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ACCT 217 > Class Notes Ch 10 > Flashcards

Class Notes Ch 10 Flashcards

1
Q

what are liabilities

A

present obligations to transfer economic resources as a result of from past transactions

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2
Q

two types of liabilites

A

current anad non current

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3
Q

two genres of liabilities

A

1) financial liabilities
2) non financial liabilities

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4
Q

Financial Liablity

A

contractual obligations to pay cash in the future! they need cash to address

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5
Q

what are non financial liablities

A

this obligation is settled by the provision of goods/service in the future
EX: DEFFERED REVENUE!

JE: DRcash
CR Defferred rev

Dr Deferred rev
Cr service revenue

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6
Q

another name of deffered revenue

A

custoemr deposits

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7
Q

what are current liabliites

A

expected to be paid or settled within one year of the data on the sofp or within the operating cycle

<1 year

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8
Q

can current liablities be financial and non financial

A

yes!!!

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9
Q

how can current liabliites be paid (3 ways)

A

1) paid throguh cash
2) paid through the transfer of goods and services
3) paid through trannsferring it to a new liablitiy (note payable)

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10
Q

types of current liabilities

A

-bank indebtedness
-a/p and accrued liabilities
-refund liabilitiy
-def rev
-sales and taxes
-payroll
-note paayable
-current portion of bank loand and mortgage

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11
Q

how do we record sales tax JE

A

Dr Cash
Cr Sales
Cr Sales Tax Payable

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12
Q

When you see the cash flows diagram

A

you need to account for how much cash has changed in terms of the accounting equation AT THE TIME OF SALE

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13
Q

Is sales tax payable included in sale price

A

may or may not be

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14
Q

how to calculate the sales portion if included in sale price

A

divide the cash received by 100% plus the sales tax percentage

Total Receipts / (1+ Tax Rate) =Sales REVENUE

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15
Q

WHO IS SALES TAX REMITTED TO

-what is JE for remittance

A

THE APPROPRIATE PARTY! government gets gst and province gets hst

sales tax payable
cash

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16
Q

what is gross pay

what are payroll deductions

what is net pay

A

the total amount owed to employees

money withheld from gross pay

gross- payroll deductions= net pay

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17
Q

bonds are the hardset part!!

A
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18
Q

what are some mandatory employee payroll deductions

A

1) federal and provincial income tax
2) cpp
3) ei or ui (employment insurance/unemployed insurance)

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19
Q

what are some volunaty employee payroll deductions

A

health and pensions
union dues
chartiable donations

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20
Q

how do you record employee payroll deducations IN A JE

A

DR Salaries Expense
Cr CPP payable
Cr EI payable
Cr Employment IT payable
Cr United way payable
Cr Union dues payable
Cr salaries payable
(to record salaries and employee deductions for the week ending march 15)

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21
Q

are payroll deductions on behalf of the company or employees

A

both!!!!!

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22
Q

what are EMPLOYER PAYROLL LIABILTIEIS

A

1)employers share of cpp and ei
2) contribution to workers comp
3) employees benefits (compensated absence, employer sposored health plans and pension)

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23
Q

JE for employer payroll liability

also, is this an accrual entry?

A

Dr Employee benefits expense
Cr CPP payable
Cr EI payable
CR workers comp payable
CR health insurance benfits payable
(to record employers payroll costs for the week ending march 15)

YES

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24
Q

what is the JE when all the payables are paid

A

Dr CPP payable (both employer+ employee)
Dr EI payable (both employer+ employee)
DR workers comp payable
DR health insurance benfits payable
Cr Cash

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25
Q

what are provisions

-diff between aspe and ifrs

A

you record these as liabilties when obligation exists, outflow of money is likely, amount that well have to pay can be estimated reliably!!

under ifrs: ‘probable’: more likely than not >50%
under ASPE: ‘likely’ instead of probable which means higher level of certainty

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26
Q

what are contingent liabilities

A

possible obligaitons that depend on some future events,

these are not recorded, only notes to financial statements if even oNEEEE of these conditions is present
-> outcome is not probable
-> outcome is not determinable
-> an estimate of the outcome cannot be made

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27
Q

contingent liabilties depend on

A

the occurence of a future event

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28
Q

contingent liabilites EX

A

like the arisal of a lawsuit!!

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29
Q

what are interest bearing liabilities

A

indebtedness to a creditor requiring more than a short period of time to pay the amount owed

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30
Q

when can interest on interest bearing liabilities be paid? (2)

A

ON A SIGNLE DUDE DATE like when principal due

or vairous dates b4 principal

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31
Q

what are types of interest bearing liabilities

A

1) operating lines of credit that have no set of date

2) note w a single principle pay of maturity

3) loans w instalment payments of principal on scheduled dates (mortgages)

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32
Q

operating line of credit meaning

A

pre arranged agreement between a company and a lender, allows the omcompany borrow up to a pre authorized limit wheenver required

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33
Q

why is operating line of credit important

A

because it helpd mange temporary cash shortfalls

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34
Q

when does a company pay back operating line of credit

A

whatever portion of th eborrowed funds it chooses whenever it is able to

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35
Q

is the interest charged on operating line of credit fixxeD?

A

no it is floating/variable interest rate

36
Q

what may the bank require to give an operating line of credit?

A

security/collateral may be required by bank (ex: secured with inventory)

37
Q

how are operating lines of credit recorded on the current liablities section of sofp

A

bank indebtedness

38
Q

operating line of credit is a current liability with a floating interest rate

A

word

39
Q

what are liabilities with principal due at maturity

A

-> promise to pay a specfied amount usually on a fixed future date

40
Q

when are liabilities with principal due at maturity used

A

in place of a/p cuz they hav STRONGER LEGAL CLAIM!!!

41
Q

liabilities with principal due at maturity example

A

notes receivable

42
Q

what are chaaracterisitcs of liabilities with principal due at maturity

A

-formal written promise
-strong legal claim
- bears interest at a fixed interst rate which is constant
- can be issued or different periods of time (<1 year then current liabilities)

43
Q

what are liabilities with instalment plans

A

normally non-current liabilities
(usually you pay in >1 year)

EX: bank loan payable, mortgage payable

44
Q

how do you pay off liabilities with instlament plans

A

series of periodic payments, called instalments, consisting of
a) interest on the unpaid balance of the loan at the beginning of the period
b) a repaument of a portion of th eloan principal

45
Q

a specified repayment schedule should be followed for

A

LIABILITIES WITH INSTALMENT PAYMENTS!!

46
Q

HOW IS INTEREST EXPENSE CALCULATED FOR LIABILITEIS WITH INSTALLMENT PAYMENTS

A

monthly int rate calculated by:

interest rate * amount of principal outstanding *1/12

47
Q

loans with current and non current portions where do you record it in the sofp

A

current portion= current liabitliies

non current portion= non current liabilities

48
Q

examples of non current liabilities

A

bank loans, notes, and mortgage payable

bonds payable

lease liabilties

deferred income taxes and pension liabilities

49
Q

advantages of debt financing

A

easier to obtain then equity fianncing
-> if u issue shares u dilute percentages of shares owned by current shareholders
-> borrowing may allow company to grow faster
-> interest expense is tax deductible!
-> when incurring debt, companies must earna rate of return that is greater than int rate
-> sometimes u ened collateral

50
Q

disadvantages of debt fianncing

A
51
Q

how are current liabilities listed on sofp

A

in the order in which they are due

52
Q

non current liabilities- statemetn presentaitaon

A

typically presented immediately following current liabilities and detail in notes

generally measuerd and reproted at amoutne xpected to be paid when due

53
Q

is there an order of ncliabiilties

A

nope!

54
Q

analysis of debt obligations

A

liquidity and solvency ratios

55
Q

liquidity ratio
-meaning
-ratios

A

measure short term avility to pay obligations an meet unexpected cash needs for next year

CURRENT RATIO
INVENTORY TURNOVER RATIO
RECEVIABLES TUNOVER

56
Q

Solvency
emaning
ratios

A

ratios measure abilitiy to meet long term obligations

DEBT TO TOTAL ASSETS

TIMES INTERESRST EARNED

57
Q

Debt to total assets ratio

A

total liabiltiies/total assets

LOWER=BETTER

58
Q

times interest earned

A

times int earned= EBIT / int expense

measure of companies abilityi to meet int payments as they are due

IGHHGHER IS BETTER

EBIT: net income + int expense+ tax

59
Q

what is a bond payable

A

promise to repay an amount at a future date+ interest payments periodically

60
Q

what are bonds a sub type of

A

interest bearing note payable

61
Q

why do companies use bonds

A

separate large amount of moeny they need into small denominations- investors are able to afford them

62
Q

what is the fixed int rate of bonds called
who recieves the int

A

bond holders get the int

the int rate=coupon rate

63
Q

can bonds be secured or unsecured

A

both@! debenture

64
Q

when are bonds payable

A

either at maturity (Term bonds)
or instalemnts (serial bonds)

65
Q
A
66
Q

what are redeemable bonds

A

can be retired by the company b4 maturity

67
Q

where are bonds traded

A

publically on exchanges, the rpices are quoted as a % of the face value

68
Q

what is the amrket rate/ effective interest rate/ yield of the bond

A

the rate the market investors are demanding for loaning funds

69
Q

market rate > coupon interest rate

A

bonds are sold at a discount!!!

BEING SOLD BELOW FACE VALUE

70
Q

market rate< coupon interest rate

A

bond are sold at a premium

71
Q

what does it mean to issue a bond at discount

how to calc the price the bond are sold at

A
  • when mkt rate> coupon rate
    -THIS is cuz investors will get less interest from this bond over time, so they pay less

see what % of face value bonds are being sod at * face value

72
Q

what does it mean to issue a bond at premium

how to calc the price the bond are sold at

A

-when coupon rate> mkt rate
-the investors will get paid higher int over the years, so they pay more upfront

% of face value bond is sold at *face value

73
Q

IS BOND COUPON RATE FIXED

A

YES!!! that is why the price of the bond can change but not the coupon rate

74
Q

why do we ammortize the discount or premium

A

cuz it is treated as an interest expense!!!!

75
Q

how to calculate the ammortizations amount of bond premium/disc

A
  1. calc bond int expense
  2. calc bond int paid
  3. int expense-int paid= ammt amount

bond int expense: carry amt at begin of period * mkt rate

bond it paid: face amount of bond * coupon int rate

76
Q

what is the carrying amount of discounted bonds

A

face value of bond- unamortized discount

the discount balance will increase until the bond reaches maturity

77
Q

what is the carry amount for premium bonds

A

face value + unamortized premiuum

premium balance will fall until bond reaches maturity

78
Q

JE for bond retirement

A

dr. Bonds payable

cr . cash

79
Q

why do we never have gains or loss for bond retirement

A

cuz the discount increased during ammortization, or the premium fell during amortization and then it is equal to the face value

80
Q

what is the issue price of bonds

A

the future value

81
Q

what is the relation bw present and future value

A

present value< future value

82
Q

what is teh diff between present value and future value

A

INTEREST

83
Q

interest earned in one period on the interest earned in the previous years is called…

A

compound interest

84
Q

what does present value mean

A

value today of:

bond face value to be received at maturity

and

interest payments (annuity) to be recieved periodically

so we SUM the face value+interest payments=pv

85
Q

hwo to determine the issue price/pv using tables

A
  1. get face value (Table 1), and use the PV you know to determine the factor
  2. PV Factor * face value of bond
  3. get interest value (Table 2), and use the pv you know to get the factor
  4. PV annutiy factor * periodic interest payment (payment calculated using coupon rate)
  5. SUM the two
86
Q
A

ACCT 217 (62 decks)

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