exam#3 Study Guide

exam#3 Study Guide - BMGT 220 EXAM#3 Study Guide CH-10...

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BMGT 220 EXAM #3 Study Guide CH-10 Liability A. Current liability-satisfy 2 Criteria (Note/account/wage & payroll/payroll taxes payable, unearned revenue, and BOND INTEREST ; the 1 st category under liabilities on balance sheet) 1. Note payable Loan: Cash XXX Note payable XXX Interest not incurred: Interest expense XXX Interest payable XXX Maturity: Note payable XXX Interest payable XXX Cash XXX 2. Sales taxes payable Cash XXX Sales XXX Sales taxes payable XXX (Sale + tax) / (1+tax rate) = sales Taxes are NOT an expense; companies serves only as a collection AGENT 3. Payroll and payroll taxes payable Wages and income taxes payable: Salaries and wages expense XXX FICA taxes payable XXX Federal income taxes payable XXX State income taxes payable XXX Salaries and wages payable XXX Wage paid: Salaries and wages payable XXX Cash XXX
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Payroll taxes payable (result from hiring works) o Payroll tax expense XXX FICA tax payable XXX Federal unemployment tax payable XXX State unemployment taxes payable XXX Both income and payroll tax include FICA tax 4. Unearned revenue (e.g.: magazine subscriptions) Revenue unearned: Cash XXX Unearned revenue XXX Revenue earned: Unearned revenue XXX Revenue XXX B. Long-term liabilities I. Bond -A form of interest-bearing notes payable 1. Stockholder control is not affected Tax saving result Earnings per share may be higher Pay interest ( contractual, based on face value ) on a periodic basis (semiannual) and pay principal ( face value ) at the due date 2. Type of bond a. Secured bonds e.g. mortgage bonds, sinking fund bond Unsecured bonds (debenture bonds) b. Term and serial bonds c. Registered and bearer (coupon) bonds d. Convertible and callable bonds 3. Determinants of market value The dollar amounts to be received The length of time The market interest rate of interest (investors demand) Bond’s type affect market rate
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Issuing bonds a. At face value Contractual interest rate = market interest rate; issuance price = face value Cash XXX Bonds payable XXX b. Discount Additional cost of borrowing, recorded as bond interest expense; Yield% =discount price /issuance price Contractual interest rate < market interest rate; Issuance price < face value; Cost of borrowing > interest payment Total cost = interest payment + bond discount =principal at maturity + interest payment – issuance price Total liability = bonds payable - discount Cash XXX Discount on bonds payable XXX M contra-liability, deducted from bounds payable. Bond payable XXX c. Premium A reduction in the cost of borrowing; Contractual interest rate > market interest rate; Issuance price > face value; Cost of borrowing < interest payment Total cost = interest payment – bond premium =principal at maturity + interest payment – issuance price Total liability = bonds payable + premium Cash XXX Discount on bonds payable XXX M
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exam#3 Study Guide - BMGT 220 EXAM#3 Study Guide CH-10...

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