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AU / Accounting / ACCT 2110 / Define transactions in accounting.

Define transactions in accounting.

Define transactions in accounting.


School: Auburn University
Department: Accounting
Course: Principles of Financial Accounting
Professor: Elizabeth miller
Term: Fall 2015
Tags: financial accounting, Contingent Liabilities, current liabilities, and Long Term Liabilities
Cost: 50
Name: Study Guide for Exam 4 (Cornett)
Description: This includes my class notes from Chapters 8 and 9.
Uploaded: 11/07/2016
19 Pages 514 Views 1 Unlocks

What to Expect ‐ Exam 4 Wednesday, October 19, 2016 2:43 PM 10 multiple choice from each chapter Chapter 8 Open format ❖ Matching questions ✧ Definitions and terms ✧ Concepts Chapter 9 open format ❖ Bond return and redemption ❖ Issuance of bonds ○ Transactions ○ Premium ○ Discount ○ Interest payments ○ Amortization ❖ Open format is all about bonds  Exam 4 Page 1 Class Notes 10/25 Wednesday, August 24, 2016 9:17 PM Chapter 8: Current Liabilities & Contingencies Class will cover: Not Specified Iclicker 2 Question Which of the following sets of factors is needed to calculate depreciation on plant and  equipment? D. The estimated life of the asset, its acquisition cost, and its estimated residual value Begin review of slideshow ‐ Slide 2 (1 is the title) ❖ With assets, current meant liquid or able/expecting to liquidate within the next year or accounting  cycle.  Same with liabilities.  Current means come due in next year or accounting cycle ❖ If someone pays for a good or service in advance of two years, it's not current ❖ When there is a note payable, there will also be interest payable/interest expense ❖ Compound journal entry ‐ more than one credit or debit, but credits still equal debits ❖ Company borrows $100,000 from bank on 10/1/13 @ 10%.  Principal and interest due 10/1/14. Date Account and Explanation Debit Credit 10/1/13 Cash 100,000        Notes Payable 100,000 (Record issuance of note payable) 12/31/13 Interest Expense (3 months in 2013) 2,500        Interest Payable 2,500 Record accrual of Interest expense 10/1/14 Notes Payable 100,000 Interest Expense (9 months in 2014) 7,500 Interest Payable 2,500        Cash 110,000 (Record payment of note and interest) TOTALS 10/1/14 entry 110,000 110,000 2,500 in as Interest Payable in 2013.  Cancellation of 2,500 Interest Payable in 2014 when   Exam 4 Page 1 note is fully paid (principal and interest) ❖ Federal Government has businesses do their work for them.  Stores are responsible for collecting  appropriate sales tax and paying it in a timely fashion.   If store does not collect enough sales tax,  they are on the hook for the difference.  Tax doesn't belong to the store End with slide 15 In Class Exercise 8‐48 ‐ Sales Tax Farrah's Furniture sold 35 couches to Angel's Inc. for $850 each plus additional sales tax of 7%.   Angel's Inc. purchased these on credit.  Record the journal entry to recognize the sale and related  taxes due. Sale  35*$850=$29,750.00 Sales Tax $29,750.00*0.07=$2,082.50    Total Charged to Customer $29,750+$2,082.50=$31,832.50 Record the Sale: Account and Explanation Debit Credit Accounts Receivable 31,832.50           Sales Revenue 29,750           Sales Tax Payable 2,082.50 (Record the sale) Sales Tax Payable 2,082           Cash 2,082 (Pay the tax) 8‐62 ‐ Recording Various Liabilities  Plymouth Electronics had the following transactions in 2014 related to liabilities: a) Purchased merchandise on credit for $80,000 Inventory 80,000           Accounts Payable 80,000 b) Year‐end wages of $40,000 were incurred but not paid.  Related income taxes of $13,000  and Medicare taxes of $580 were withheld.  (All employees' pay to date exceeds the  maximum for Social Security so there is no withholding for that.) Wages Expense 40,000           Withholding Taxes Payable 13,580           Cash 26,420 c) Year‐end estimated income taxes payable, but unpaid, for the year were #113,6115 Income Tax Expense 113,615           Income Tax Payable 113,615 d) Sold merchandise on account for $3,636, including swales taxes of $180.  Record sale only.  Exam 4 Page 2 Accounts Receivable 3,636           Sales Tax Payable 180           Sales Revenue 3,456 e) Employers' share of Medicare taxes incurred were $580.  Taxes will be paid at a later date. Employer Taxes Expense 580           Employer Taxes Payable 580 f) Borrowed cash under a 180 day, 8%, $155,000 note. Cash 155,000           Notes Payable 155,000  Exam 4 Page 3 Class Notes 10/27 Sunday, October 16, 2016 8:36 PM Chapter 8: Current Liabilities & Contingencies Class will cover: Not Specified Problems 60, 62, 63, 64, 66, 67, 68, 70, 71, & 72 should be worked prior to class Problems 60 & 62 worked below.  The others are presented to prevent you needing to dig around in the  book.  The answers are in the selected solutions provided on canvas. Exercise 60 ‐ Accrued Wages Company pays hourly employees every Saturday.  Weekly payroll for hourly employees is $5,000,  and the hours are spread evenly from Monday through Saturday.  During the current year, Dec. 31  falls on a Wednesday. Required: Given this info, determine adjusting entry Company must make on 12/31. Weekly payroll divided by days in week = $5,000/6=$833.33 = Daily Payroll Daily payroll multiplied by 3 days (M,T,W) = $833.33*3=$2,499.99 = Current year accrued  wages OR: Weekly payroll multiplied by (days paid divided by total days) = $5,000*(3/6)=$2,500.00    ****This works out more cleanly Date Account and Explanation Debit Credit 12/31 Wages Expense $2,500           Wages Payable $2,500 Exercise 62 ‐ Recording Various Liabilities ‐ This was worked in class on 10/25 Electronics Company had following transactions that produced liabilities in 2014. a) Purchased merch on credit for $80,000 (periodic inventory system). b) Unpaid owed wages at end of year are $40,000.  Related income taxes of $13,000 and  Medicare taxes of $580 were withheld.  Employee wages are all above Soc. Sec. maximum,  so only Medicare was paid. c) Year‐end estimated income taxes payable, but unpaid, for the year were $113,615. d) Sold merch. On account for $3,636, including state sales taxes of $180. (still periodic) e) Employer's share of Medicare taxes for period was $580.  Taxes to be paid at a later date. f) Borrowed cash under a 180‐day, 8%, $155,000 note. Exercise 63 ‐ Reporting Liabilities Electronics company had following obligations: a) A legally enforceable claim against the business to be paid in 3 months. A guarantee given by a seller to a purchaser to repair or replace defective goods during the  b) first 6 months following a sale. c) An amount payable to a bank in 10 years d) An amount to be paid next year to a different bank on a long‐term note payable. Required: Conceptual Connection: Describe how each of these items should be reported in the balance  sheet.  Exam 4 Page 1 Exercise 64 ‐ Accounts Payable A limo company has a 12/31 year‐end date.  For that company, the following transactions  occurred during the first 10 days of June: a) Purchased advertising space on credit.  Total $1,950 and ad ran day of purchase. b) Purchased office supplies from office store on cred for $475 c) One of company's sales staff signed a $20,000 contract to provide exclusive limo services for  a large company for remainder of the month.  Commission is 10% of service revenue.   Commission to be paid 7/10 (only want entry for commission) d) Received electric bill for May.  Bill is $4,200 and due 6/15 e) Received bill for $970 from auto shop.  Auto shop repaired 10 limos for company in late  May.  Payment due 6/18 Required: Prepare journal entries for the above transactions. Exercise 66 ‐ Accrued Liabilities Tile company had following entries that required adjusting at end of year: a) Company pays payroll of $180,000 every other Friday for a 2‐week period.  This year the last  payday is Fri., 12/26 (work week = M‐F) b) Company purchased $350,000 of tile on 6/1 with a note payable requiring 12% interest.   Interest and principal due within 1 year.  No payments as of 12/31. c) Company's earned income is $900,000 for year for tax purposes.  Its effective tax rate is  30%.  Must be paid by 4/15 of next year. Required: Prepare the adjusting journal entries to record these transactions at end of current year Exercise 67 ‐ Sales Tax Internet Company provides internet connection services to customers living in remote areas.   During Feb. 2014, it billed a customer a total of $295,000 before taxes.  Company also must pay  following taxes on these charges: a) State sales tax of 6% b) Fed. Excise tax of 0.2% c) State use tax of 0.4% Required: Assuming Company collects these taxes from customer, what journal entry would Company make  when customers pay their bills? Exercise 68 ‐ Payroll Accounting and Discussion of Labor Costs Blitzen Marketing Research paid its weekly and monthly payroll on 12/31.  The following  information is available about the payroll. Item Amount Monthly salaries $237,480 Hourly wages 585,000 FICA:         Social Security (both employee and employer) 6.20%         Medicare (both employee and employer) 1.45% Withholding for income taxes 108,500 Federal unemployment taxes 1,200 State unemployment taxes 4,000 Blitzen will pay both the employer's taxes and the taxes withheld on April 15. Required:  Exam 4 Page 2 1) Prepare the journal entries to record the payroll payment and the incurrence of the  associated expenses and liabilities.  (Note: Round to the nearest penny.) 2) What is the employees' gross pay?  What amount does Blitzen pay in excess of gross pay as  a result of taxes? (Note: Provide both an absolute dollar amount and as a percentage of  gross pay, rounding to two decimal places.) 3) How much is the employees' net pay as a percentage of total payroll related expenses?  (Note: Round answer to two decimal places). 4) Conceptual connection: If another employee can be hired for $60,000 per year, what would  be the total cost of this employee to Blitzen? Exercise 70 ‐ Recognition and Reporting of Contingent Liabilities A list of alternative accounting treatments is followed by a list of potential contingent liabilities. Alternative Accounting Treatments a. Estimate the amount of liability and record. b. Do not record as a liability but disclose in a footnote to the financial statements. c. Neither record as a liability nor disclose in a footnote to the financial statements. Potential Contingent Liabilities Income taxes related to revenue included in net income this year but taxable in a  future year. Potential costs in future periods associated with performing warranty services on  products sold this period. Estimated cost of future services under a product warranty related to past sales. Estimated cost of future services under a product warranty related to future sales. Estimated cost of pension benefits related to past employee services that has yet  to be funded Potential loss on environmental cleanup suit against company; a court  judgements against the company is considered less than probable but more than  remotely likely Potential loss under class‐action suit by a group of customers; during the current  year, the likelihood of a judgment against the company has increased from  remote to possible but less than probable Potential loss under an affirmative action suit by a former employee; the  likelihood of a judgment against the company is considered to be remote Potential loss from a downturn in future economic activity Loss from out‐of‐court settlement of lawsuit that is likely to occur toward the end  of next year. Required: Match the appropriate alternative accounting treatment with each of the potential contingent  liabilities listed above. Exercise 71 ‐ Warranties Ed's Athletics sells bicycles and other sports and athletic equipment.  Sales and expected warranty  claims for the year are as follows: Item Unit Sales Expected Warranty Claims for  Warranty Period Cost Per Claim Mountain bikes 300 3 claims per 100 sold $30 racing bikes 120 1 claim per 20 sold   75 snowboards 650 2 claims per 100 sold   20  Exam 4 Page 3 Required: 1) Prepare the entry to record warranty expense for Ed's for the year. 2) Conceptual Connection: Why does Ed's have to record a liability for future warranty claims? Exercise 72 ‐ Ratio Analysis Intel Corporation provided the following information on its balance sheet and statement of cash  flows: Current liabilities $8,514,000,000 Inventories $  4,314,000,000 Cash and equivalents 6,598,000,000 Other current assets   2,146,000,000 Marketable securities   3,404,000,000 Cash flows from operating  activities Receivables  2,709,000,000 Required: 10,620,000,000 1) Calculate the (a) current ratio, (b) quick ratio, (c) cash ratio, and (d) operating cash flow  ratio. (Note: Round answers to two decimal places) 2) Conceptual Connection: Interpret these results 3) Conceptual Connection: Assume that Intel, as a requirement of one of its loans, must  maintain a current ratio of at least 2.30.  Given the large amount of cash, how could Intel  accomplish this on 12/31 (be specific as to dollar amounts). Begin Class Review on Board Accounting Equation Assets            =     Liabilities       +   Stockholders' Equity Assets Liabilities Stockholders' Equity Resources Current obligations Ownership (Paid‐in capital) Long‐Term Obligations Ownership (Retained Earnings) Is it better to have obligations or equity on the right side of the equation? Ownership ‐ be choosy.  You have to share with these people (less for you in good times),  but it's not an obligation and can be a great relationship. Liabilities ‐ this is something you owe to someone and they have a claim regardless of the  situation, but when you pay it off, you don't owe them anymore.  It's over.  You don't have  to share the good times. The question is a landmine. Begin Slideshow Review ‐ Slide 15 ❖ Payroll taxes require a double entry ❖ This is looking at Liabilities, not expenses.  So while you recognize interest incurred on a loan in  the correct period for expenses, the interest payable could still be long‐term debt (Balance Sheet  vs. Income Statement again, like assets) Iclicker 2 ‐ Taxes Payable Moore Company has the following info for the pay period of 12/15‐31,2012 Salaries  $18,000 State income tax     2,160 Federal income tax     2,700 FICA     1,017  Exam 4 Page 4 1) On 12/31, salaries are paid?  What amount of Salaries Expense is recorded?  $18,000 2) What is the total amount of payroll checks written (credited to cash)?  $12,123 ❖ Contingent Liabilities ‐ if you aren't sure which way decision of lawsuit will go and how much you  may end up having to pay, you give a head's up in the notes to the financial statement.  If you  have a number, record it in the statement End with Slide 24 (Recording Warranty Liabilities) In Class Exercise Exercise 8‐57 ‐ Warranties (Adapted) Wally's Party Warehouse provides wholesale party equipment and materials to Party Shops.  In  2013, Wally's sold 30 bounce houses at $30,000 each.  The bounce houses carry a 3‐year warranty  for defects.  Wally's estimates that repair costs will average 2% of the total selling price. a) Record the warranty liability for 2013 Warranty Expense 18,000           Warranty Liability 18,000 b) If actual claims of $19,000 were incurred on the above items sold, what journal entry would  be required? Warranty liability 19,000           Cash 19,000 c) If the beginning balance in the Estimated Warranty Liability account is $26,000, what is the  ending balance at the end of 2013? (after above entries)        Warranty Liability                               |          26,000 19,000           |          18,000                        |           25,000 Back to slideshow ‐ Slide 25 ❖ Liquidity and current ‐ expect to be turned into cash within an accounting cycle or year, whichever  is longer ❖ ***RATIO*** Current Ratio = Current Assets divided by Current Liabilities Quick Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities WANT this ratio to be greater than 1!!! In Class Exercise Exercise 8‐59 ‐ Current Ratio ‐ Liquidity SJM's financial statements contain the following Information Assets Liabilities Cash $2,725,000 Accounts Payable 3,275,000 Accounts Receivable 3,050,000 Accrued Expenses 1,700,000 Inventory 3,950,000 Marketable Securities 1,725,000 Long‐Term Debt 9,100,000 Current Long‐term Current Assets Total = 2,725,000+3,050,000+3,950,000+1,725,000=$11,450,000 What is SJM's current ratio? Current Assets / Current Liabilities     11,450,000/4,975,000=2.3015   Exam 4 Page 5 Working Capital = CA ‐ CL = $6,475,000 Evaluate liquidity:  Depends on many things.  How liquid is the inventory in reality.  If it's  slow‐moving, it's not so great.  Otherwise looking pretty good  except the cash ratio is low  and they may have trouble meeting obligations.  Exam 4 Page 6 Class Notes 11/1 Sunday, October 16, 2016 8:36 PM Chapter 9: Long‐Term Liabilities Class will cover: Learning Objectives  1‐3 Problems 71, 75, 77, 79, & 80 should be worked prior to class I will insert wording of problems before Tuesday, but as always, solutions are in the file on Canvas. Class began with Mrs. C throwing Halloween candy at us.  It was pretty awesome. Iclicker 2 ‐ Bell Ringer A company issues a $2,000, 6% note payable due in 4 months.  How much interest will the  company pay for this note if it is paid at maturity? Face * Rate * Time 2,000*.06*(4/12)=$40.00 Begin Slideshow Chapter 9 ‐ Slide 1 ❖ Consistency is of tantamount importance ❖ Always record face value in asset account.  Interest expense and interest payable recorded  separately.  Expensed, not capitalized. ❖ Table Below from board ‐ Illustrates what to expect to be included on bond Face/Stated Value Stated Rate ❖ Timing of Interest & Payments ❖ Legal document describes what is face and what is interest.  All we have to pay is on the  note/bond  ❖ Stated rate=coupon rate ❖ Won't deal with cash discounts in this course, but be aware that differences in stated rate on note  or bond may be different than prevailing market rate and can result in bond being sold for more or  less than it's actually worth. In Class Exercise 9‐51 ‐ Debt Issued at Par Value On 12/31, 2013, Desmond & Co. issued 5,000 bonds with a $1,000 par value at 100.  The bonds  have an 8% stated rate, pay interest on 6/30 and 12/31, and mature on 12/31/16. a) Prepare the journal entry to record issuance of the bonds: Account and Explanation Debit Credit Cash 5,000,000         Bonds Payable (5,000 @ $1,000 5,000,000 b) Prepare the journal entry to record semi‐annual interest payments: Date Account and Explanation Debit Credit 6/30/14 Bond Interest Expense 200,000         Cash 200,000  Exam 4 Page 1 12/31/14 Bond Interest Expense 200,000         Cash 200,000 6/30/15 Bond Interest Expense 200,000         Cash 200,000 12/31/15 Bond Interest Expense 200,000         Cash 200,000 6/30/16 Bond Interest Expense 200,000         Cash 200,000 12/31/16 Bond Interest Expense 200,000         Cash 200,000 c) Prepare the journal entry to record retirement (pay off) of the bonds on 12/31/16:    Date Account and Explanation Debit Credit 12/31/16 Bonds Payable 5,000,000           Cash 5,000,000 Back to slideshow review ‐ slide 12 ❖ Difference in stated rate and market rate impacts when issuer can sell bond for ❖ Bonds may sell for less if investors expect interest rates to be higher when bond is due. ❖ When discounts or premiums happen, interest expense recorded will be different than interest  paid ❖ Market rate is higher than bond rate ‐ bond will sell at discount ‐ interest expense will be more  than we actually pay out ‐ bond payments will be less than we record ❖ Market rate is lower than bond rate ‐ bond will sell at premium ‐ interest expense we record will  be lower than we actually pay Drawing on board T Accounts Bonds Payable Payoff Issue bonds XXXXX Bond Discount Issue bond XXXXX Bond Premium Issue bonds  Exam 4 Page 2 XXXXX In Class Exercise 9‐49 ‐ Issuance of long‐term debt APL Enterprises required an infusion of cash to purchase a large piece of equipment.  APL chose to  issue $3,600,000 of 8% bonds payable.  Prepare the journal entries based on issuance prices  below. a) Issued at par 100: Account and Explanation Debit Credit Cash 3,600,000           Bonds Payable 3,600,000 b) Issued at 102: Account and Explanation Debit Credit Cash  3,672,000         Bonds Payable 3,600,000          Bond Premium 72,000 c) Issued at 97: Account and Explanation Debit Credit Cash 3,492,000 Bond Discount 108,000         Bonds Payable 3,600,000 Thursday we will work with bond discounts and premiums Straight‐line and other interest method  Exam 4 Page 3 Class Notes 11/3 Sunday, October 16, 2016 8:36 PM Chapter 9: Long‐Term Liabilities Class will cover: Learning Objectives  4‐7 Problems 85, 93, & 94 should be worked prior to class Begin Class On the Board Bond Issue Discount Cash xxx Bond discount xxx           Bonds Payable xxx Carrying Value: (Bonds Payable ‐ Bond Discount) Premium Cash xxx           Bond Premium xxx           Bonds Payable xxx Carrying Value: (Bonds Payable + Bond Premium) Iclicker 2 ‐ Bell Ringer Camp Corporation issues bonds with a stated interest rate of 8%.  The current market rate of  interest is 10%.  These bonds are most likely sold at: A discount Slideshow Review Begin Slide 14 ❖ Bond discount, we're being shorted up front.  We get less than stated worth. ❖ When market rate is higher than stated rate, issuer of bond recognizes more interest expense  than they pay ❖ Bond Discount account gets amortized to interest expense ❖ Straight‐line method***** open format of next test 1. Calculate interest payment 2. Amortization (total discount divided by total payments) 3. Plug (interest expense) ❖ Back to slide 20 for an idea of how to work a problem with straight‐line ✧ $4,000 discount.  5‐years of payments twice a year.  10 payments ✧ 4,000/10=$400 is the discount amount recognized in excess of the interest payment every  time an interest payment is made ❖ Slide 23 ✧ 3‐years of interest payments twice a year = 6 payments ✧ $600/6=$100.00 is the amount we record (less) our interest expense each time we make an  interest payment.  Still pay full amount of interest, but we recognize less in our accounting  records to account for extra money we got for bond up front  Exam 4 Page 1 In Class Exercise 9‐75 ‐ Bonds Sold at a Discount (Straight‐line) On 12/31/13, Harrington Corporation sold $425,000 of 15‐year, 11% bonds.  The bonds sold for  $395,000 and pay interest semiannually on 6/30 and 12/31. Prepare the journal entry to record the bonds on 12/31/13 12/31/13 Cash 395,000 Bond Discount 30,000           Bonds Payable 425,000 Prepare the journal entry to record bond interest payments on 6/30 & 12/31 Interest payment = (($425,000)*(.11)*(6/12))=$23,375.00 Amortization ($30,000 discount over 2 payments/year for 15 years = $30,000/30= $1,000.00 6/30/14 Bond Interest Expense 24,375           Cash 23,375           Bond Discount 1,000 12/31/14 Bond Interest Expense 24,375           Cash 23.375           Bond Discount 1,000 Repeat entry each payment ***Make sure you recognize BOND interest expense rather than just interest expense  because there are many types of interest expense and we need to identify What will be the total amount of interest paid over the life of these bonds? 23,375 = amount of interest paid twice per year 15 * 2 = the number of years times the interest payments each year 23,375*30=$701,250 the amount of total interest paid over the life of the bond.  It's a  lot. What will be the total amount of interest expense reported over the life of these bonds? $701,250 (total interest over the life of the bonds) + $30,000 (Bond Discount) =  $731,250 (TOTAL EXPENSE) Notes: Income expense goes on income statement and reduces our net income. 9‐74 ‐ Bonds Sold at a Premium (Straight‐line) Swiss, Inc. sold 15‐year bonds with a total face value of $2,000,000 and a stated rate of 6%.  The  bonds sold for $2,090,000 on 12/31/13 and pay interest semiannually each 6/30 and 12/31 Prepare the journal entry to record the bonds on 12/31/13. 12/31/13 Cash 2,090,000           Bond Premium 90,000           Bonds Payable 2,000,000 Prepare the journal entry to record bond interest payments each 6/30 and 12/31  Exam 4 Page 2 2,000,000*.06*(6/12)=60,000.0  90,000/(15*2)=3,000  60,000‐3,000=57,000  6/30  or 12/31 Bond Interest Expense 57,000 Bond Premium 3,000           Cash 60,000 What will be the total amount of interest paid over the life of the bonds? 60,000*30=1,800,000  What will be the total amount of bond interest expense reported over the life of the bonds? 1,800,000‐90,000=$1,710,000 Note: Recording bonds sold at discounts and bonds sold at premiums WILL be on the test. Slideshow Review ‐ Slide 25 ❖ With Effective Interest Method ‐ the recording remains the same, but the way we calculate the  discount or premium recognized for each payment changes 1. Compute bond interest expense 2. Compute bond interest paid 3. Compute amortization amount In Class Exercise 9‐83 (Adapted) ‐ Bonds Sold at a Discount ‐ Effective Interest Rate Jones manufacturing sold $900,000 of 15‐year, 7% bonds for $822,186.  The bonds were sold  12/31/13 and pay interest semiannually on 6/30 & 12/31.  The effective interest rate is 8%. Record the bond issue on 12/31/13. 12/31/13 Cash 822,186 Bond Discount 77,814           Bonds Payable 900,000 Record the bond interest payment on 6/30/14: 822,186*.08*(6/12)=32,887.44  Normal Interest Payment = 900,000*.07*(6/12)=31,500.0  32,887‐31,500=1,387  6/30/14 Bond Interest Expense 32,887.44           Bond Discount 1,387           Cash 31,500 New Amount in T Account to adjust carrying expense Bond Discount 77,814 1,387 76,427    Exam 4 Page 3 Class Notes 11/8 Sunday, October 16, 2016 8:36 PM Chapter 9: Long‐Term Liabilities Class will cover: Not Specified Iclicker questions Iclicker 2 ‐ Quick Check 1 If bonds with a face value of $200,000 are issued at 102, what amount is recorded in the Bonds Payable account? $200,000 Iclicker 2 ‐ Bell Ringer If bonds were initially issued at a premium, the carrying value of the bonds (on the issuer's books) will: Decrease as the bonds approach maturity (A) Iclicker 2 ‐ Additional Question If bonds with a face value of $200,000 are issued at 102, what amount of cash is received? $204,000 In Class Exercise Review Bridges, Inc. issues $5,000,000 in 8% 5‐year bonds for $4,922,000.  Interest payments are due each 6/30 & 12/31.  The company uses the straight‐line method for amortization of premium or discount.  Record the first semi‐annual payment of interest. Record beginning 1/1/15 Cash 4,922,000 Discount on Bonds Payable 78,000           Bonds Payable 5,000,000 Notes: Bonds Payable ‐ Bond Discount + Bond Premium Carrying Value of Bonds Record Payment 6/30/15 Bond Interest Expense 207,800           Bond Discount 7,800           Cash 200,000 10 payments at 8% 78,000/10=7,800 5,000,000*.08*.5=200,000.0 Consider instead that the above described bonds are issued at $5,035,000.  Record the first interest payment:  Exam 4 Page 1 Record issue of bond 1/1/15 Cash 5,035,000           Bond Premium 35,000           Bonds Payable 5,000,000 Record Payment 6/30/15 Bond Interest Expense 196,500 Bond Premium 3,500           Cash 200,000 35,000/10=3,500 My Note: If the bond is issued at a premium (company gets more money than was on the face of the bond), we have too much money in the account and the carrying value will decrease until we get back to face value. - So the extra money we received reduces interest payments.  We only have to pay back face of bond amount, so the extra is used to reduce the interest expense. If the bond is issued at a discount (company gets less cash than on face of bond), there is not enough money in the account and the carrying value will rise over time to get back to face value. - Bond Retirement We were shortchanged up front, but still have to pay back the full amount on the face of the bond.  We record it as a cost of issuing bonds and record it in interest expense.   It's our cash going out to cover the amount, since cash in doesn't match cash out On 8/4/2016, Vandelay Industries retired bonds for a price of $888,000.  The bonds had a face value of $900,000 and a carrying value of $894,000.  (These balances already reflect the appropriate adjustment for bond interest due.)  Prepare the journal entry to record the retirement. Notes: CV<price(payoff) ‐ Loss on retirement CV=price ‐ No gain or loss CV>price ‐ Gain on retirement 894,000 > 888,000 = 6,000 Gain on retirement of bond Bonds Payable 900,000          Gain on retirement of bond 6,000          Bond Discount 6,000          Cash 888,000 Bond Retirement On 7/16/16, Salazar, Inc. retired bonds for a price of $563,000.  The bonds had a face value of $550,000, and a carrying value of $558,000.  These balances already reflect the appropriate adjustment for bond interest due.  Prepare the journal entry to record the retirement. Loss of $5,000 Bonds Payable Bond Premium 550k credit 8k credit

What amount does Blitzen pay in excess of gross pay as a result of taxes?

What is the employees' gross pay?

Assuming Company collects these taxes from customer, what journal entry would Company make when customers pay their bills?

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 Exam 4 Page 2 Bonds Payable 550,000 Bond Premium 8,000 Loss on Retirement of Bond 5,000           Cash 563,000 Begin Slideshow Review  ‐ Slide 27 ❖ Operating leases are on the up & up, but businesses look for ways to take advantage ❖ Capital lease ‐ lessee is responsible for many risks and obligations of ownership ❖ BIG RATIO TO KNOW ‐ Debt to Total Assets = Total Liabilities divided by Total Assets ❖ Anesthesiologist story In Class Exercise Debt to Total Assets Current assets are $300,000, long‐term assets are $400,000, current liabilities are $250,000, long‐ term liabilities are $300,000, paid in capital is $100,000, and retained earnings is $50,000.  What is the debt to total assets ratio? Total Debt/Total Assets 550,000/700,000=0.7857 78.6% debt to 21.4% assets.  Not good Debt to Total Assets Red Corp had $1,750,000 in total liabilities and $3,000,000 in total assets as of 12/31/14.  Of Red's total liabilities, $600,000 is long term.   Calculate Red's debt‐to‐total assets ratio. 1,750,000/3,000,000=0.5833 Not a great number ‐ likely means higher interest rate  Exam 4 Page 3
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