Liabilities II Flashcards
What is the Imputed Interest Rate?
THE rate at which the present value of the face amount of the note will be equal to the amount at which it is originally recorded
NOTE: This is used when the Note issued or received in exchange for goods or services that do NOT bear interest at a fair rate
- Meaning an amount equal to the fair value of the note
HOW is inventory recorded under the Net Method?
ALL discounts will be taken and any forfeited discounts are recognized as an expense
WHY? - Because under the net method, it is assumed that all discounts will be taken
HOW do you calculate an employers Withholdings due to the IRS?
BY calculating the taxes paid by the employee (which are withheld by the employer) from the employees’ wages
i.e. this is the employee amount remitted to the taxing authority
e.g. If employer has to pay FICA and maintain Federal Withholdings for their employees’, this would be the total of the (As the Employer) withholding amount
True or False.
Recognition of Sick Pay costs occur if the pay “vests” and “accumulates.”
FALSE.
Recognition of Sick Pay costs ONLY if the pay “vests”
Meaning it does not have to accumulate
True or False.
Dividends are considered a “Current Liability” before they are declared.
FALSE.
Dividends Payable are considered a “Liability” WHEN they are declared.
True or False.
“Dividends in Arrears” on Cumulative Preferred Stock are considered a liability and must be disclosed in the notes to the financial statements
FALSE.
“Dividends in Arrears” on Cumulative Preferred Stock are NOT considered a liability BUT must be disclosed in the notes to the financial statements
WHAT are the Rules for Loss Contingencies?
Remote? - Do NOT Disclose or Accrue (Book it)
Reasonably Possible? - Disclose but Do NOT Accrue (Book it)
Probable but NOT Estimable? - Disclose but Do NOT Accrue (Book it)
Probable and Estimable? - Disclose and Accrue (Book it!!!!!!)
WHAT is the Journal Entry if a Loss Contingency is Probable and Estimable?
(Debit) - Estimated Loss
(Credit) - Estimated Liability
WHAT is a Type I Subsequent Event?
Event that existed at the Balance Sheet Date
NOTE: For this event you would Recognize in the financial statements
WHAT is a Type II Subsequent Event?
Event that existed after the Balance Sheet Date but before the issuance of the Financial Statements
NOTE: For this event you would Disclose it BUT you would NOT recognize in the financial statements
WHAT happens when a company violates their debt covenant and the lender does not waive the right to call the debt?
THE entire debt would be classified as a “Current Liability”
WHAT is the rule if an entity wants to refinance their Short-term debt obligation on a Long-term basis?
THEY must have:
- The Intent (Actually issue long-term security); and
- The Ability (actually sign firm agreement to refinance obligation)
WHAT should an entity credit their Common Stock for in their books?
ALWAYS at Par
