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