Chapter 8 Acct

Issuing a Note Payable for Cash

Increase in Assets and Increase in Liabilities

Line of Credit

Informal Agreement , no formal loan procedures and paper work

Emploer Cost

Additional FICA tax on behalf of the employee FUTA and SUTA

Acid- Test Ratio

Cash + Current Invest + Account Receivable / Current liabilities

Commerical Paper

Company borrows from another company rather than from a bankbank

Calculating Interest , Note Payable

Face amount * annual interest rate * fraction of the year

Liquidity Measures

Working Capital Current Ratio Acid-test Ratio

Sale Tax Payale

Collected from customers by the seller

FICA Taxes

1.45% medicare tax + 6.2 % Social security tax

Working Capital

Current Assets - Current Liabilities

Current Ratio

Current Assets / Current liabilities higher the current ratio , the greater the company's liquidity

End of period adjusting entry

Debit Deferred Revenue Credit Revenue account

On October 1, 2018, Logan Corporation signed a 6 month, 8 % interest- bearing promissory note for $10000. The journal entry required at December 31, 2018. would include which of the following entires

Debit interest expense $10000* 8% * 3/12 ( oct, nov, dec) = 200

Current Portion of long term debt

Debt that will be paid within the next year

Current Liabilities

Deferred Rev Accounts Payable Taxes Payable

Unearned Rev

Liability account used to record cash received in advance of the sale

NOT commonly classified as a current liability

Note payable due in 3 years

Liquidity

Refer to having sufficient cash or other current assets to pay currently maturing debt Lack of Liquidity can result in bankruptcy

By law employer required to pay

SS contributions Medicare contributions Federal unemployment tax