Liabilities

Question 1

Definite liabilities

Answer 1

Due at balance sheet date, current and non interest baring

Question 2

Contingent liabilities

Answer 2

May not be due at balance sheet date

Question 3

Current liabilities

Answer 3

will be exchanged for current asset or new current liabilities.

liquidity will go down in the current year

Question 4

Noncurrent

Answer 4

PV of all future cash flows

Question 5

Bond Amortization table

Answer 5

Date 
Int PD 
Int Exp  
Disc/amo 
Undisc/am  
Carry value

Question 6

Journal Entries - Bond @ Disc

Answer 6

Debit Cash
Debit Bond Discount
Credit Bonds Payable

Question 7

Journal Entries - Bond @ Premium

Answer 7

Debit Cash
Credit Bond Premium
Credit Bonds Payable

Question 8

Journal entry for periodic interest bond @ disc

Answer 8

Debit Interest Expense
Credit Bond discount
Credit Cash

Question 9

Journal for periodic int bond @ premium

Answer 9

Debit Interest Expense
Debit Bond premium
Credit Intrest Payable

Question 10

Debenture bonds

Answer 10

unsecured bonds

Question 11

Bond issue costs

Answer 11

legal, printing & promotional

capitalized as a non-current, deferred charge

Amortized over the life of the bond using SL method

Not netted against accrued interest

Question 12

Net cash receipts on bond issuance

Answer 12

Total cash received plus accrued interest minus cost of issuance

Question 13

Interest payable

Answer 13

Interest accrued since last pay date

Question 14

Interest expense

Answer 14

Interest for entire period, include amortization or discount

Question 15

Net cash receipts on bond issuance

Answer 15

Total cash received plus accrued interest minus cost of issuance

Question 16

Convertible bonds book value method

Answer 16

transfer bond account balances to stock accounts - no gain or loss recorded

Question 17

Convertible bonds market value method

Answer 17

At conversion - credit stock accounts for market value of stock or bonds. Close out bond account balances and record gain or loss to recognize the difference.

Question 18

Warrants

Answer 18

1) Separate accrued interest fro proceeds
2) Allocate total bond price to bonds and warrants - before discount or premium
3) Record allocation of warrants in Owner’s Equity

Question 19

Warrants issued with bonds impact on OE

Answer 19

Owners Equity is increased by the market value (or inferred market value) of the warrants

Question 20

“In computing the gain or loss on the above bond retirement, the price paid for the bonds is compared to which of the following values?”

Answer 20

This question refers to the computation of the gain or loss.”In computing the gain or loss on the above bond retirement, the price paid for the bonds is compared to which of the following values?” This question refers to the computation of the gain or loss.

Question 21

bond retirement questions,

Answer 21

you’re computing based on the time remaining on the bond. You may also need to do a fractional retirement.

Question 22

Bond retirement

Answer 22

The gain is the difference between (1) the net bond liability less the unamortized bond issue costs and (2) the amount paid to retire the bonds:

Question 23

Retire Bond with remaining unamortized premium at less than par

Answer 23

Gain

Question 24

Retire bond with remaining discount at less than par

Answer 24

Loss

Question 25

Retire bond with remaining unamortized premium at more than par

Answer 25

Loss

Question 26

Retire bond with remaining discount at more than par

Answer 26

Gain

Question 27

Bond Retirement Questions Steps

Answer 27

compute book value = par + unamortized premium/-remaining discount - remaining issue cost - If it's a fractional retirement - remember to only computer the book value for the portion retired, and only utilize premium/discount and issue cost for the portion retired. You'll need to also utilize the remaining term.

Question 28

How do you calculate the loss on the early retirement of bonds?

Answer 28

Cash paid - book value +unamorized bond issue costs

Question 29

How do you calculate the gain on the early retirement of bonds?

Answer 29

Book value - cash paid - unamorized bond issue costs

Question 30

Journal entry for bond in early retirement

Answer 30

Debit Interest expense Recognize remaining discount/premium Recognize unamortized issue costs

Question 31

Given the interest rate, bond face value, market interest PV factor and initial interest PV factor - calculate the net bond liability for a given future year.

Answer 31

(Bond face value + remaining interest payments)*PV mkt interest = bond liability for given year

Question 32

Debt Restructuring - settlement debtor

Answer 32

carry value of assets - mkt value of assets = difference is gain or loss on disposal mkt value of assets - carry value of debt = difference is gain or loss on restructuring

Question 33

Debt Restructuring - settlement creditor

Answer 33

carry value of investment - mkt value of investment = loss on restructure

Question 34

Debt Restructure - modification of terms type 1 (sum

Answer 34

debtor gain = bv - sum of restructure | No interest recognized from new loan - because debtor pays less in total for the entire loan

Question 35

Debt Restructure - modification of terms type 2 (sum>BV)

Answer 35

creditor records loan impairment, but debtor doesn't recognize gain.

Question 36

Debt restructure problem solving steps

Answer 36

1) Cacl BV of debt 2) determine if type 1 or type 2 3) calc total payments and compare to book value 4) determine journal entries

Question 37

Debt Restructure - modification of terms type 2 (sum>BV)

Answer 37

Must compute new implied interest rate to determine if it is a TDR. If less than original, yes. No gain recognized. BV remains unchanged and the difference between BV and the agreed value is the interest for the term.

Question 38

Debt Restructure - modification of terms type 2 (sum>BV) | Journal Entries

Answer 38

Debit Note Payable Debit Interest payable Credit new notes payable at year end Interest Expense Notes payable reduction Credit cash for payment next year Cr Int expense Cr Notes Payable Db Cash

Question 39

Troubled Debt Restructuring | IFRS differences

Answer 39

Significant = (PV of New Debt) - (PV of Old debt) >= 10% Insignificant = <10%

Question 40

TDR implied rate of interest calculation

Answer 40

BV = payment(PV of $1 for 3 years at i%) solve for i and compare to given PV of $1 %

Question 41

Payroll J/E

Answer 41

``` Db Salary Exp Db Payroll Exp (see payroll exp) Cr Inc. Tax payable Cr FICA payable Cr. Medicare payable Cr. health ins payable Cr union dues payable Cr Cash (net pay) ```

Question 42

Payroll Exp J/E

Answer 42

``` Db Payroll Exp Cr FICA tax payable Cr Medicare tax payabe Cr FUTA payable Cr SUTA payable ```

Question 43

Bonus Calc - Bonus after tax and bonus

Answer 43

``` B = b%(Inc - T - B) T = t%(Inc-B) B = b% (Inc - (t%(Inc-B))-B) ``` Remember neg X neg = pos

Question 44

Bonsu Calc - Bons after tax before bonus

Answer 44

``` B = b% (Inc-T) T = t% (Inc-B) B = b% (Inc - (t%(Inc-B))) ```

Question 45

Sales Tax J/E

Answer 45

Db Cash Cr Sales Cr Sales Tax payable

Question 46

Payroll liabilities

Answer 46

gross pay + fringe

Question 47

Net Pay

Answer 47

gross - inc. tax - FICA - med - health ins - union dues

Question 48

FICA and Medicare

Answer 48

Both EE and ER - same rate

Question 49

FUTA & SUTA

Answer 49

ER only

Question 50

FICA & Medicare liability calc notes

Answer 50

Since the firm must withhold it's own FICA & Med plus the ees, both of these amounts are multiplied by 2 when calculating liability.