Acct 100 Chapter 10 Flashcards

Current Liabilities

• Current liabilities include sales taxes payable, unearned rental revenue, and current maturities of long-term debt.
• All provided answer choices in the context of liabilities were identified as current liabilities.

Accrued Interest Calculation

• Maggie Sharrer Company borrowed $88,500 at a 12% interest rate on September 1, 2014.
• Accrued interest by December 31, 2014, amounts to $3,540, calculated using the formula: $88,500 x 12% x (4/12).

Notes Payable

• RS Company borrowed $70,000 on December 1, 2014, with a 6-month, 12% note.
• As of December 31, both the notes payable and the accrued interest payable are classified as current liabilities.

Sales Tax Calculation

• A retail store did not separately ring sales tax; with a 5% sales tax rate and total receipts of $126,000, sales tax owed is $6,000.
• The net sales amount is calculated as $126,000 / 1.05, resulting in $120,000 of sales leading to $6,000 in sales tax owed.

Unearned Service Revenue

• Sensible Insurance Company collected an $18,000 premium for a yearly insurance policy starting April 1.
• By December 31, $4,500 is reported as a current liability for Unearned Service Revenue, with 3 months of unearned revenue remaining.

Sales Tax Account

• The sales tax collected by retailers is recorded in the Sales Taxes Payable account.

Discount on Bonds Payable

• A Discount on Bonds Payable is classified as a contra account, reducing the bond's carrying amount.

Bond Pricing

• A $100,000 bond with a 12% interest rate, when the market interest rate is 10%, will sell for more than its face value due to the lower market rate relative to the contractual rate.
• Bonds in this situation are issued at a premium.

Gain or Loss on Bond Redemption

• Bryce Company has outstanding bonds totaling $500,000 with an unamortized premium of $7,200.
• If redeemed at 101 (i.e., $505,000), the gain on recreation is calculated as $507,200 (carrying value) - $505,000 (redemption cash) = $2,200 gain.