay and deductions (taxes) |
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Definition
- Gross pay is total earnings
- Deductions include these taxes
Federal income taxes
FICA: Social security and Medicare
Other deductions: retirement, insurances, charitable giving
- Net pay is gross pay less deductions |
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Term
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Definition
- FICA taxes are matched by employer
- FUTA - unemployment tax paid to federal government
- SUTA - umeployment tax paid to state government |
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Term
| Recording employees' payroll: |
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Definition
Salaries expense $$ (gross pay)
Wages expense $$ (gross pay)
Social security tax payable $$
Medicare tax payable $$
Federal income tax payable $$
Other deductions payable $$
Salaries and wages payable $$ (net pay) |
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Term
| Recording employer's payroll taxes: |
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Definition
Payroll tax expense $$ (total of credits)
Social security tax payable $$
Medicare tax payable $$
FUTA payable $$
SUTA payable $$ |
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Term
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Definition
| payments for salaries and wages. Salaries are paid to employees on a weekly or monthly basis. Wages are paid to employees on an hourly basis. |
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Term
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Definition
| the total compensation, including bonuses and commissions, earned by an employee. |
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Term
| The amount of taxes deducted from the paycheck depends on |
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Definition
| 1) the employee’s gross earnings, 2) the number of allowances claimed by the employee on federal form W-4, and 3) the length of the pay period. |
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Term
| Recording Payment of the Payroll |
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Definition
Salaries and Wages Payable XX (credit from other entry)
Cash XX |
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Term
| Does the employer or employee pay the FUTA tax |
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Definition
| This tax is only for the employer; no taxes are withheld from the employee for unemployment. |
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Term
| interest on bonds is computed how? |
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Definition
| (interest rate x face amount x length of time). For bonds, interest is paid semi-annually, so interest is calculated with the length of time as ½. |
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Term
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Definition
| If the bonds are selling at the face amount, the bonds are selling at 100% of their par value. |
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Term
| the entry to record the bond issuance |
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Definition
Cash XXX
Bonds Payable XXX |
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Term
| TO record interest payments made |
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Definition
Bond Interest Expense XXX
Cash XXX |
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Term
| Bonds Payable is what type of liability? |
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Definition
| Bonds Payable is shown as a long-term liability in the balance sheet. |
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Term
| when the bond matures and the principal is paid, the entry is |
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Definition
Bonds Payable XXX
Cash XXX |
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Term
| When the contract interest rate and the market rate differ, the bonds will not sell at par. Instead, the bonds will either sell at what? |
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Definition
| at a price above par—premium—or at a price below |
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Term
| To determine the price of the bond when the contract interest rate and market rate differ, what needs to be calculated? |
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Definition
| the present value of the bond need to be calculated. |
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Term
| The price a buyer is willing to pay for the bonds depends on: |
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Definition
1. Face amount or par of the bonds,
2. Periodic interest, or interest rate (also called contract interest rate, bond interest rate, or coupon rate), of bonds, and
3. Market rate of interest, also called effective rate of interest. |
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Term
| The entry to record the bond sale at discount is: |
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Definition
Cash XXX
Discount on Bonds Payable XX
Bonds Payable XXX |
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Term
| What type of account is bonds payable? |
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Definition
| The Discount on Bonds Payable account is a contra-liability account. It is deducted from Bonds Payable on the balance sheet to determine the carrying value of the bonds. |
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Term
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Definition
| capital stock that has been assigned a monetary value per share in the charter. Par value does not indicate worth or market value. It represents legal capital per share that must be retained for protection of a corporation’s creditors. |
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Term
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Definition
| stock that has not been assigned a monetary value per share. Many states allow a stated value to be assigned to no-par stock. The stated value can be assigned and changed by the board of directors so that stock can be issued at any price. |
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Term
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Definition
| reflects the total amount of cash and other assets the corporation has received from its stockholders in exchange for common stock. PIC includes both the common stock and preferred stock accounts at par value and the amount contributed by stockholders in excess of par value. |
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Term
| Retained earnings, or R/E |
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Definition
| is the cumulative net income and loss less dividends retained by a corporation. |
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Term
| Net income is recorded in R/E by a closing entry |
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Definition
Income Summary
Retained Earnings |
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Term
| The equity section for a corporation includes two sections |
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Definition
1) Paid-in capital (or contributed capital), or PIC (or CC)
2) Retained earnings (or earned capital), or R/E |
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Term
| The primary objectives in accounting for the issuance of common stock are |
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Definition
1) To identify the sources of paid-in capital, and
2) To maintain the distinction between paid-in capital and retained earnings. |
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Term
| Is the cash proceeds from issuing par value stock equal to, greater than or less than the par value of the stock? |
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Definition
| The cash proceeds from issuing par value stock (i.e., the cash received by the company from selling the stock) may be equal to, greater than or less than the par value of the stock. |
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Term
| Assuming the cash paid is at par value, the journal entry is |
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Definition
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Term
| Assuming the cash paid is more than par value, the journal entry is: |
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Definition
Cash
Common stock
Paid-in Capital in Excess
of Par Value--Common |
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Term
| Assuming the cash paid is less than par value, the journal entry is |
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Definition
Cash
Paid-in Capital in Excess
of Par Value--Common
Common stock |
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Term
| Is Common Stock always credited for what? |
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Definition
| When the common stock is issued, the Common Stock account is always credited for the par value times the number of shares issued |
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Term
| Paid-in Capital is always debited for what? |
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Definition
| Paid-in Capital account is debited for the difference between the cash proceeds and par value. The PIC account can only be debited to the extent of the existing credit balance. If a credit balance does not exist in the PIC account, Retained Earnings is debited. This is does not happen often because most states do not allow issuing common stock below par value. |
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Term
| Assuming the cash paid is more than stated value, the journal entry is |
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Definition
Cash
Common stock
Paid-in Capital in Excess
of Stated Value--Common |
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Term
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Definition
| has provisions that give it a preference or priority over common stock for dividends and asset liquidation. |
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Term
| Who has the right to receive dividends before common shareholders |
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Definition
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Term
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Definition
| exists when a company buys back its own stock that had been previously issued. There may be many reasons why a company will repurchase its own stock |
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