ACCT-2301 Test 2 Review

Event: Company receives a loan

Cash ↑ = Note Payable ↑ = FA ↑

A company wants to calculate interest on a loan

Interest = (Principal x Rate) x (# of Months / 12)

Event: Company accrues interest on a loan

Interest Payable ↑ = Retained Earnings ↓ = Expenses ↑ = Net Income ↓

Event: Interest is paid back at the end of the term

Cash ↓ = Interest Payable ↓ = OA ↓

Event: Principal loan is paid back at the end of the term

Cash ↓ = Note Payable ↓ = FA ↓

Event: Company records sales revenue and sales tax

Cash (Revenue + Tax) ↑ = Tax Payable ↑ = Retained Earnings (Revenue) ↑ = Revenue ↑ = Net Income ↑ = OA (Revenue + Tax) ↑

Event: Company pays sales tax to federal government

Cash (Tax) ↓ = Tax Payable ↓ = OA (Tax) ↓

Event: Company records payment of salary

Cash (Net Pay) ↓ = Liabilities (Payroll & Voluntary) ↑ = Retained Earnings (Gross Pay) ↓ = Expense (Gross Pay) ↑ = Net Income (Gross Pay) ↓ = OA (Net Pay) ↓

Event: Company records employer payroll tax

Payroll Tax Payable (Unemployment + Social Security + Medicare) ↑ = Retained Earnings ↓ = Expense ↑ = Net Income ↓

Event: Company pays employer and employee pay roll taxes to federal government

Cash (Employer Payroll + Employee Payroll) ↓ = Payroll Tax Payable ↓ = OA ↓

Event: Company records payment of employee’s voluntary withholdings (e.g. donations to a charity)

Cash ↓ = Employee Voluntary Payable ↓ = OA ↓

A company wants to gauge liquidity

Current Ratio = Current Assets / Current Liabilities

A company wants to gauge solvency

Debt-to-Asset Ratio: Total Liabilities / Total Assets

Event: Company makes an installment payment

Cash (Installment) ↓ = Note Payable (Principal Payment) ↓ = Retained Earnings (Interest Expense) ↓ = Expense (Interest) ↑ = Net Income (Interest) ↓ = OA (Interest Expense) ↓ FA (Principal Payment) ↓

Event: Company issues bonds in exchange for cash

Cash ↑ = Bonds Payable ↑ = FA ↑

Event: Company pays back the bonds

Cash ↓ = Bonds Payable ↓ = FA ↓

A company wants to calculate net income after asset return revenue and bond interest

Net Income = (Assets x Return Percent) - (Bonds Payable x Interest)

A company wants to calculate the return-on-equity

Return-on-Equity = Net Income / Equity

A company wants to calculate earnings before interest and tax

EBIT = Revenue - Expense

A company wants to calculate return-on-assets

Return-on-Assets: EBIT / Total Assets

A corporation wants to calculate the total amount of taxes collected by the government

Total Taxes = (Pre-Tax Income x Corporate Tax Rate) + (Dividend x Personal Tax Rate)

A partnership wants to calculate the total amount of taxes collected by the government

Total Taxes = Pre-Tax Income x Personal Tax Rate

A sole proprietorship wants to calculate the ending balance of its capital account after investments, withdrawals, revenues, and expenses

Capital Balance = Investments + Net Income - Withdrawals

Company wants to calculate how many stocks are being held by the public

Outstanding Stock = Issued - Treasury

A company wants to calculate legal capital

Legal Capital = # of Shares Outstanding x Par Value

A company wants to calculate the book value per share

Book Value = SHE / # of Shares Outstanding

A company wants to calculate the dividend payment for preferred stockholders

Dividend = (Dividend Percent x Par Value) x # of Shares Outstanding

A company wants to calculate the dividend payment for common stockholders

Dividend = Dividend Declared - Preferred Common Stockholders Dividend

A company wants to calculate the Paid-in-Capital in Excess amount

PIC In Excess = (# of Shares x Share Price) - (# of Shares x Par Value)

Event: Company records the issuing of stock

Cash ↑ = Stock ↑ (at par value) + PIC in Excess ↑ = FA ↑

Event: Company records the issuing of no-par stock

Cash ↑ = Stock ↑ (at share price) = PIC in Excess (N/A) = FA ↑

Event: Company records the declaration of dividends

Dividends Payable ↑ = Retained Earnings ↓

Event: Company records the payment of dividends

Cash ↓ = Dividends Payable ↓ = FA ↓