Final Exam

Final Exam - Chapter 11: Current liability: company expects...

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Chapter 11: Current liability : company expects to pay debt from existing current assets or through the creation of other liabilities, debt will be paid within one year or operating cycle, whichever is longer companies monitor the relationship of current liabilities to current assets to evaluate a company’s short term debt paying ability, also known as accrual liabilities Notes payable: obligations in the form of written promissory notes, often used more then accts. payable bc it gives formal proof, required to pay interest (issuance of a note) Debit Cash Credit Notes Payable (to accrue interest) Debit Interest Exp. Credit Interest Payable (maturity; face value plus interest ) Debit Notes Payable & Interest Payable Credit Cash Interest = face value of note x annual interest rate x time in terms of one year Sales Tax Payable: sales tax is %, (daily sales and sales taxes) Debit Sales Taxes Payable Credit Cash Amount of Sales: total receipts / (100%+ sales tax %) Payroll liabilities: gross wages = total compensation earned by employee during the period net wages = amount of cash actually received to employees [gross wages – net wages = payroll deductions] FICA; (7.65%) provides workers with retirement & medical benefits (6.2% Social Security, 1.45% Medicare), employer must match FICA taxes paid by employee Employee Income Taxes: employers are required to withhold employee income taxes (federal, state, local taxes) other: union dues, donations, medical insurance, parking fees, pension plans SUTA: State unemployment taxes will vary based on state & employers turnover rate FUTA: federal unemployment ) Debit Salaries & Wages Expense Credit expense ) Debit FICA tax expense & FUTA expense etc Credit Employer Payroll Tax Payable Unearned Revenues: revenues received before company delivers goods or services (record sale of tickets) Debit Cash Credit Unearned ticket revenue (record ticket revenue earned) Debit Unearned ticket revenue Credit Ticket Revenue Current Maturities of long term debt are long term debt due within one year Liquidity refers to the ability to pay maturing obligations and meet unexpected needs for cash, Working capital = current assets – current liabilities (offers limited informational value) current ratio = current assets ÷ current liabilities Long term liabilities: obligations expected to be paid after one year Bonds: A form of note issued by corporations, governments, etc., to bondholders to raise cash. Bonds are a written promise to pay a principal amount plus interest payments at specified intervals. advantages : stockholders or current owners have full control because bondholders do not have voting rights, bond interest is deductible for tax purposes, dividends on stock are
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This note was uploaded on 04/29/2011 for the course ECON 101 taught by Professor Gottlieb during the Spring '08 term at Rutgers.

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Final Exam - Chapter 11: Current liability: company expects...

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