Ch 13

Card Set Information

Ch 13
2014-10-16 23:44:52
Accounting 302

Ch 13 review and course pack
Show Answers:

  1. Three essential characteristics of a liability:
    • 1. Present obligation settles by future transfer or use of cash, goods, or services
    • 2. Unavoidable obligation
    • 3. Transaction or event creating obligation already occurred
  2. Current Maturities of Long-term debt is excluded if one of these three items exist:
    • 1. Retired by assets accumulated for this purpose and not shown as current asset
    • 2. Refinanced, or retired from the proceeds of a new debt
    • 3. Converted into capital stock
  3. Short term debt is shown as long term if:
    • both the ability and intent to refinance or sell equity securities exist.
    • ability is shown by actually financing or entering into a financing agreement
  4. Customer Advances and Deposits
    returnable cash deposits received from customers or employees creating a future obligation
  5. Sales Tax
    Calculation if given total cash received
    Cash receive divided by 1.(percentage rate)
  6. Compensated Absences
    • accrue if services have been rendered by employee, amount can reasonable be estimated, and payment is probable and arising from vesting or accumulation.
    • *Matching principle
  7. Vesting
    • Rights continues even after termination.
    • Expensed in the year earned
  8. Accumulated
    • Right caries over from year to year but not after termination.
    • Exp. only when used even if earned prior
  9. Sick pay
    only if sick pay is vested
  10. Contingent Losses
    • Probable- J/E
    • Reasonably Possible- Footnote
    • Remote- Footnote?
    • *if not estimated only make a footnote
  11. Estimated loss is within a range?
    GAAP requires the lowest amount in the range to be accrued
  12. Contingent Gain
    • Probable- Footnote
    • Reasonably Possible- Footnote?
    • Remote- no note or J/E
  13. Payroll Liabilities
    Journal entries-employee
    • Dr. Wages Exp
    • Cr. Taxes Payable-individually
    • Cr. Misc. Withholding's of employee
    • Cr. Wages Payable-paid out on pay day
  14. Payroll Liabilities
    Journal entries-employer
    • Dr. Payroll Taxes/ Benefit Exp
    • Cr. Taxes Payable-individually
    • Cr. Misc. required3rd party payments
  15. Payment to employees J/E
    • Dr. Wages Payable
    • Cr. Cash
  16. Total cost of payroll
    gross wage exp. + additional cost the employer incurs
  17. Wages Expense
    Gross earnings by the employees
  18. Wages Payable
    • Employees net pay for the period
    • gross pay - deductions
    • deductions are held by employer until remitted to the proper entity
  19. Warranties
    product guarantees that represent an additional expense for the seller
  20. Warranties
    Cash Basis
    • Revenue recorded in year 1
    • Expense recorded later when when actual cost are incurred
  21. Expense Warranty Approach
    • Seller estimates and accrues warranty liability costs in the period of Sales Revenue.
    • In future periods the liability is reduced and related accounts for actual expense occurs
  22. Expense Warranty Approach
    journal entry
    • Expense estimate and record in year 1
    • Dr. Expense
    • Cr. Liability
    • In future periods of actual expense
    • Dr. Liability
    • Cr. Cash/Inventory/Wages Pay.
  23. Sales Warranty Approach
    Sale is split-the portion attributed to the warranty is deferred by recording unearned rev, then the rest is sales. In future periods revenue is recognized as earned either on straight line or proportional basis. Actual Cost expensed when incurred.
  24. Sales Warranty Approach
    journal entry
    • Year 1 split-sale and warranty revenue
    • Dr. Account Rec.
    • Cr. Sales
    • Cr. Unearned Warranty Revenue
    • In future periods
    • Cr. Un. Warranty Rev.
    • Dr. Warranty Rev
    • Actual Cost expensed when incurred
    • Dr. Warrenty Exp
    • Cr. Cash/Inv./Wages Pay.
  25. Sales Warranty Approach
    Warranty to recognize
    Straight line
    total un. war. rev. / time
  26. Sales Warranty Approach
    Warranty to recognize
    proportional method
    total un. war. rev. *(cost for period / total expected cost)
  27. Premiums,Coupons, or Rebates
    used to stimulate product sales. Expenses related should be estimated and recorded in the same period as the sales revenue.
  28. Premiums,Coupons, or Rebates
    Journal Entries
    inventory(if prize) and sale of product
    • Inventory of prizes
    • Dr. Inventory
    • Cr. Cash
    • Record sale of product
    • Dr. Acct. Rec.
    • Cr. Sales
  29. Premiums,Coupons, or Rebates
    Journal Entries
    coupons in and end of year estimate
    • Coupons come in
    • Dr. Cash(possible)
    • Dr. Premium Expense
    • Cr. Cash or Inventory
    • End of year estimation
    • Dr. Premium Expense
    • Cr. Estimated Liability
  30. Premiums,Coupons, or Rebates
    Journal Entries
    future periods
    • Coupons received future period
    • Dr. Cash
    • Dr. Estimated Liability
    • Cr. Cash or Inventory
  31. Premiums,Coupons, or Rebates
    • Don not accrue for expired coupons
    • Accrue for coupons expiring 12/31
    • Do not let 12/31 prize inventory affect accrual
    • Premium expense recorded in the year of the sale not afterward
  32. Asset Retirement Obligation
    • legal obligation related to the retirement of a long lived asset.
    • Recorded regardless of whether the work is performed by the entity or a third party
  33. Asset Retirement Obligation
    • ARO initially recorded at fair value, which is the present value of the estimated obligation.
    • Cost is included in the carrying value of long lived assets and liability is recorded.
    • DO NOT use a separate asset account.
  34. Asset Retirement Obligation
    journal entry
    purchase,depreciate, interest, retire
    • purchase of asset
    • Dr. Asset __ Cr. Cash or Payable
    • Record ARO at Present Value
    • Dr. Asset __ Cr. ARO
    • Depreciate Cost
    • Dr. Dep. Exp __ Cr. Accm. Depr.
    • Record Interest (based on CV or ARO)
    • Dr. Interest Exp __ Cr. ARO
    • Record Retirement
    • Dr. ARO¬† __ Cr. Cash
    • Dr. __ Cr. Loss or Gin
    • *difference between actual cost and ARO is gain or loss