Chapter 8
What are considered "current liabilities" when reporting
1. Accounts payable 2.Current Portion of longterm debt 3. Sales tax collected from customers 4. Notes Payable due next year 5. Advance payments from customers 6. Commercial paper 7. A contingent liability with a probable likelihood of occurring within the next year and can be estimated
What is not considered a current liability?
Accounts receivable
What is considered to only need a disclosure note when reporting?
An unused line of credit and a contingent liability with a reasonably possible likelihood of occurring within the next year and can be estimated.
Acid Test Ratio
Cash, current investments, and accounts receivable divided by current liabilities (INVENTORY IS NOT INCLUDED) Measures the availability of liquid current assets to pay current liabilities.
How to record the repayment of a note at maturity
D: Interest payable D: Notes Payable D: Interest expense C: Cash (total amount of all of this)
If the likelihood of loss is reasonably likely, a contingent liability should be:
Disclosed but not reported as a liability.
What type of tax is paid by both the employer and the employee?
FICA tax
What is true about liabilities?
Liabilities represent probable future sacrifices of benefits
An informal agreement that allows a company to borrow up to a prearranged limit without having to follow formal loan procedures and prepare paperwork is known as:
Line of credit
What is the effect of treating deferred revenue as revenue?
No effect on current assets but liabilities will be understated
A company's liquidity refers to its:
ability to pay currently maturing debts
How to calculate current ratio
current assets/current liabilities
How to record: Recognize sales provided
d: Deferred revenue c: sales revenue
How to record: Receive cash in advance
d: cash c: deferred revenue
How to record: sale of gift cards
d: cash c: deferred revenue
How to record: Borrow by issuing a short term note
d: cash c: notes payable
How to record: sell goods with a warranty
d: cash c: sales revenue
How to record the expiration (breakage) of gift cards
d: deferred revenue c: sales revenue
How to record: the redemption of gift cards at a certain date
d: deferred revenue c: sales revenue
How to record: the redemption of gift cards at the end of the year BY PREPARING A SUMMARY ENTRY
d: deferred revenue c: sales revenue
How to record: accrue interest on the note
d: interest expense c: interest payable
how to record: estimate future warranty costs
d: warranty expense c: warranty liability
Federal and state income taxes withheld by employers from their employees' payroll are initially recorded with a credit to a(n):
liability
deferred revenue is what type of an account
liability
What is considered to be a long term liability when reported?
notes payable due in two years
How to calculate warranty liability
percent of expected warranty costs x sales- actual warranty expenditures
Interest expense is recorded in the period in which:
the interest is incurred
How to calculate total withholdings from salary expense to find actual direct deposit
total salary expense- percentage of federal, state, and FICA tax
how to calculate total payroll tax expense
total salary expense/ FICA+ Unemployment