Ch 13

• 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

• 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

• both the ability and intent to refinance or sell equity securities exist.
• ability is shown by actually financing or entering into a financing agreement

returnable cash deposits received from customers or employees creating a future obligation

Cash receive divided by 1.(percentage rate)

• 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

• Rights continues even after termination.
• Expensed in the year earned

• Right caries over from year to year but not after termination.
• Exp. only when used even if earned prior

only if sick pay is vested

• Probable- J/E
• Reasonably Possible- Footnote
• Remote- Footnote?
• *if not estimated only make a footnote

GAAP requires the lowest amount in the range to be accrued

• Probable- Footnote
• Reasonably Possible- Footnote?
• Remote- no note or J/E

• Dr. Wages Exp
• Cr. Taxes Payable-individually
• Cr. Misc. Withholding's of employee
• Cr. Wages Payable-paid out on pay day

• Dr. Payroll Taxes/ Benefit Exp
• Cr. Taxes Payable-individually
• Cr. Misc. required3rd party payments

• Dr. Wages Payable
• Cr. Cash

gross wage exp. + additional cost the employer incurs

Gross earnings by the employees

• Employees net pay for the period
• gross pay - deductions
• deductions are held by employer until remitted to the proper entity

product guarantees that represent an additional expense for the seller

• Revenue recorded in year 1
• Expense recorded later when when actual cost are incurred

• 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

• Expense estimate and record in year 1
• Dr. Expense
• Cr. Liability
• In future periods of actual expense
• Dr. Liability
• Cr. Cash/Inventory/Wages Pay.

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.

• 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.

total un. war. rev. / time

total un. war. rev. *(cost for period / total expected cost)

used to stimulate product sales. Expenses related should be estimated and recorded in the same period as the sales revenue.

• Inventory of prizes
• Dr. Inventory
• Cr. Cash
• Record sale of product
• Dr. Acct. Rec.
• Cr. Sales

• Coupons come in
• Dr. Cash(possible)
• Dr. Premium Expense
• Cr. Cash or Inventory
• End of year estimation
• Dr. Premium Expense
• Cr. Estimated Liability

• Coupons received future period
• Dr. Cash
• Dr. Estimated Liability
• Cr. Cash or Inventory

• 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

• 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

• 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.

• 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