Financial Accounting Quiz Chapter 10

Current Liability

creditor’s claim on total assets that a company expects to pay (within one year)

Examples of Current Liabilities

accounts payable, notes payable, unearned revenues, and accrued liabilities (taxes, salaries and wages, interest)

Notes Payable

obligations in the form of written notes, frequently issued to meet short-term financing needs

Recording Issuance of Notes Payable

debit cash (or other asset) and credit NP for face value

Calculating Interest on NP

face value x interest rate x time

Accrued Interest Entry (record at financial statement dates)

debit interest expense and credit interest payable

Maturity of NP Entry

debit NP and interest payable, credit cash

How does a company go about recording sales taxes payable?

enter separately in the cash register the amount of the sale and the amount of the sales tax collected

Entry to Record Sales and Sales Taxes

debit cash, credit sales revenue and sales taxes payable

Calculating Sales and Sales Taxes from Total Receipts

sales = total receipts / (100% + sales tax %)

sales taxes payable = total receipts - sales

Unearned Revenue

occurs when cash is received before goods are delivered or services are performed; performance obligation

What kind of account is unearned revenue?

a current liability

Entry for the Receipt of Cash Advances Received From Customers

debit cash, credit unearned revenue

Net Payroll Equals

gross payroll - payroll deductions (FICA taxes, income taxes, unemployment taxes)

Entry for Net Payroll

debit payroll tax expense, credit cash (or the taxes payable accounts)

Bonds

long-term liabilities that are a form of interest-bearing notes payable issued by corporations, universities, and governmental agencies

Advantage of Bonds to Issuer

keep ownership of company; bonds sell at a higher price and pay a lower rate of interest than comparable debt securities without conversion options

Disadvantages of Bonds to Issuer

must repay interest, increased debt, scheduled interest payments

Face Value

principal amount due at maturity

When bonds sell for less than their face value (market rate of interest > contractual rate)

difference between FV and sellling price is a discount

When bonds sell for more than their face value (market rate of interest < contractual rate)

difference between FV and selling price is a premium

How is Discount on Bonds Payable placed on the balance sheet?

under bonds payable (less)

Order of Liabilities on the Balance Sheet

• current liabilities (NP, then AP)

• long-term liabilities (bonds payable)

• total liabilities

What is another term for market rate of interest?

effective interest rate

What is the entry for the remittance (payment) to the state government of sales tax collected?

debit sales tax payable, credit cash

When a corporation issues bonds…

it is borrowing money

When a person (the bondholder) buys the bonds…

they are investing in the bonds

Interest Formula for Bonds Issued at Face Value

face value x stated rate x time period