Deferred Rev/ Sales Tax
At maturity, the carrying value of a bond will equal this amount.
The face value
The periodic cash payment to bondholders is based on this rate.
The stated (Coupon) interest rate * face value
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If a company issues a 4 year, $100,000 6% note on October 31, 2024, what would the adjusting entry be on December 31, 2024? Assume interest is paid on October 31 of each year starting in 2025.
Interest Expense 1,000
Interest Payable 1,0000
Math= 100,000 * .06 * 2 months/12 = $1,000
Amounts like income tax and FICA withheld from employees create this type of account.
Liability
If the market rate is higher than the stated rate, bonds will be issued at this.
How are bonds reported on the financial statements?
At the carrying value Face value+premium or - discount
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When do we recognize revenue from payments we have received in advance?
Once we deliver the good or perform the work
What are the percentages for Social Security and Medicare? What are two other common deductions for employees?
6.2, 1.45, Federal Income Tax, State Income Tax, Health Insurance
What method do we use to amortize a premium on bonds payable?
If we started with a premium of $10,000 for a 4 year bond, what would the unamortized(remaining) premium be after 3 years? What would the carrying value of the bond be? (Assume the bond has a face value of $100,000).
Straight line, 2,500, 102,500
Why may a company retire a bond early when market interest rates fall?
A company may retire bonds early when market interest rates fall because they can reissue bonds at the updated (lower) market rate. This would decrease their yearly interest expense.
Inversely, a company will not look retire their bonds if market rates rise because any new bonds issued would be at a higher (more expensive) interest rate.
A company will consider the potential loss on retirement before retiring a bond early to see if the loss is worth the trade off of lower interest expense in future years.
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When a company partially completes a prepaid service contract, what will the JE be?
Debit Deferred Revenue
Credit Service Revenue
What are the two employer payroll taxes?
FICA/ Unemployment
How do we figure out if a bond retirement is at a gain or a loss?
Compare the carrying value (Face Value +Premium or - Discount) to the cash paid to retire the bond.
If we paid more cash than the carrying value (liability), then we retired the bond at a loss.
If we paid less cash than the carrying value (liability), then we retired the bond at a gain.
This ratio measures the percentage of assets financed by debt./ What is the formula of the ratio?
Debt to assets ratio.
Total Liabilities/ Total Assets
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Does Sales tax collected increase revenue? Why or why not?
No because it is money owed to the government (liability) not money earned by the company
The total payroll cost for the employer is the sum of this?
Salaries and wages expense, payroll tax expense
Interest expense on discounted bonds is typically this compared to cash paid.
Higher
The JE will be Debit Interest Expense
Credit Cash
Credit Discount on Bonds Payable
What is the formula for times interest earned?
(Net Income+ Interest Expense+ Income Tax Expense)/ Interest expense
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