Test #4 Flashcards
What rights do common stockholders have?
They can vote in matters, each of their stocks receives an equal dividend, and they have rights to assets (after liabilities) to liquidation.
Current Liabilities examples
Accounts Payable, Notes Payable due within one year, Salaries Payable, Interest Payable, Sales Tax Payable, Income Tax Payable and Unearned Revenue.
Current vs long term liabilities
due within one year versus due in more than one year
Interest equation
Face value x annual interest rate x fraction of the year
If interest bleeds into the next year, how to you account for that interest to wrap up Dec 31st?
Debit interest expense, credit interest payable
What happens when you finally settle a notes payable?
debit notes payable (face value), debit interest expense, debit interest payable, credit cash
how are things recorded in a perpetual inventory system?
as each sale is made
What category does “sales tax” fall under?
Current liability (sales tax payable), paid by customer
How do unearned revenues/deferred Liabilities arise?
Unearned revenue arises when a business has received cash in advance of providing goods or performing work and, therefore, has an obligation to provide goods or services to the customer in the future.
When do businesses record warranty expense, and why?
The matching principle requires businesses to record Warranty Expense in the same period that the company records the revenue related to that warranty. The expense, therefore, is incurred when the company makes a sale, not when the company pays the warranty claims.
When dealing with amortization, what do you record?
notes payable (debit), interest expense (debit), cash (credit)
When is interest traditionally paid on bonds?
Twice a year (semi annually)
What interest rate do we use for bonds?
Always market rate, not stated rate
Paid in capital
Amount stockholders have invested in the corporation
Retained earnings
amount of earnings the corporation has retained
