accounting exam 3

The adjusting entry to record interest accrued on a notes payable is debit

interest expense and credit interest payable

If an entry is recorded that debits interest payable and interest expense and credits cash, what must be the case?

interest incurred from the current and prior period is being paid

times interest earned ratio

net income + interest expense + tax expense / interest expense

if an adjusting entry for interest owed is recorded then the company must have issued

notes payable

Accounts (or trade) Payable is debited when ______ and credited when ______.

paid; purchases are made on credit

accrued payroll

payroll liabilities 1) payroll deductions 2) employer payroll taxes

what are the key events with notes payable

recording interest paid, recording principal paid, accuring interest incurred but not paid, establishing the note

chapter 11

stockholders equity

Net pay is calculated by

subtracting payroll deductions from gross pay

The entry to record the cash sale of a $100 pair of jeans in a state that requires charging a 5% sales tax will include a ______.

$105 debit to cash, $100 credit to sales revenue, $5 credit sales tax payable

liabilities are created when a company

- buys goods and services on credit - obtains short-term loans - issues long-term debt

payroll deductions

1) income tax 2) FICA tax, social security 3) other deductions (charitable donations, union due, etc.) - most people have a 41k so it helps them to retire-> put a lot of money in/ try to - pay income tax to federal government and state

employee payroll taxes

FICA, Federal Income Tax Withheld, State unemployment tax

discount

cash proceeds < FV FV- cash proceeds= discount interest expense > cash interest paid IE = CIP + discount amortization

premium

cash proceeds > face value cash proceeds-FV= premium interest expense < cash interest paid interest expense= cash interest paid- premium amortization

For investors, the ______ provide independent, easy-to-use measurements of relative credit risk.

credit rating agencies

bonds

financial instruments that outline the future payments a company promises to make in exchange for receiving a sum of money now

if an adjusting entry is required for interest owed, then the ____ will report

income statement; interest expense

the entry to record the initial borrowing or cash by issuing a promissory note causes a _________.

increase in assets and increases in liabilities

For investors, credit rating agencies provide independent, easy-to-use measurements of relative credit risk. The most well-known credit rating agencies are ______.

moodys and standards& poors

interest=

principal x interest rate x time

key elements for bonds

1) maturity dates 2) face value 3) stated interest rate

Early Bond Retirement

1) pays cash 2) eliminates the bond liability 3) reports either a gain or loss

common long term liabilities

1. long-term notes payable 2. deferred income taxes 3. bonds payable

chpt 10

10

6% stated interest rate

4% market IR-> pay more than face value, premium 6% market IR-> just enough, face value 8% market IR-> im not attracted (yet), discount

accrued liabilities are

current liabilities resulting from adjusting entries that record amounts incurred but not yet paid

On September 1, ABC company borrowed 50,000 on a 6%, 9 months notes payable to XYZ national bank, given no previous adjusting entries have been recorded, ABCs adjusting entry ai December 31 would include a _______.

debit to interest expense of 1000 50,000*.06* (4/12)

debt to assets ratio

total liabilities/total assets

liabilities are classified as current if they

will be paid within the company's operating cycle or within 1 year, whichever is longer.

Which accounts are credited when the journal entry to pay employees is recorded

withheld income tax, cash, fica payable