Chapter 10(part 1)

Question 1

Employee’s Responsibilities

Answer 1

1. Income taxes (Federal, State, City)
2. FICA (Social Security)
3. Medicare
4. Other optional items (i.e., insurance, charitable contributions, garnishments, child support, pensions/retirement, etc.)

Question 2

Employer’s responsibilities

Answer 2

1. Employee’s Wages
2. “Matching” FICA (Social Security)
3. “Matching” Medicare
4. Unemployment taxes (Federal and State)
5. Other optional items, (i.e., insurances, pensions/retirement, etc)

Question 3

Pensions

Answer 3

= annuity received from employer during the remaining life time of an employee, and possibly spouse, in retirement years

Question 4

FICA (social security)

Answer 4

is a pension received from the US government in retirement for most employees of most organizations and their spouses.

Question 5

Deferred Income Taxes

Answer 5

arise as a result of differences between GAAP used for financial statements and rules created by the

Question 6

Where are deferred income taxes?

Answer 6

on the balance sheet

Question 7

Sales taxes on retail transactions

Answer 7

The business acts as an agent of the state or city and collects monies from customers and recognizes a liability only until remitted to the government agency. The business has no expense or revenue.

Dr: Cash 106
Cr: Sales 100
Cr: Sales tax payable 6

Question 8

Principal =?

Answer 8

Face = amount borrowed / lent. It will not be paid back until maturity date. Interest accrues, and can be paid periodically or at maturity date.

Question 9

Responsibilities Entry

Answer 9

Dr:Expense

Cr: Payable

Question 10

deferred taxes classification section

Answer 10

. Deferred taxes can be either an asset or liability, current or noncurrent.

                      i. Deferred income taxes payable are a liability  (to the IRS) and are still owed even though an expense has already been recognized on the income statement.  ii. Deferred tax asset are an asset and have been prepaid (to the IRS)     before the expense has been recorded on the income statement

Question 11

Sub Prime Loan Points

Answer 11

With the loans not being collected, the financial institutions have no money to lend to people that want loans now and 2) loan covenants (restrictions) come into play. Loan covenants are restrictions that are sometimes placed on a borrower from a lender that states that they must have certain financial statement ratios or they restrict dividend payouts or other items. If these are not maintained, the loan could be called and needs to be paid back in full immediately.

Question 12

a “balloon payment”

Answer 12

means that they will restructure the loan and interest at a certain time.

Question 13

no-doc or low doc loans.

Answer 13

loans where the consumer does not need to prove income or have a good credit report.

Question 14

For a private individual, interest paid on mortgages are tax….

Answer 14

deductible

Question 15

Accrued revenues

Answer 15

AJE: dr “some” Receivable

cr “some” Revenue

Question 16

Accrued expenses

Answer 16

AJE: dr “some” Expense

cr “some” Payable

Question 17

Contingent Liabilities

Answer 17

are potential liabilities that depend on a future event but arise out of a past transaction

Ex: 1. Discounting notes receivable with recourse.

2. Loan guarantees
3. Pending lawsuits

Question 18

Contingent liabilities are usually recorded in……

Answer 18

footnotes

Question 19

What two conditions have to be met for a contingent liability to be a journal entry?

Answer 19

1. Liability must be probable

2. Must be reasonably estimated

Question 20

Environmental liabilities

Answer 20

due to pollution, etc. Most companies estimate and record a minimum amount and provide footnote disclosure as to possibility of additional costs.

Question 21

Operating leases

Answer 21

. No ownership interest – have rent expense.

Question 22

Capital or Financing Leases

Answer 22

Treat “as-if” owned. Thus, have an asset and related liability.

Question 23

Where are leases reported?

Answer 23

in the footnotes