Chapter 10(part 1) Flashcards
Employee’s Responsibilities
- Income taxes (Federal, State, City)
- FICA (Social Security)
- Medicare
- Other optional items (i.e., insurance, charitable contributions, garnishments, child support, pensions/retirement, etc.)
Employer’s responsibilities
- Employee’s Wages
- “Matching” FICA (Social Security)
- “Matching” Medicare
- Unemployment taxes (Federal and State)
- Other optional items, (i.e., insurances, pensions/retirement, etc)
Pensions
= annuity received from employer during the remaining life time of an employee, and possibly spouse, in retirement years
FICA (social security)
is a pension received from the US government in retirement for most employees of most organizations and their spouses.
Deferred Income Taxes
arise as a result of differences between GAAP used for financial statements and rules created by the
Where are deferred income taxes?
on the balance sheet
Sales taxes on retail transactions
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
Principal =?
Face = amount borrowed / lent. It will not be paid back until maturity date. Interest accrues, and can be paid periodically or at maturity date.
Responsibilities Entry
Dr:Expense
Cr: Payable
deferred taxes classification section
. 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
Sub Prime Loan Points
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.
a “balloon payment”
means that they will restructure the loan and interest at a certain time.
no-doc or low doc loans.
loans where the consumer does not need to prove income or have a good credit report.
For a private individual, interest paid on mortgages are tax….
deductible
Accrued revenues
AJE: dr “some” Receivable
cr “some” Revenue
Accrued expenses
AJE: dr “some” Expense
cr “some” Payable
Contingent Liabilities
are potential liabilities that depend on a future event but arise out of a past transaction
Ex: 1. Discounting notes receivable with recourse.
- Loan guarantees
- Pending lawsuits
Contingent liabilities are usually recorded in……
footnotes
What two conditions have to be met for a contingent liability to be a journal entry?
- Liability must be probable
2. Must be reasonably estimated
Environmental liabilities
due to pollution, etc. Most companies estimate and record a minimum amount and provide footnote disclosure as to possibility of additional costs.
Operating leases
. No ownership interest – have rent expense.
Capital or Financing Leases
Treat “as-if” owned. Thus, have an asset and related liability.
Where are leases reported?
in the footnotes
