ACCT 301 Final

property dividends

dividends payable in assets other than cash it does not need to specifically be property restate at fair value the property it will distribute, recognizing any gain or loss

preferred stock

dividends, non voting, liquidation, term can be cumulative and participating

customer advances and deposit

ex: security deposit returnable cash deposits received from customers and employees to guarantee performance of a contract or service

JE record sales taxes assuming there was a sale of $3000 when a 4% sales tax is in effect

cash $3120 sales revenue $3000 sales taxes payable $120($3000*4%) this is uncommon it is usually an adjusting entry

company is formed and its charter authorizes it to use 50000 share of $10 par value preferred stock and 200,000 shares of $2 stated value common stock company issues 4000 shares of preferred stock for cash at $30 per share. legal costs for issuing this stock were 5000 and since operations have been good company pays the issuance cost to the company's attorneys in cash

cash 120000 preferred stock 40000 paid in capital excess of stated value 80000 paid in capital excess of stated value - PS cash 5000

on nov 1 company reissued shares at $83 per share

cash 2490 paid-in capital from treasury stick 120 treasury stock 2610

company issued 300 shares of $10 par value common stock for $4500

cash 4500 common stock at par 3000 paid in capital in excess of par- cs. 1500

the company begins production of a new machine in July 2022 and sells 100 of these machines for $5000 cash by year-end. Each machine is under warranty for one year. The company estimates that the warranty cost will average $200 per unit. as a result of parts replacements and services performed in compliance with machinery warranties, it incurs $4000 in warranty costs in 2022 and $16000 in 2023

cash 500000 sales revenue 500000 warranty expense 20000 warranty liability 20000 warranty liability 4000 cash, inventory, accrued payroll 4000 warranty liability 16000 cash, inventory, accrued payroll 16000

on sept 1 company reissued 60 shares at $90 per share

cash 5400 treasury stock 5220(57*60) paid in capital from treasury stock 180

dividend policy

few companies pay dividend in amount equal to their legally available retained earnings maintain agreements with creditors meet state incorporation requirements to finance growth or expansion to smooth out dividend payments to build up a cushion against possible losses

notes payable

formal in nature: written promises to pay a certain sum of money on a specified future date

unearned revenues

getting cash in advance of doing what you're in the business of doing

loss contingencies are accrued when probable

how much to accrue, if only one amount is possible --> accrue this amount if there is a range of possible outcomes, record the most likely amount in the rand if no amount is more likely than another, accrue the minimum amount must disclose the range if no reasonable estimate, accrue nothing but disclose the nature of the contingency

what does the employee have the responsibility to expense for in terms of payroll liabilities?

income tax withholding FICA taxes-the employee share Union dues

Loss contingencies

involves possible losses FASB uses three areas of probability probable: accrue reasonably possible: put it in the footnotes remote: ignore

state coupon or nominal rate

is the rate written on the bond ceritficate, bind issuer sets thsi rate, stated as a percentage of bond face value(par)

stock dividends

issuance by a company of its own stock to stockholders on a pro-rata basis, without receiving any consideration used when management wishes to capitalize part of earnings if the stock dividend is less than 20-25% of the common shares outstanding company transfers fair market value from retained earnings (small stock dividend)

valuation and accounting for bonds payable

issuance of bond to the public usually takes weeks or months, issuing compnay must arrange for underwriters, obtian SEC approval fo the bond size, undergo audits, and issue a pospectus, also have the bonds printed

company issues at par 10 year term bonds with a par value of $800,00 dated janueary 1 2023 and bearing interst at an annual rate of 10% payable semiannually on jan 1 and july 1

issue dat cash 800000 bonds payable 800000 to record first semiannyal int pay interest expense 40000 (800,000 * 0.05) cash 40000 Je to record interest expense at dec 31 interest expense 40000 interest payable 40000

zero bearing interest notes

issuing company records the difference between the face amount and the present value (cash received) as a discount and amortizes that amount to interest expense over the life of the note

concepts of revenue recognition

1. identify the contract with customers 2. identifity the separate performance obligations int eh contract 3. determine the transaction price 4. allocate the transaction price to the separate performance obligations 5. recognize revenue when each performance obligation is satisfied

company has distributable $50000 in cash dividends, its outstanding CS has a par value of $400,000 and its 6% preferred stock has a par value of $100,000. If the preferred stock are cumulative and nonparticipating

12000 from the previous two years 6000 for the current year so 32000 to CS holders

company has distributable $50000 in cash dividends, its outstanding CS has a par value of $400,000 and its 6% preferred stock has a par value of $100,000. If the preferred stock are cumulative and participating

12000 from two previous years 6000 current year 1600 24000 CS 6400 8000 left 0.016

Palmer shows income for the year 2022 of $100000. It will pay our bonuses of $10700 in January 2023. palmer makes an adjusting entry to record the bonuses in 2022

2022 S+W expense 10700 S+W payable 10700 2023 S+W Payable 10700 Cash 10700

The company employs 10 people and pays each $480 per week. employees earned 20 unused vacation weeks in 2022. in 2023 the employees used the vacation weeks, but now they each earn $540 per week.

2022 to accrue vacation pay salaries and wages expense 9600(480*20) salaries and wages payable 9600 2023 salaries and wages payable 9600 salaries and wages expense 1200 (plug) cash $10800 (540*20)

company has distributable $50000 in cash dividends, its outstanding CS has a par value of $400,000 and its 6% preferred stock has a par value of $100,000. If the preferred stock are noncumulative and nonparticipating

6000 to preferred stockholders (.06*100000) 44000 to CS stockholders

msut keep track of the ending balance in the PIC-TS accoutn

CAN NEVER be a debit balance

company transferred stockerholder some of its equity investments costing $1250000 by declaring a property dividend on Dec 28 2022 to be dist on Jan 30 2023 to stockholders of record on jan 15 2023. at the date of declaration the securities have a market value of $2000000

Dec 28 equity investments 750,000 Unrealized holding gain or loss 750000 retained earnings 2,000,000 property dividend payable 2,000,000 date of distribution property dividends payable 2,000,000 equity investments 2,000,000

what does the employer have the responsibility to expense for in terms of payroll liabilities?

FICA taxes - employer share Federal unemployment State unemployment

Credit sales with returns and allowances 100 cameras sold for 100, 45 days to return. cost of each camera is $60. 3 will not be returned

January 12 2022 Accounts receivable 10,000 sales revenue 10000 cost of goods sold 6000 inventory 6000 January 24 2022 sales returns and allowances 200 (2*100) accounts receivable 200 returned inventory 120 cost of goods sold 120 (2*60) January 31 2022 sales returns and allowances 100 refund liability 100 estimated inventory returns 60 cost of goods sold 60

mar 1 company issues 10 year bonds dated jan 1 with a par val of $800000. These bonds hae an annual interest rate of 6% paid semiannually on jan 1 and july 1.

March 1 cash 808000 bonds payable 800000 interest expense 8000 july 1 interest expense 24000 cash 24000

imagine the same scenario but at a premium of 102

March 1 cash 824000 bonds payable 800000 premium on bonds payable 16000 interest exp 8000 july 1 interest expense 23458 premium on BP 542 cash 24000

effective interest method

carrying amount * effective interest rate - face amount of bonds * stated rate = amortization amount

step 2 separate performance obligations

a product or service is distinct when a customer is able to benefit from a good or service on its own or together with other readily available resources the objective is to determine whether the nature of a company promise is to transfer individual goods and services to the customer or to transfer a combined item for which individual goods or services are inputs how many things are you selling?

typical current liabilites

accounts payable, notes payable, dividends payable, customer advances, unearned revenues, sales taxes payable

principle agent relationships

agents performance obligation is to arrange for the principal to provide goods or services to a customer ex; travel company (agent) facilitates booking of cruise for cruise company (principal) priceline(agent) facilitates sale of various services such as car rentals at Hertz (principal) amounts collected on behalf of the principal are not revenue of the agent, revenue for agent is amount of commission received

step 1 contract

agreement between two or more parties that creates enforceable rights or obligations can be written oral or implied companies apply the revenue guidance to a contract according to the following criteria 1. contact has commercial substance 2. the parties have approved the contract 3. identification of the rights of the parties is established 4. payment terms are identified 5. it is probable that the consideration will be collected

transaction price

amount of consideration that the company expects to receive from a customer in a contract, it is often easily determined because the customer agrees to pay a fixed amount other contracts, customer must consider variable consideration, TVM, non cash consideration, consideration paid or payable to the customer

Employee related liabilites

amounts owed to employees for salaries or wages are reported as a current liability includes payroll deductions, compensated absenses, bonuses

contingencies

an existing condition situation or set of circumstances involving uncertainty as to possible gain (gain contingency) or loss (loss contingency) to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur

liquidating dividends

any dividend not based on earnings reduces corporate paid in capital the portion of these dividend in excess of accumulated income represents a return of part of the stockholders investment

Dividends payable

approved dividend payout but not yet paid, generally paid within 3 months, undeclared dividends on cumulative preferred stock is recognized as a liability

accounts payable

balances owed to others for goods supplies or services purchased on open account time lag between the receipt of services and payment

step 4 allocating transaction price to separate performance obligations

based on their relative fair values best measure of fair value is what the company could sell the good or service for on a standalone basis if not available companies should use their best estimate of what the good or service might sell for as a standalone unit. allocate using fair market value

cash dividends

board of directors vote on declaration of dividend, companies do not declare or pay cash dividends on treasury stock

extinguishment of debt

bonds payable 800000 loss on redemption 32000 discount on bp 24000 cash 808000

income tax payable

businesses must prepare an income tax return and compute the income tax payable

company issued a three year $10000 zero bearing interest note the implicit rate that equate dthe total cash to be paid at maturity to the present value of teh futire cash flows was 9%. the company records as follows

cash 7721.8 discount on notes payable 2279.2 notes payable 10000 interest expense 694.96 discounts and notes payable 694.96

company issues 800000 of bonds on Jan 1 2023 at 97 and bearing interest at an annual rate of 10% pay semi on jan 1 adn july 1 if records the issurance as follows

cash 776000 discounts on bonds payable 24000 bonds payable 800,000 first interest payment interest expense 41200 discounts on bonds payable 1200 cash 40000 adjsuting entry end of year interest expesne 41200 discounts on bonds payable 1200 interest payable 40000

comapny issued 600 shares of the no par value common stock for $8200

cash 8200 common stock 8200

company issues $800000 of bonds on jan 1 2023 at 103 and bearing interest at an annual rate of 10% payable semiannually on jan 1 adn july 1 it records teh issuance as follows

cash 824000 premium on bonds payable 24000 bonds payable 800000 interest exp 38800 premium on bonds payable 1200 cash 40000 interest exp 38800 premium on bonds payable 1200 interest payable 40000

Interest bearing notes company issued for cash a three year note bearing 10% interest . teh market rate of interest is 12% adn teh stated rate is 10%. teh PV of the note is calculated to be $9520

cash 9520 disocunts on notes payable 480 notes payable $10000 interest expense 1142 discounts on notes payable 142 cash 1000

some states require that no-par stock have stated value. assume the 600 shares were issued for $8200 and comp established a stated value of $2 per share

cash. 8200 common stock 1200 paid in capital excess of stated val 7000

breakage

company estimates the amount of $ people will never redeem this is called breakage revenue

recognizing revenue when each performance obligation is satified

company satisfies its performance obligation when the customer obtains control of the good or service change in control indicators company has a right to payment for asset company has transferred legal title to asset company has transferred physical possession of asset customer has significant risks and rewards of ownership customer has accepted the asset measure progress toward completion., method for measuring progress should depict transfer fo control from company to customer

step 3 determining the transaction price

consideration paid or payable to customers may include discounts, volume rebates, coupon, free products, or services in general, these elements reduce the consideration received and the revenue to be recognized

reacquisition of stock

corporations purchase their outstanding stock to provide tax efficient distributions of excess cash to stockholder, increase their earnings per share and return on equity, provide stock for employee stock compensation contracts, thwart takeover attempts, adjust supply demand, dividend commitment

company has distributable $50000 in cash dividends, its outstanding CS has a par value of $400,000 and its 6% preferred stock has a par value of $100,000. If the preferred stock are noncumulative and participating

current year dividends 6000 24000 20000 left 4000 16000

three important dates in paying cash dividends

date of declaration date of record date of payment

small stock dividend example company has outstanding 1000 shares of $100 par value common stock and retained earnings of $50000 if the company declares a 10% stock dividend, it issues 100 additional shares to current stockholders. if the fair value of the stock at the time of the dividend is $130 per share the entry is

date of declaration retained earnings 13000 common stock dividend payable $10000 paid in capital excess of par-common 3000 date of distribution common stock dividend distributable 10,000 common stock 10000

compay on june 10 declared a cash div of 50 cents a share on 1.8 mil shares payable july 16 to all stock holders of record june 24

date of declaration retained earnings 900,000 dividend payable 900,000 date of record no JE date of payment dividends payable 900,000 cash 900,000

comp is formed and its charter authorized it to issue 50000 shares of $10 par value preferred stock and 200000 shares of $2 stated value common stock the company issued 500 shares of the preferred stock to the owners of some land the land has a fair val of $45000

land 45000 preferredd stock 5000 paid-inn capital in excess of par 40000

loss contingencies example: company is involved in a law suit at december 31 2022. prepare Dec 31 entry assuming it is probable that the company will be liable for $900,000 as a result fo this suit. prepare Dec 31 entry if any assuming ti is not probable that the company will be liable for nay payment as a result of this suit.

lawsuit loss 900000 lawsuit liability 900000 no entry because there will not be a loss

company is short cash to pay attorneys so instead company issued 200 shares of CS to the attornerys. CS was selling for $50 per share and has a stated val of $2

legal expense 10000 common stock 400 paid in capitaline excess of stated val 9600

Bonds payable

long term debt consits of probable future sacrifices of economic benefits arising from present obligations that are not payable within a year of the operating cycle of the company ex: bonds payable, long term notes payable, mortgages payable, pension liabilities, lease liabilities

consignments

manufacturers deliver goods but retain title to the goods until they are sold consignor ships merchandise to the consignee who is to act as an agent for the consignor in selling the merchandise consignor makes a profit on the sale, carries the merchandise as inventory consignee makes a commission on the sale

social security taxes

medicare tax is paid both by employee and employer at a rate of 1.45 percent of the employees total compensation

payroll deductions

most common types of payroll deductions are taxes, insurance premiums, employee savings, and union dies

company is formed and charter authorizes it to issue 50000 shares of $10 par val preferred stock and 200000 shares of no-par common stock

no entry needed

company authorizes to issue 20,000 shares of $10 par value preferred stock adn 50000 share of $10 par value common stock prepare the JE

no entry when you declare

current liabilites

obligations whose liquidation si reasonably expected to require use of existing resources properly classified as current assets, or the creation of other current liabilites

variable consideration

only allocate variable consideration if it reasonably assured that it will be entitled to the amount companies only recognize variable consideration if they have experience with simialr contracts and are able to estimate, base on experience they do not expect a significatn reversal of revenue previously recognized

compensated absences

paid absences for vacation, illness, and holidays accrue a liability if all the following conditions exist the employer's obligation is attributable to employees services already rendered, the obligation related to rights that vest or accumulate, payment of the compensation is probable, the amount can be reasonably estimate EXPENSE WHEN THE VACAY/SICK TIME IS EARNED NOT WHEN ITS TAKEN

non refundable up front fees

payments from customers before delivery of a product performance of a service generally relate to initiation, activation, or set up of a good or service to be provided or performed in the future most cases, upfront payments are non-refundable ex: membership fee at a health club, activation fees

bonus agreements

payments to certain or all employees in addition to their regular salaries or wages an operating expense unpaid bonuses should be reported as a current liability

Assume a weekly payroll of $10000 entirely subject to FICA and Medicare(7.65%), federal(0.8%), and state(4%) unemployment taxes, with income tax withholding of $1320 and union dues of $88 deducted. the company records the salaries and wages paid and the employer payroll deductions

payroll tax expense 1245 (plug) FICA taxes payable 765 (10000*7.65%) FUTA taxes payable 80 (10000 * 0.8%) SUTA taxes payable 400 (10000 * 4%)

step 3 Variable consideration

price dependent on future events: might include discounts, rebates, credits, performance bonuses, or royalties companies estimate amount of revenue to recognize expected value most likely amount

guarantee and warranty costs

promise made by a seller to a buyer to make a good on a deficiency of quantity, quality, or performance in a product

market rate or effective yield

rate that provides an acceptable return commensurate with the issuers risk rate of interest actually earned by the bondholders

non cash transaction

record stock issued at the most reliable of fair value of stock issued, fair value of asset received

stock splits

reduce market value of shares no entry recorded for a stock split decrease par val and increase the number of shares

bonds payable

represnets a promise to pay a sum of money at maturing and periodic interest payments, certificate say teh pace val and interest is typically paid semiannual

sales taxes payable

retailers must collect sales taxes from customers on transfers of tangible personal property to remit to the government

large stock dividend example company has outstanding 1000 shares of $100 par value common stock and retained earnings of $200,000. if the comapny declares a 100% stock dividend, it issues 1000 additional shares to current share holders. if the fiar value of the stock at the time of the stock dividend is 130 per share

retained earnings 100,000 common stock dividends distributable 100,000 date of distribution common stock dividends distributable common stock

sales return and allowances

right of return is granted for product for various reasons company returning the product recieves any combination of the following 1. full or partial refund of any consideration paid 2. Credit that can be applied against amounts owed, or that will be owed, to the seller 3. another product in exchange

Assume a weekly payroll of $10000 entirely subject to FICA and Medicare(7.65%), federal(0.8%), and state(4%) unemployment taxes, with income tax withholding of $1320 and union dues of $88 deducted. the company records the salaries and wages paid and the employee payroll deductions

s+w expense $10000 Withholding taxes payable $1320 FICA Taxes payable $765 ($10000*7.65%) Union dues payable $88 Cash $7827 (plug)

unemployment taxes

state unemployment compensation laws differ both from the federal law and among various states employers must refer to the unemployment laws in each state in which they pay wages and salaries only employers pay the unemployment tax, rate is 6% on the first $7000 of compensation paid to each employee during the calendar year

selling price of a bond is set by

supply and demand relative risk market conedition state of the economy investment community values a bond at the present value of its expected future cash flows

JE sales revenue account balance of $150,000 includes sales taxes of 4%

tax calculation $150,000 * 1.04 = $144,230.77 $150,000 - $144230.77 = $5769.23 Sales revenue 5769.23 sales taxes payable. 5769.23

par value stock

the par value of a stock has no relationship to its fair value a company uses two accounts to record the issuance of common stock common stock: this account reflects the par value of issued shares. A company credits this account when it originally issues shares paid in capital excess of par-common stock, this account indicates any excess over par value paid in by stockholders. it does not have greater claims on the excess paid than other holders of the same class of shares

issuance of stock

the state of incorporation must authorize the stock the corp offers shares for sales, entering into contracts to sell stock after receiving amounts for the stock, the corporation issues shares and prepares the appropriate journal entries

You purchased a car from hamlin auto for $30,000 on Jan 2 2022. Hamlin estimates the assurance-type warranty costs on teh automobile to be $700 (Hamlin will pay for repairs for the first 36,000 miles or three years whichever comes first). You also purchase for $900 a service type warranty for an additional 3 years or 36000 miles. Hamlin incurs warranty costs related to the assurance type warranty of $500 in 2022 and $200 in 2023. Hamlin records revenue on the service-type warranty on a straight-line basis. what are the 2022 and 2023 entries?

to record sale and service type warranty cash. $30900 unearned warranty revenue $900 sales revenue $30000 to record sale of assurance type warranty warranty expense 700 warranty liability 700 record warranty costs incurred in 2022 on assurance type warranty warranty liability 500 cash, inventory, accrued payroll record revenue recognized in 2022 ont eh service type warranty unearned warranty revenue 300 (900/3) warranty revenue 300

In December Congo sold 100 gift cards at $10 per gift card 30 of the gift cards are redeemed by the end of the year. they est that 40 of the gift cards will not be redeemed

to record sale of gift cards cash $1000 unearned GC revenue $1000 record revenue on gift cards redeemed unearned GC Revenue $300 sales revenue $300(10*30) record gift card revenue on gift card breakage unearned GC revenue $200 sales revenues $200 ($10*40*.5)

in march 2025 company sells 10 gift cards at $200 per gift card or $2000(10*200). in april 6 of the gift card are redeemed. company estimates that the cost of goods sold will be 70% of the sales price, or $140 per gift card. The remaining four cards are expected to be redeemed in May 2025. 60% revenue is recognized as of APril and 40% is recognized in May

to record sale of gift cards March 2025 cash (10*$200) $2000 unearned gift card revenue $2000 to record redemption of 6 gift cards (april 2025) unearned gift card revenue 1200 (6*200) sales revenue 1200 cost of goods sold 840 (1200 * .7) inventory 840 to record redemption of 4 remaining unearned GC rev 800 (4*200) sales revenue 800 cost of goods sold 560 (800*.7) inventory 560

company has outstanding 10000 shares of $10 par value common stock on july 1 company reacquired 100 shares at $87 per share

treasury stock 8700 cash. 8700

purchase of treasury stock

two acceptable methods cost method or par or stated value method treasury stock reduces stockholders equity

gain contingencies

typical ones are possible receipts of monies from gifts, donations, asset sales, and so on possible refund from the government in tax disputes pending court cases with a probable favorable outcome GAIN CONTINGENCIES ARE NOT RECORDED disclosed only if probability of receipt is high

charcteristics of common stock

voting, preemptive right, term, dividends

service type warranty

warranty that provides additional service beyond the assurance type warranty recorded as a separate performance obligation usually recorded in an unearned warranty revenue account recognize revenue on a straight line basis over the period the service type warranty is in effect

assurance type warranty

warranty that the product meets agreed-upon specifications in the contract at the time the product is sold should be expensed in the period the goods are provided or services are performed should record a warranty liability

bonds issued between interest dates

when companies issue bonds on other than the interest payment dates buyers will pay the seller the interest accrued from the last interest payment date to teh date of issue on the next semiannual interest payment date, purhcaser will receive the full six months interest payment