F4 - M1 - Payables and Accrued Liabilities Flashcards
What are the two methods for recording a payable on discount? How does the accounting work for these?
Gross Method - Wait to record until the discount is actually taken.
Net method - Record ne of the discount, if payment is made after the discount period, a purchase discount lost account is debited.
Is sales tax an expense?
No, the entity collecting the sales tax is just collecting it for the government, and then giving it to the government at a later date. For that reason, it is kept separate from the other funds, and not expensed.
The entry would be as follows:
DR: Cash
CR: Sales Tax Payable
DR: Sales Tax Payable
CR: Cash
What would a journal entry look like for salaries expense with the payroll deductions?
Just an example but could have more deductions:
DR: Salaries and wages expense -
CR: FICA taxes payable - Employees portion of FICA (7.65%)
CR: Withholding taxes payable - Held from employees
CR: Cash -
Are payroll deductions an expense to an employer? What about payroll taxes?
Payroll deductions - These are not an expense to an employer, they are just simply holding this for the government or someone else as an expense from the employee. This is the same concept as sales tax.
Think of things like, social security, Medicare, and income taxes withheld from employees paycheck.
Payroll Taxes - These are an expense for an employer.
What would a journal entry look like for payroll tax expense?
DR: Payroll tax expense - Plug amount
CR: FICA taxes payable - Employer portion of FICA 7.65%
CR: Unemployment taxes payable - Employer pays unemployment taxes.
What is the acronym for accruing vacation?
S - Services have already been rendered by the employees, means that they have earned it.
O - Obligation that it vests or accumulates. If they don’t use it, they don’t lose it.
C - Payment of compensation is probable, they will take it next year for example.
R - The amount can be reasonably estimated
What are some costs that are associated with exit and disposal activity?
Involuntary employee termination benefits (severance pay)
Cost to terminate a contract that is not a lease (breach of contract)
Consolidating facilities, relocating employees, moving property, plant, and equipment.
What is an asset retirement obligation (ARO)?
This is a legal obligation associated with the retirement of a tangible long lived asset that results from its:
Acquisition
Construction or development
Normal operation
How are ARO’s recorded?
Future payments required to clean up, close down, or restore the condition of the asset:
Liability = Amount to be paid in the future * present value calculator
Recorded at the present value of future cash flows or discounted cash flow (DCF)
What is the initial journal entry for ARO’s?
DR: Asset Retirement Cost (Asset)
CR: Asset Retirement Obligation (Liability)
If a company refinances a short term loan to a long term loan after the fiscal year, but before the issuance of the financial statements, how do they treat this?
They have to reclass the short term loan to a long term loan on the financials, because it was prior to the loan issuance date.
If a company is offering deferred compensation to someone for a period of service that is greater than one year, how is the expense recognized?
You expense the amount that is owed over the required period of service.
If you have property that has a liability, and that property has been fully depreciated, how should the change in that liability be recognized?
The change would be recognized in profit and loss
When calculating the present value for ARO’s, what rate should we use to calculate the PV?
Risk free interest rate is normally what we use.
