ACTG 211 Everything you have to know for Final

Current Liability examples

- Accounts Payable - Short-term Notes Payable - Wages Payable - Taxes Payable - Warranty Liability

Examples of Estimated Liability

- Employee benefits (pensions, health care, vacation pay) - Warranties offered by a seller

Long-term Liability examples

- Long-term Notes Payable - Warranty Liability - Lease Liability - Bonds Payable

Two transactions that create Notes Payable

1) Note given to extend credit period 2) Note given to borrow from bank

Liability

A probably future payment of assets or service that a company is presently obligated to make as a result of past transactions or events.

Short-Term Notes Payable

A written promise to pay a specified amount on a stated future date within one year

Accounts Payable

Amounts owed to suppliers for products or services purchased on credit

Unearned Revenue

Amounts received in advance from customers for future products or services.

Employee Benefit

An employer often pays all or part of medical, dental, life, and disability insurance. Also sometimes pensions plan: agreement to pay after retirement

A ticket agency receives $40,000 cash in advance ticket sales for Haim's upcoming four-date tour. Record the advance ticket sales on April 30. Rerecord the revenue earned for the first concert date of May 15, assuming it represents one-fourth of the advance ticket sales.

April 30 Debit: Cash 40,000 Credit: Unearned Ticket Revenue 40,000 May 15 Debit: Unearned Ticket Revenue 10,000 Credit: Ticket Revenue 10,000

Assume that on August 23, Brady asks to extend its past-due $600 account payable to Apple. After negotiations, Apple agrees to accept $100 cash and a 60-day, 12%, $500 note payable to replace the account payable.

Aug 23 Debit: A/P 600 Credit: Cash 100 Credit: Notes Payable 500 Oct 22 Debit: Notes Payable 500 Debit: Interest Expense 10 Credit: Cash 510

If Home Depot sells materials on August 31 for $6000 cash that are subject to a 5% sales tax, the revenue portion of this transaction is recorded as follows.

Debit: Cash $6300 Credit: Sales $6000 Credit: Sales Taxes Payable $300

Assume that a company borrows $2000 from a bank at 12% annual interest.

Debit: Cash 2000 Credit: Notes Payable 2000 Then... Debit: Notes Payable 2000 Debit: Interest Payable 40 Credit: Cash 2040

If Selena Gomez sells $5 million in tickets for eight concerts, the entry is... After one concert....

Debit: Cash 5,000,000 Credit: Unearned Ticket Revenue 5,000,000 After one concert... Debit: Unearned Revenue 625,000 Credit: Ticket Revenue 625,000

Assume a dealer sells a car for $16,000 on December 1, 2020, with a one-year or 12,000 miles warranty covering parts. Experience shows that warranty expense is 4% of a car's selling price. Assume the customer brings the car in for warranty repairs on January 9, 2021. The dealer fixes the car by replacing parts costing $200. The entry to record the repair is,,,

Dec 1 Debit: Warranty Expense 640 Credit: Estimated Warranty Liability 640 Jan 9 Debit: Estimated Warranty Liability 200 Credit: Auto Parts Inventory 200

Assume an employer agrees to 1) pay $8000 for medical insurance and 2) contribute an additional 10% of the employees' $120,000 gross salaries to a retirement program. The entry to record these accrued benefits is,

Dec 31 Debit: Employee Benefits Expense 20,000 Credit: Employee Medical Insurance Payable 8,000 Credit: Employee Retirement program payable 12,000

The year-end adjusting entry to record a $10,000 bonus is...

Dec 31 Debit: Employee Bonus Expense Credit: Bonus Payable 10,000

Assume that salaried employees earn 2 weeks' paid vacation per year. The year-end adjusting entry to record $3200 of accrued vacation benefits is, When an employee takes a one-week vacation on June 20,

Dec 31 Debit: Vacation Benefits Expense 3200 Credit: Vacation Benefits Payable 3200 June 20 Debit: Vacation Benefits Payable 400 Credit: Cash 400

Assume a company borrows $2000 cash on December 16, 2020 at 12% annual interest. This 60-day note matures on February 14, 2021 and the company's fiscal year ends on December 31.

Dec 31 (2020) Debit: Interest Expense 10 Credit: Interest Payable 10 Feb 14 (2021) Debit: Interest Payable 10 Debit: Interest Expense 30 Debit: Notes Payable 2000 Credit: cash 2040

A retailer sells merchandise for $500 cash on June 30 (cost of merchandise is $300). The retailer collects 7% sales tax. Record the entry for the $500 sale and its applicable sales tax. Also record the entry that shows the taxes collected being sent to the government on July 15.

June 30 Debit: Cash 535 Credit: Sale 500 Credit: Sales Tax Payable 35 June 30 Debit: COGS 300 Credit: Inventory 300 July 15 Debit: Sales Tax Payable 35 Credit: Cash 35

Known Liability

Measurable obligations arising from agreements, contracts, or laws.

Estimated Liability

Obligation of an uncertain amount that can be reasonably estimated.

Vacation Benefits

Paid vacation or paid absence

The amount borrowed for Notes Payable is called...

Principal Value or Face Value

Sales Taxes Payable

The seller collects sales taxes from customers when sales occur and sends these collections to the government.

Warranty

a seller's obligation to replace or fix a product or service that fails to perform as expected within a specific period

On November 25 of the current year, a company borrows $8000 cash by signing a 90 day, 5% note payable with a face value of $8000. a) Compute the accrued interest payable on December 31 of the current year, b) Prepare the journal entry to record the accrued interest expense at December 31 of the current year, and c) Prepare the journal entry to record payment of the note at maturity.

a) Days from Nov 25 to Dec 31 = 36 days Accrued Interest (5% x 8000 x 36/365) = $40 b) Dec 31 Debit: Interest Expense 40 Credit: Interest Payable 40 c) Feb 23 Debit: Interest Expense 60 Debit: Interest Payable 40 Debit: Notes Payable 8000 Credit: Cash 8100

For the current year ended December 31, a company has implemented an employee bonus program based on its net income, which employees share equally. Its bonus expense is $40,000. a) Prepare the journal entry at December 31 of the current year to record the bonus due. b) Prepare the journal entry at January 20 of the following year to record payment of that bonus to employees.

a) Dec 31 Debit: Employee Bonus Expense 40,000 Credit: Employee Bonus Payable 40,000 b) Jan 20 Debit: Employee Bonus Payable 40,000 Credit: Cash 40,000

A company's salaried employees earn two weeks' vacation per year. The company estimated and must expense $9000 of accrued vacation benefits for the year. a) Prepare the December 31 year-end adjusting entry to record accrued vacation benefits. b) Prepare the entry on May 1 of the next year when an employee takes a one-week vacation and is paid $450 cash for that week.

a) Dec. 31 Debit: Vacation Benefit Expense 9000 Credit: Vacation Benefit Payable 9000 b) May 1 Debit: Vacation Benefit Payable 450 Credit: Cash 450

On June 11 of the current year, a retailer sells a trimmer for $400 with a one-year warranty that covers parts. Warranty expense is estimated at 5% of sales. On March 24 of the next year, the trimmer is brought in for repairs covered under the warranty requiring $15 in materials taken from the Repair Parts Inventory. Prepare the a) June 11 entry to record the trimmer sale- ignore the cost of the sales part of this sales entry and b) March 24 entry to record warranty repairs.

a) June 11 Debit: Warranty Expense 20 Credit: Estimated Warranty Liability 20 Debit: Cash 400 Credit: Sales 400 b) June 11 Debit: Estimated Warranty Liability 15 Credit: Repair Parts Inventory 15