Intermediate Accounting II Test I

• a. There is a present duty requiring future transfer of assets or performance of services.
• b. The obligation leaves little or no discretion to avoid the future sacrifice.
• c. The obligation is a result of a past transaction.

An obligation whose liquidation is expected to require the use of existing current assets or the creation of other current liabilities.

Gross and Net Methods

Purchases and AP are recorded at gross amounts. If the discount is taken, purchase discounts is credited and is a contra purchases account.

Purchases and AP are recorded net of any cash discounts available. If the discount is not taken, purchase discounts lost is debited and is an expense account.

Interest and Non-interest bearing notes

• Date of declaration: Date the dividends are declared by the BOD. They become a legal liability on this date.
• Date of record: Date the corporation determines who owns the stock and will therefore receive dividends. There is no journal entry on this date.
• Date of payment: Date the dividend liability is paid.

• Retained Earnings is debited
• Dividends Payable is credited
• This is usually done at the end of the year or the end of the companies fiscal year.

• Dividends payable is debited and
• Cash is credited.

at the present value of future cash flows.

when a portion of long-term debt is coming due and will be paid out of existing current assets

• 1. Management's intent to refinance the short-term debt on a long term basis and
• 2. The enterprise's ability to accomplish the long term refinancing.

• a. If during the subsequent period, the short-term debt is actually refinanced on a long term basis by issuing long term debt or equity securities or
• b. If prior to the issuance of the bs the firm enters into a noncancelable, long term agreement that clearly allows the firm to refinance the short term debt on a long term basis.

• a. Sales and sales tax payable are recorded separately. Cash is debited and sales and sales tax payable are credited.
• b. The entire amount received is recorded as sales. An adjusting entry is needed periodically. Cash is debited and sales is credited. Adj Entry is Sales is debited and Sales tax payable is credited.

• a. Property taxes which are levied on the property's assessed value, which approximates its fair market value and
• b. Property taxes which are levied on a lien date, which is typically the beginning of the taxing authority's upcoming fiscal year.

In the accruing liability method the property tax expense and the related property tax payable are recorded as the tax accrues or is incurred by the firm.

• 1. The future compensation is probable
• 2. The amount of the compensation is reasonably estimable.
• 3. The employer's obligation relates to services already rendered.
• 4. The employees' rights are vested or they carry over from period to period.
• Factors:
• 1. Sick pay must be accrued if the rights are vested or if the employees do not have to be ill to take the time off.
• 2. Sick pay may be accrued (but is not required) if the employees are required to be ill to take the time off.

Debit salary expense and credit salaries payable.

• A. Know the 3 equations for bonus, taxes, and net income
• B. Write them down
• C. Converge all equations into 1 in terms of bonus
• D. Solve for bonus
• E. Plug bonus into tax equation and solve for tax.

• !. Net income=Gross Income-Bonus-taxes
• 2. Bonus=rate(gross income-bonus-taxes)
• 3. Taxes=rate(gross income-bonus)

• An existing condition
• involving uncertainty
• that has a possible gain or loss.

when they are realized.

• When both of the following conditions are met:
• 1. It is probable that an asset has been impaired or liability incurred by the bs date
• 2. The amount of the loss is reasonably estimable

• 1. Probable- the probability of the future event confirming the loss is likely.
• 2. Reasonably possible- the probability of the future event confirming the loss is more than remote but less than likely.
• 3. Remote- the probability of the future event confirming the loss is slight.

• 1. The negative outcome is probable, but the amount is not reasonably estimable.
• 2. The negative outcome is reasonably possible, and the amount is or is not reasonably estimable.

• debit estimated loss on law suit
• credit estimated liability on lawsuit

If you have a range from lowest to highest possibilities then you would post the lower and put the range in the notes. If you don't have a range then you can't post anything.

in the period in which the item is sold

• Cash basis method is not permitted by GAAP
• Accrual method is permitted by GAAP

• 1. In the year it is sold:
• a. Debit Est warranty expense
• b. Credit Estimated warranty liability
• 2. In the year or repair
• a. Debit Est. warranty liability
• b. Credit cash or ap or np

• 1. In the year an item is sold
• a. Debit premium expense
• b. Credit premium liability
• 2. In the year of issuance
• a. Debit premium liability
• b. Credit premium inventory

provision

accrue the midpoint in the range