Financial Accounting chapter 10&11

The employer is subject to what payroll taxes?

-FICA Tax -Federal unemployed compensation tax (FUTA) -State unemployment compensation tax (SUTA)

What is the difference between gross pay and net pay?

-Gross Pay: The total earnings of an employee for a payroll period. -Net Pay: Gross pay less payroll deductions; the amount the employer is obligated to pay the employee.

What is the difference between a current liability and a long-term liability?

-Long-term liabilities are debts due beyond one year -Current liabilities are debts that will be paid out of current assets and are due within one year

What is the difference between salaries and wages?

-Salary usually refers to payment for managerial and administrative services. Salary is normally expressed in terms of a month or a year. -Wages usually refers to payment for employee manual labor

What are installment notes

A debt that requires the borrower to make equal periodic payments to the lender for the term of the note.

What is a bond?

A form of an interest-bearing note used by corporations to borrow on a long-term basis

What is the entry when issuing a bond at "face amount?"

An amount at which bonds sell if the market rate equals the contract rate.

What is meant by a bond selling at a discount, face or premium?

Bonds will sell at a discount when the market rate of interest is higher than the contract rate

What is the relationship between the contract rate, the market rate and the bond price?

Bonds will sell at a premium when the market rate of interest is less than the contract rate. If the market rate of interest is less than the contract rate of interest, the bonds will sell for more than their face amount. This is because investors are willing to pay more for bonds that pay a higher contract rate of interest than the rate they could earn on similar bonds (market rate).

How are quick assets?

Cash and other current assets that can be quickly converted to cash, such as marketable securities and receivables.

What are the two most common type of bonds?

Convertible bonds and callable bonds.

What is meant by contract rate or coupon rate?

Convertible bonds may be exchanged for shares of common stock, and callable bonds may be redeemed by the corporation prior to maturity.

What is meant by convertible bonds and callable bonds?

Convertible bonds may be exchanged for shares of common stock, and callable bonds may be redeemed by the corporation prior to maturity.

What is the formula for "working capital?"

Current assets-Current liabilities

What is the formula for the "current ratio?"

Current assets/ current liabilities

What is the journal entry to record payroll?

Debit Sales Salaries and office salaries, credit total payroll

What is the journal entry when the borrower issues a note?

Debit accounts payable, credit notes payable

What is the entry when issuing a bond at a "premium?"

Debit cash / credit bonds payable and premium on bonds payable

What is the entry when issuing a bond at a "discount?"

Debit cash and discount on bonds payable/ credit bonds payable

What is the journal entry when the borrower makes payment when the note matures?

Debit notes payable and interest expense, credit cash

What is the journal entry to record payroll tax expense?

Debit: Social security tax, medicare tax, State unemployment tax, and federal unemployment tax Credit: totally payroll taxes

When is a contingent liability recorded and disclosed?

If a contingent liability is probable and the amount of the liability can be reasonably estimated, it is recorded and disclosed. The liability is recorded by debiting an expense and crediting a liability.

What is the formula for "times interest earned?"

Income before income tax+ interest expense/ interest expense

What are contingent liabilities?

Liabilities that may arise from past transactions if certain events occur in the future.

What is the formula for the "quick ratio?"

Quick assets/ current liabilities

What is a bond indenture?

The contract between a corporation issuing bonds and the bondholders.

What are the normal payroll deductions?

The deductions normally include federal, state, and local income taxes, medical insurance, and pension contributions.

What is meant by the market rate of interest or the effective rate of interest?

The rate determined from sales and purchases of similar bonds.

What are some examples of fringe benefits provided to the employee by the employer?

may include vacation, medical, and retirement benefits.

What are some examples of current liabilities?

• Accounts payable and accruals • Short-term notes payable • Current portion of long-term debt

What are some examples of internal controls related to payroll?

• The hiring and firing of employees should be properly authorized and approved in writing. • All changes in pay rates should be properly authorized and approved in writing. • Employees should be observed when arriving for work to verify that employees are "checking in" for work only once and only for themselves. Employees may "check in" for work by using a time card or by swiping their employee ID card. • A special payroll bank account should be used.