Chapter 10 ACG 2021

Times Interest Earned

Income before interest/taxes by interest expense

Amortization of Bond Discount Entry:

Interest Expense XXX Discount XXX *Cash XXX *if accrual/adjusting entry (at end of month), then don't use cash, use bond interest payable.

Interest Payment Entry:

Interest Expense XXX N/P XXX Cash XXX

Interest Payment Entry:

Interest Expense XXX N/P XXX Cash XXX

Amortization of Bond Premium Entry:

Interest Expense XXX Premium XXX * Cash XXX * if accrual/adjusting entry (at end of month), then don't use cash, use bond interest payable.

Journal Entry for Payroll Taxes Expense:

Payroll Tax Expense XXX FICA Payable XXX FUTA Payable XXX SUTA Payable XXX (employer pays in taxes)

Interest Payments

Principal * Stated interest rate * number of periods

Journal Entry for Salaries Expense:

Salaries Expense XXX Federal Income Taxes Payable XXX State Income Taxes Payable XXX FICA Payable XXX Health Insurance Payable XXX Other Deductions Payable XXX Salaries Payable/Cash XXX (what the employee pays in taxes)

Which of the following is false with regards to bonds?

The contractual interest rate of a bond is the rate the investors demand for loaning funds.

The year-end balance of the Premium on Bonds Payable is

added to Bonds Payable on the balance sheet

Which of the following statements regarding the amortization of discounts and premium on bonds is false?

The effective interest method applies a non-constant percentage to the bond carrying value to compute interest expense

Which of the following is true for bonds that have been issued at a premium?

The premium indicates that the cost of the bonds is lower than the bond interest paid.

Sales Revenue=

Total Proceeds/1+Sales Tax Rate

Interest

principal * annual interest rate * the time period the note is outstanding

Sales Tax

sales * sales tax rate

Bond interest expense equals

the effective interest rate * the bond carrying value

Liabilities are current if...

(1) from existing current assets or through the creation of other current liabilities (2) within one year or the operating cycle, whichever is longer. Status as "current" depends on the liabilities due date.

Bonds issued at a premium entry:

Cash XXX Premium XXX Bonds Payable XXX

Journal entry for sales taxes:

Cash XXX Sales Revenue XXX Sales Tax Payable XXX

Bonds Issued at a Discount Entry:

Cash XXX Discount XXX Bonds Payable XXX

Journal Entry for Payment to Government:

Federal Income Taxes Payable XXX State Income Taxes Payable XXX FICA Payable XXX FUTA Payable XXX SUTA Payable XXX Cash XXX

Journal Entry for Payment to Government:

Federal Income Taxes Payable XXX State Income Taxes Payable XXX FICA Payable XXX FUTA Payable XXX SUTA Payable XXX Cash XXX - this is when employee sends all the money (that has been put aside) to the government.

A corporation issued a 10%, 5-year, $100,000 bond when the market ratio of interest was 12%. The bond will sell at

a discount

Liabilities are classified as

current or long-term

times interest earned ratio

net income + interest expense + tax expense / interest expense