Chapter 13

Question 1

Liability

Answer 1

Future sacrifices of economic benefit

Question 2

Current Liability

Answer 2

Obligation payable within one year

Question 3

Deferred Revenue

Answer 3

Where cash is received by a company in advance of it being earned

Question 4

FOB Shipping Point

Answer 4

Title transfers when shipped, so the company records the inventory as soon as shipped

Question 5

FOB Receiving Point

Answer 5

Title transfers when received by the company, so the company records the inventory upon receipt

Question 6

Accrued Liabilities/Accrued Expenses - Vendor

Answer 6

Services performed by the vendor but at the end of the month the company hasn’t yet been billed by the vendor

Question 7

Accrued Liabilities/Accrued Expenses - Employees

Answer 7

Wages that have been earned but not yet paid

Question 8

JE: Accrued Liabilities at the end of the month

Answer 8

dr. Some expense account
cr. Accrued liabilities

the exact amount is usually not known and must be estimated

Question 9

JE: actual expense amount is higher than estimate

Answer 9

dr. Accrued liability account
dr. Some expense account(amt of difference)
cr. cash(full amt)

CONSIDERED A CHANGE IN ACCOUNTING ESTIMATE

Question 10

JE: actual expense is lower than estimate

Answer 10

dr. Accrued liability account
cr. some expense account(amt of difference)
cr. cash(full amt)

CONSIDERED A CHANGE IN ACCOUNTING ESTIMATE

Question 11

Term Loan from a bank

Answer 11

principal repaid at maturity; interest paid monthly

Question 12

Bonds

Answer 12

sold to investors by large companies. Principal repaid at maturity; interest paid semi-annually

Question 13

Short-term Note Payable

Answer 13

less than 12 month bank loan; interest paid monthly

Question 14

Commercial Paper

Answer 14

sold to investors by large companies in large amounts for short terms. UNSECURED. Does not have to be registered with SEC if term is less than 270 days

Question 15

Line of Credit with a bank

Answer 15

A formal agreement with a bank to provide financing for some amount of time. Used to manage financial risk. Amounts are withdrawn if/when needed. Companies pay a monthly commitment fee

Question 16

JE: Issuance of Interest-Bearing Notes

Answer 16

dr. cash
cr. Notes Payable

Question 17

JE: Interest Expense from issuance of interest-bearing notes

Answer 17

dr. Interest Expense
cr. Interest Payable or Cash

Question 18

JE: Payment of Interest-Bearing Note

Answer 18

dr. Notes Payable
dr. Interest Payable
cr. Cash

Question 19

Promissory Notes

Answer 19

Signed for all bank borrowings; all bank borrowings and usually secured

Question 20

3 Conditions for Reclassifying Current debt to Long-Term Debt

Answer 20

Must meet at least one of these - all after year end but before issuing financial statements:
1. Meets both of these conditions
1a. Company INTENDS to refinance the obligation
1b. Company demonstrates the ABILITY to refinance the obligation - actually doing it or obtaining a commitment from a lender

2. Debt is paid off with proceeds from the sale of preferred or common stock
3. Debt is paid off with the proceeds from the sale of some Long-Term Asset

Question 21

JE: Short-Term obligations to be refinanced

Answer 21

dr. Current maturities of long term debt (to decrease it)
cr. Long-Term debt (to increase it)

Question 22

JE: Payroll accrual

Answer 22

dr. Salary expense
cr. Salaries payable

Question 23

Employee Payroll-Related Liabilities

Answer 23

FIT
SIT
FICA-SS
FICA-MED
Insurance

Question 24

Employer Payroll-Related Liabilities

Answer 24

FUTA
SUTA
FICA-SS
FICA-MED

Question 25

JE: Payroll Expense and Withholdings

Answer 25

dr. Salaries & Wages Expense(Gross) cr. FIT withholding payable cr. SIT withholding payable cr. FICA-SS withholding payable cr. FICA-MED withholding payable cr. Insurance withholding payable cr. Salaries payable (NET PAY)

Question 26

JE: Record Payment of the Payroll

Answer 26

dr. Salaries Payable cr. Cash (Net Pay)

Question 27

JE: Record Payment of the Withholding Taxes

Answer 27

dr. FIT withholding payable dr. SIT withholding payable dr. FICA-SS withholding payable dr. FICA-MED withholding payable dr. Insurance withholding payable cr. Cash

Question 28

JE: Record Employer Payroll Taxes

Answer 28

dr. Payroll Taxes Expenses cr. FUTA taxes payable cr. SUTA taxes payable cr. FICA taxes payable

Question 29

JE: Record Payment of the Payroll Taxes

Answer 29

dr. FUTA taxes payable dr. SUTA taxes payable dr. FICA taxes payable cr. Cash

Question 30

Conditions for PTO to be accrued as an expense (any must be met)

Answer 30

1. The employer's obligation is attributable to employee's services already rendered 2. The obligation relates to rights that vest or accumulate - i.e. can be carried over 3. Payment of the compensation is probable 4. The amount can be reasonably estimated

Question 31

JE: PTO Accrual Adjusting Entry(end of month)

Answer 31

dr. PTO or Compensated Absences Expense cr. PTO or Compensated Absences Payable

Question 32

JE: PTO taken in the following year

Answer 32

dr. PTO Payable dr. PTO Expense (amount of difference) cr. Cash

Question 33

Discretionary Bonus

Answer 33

Someone in authority determines the bonuses

Question 34

Formula-Driven Bonus

Answer 34

Employee and / or company must meet some benchmark, such as a specified “sales or net income increase” to earn the bonus

Question 35

JE: End of year Bonus Accrual

Answer 35

dr. Bonus Expense cr. Bonus Payable

Question 36

JE: Payment of Bonus

Answer 36

dr. Bonus Payable cr. Cash

Question 37

Contingency

Answer 37

Some uncertainty where the outcome will be determined in the future

Question 38

Gain Contingency

Answer 38

Not very common. Not recorded until either: 1. There is a clear declaration that the contingency has been favorably resolved and receipt is probable 2. Monies have actually been received - Disclosed in the notes if these conditions are not met