accounting exam 3
The adjusting entry to record interest accrued on a notes payable is debit
interest expense and credit interest payable
If an entry is recorded that debits interest payable and interest expense and credits cash, what must be the case?
interest incurred from the current and prior period is being paid
times interest earned ratio
net income + interest expense + tax expense / interest expense
if an adjusting entry for interest owed is recorded then the company must have issued
notes payable
Accounts (or trade) Payable is debited when ______ and credited when ______.
paid; purchases are made on credit
accrued payroll
payroll liabilities 1) payroll deductions 2) employer payroll taxes
what are the key events with notes payable
recording interest paid, recording principal paid, accuring interest incurred but not paid, establishing the note
chapter 11
stockholders equity
Net pay is calculated by
subtracting payroll deductions from gross pay
The entry to record the cash sale of a $100 pair of jeans in a state that requires charging a 5% sales tax will include a ______.
$105 debit to cash, $100 credit to sales revenue, $5 credit sales tax payable
liabilities are created when a company
- buys goods and services on credit - obtains short-term loans - issues long-term debt
payroll deductions
1) income tax 2) FICA tax, social security 3) other deductions (charitable donations, union due, etc.) - most people have a 41k so it helps them to retire-> put a lot of money in/ try to - pay income tax to federal government and state
employee payroll taxes
FICA, Federal Income Tax Withheld, State unemployment tax
discount
cash proceeds < FV FV- cash proceeds= discount interest expense > cash interest paid IE = CIP + discount amortization
premium
cash proceeds > face value cash proceeds-FV= premium interest expense < cash interest paid interest expense= cash interest paid- premium amortization
For investors, the ______ provide independent, easy-to-use measurements of relative credit risk.
credit rating agencies
bonds
financial instruments that outline the future payments a company promises to make in exchange for receiving a sum of money now
if an adjusting entry is required for interest owed, then the ____ will report
income statement; interest expense
the entry to record the initial borrowing or cash by issuing a promissory note causes a _________.
increase in assets and increases in liabilities
For investors, credit rating agencies provide independent, easy-to-use measurements of relative credit risk. The most well-known credit rating agencies are ______.
moodys and standards& poors
interest=
principal x interest rate x time
key elements for bonds
1) maturity dates 2) face value 3) stated interest rate
Early Bond Retirement
1) pays cash 2) eliminates the bond liability 3) reports either a gain or loss
common long term liabilities
1. long-term notes payable 2. deferred income taxes 3. bonds payable
chpt 10
10
6% stated interest rate
4% market IR-> pay more than face value, premium 6% market IR-> just enough, face value 8% market IR-> im not attracted (yet), discount
accrued liabilities are
current liabilities resulting from adjusting entries that record amounts incurred but not yet paid
On September 1, ABC company borrowed 50,000 on a 6%, 9 months notes payable to XYZ national bank, given no previous adjusting entries have been recorded, ABCs adjusting entry ai December 31 would include a _______.
debit to interest expense of 1000 50,000*.06* (4/12)
debt to assets ratio
total liabilities/total assets
liabilities are classified as current if they
will be paid within the company's operating cycle or within 1 year, whichever is longer.
Which accounts are credited when the journal entry to pay employees is recorded
withheld income tax, cash, fica payable