Bond Financing and Payroll Taxes

These flashcards cover key concepts related to bond financing, warranties, and payroll taxes based on the lecture notes.

Market rate

The rate used to calculate interest expense on bonds.

Discount

When the market rate is greater than the stated rate, bonds are issued at this.

Premium

When the market rate is less than the stated rate, bonds are issued at this.

Par

When the market rate equals the stated rate, bonds are issued at this.

Interest on a note formula

Principal × Rate × Time.

Open account

Accounts payable arise from purchasing goods on this type of account.

Assurance-type warranty

The type of warranty that is expensed in the year of sale.

Service-type warranty

The type of warranty that is recorded as unearned revenue.

Probable and estimable

This probability level requires accrual of a loss contingency.

Reasonably possible

This probability level requires only disclosure of a loss contingency.

Remote

This probability level requires no action for loss contingency.

FICA

The tax paid by both employee and employer.

FUTA

The tax paid only by employers.

7.65%

The combined payroll tax rate for Social Security and Medicare.

Interest payment for bond at 8% annually

$8,000 for a $100,000 bond.

Interest payment for bond at 8% semiannual

$4,000 for a $100,000 bond.

FICA on $10,000 payroll at 7.65%

$765.

FUTA on $10,000 payroll at 0.8%

$80.

SUTA on $10,000 payroll at 4%

$400.

Sales tax on $3,000 sale at 4%

$120.

Vacation pay for 20 weeks at $480/week

$9,600.

Premium amortization effect

Decreases carrying value.

Discount amortization effect

Increases carrying value.

Interest expense formula for bonds

Market rate × Carrying value.

Cash interest formula for bonds

Stated rate × Face value.

Bond issued at 97

Means 97% of face value.

Bond issued at 103

Means 103% of face value.

Gain or loss if carrying value is $105,000 and reacquisition price is $100,000

Gain.

Gain or loss if carrying value is $95,000 and reacquisition price is $100,000

Loss.

Warranty estimate

100 units × $200 each, which is $20,000.

Expected redemptions calculation

300,000 × 60% equals 180,000.

Number of periods for a 5-year semiannual bond

10 periods.

Semiannual market rate for a 10% annual rate

5%.

Carrying value definition

Equals face value plus or minus Premium or Discount.

Bonds payable at maturity

Recorded at face value.