Acct 200 Final Exam
What type of deductions can be withheld from employees checks
Federal & state income taxes, Fica taxes, insurance, union dues, united way, etc
Journal for FICA taxes & unemployment taxes
Payroll tax Expense D: (FICA taxes + unemployment taxes) FICA C: given above State unemployment taxes payable C: given
stockholders of a corporation directly elect:
board of directors
Depreciation
the process of allocating the cost of an asset to expense over its useful life (land improvements, buildings, equipment) happens b/c the revenue-producing ability of asset will decline over the assets useful life
retailer collecting taxes is an agent for...
the taxing authority
paid-in capital
the total amount of cash and other assets paid to the corporation by stockholders in exchange for shares of ownership Accounts found in this section: common stock, preferred stock, and paid in capital in excess of par accounts
Contractual interest rate
to determine interest that is paid on the bond contractual rate is stated as an annual rate on bond certificate
Corportation is an entity separate & distinct from its owners
true
the liability of stockholders is normally limited to their investment in the corporation
true
there's no journal entry to record the authorization of capital shock
true
What type of payroll taxes are paid by the company?
FICA taxes & federal/state unemployment taxes
1. General Electric (GE) 7% bonds, maturing January 28, 2018, were issued at 110.40. 2.Boeing 7% bonds, maturing September 24, 2032, were issued at 98.20. Prepare the journal entry to record the issue of each of these two bonds, assuming each company issued $640,000 of bonds in total.
- GE bonds were issued at a premium Cash D: 706,560 (1.1040 x 640,000 Bonds payable C: 640,000 Premium on bonds C: 66,560 (706,560 - 640,000 - Boeing bonds were issued at a discount Cash D: 628,480 (.9820 x 640,000 Discount on bonds payable D: 11,520 (640,000 - 628,480) Bonds payable C: 640,000
Tangible assets
- has physical substance - is used in operations - have for over a year
In performing accounting services for small businesses, you encounter the following situations pertaining to cash sales: 1. Cullumber Company enters sales and sales taxes separately on its cash register. On April 10, the register totals are sales $29,000 and sales taxes $1,450. 2.Ivanhoe Company does not segregate sales and sales taxes. Its register total for April 15 is $17,820, which includes a 8% sales tax.
1. Cash D: 30,450 (29,000 + 1,450) Sales Rev C: 29,000 Sales Tax Payable C: 1,450 2. Cash D: 17,820 Sales Rev C: 16,500 (17,820 / 1.08) Sales Tax Payable C: 1,320 (17,820 - 16,500)
Sandhill Co. purchased a new machine on October 1, 2017, at a cost of $67,560. The company estimated that the machine has a salvage value of $6,900. The machine is expected to be used for 72,200 working hours during its 6-year life. Compute the depreciation expense under the straight-line method for 2017 and 2018, assuming a December 31 year-end
2018: 67,560-6,900 / 6 yr = 10,110 (depreciation value) Cost of equipment - salvage value / estimated life value 2017: 10,110 x 3/12 = 2,528 depreciation value for a yr x time period 3 (oct-dec) / 12 (months in a year)
what entry is made when sales tax is collected? The March 25 cash register readings for Cooley Grocery show sales of $10,000 and sales taxes of $600 (sales tax rate of 6%), the journal entry is:
Cash D: 10,600 (sales rev + sales tax) Sales Revenue C: 10,000 Sales Taxes payable C: 600
Pharoah Company has delivery equipment that cost $49,800 and has been depreciated $23,000.Record entries for the disposal under the following assumptions (a) It was scrapped as having no value. (b)It was sold for $37,500. (c)It was sold for $19,100.
A) Loss on disposal of plant assets D: 26,800 Assets book value (49,800-23,000) Accum depreciation - equip D: 23,000 Equipment C: 49,800 B) Cash D: 37,500 Accum Depreciation - equip D: 23,000 Equipment C: 49,800 (37,500 - 26,800) Gain on diposal of asset C: 10,700 (37,500 - 26,800) C) Cash D: 19,100 loss on sale of equipment D: 7,700 (26,800-19,100) Accum Depreciation D: 23,000 Equipment C: 40,800
Premium bonds
Above face value, bonds with a price over 100 decreases the cost of borrowing
If an asset is worthless
Accumlated Depreciation D: 49,000 Loss on disposal of plant assets D: 2,000 Equipment: 60,000 (??)
Characteristics of a corportation
Advantages: separate legal existence limited liability of stockholders transferable ownership rights ability to acquire capital continuous life disadvantages: government regulations additional taxes corporation management is an advantage and a disadvantage
Total cost of borrowing: Issued at a discount
Annual interest payment: (bonds payable x percentage of bond x time (years) Add: bond discount (bond payable - cash) = total cost of borrowing
total cost of borrowing: issued at a premium
Annual interest payments Less: bond premium = total cost of borrowing
What does it mean: "bond prices very inversely with changes in the market rate of interest"
As market rate increases, bond prices will go down as market rate decreases, bond prices will go up
Discount bonds
Below face value, bonds with a price below 100 increases the cost of borrowing
How can a corporation be formed?
By purpose (not-for-profit or for-profit) by Ownership (privately held or publicly held)
On March 1, 2017, Cullumber Company acquired real estate, on which it planned to construct a small office building, by paying $76,000 in cash. An old warehouse on the property was demolished at a cost of $7,400; the salvaged materials were sold for $1,540. Additional expenditures before construction began included $1,040 attorney's fee for work concerning the land purchase, $4,100 real estate broker's fee, $8,540 architect's fee, and $13,200 to put in driveways and a parking lot. Determine the amount to be reported as the cost of the land.
Cash (76,000) + demolishing warehouse on property (7,400) + material sold from demolish (1,540) + attorney fees (1,040) + real estate fees (4,100) = 87,000
Issuing par value common stock for cash: Assume that Hydro-Slide, Inc. issues 2,000 shares of $1 par value common stock. Prepare Hydro-Slide's journal entry if (a) 1,000 share are issued for $1 per share, and (b) 1,000 shares are issued for $5 per share.
Cash D: 1,000 Common stock C: 1,000 (1,000 x $1) Cash D: 5,000 (1,000 x $5) Common stock C: 1,000 (1,000 x $1) Paid-in capital in excess of par value C: 4,000 (5,000 - 1,000)
Devor Corporation issues 100, five-year, 10%, $1,000 bonds dated January 1, 2017, at 100 (100% of face value). The entry to record the sale is: Prepare the entry Devor would make to accrue interest on December 31. ($100,000 x 10% x 12/12)
Cash D: 100,000 (1,000 x 100) Bonds payable C: 100,000 Interest Expense D: 10,000 (100,000 x .10 x 12/12 (1) Interest Payable C: 10,000
Accounting for preferred stock: Stine Corporation issues 10,000 shares of $10 par value preferred stock for $12 cash per share. Journalize the issuance of the preferred stock On March 28, Cayman issues 1,500 shares of $10 par value preferred stock for cash at $30 per share. Journalize the issuance of the common and preferred shares.
Cash D: 120,000 (10,000 x $12) Preferred stock C: 100,000 (10,000 x $10) Paid-in capital in excess of par - preferred stock C: 20,000 (120,000-100,000) Cash D: 45,000 (1,500 x $30) Preferred stock C: 15,000 (1,500 x $10) Paid-in capital in excess of par value - preferred stock C: 30,000 (45,000-15,000)
Skysong, Inc. issues $267,000, 10-year, 6% bonds at 96. Prepare the journal entry to record the sale of these bonds on March 1, 2017
Cash D: 256,320 (267,000 x 96/100) Discounts on bonds payable D: 10,680 (267,000 x 4/100) 4 bc 100-96 Bonds Payable C: 267,000
Oriole Company issues $270,000, 20-year, 10% bonds at 102. Prepare the journal entry to record the sale of these bonds on June 1, 2017.
Cash D: 275,400 (270,000 x 1.02) 102-> 1.02 Bonds Payable C: 270,000 Premium on bonds payable C: 5,400 (275,400 - 270,000)
Instead of selling it for 16,000 he sold it for 9,000....
Cash D: 9,000 Accumlated depreciation - equipment D: 49,000 Loss on disposal of plant assets D: 2,000 = (11,000-9,000) Equipment C: 60,000
record a disposal tangible asset: On July 1, 2017, Wright Company sells office furniture for $16,000 cash. The office furniture originally cost $60,000. As of January 1, 2017, it had accumulated depreciation of $41,000. Depreciation for the first six months of 2017 is $8,000. Prepare the journal entry to record depreciation expense up to the date of sale, July 1.
Cost of office furniture: 60,000 Less: Accumlated Depreciation (41,000+8,000) = 49,000 book value at date of disposal (60,000-49,000)= 11,000 Proceeds from sale 16,000 Gain on disposal of plant asset: (16,000-11,000) = 5,000 Cash D: 16,000 Accumlated Depreciation - equipement: D: 49,000 Equipment C: 60,000 Gain on disposal of plant assets C: 5,000
Sandhill Co. incurs these expenditures in purchasing a truck: cash price $26,700, accident insurance (during use) $2,150, sales taxes $1,230, motor vehicle license $580, and painting and lettering $1,770. What is the cost of the truck?
Cost of truck: cash price (26,700) + sales tax (1,230) + painting and letter (1,770) = 29,700
Which asset is never depreciated?
Land
Capitalizing the cost
Means to increase the asset account
what is found in a charter
Name of company, its purpose, number of shares authorized to be sold and type of stock to be sold.
Intangible assets
Rights, privileges, and competitive advantages that result from the ownership of long-lived assets that do not possess physical substance. patents, copyrights, franchises, licenses, trademarks, trade names, goodwill
How to journal the withheld earnings:
Salaries and wages expense D: (given) FICA Payable C: (given) Federal Income Tax C: State income tax C: Salaries & wages payable C: (expense - sum of withholdings Salaries and wages payable C: Cash D
Balance sheet for issuing par value common stock for cash: Stockholders' equity section assuming Hydro-Slide, Inc. has retained earnings of $27,000.
Stockholders' equity Paid-in capital Common stock: 2,000 (1,000 + 1,000) Paid-in capital in excess of par value: 4,000 Total paid-in capital: 6,000 (2,000+4,000) Retained earnings: 27,000 Total stockholders' equity: 33,000 (27,000 + 6,000)
preferred stock
a second class of stock that has given holders preference to dividends and assets upon liquidation - not all companies have preferred stock
Face value of a bond
amount paid to the holder at maturity
unsecured bonds
are issued against the general credit of the borrower
How to calculate loss on disposal
book value - proceeds from sale (when book value is more than proceeds)
acquisition cost of a tangible asset
cash purchase price + all other costs necessary
responsibility of a treasurer
custody of corporations funds maintaining cash position of the corporation
contingent libaility
events with uncertain outcomes that are potential liabilities - arise from past transactions or events but their resolution depends on a future event companies must disclose contingencies in the notes of accounting
goodwill
exceptional managment, desirable location, good customer relations, skilled employees, high quality products, etc only record when an entire business is purchased record: purchase price/identifiable net assets acquired
patents
exclusive rights to make, sell, or control inventions for a period of 20 years from the date of grant
Amortization
the allocation to expense of the cost of an intangible asset over the asset's useful life only limited life intangibles are amortized:
Units of activity method
expense each year depends on activity taking place
Declining Balance Method
expense is higher in the first year than decreases over life - decreases annual depreciation expense over the asset's useful life
Straight line method
expense is the same amount each year (cost x rate) depreciable cost = cost - salvage value depreciable cost / uselife life (years) = depreciation expense
no par value stock is rare
false
the relative lack of government regulation is an advantage of the corporate form if business
false
What is a bond?
for of interest-bearing notes payable issued by corporations, universities, and governmental agencies when a corporation issues bonds, it's borrowing money The person who buys the bonds (bondholder) is investing in bonds
copyrights
give the owner the exclusive right to reproduce and sell an artistic or published work
Secured Bond
have specific assets of the issuer pledged as collateral for the bonds
What is unearned revenue?
liability recorded when cash is received before providing a service
Responsibility of a controller
maintain accounting records maintain internal controls issue financial statements
Requirements to record a contingent liability on the balance sheet
must be probable AND you can estimate dollar amount
Expensed Extraordinary
not frequent; higher cost. INCREASES operating efficiency, production capacity, or useful life - debeted to asset affected
Authorized shares
number of shares the company is allowed to sell as stated in their charter reported in the stockholders' equity section
Book value =
original cost - accumulated depreciation if proceeds exceed book value, a gain on disposal occurs if proceeds are less than the book value, a loss on disposal occurs
How to calculate interest
principal x rate x time (months / 12 months or day/360 day
How to calculate gain on diposal
proceeds from sale - book value (when proceeds are more than the book value)
Market interest rate
rate investors are demanding for loaning their funds used to determine selling price of bond
Ordinary Repairs and Maintenance
recurring that must be done to MAINTAIN operating efficiency, production capacity, or useful life (expensed) - debted to maintenance & repairs
what rights do stockholders have
vote: in election board of directors and on actions that require stockholder approval share in earnings: through receipt of dividends preemptive right: keep the same percentage ownership when new shares of stock are issued residual claim: share in assets upon liquidation in proportion to their new holders
trademarks
word, phrase, jingle, or symbol that distinguishes or indentifies a particular enterprise or product