CH 9 ACCT
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Borrowed 100,000 and returns 2000 of interest Cash 100,000 --Notes payable 100,000 Interest expense 2000 --Interest payable 2000
A company estimates the cost of accrued vacation time to be 125,000 Compensation expense 125,000 -------------Accrued vacation liability 125,000
A company estimates the cost of accrued vacation time to be 125,000 Compensation expense 125,000 --Accrued vacation liability 125,000
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A company has liquidity if it has the ability to meet its current obligations
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A company may prefer to lease an asset on a long term basis rather than purchase it. This type of lease is called a capital lease. Capital leases are accounted for as if an asset had been purchased by recording an asset and a liability. · It is a capital lease if 1. The lease term is 75% or more of the asset's expected economic life 2. Ownership of the asset is transferred to the lessee at the end of the lease term 3. The lease contract permits the lessee to purchase the asset at a price that is lower than its fair market value 4. The present value of the lease payment is 90 percent or more of the fair market value of the asset when the lease is signed
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A note payable specifies the amount borrowed, the date by which it must be repaid, and the interest rate associated with the borrowing.
Accrued compensation and related costs: In addition to reporting salaries that have been earned but not paid, companies must report the cost of unpaid benefits, including vacation time and retirement programs
Accrued compensation and related costs: In addition to reporting salaries that have been earned but not paid, companies must report the cost of unpaid benefits, including vacation time and retirement programs.
Accrued liabilities are expenses that have been incurred before the end of an accounting period but have not been paid. Companies list accrued compensation and related costs, accrued occupancy costs (rent), accrued taxes, and other accrued expenses.
Accrued liabilities are expenses that have been incurred before the end of an accounting period but have not been paid. Companies list accrued compensation and related costs, accrued occupancy costs (rent), accrued taxes, and other accrued expenses.
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Companies often lease assets rather than purchase them. When a company leases an asset on a short term basis, the agreement is called an operating lease. No liability is recorded when an operating lease is created. Instead, the company records rent expense as it uses the asset.
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Creditors lend cash because they will earn interest. The simple concept is called the time value of money (interest that is associated with the use of money over time). The longer borrowed money is held, the larger is the total dollar amount of interest expense.
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It an event is probable and subject to estimate then its recorded as a liability
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Payroll taxes: There are three large deductions (employee income taxes, employee and employer FICA Taxes, and Employer unemployment taxes).
People say a company has liquidity if it has the ability to meet its current obligations. Financial measures to evaluate liquidity include the current ratio and the solar amount of working capital.
People say a company has liquidity if it has the ability to meet its current obligations. Financial measures to evaluate liquidity include the current ratio and the solar amount of working capital.
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Present value involving both an annuity and a single payment In some business situations, a borrower may agree to make periodic payments (an annuity) in addition to a single payment at the end of the agreement. A company bought a truck and will pay 1000 for 20 months and 40,000 at the end of the 20 months. The dealership is charging 24% per year or 2% per month. You compute the present value of the annuity (1000) and then the present value of the single payment (40,000). Then you add these two amounts to determine the present value of the obligation
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Present value of an annuity. You will receive 1000 in 2014, 2015, and 2016. How much would you need to give today? 1000 X 2.4869 = $2487
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Present value of an annuity: Instead of a single payment, many business problems involve multiple cash payments over a number of periods. An annuity is a series of consecutive payments characterized by 1. An equal dollar amount each interest period 2. Interest period of equal length 3. An equal interest rate each interest period
The accounts payable turnover ratio measures how quickly management is paying trade accounts. A higher ratio means that a company is paying its suppliers in a timely manner
The accounts payable turnover ratio measures how quickly management is paying trade accounts. A higher ratio means that a company is paying its suppliers in a timely manner
The average age of payables is calculated by 360/ Turnover ratio
The average age of payables is calculated by 360/ Turnover ratio
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The concept of present value is based on the time value of money. Money that is received today is worth more than money to be received one year from today because it can be used to earn interest.
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Under gap a probable event has a 70% chance of occurring
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Annuity is a series of periodic cash payments that are equal in amount each interest period
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Computing the amount of a liability with a single payment: You borrow a truck and promise to pay 200,000 dollars after 2 years. 12% Delivery Trucks 159440 --Note payable 159440 First year interest Interest expense 19133 --Note payable 19133 Second year interest Interest expense 21429 --Note payable 21429 Payment at the end Note Payable 200,000 -Cash 200,000
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Computing the amount of a liability with an annuity Bought printer for 400,000 and will pay each year annual installments of 163,686. Printer Printing Equipment400,000 --Note payable 400,000 2014 Note payable 119686 Interest expense 44000 -Cash 163686 2015 Note payable 132851 Interest expense 30835 --Cash 163686 2016 Note payable 147463 Interest expense 16223 --Cash 163686
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Contingent liability is a potential liability that has arisen as the result of a past transaction; it is not an effective liability until some future event occurs like lawsuits, environmental problems, and product warranties. A contingent liability may or may not be recorded depending on future events PG: 461
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Deferred revenues are revenues that have been collected but not yet earned; they are liabilities until the goods or services have been provided.
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Employee FICA taxes are social security taxes and Medicare taxes. These taxes are imposed in equal amounts on both the employer and employee. Finally employer unemployment taxes are taxes that provide limited financial support to employees who lose their jobs through no fault of their own
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Employee income taxes are withheld and the amount of income tax withheld is recorded by the employer as a current liability. Federal income tax withheld is referred to as FITW
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Estimated liabilities reported on the balance sheet: when a company offers a warranty with the products it sells. The cost of providing future repair work must be estimated and recorded as a liability in the period in which the product is sold
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If a long term liability is not satisfied, the creditor may take ownership if an asset and this is called a secure debt
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If its reasonably possible it is disclosed in a note
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If its remote disclosure is not required
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In many cases, a company's need for debt capital exceeds the financial ability of any single creditor. In these situations, the company may issue publicly traded debt called bonds.
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Interest = principal X interest rate X time
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Is an event is probable bit not subject to estimate then its disclosed in a note
Liabilities are probably debts or obligations of the entity that result from past transactions, which will be paid with assets or services
Liabilities are probably debts or obligations of the entity that result from past transactions, which will be paid with assets or services
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Long term liabilities are due after one year. Companies can raise long term debt from a number of financial service organizations. Raising debt from one of these organizations is known as private placement. This type of debt is known as note payable which is a written promise to pay a stated sum at one or more specified future dates called the maturity dates.
Managers use the accounts payable turnover ratio to evaluate effectiveness in managing payables. Accounts payable turnover = COGS / Average Accounts Payable
Managers use the accounts payable turnover ratio to evaluate effectiveness in managing payables. Accounts payable turnover = COGS / Average Accounts Payable
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Recording a capital lease Lease equipment --Lease payable
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The accounts payable turnover ratio measures how quickly management is paying trade accounts. A high accounts payable ratio normally suggests that a company is paying its suppliers in a timely manner.
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The entry to record the payroll is normally maid with two entries. The first records amounts paid to employees or withheld from amounts they have earned Compensation expense --Liability for income taxes withheld --FICA payable (ss and medic aid) --Cash
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The formula to compute the present value of a single amount is Present value = 1 / (1+i)^n X amount
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The second entry records the taxes that employers must pay from their own funds. Compensation expense --FICA payable (ss and medic aid) --FUTA payable (unemployment)
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To compute the present value of an amount to be received in the future, we will subtract interest that is earned over time from the amount to be received in the future
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When managers record a lease as an operating lease the company is able to report less debt on its balance sheet
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When vacations are taken the accountants record the following Accrued vacation liability ---Cash
Working capital is a margin of safety that ensures a company can meet its short-term obligations (current assets - current liabilities
Working capital is a margin of safety that ensures a company can meet its short-term obligations (current assets - current liabilities
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Working capital is the dollar difference between current assets and liabilities. If a business has too little working capital it might not meet its obligations to creditors. Too much working capital may tie up resources in unproductive assets and incur additional costs.
