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ACCT 1201 Lecture Notes - Accounts Payable, Contingent Liability, Current Liability

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School
Northeastern University
Department
Accounting
Course
ACCT 1201
Professor
Osborne Jackson

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Document Summary

Must be settled in the future by transfer of assets or services (unearned revenues) Are classified as current and long-term liabilities: accounting for current liabilities: Accounts payable turnover ratio: cost of goods sold average accounts payable. Average age of payables: 365 accounts payable turnover ratio. Compute apple" a/p turnover ratio and average age of payables: 365/2. 76 = 132. 25 (need to compare: payroll and payroll taxes payable. 1: wages and salaries owed to employees, employee income taxes withheld from employees" gross wages, to be remitted to the government at a specified time iii. Social security taxes and medicare taxes (fica) withheld from employees" gross wages based on a percentage, to be remitted to the government at a specified time. Fall 2013: fica taxes paid by employer for having employees: match the amount withheld from employees" gross wages. Social sec fica & medicare (both paid by employer and employee)

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Related Questions

Financial Information for Case9-1
Industy Wide
Balance Sheets
Years Ended December 31, 2014and 2015
2015 2014
Assets
Current Assets:
Cash $ 30,000 $ 25,000
Accounts receivable 110,000 90,000
Inventories 100,000 80,000
Total Current Assets 240,000 195,000
Fixed Assets;
Plant and equipment 250,000 220,000
Less accumulated depreciation (100,000) (65,000)
Land 50,000 50,000
Total Fixed Assets 200,000 205,000
Total Assets $ 440,000 $ 400,000
Liabilities and Equity
Current Liabilities:
Accounts payable $ 58,000 $ 50,000
Notes payable-due within one year 50,000 50,000
Accrued liabilities - -
Total Current Liabilities 108,000 100,000
Long Term Liabilities 32,000 20,000
Total Liabilities 140,000 120,000
Stockholders' Equity:
Common stock 100,000 100,000
Retained earnings 200,000 180,000
Total Stockholders' Equity 300,000 280,000
Total Liabilities and Equty $ 440,000 $ 400,000
Industry Wide
Income Statement
Years Ended December 31, 2014and 2015
Revenues $ 1,100,000 $ 1,000,000
Cost of goods sold (700,000) (650,000)
Gross margin 400,000 350,000
Operating expenses (275,000) (255,000)
Operating income 125,000 95,000
Interest expense (15,000) (15,000)
Income before taxes 110,000 80,000
Income taxes (44,000) (32,000)
Net income $ 66,000 $ 48,000
Financial Information for Case9-1
Industy Wide
Balance Sheets
Years Ended December 31, 2014and 2015
2015 2014
Assets
Current Assets:
Cash $ 30,000 $ 25,000
Accounts receivable 110,000 90,000
Inventories 100,000 80,000
Total Current Assets 240,000 195,000
Fixed Assets;
Plant and equipment 250,000 220,000
Less accumulated depreciation (100,000) (65,000)
Land 50,000 50,000
Total Fixed Assets 200,000 205,000
Total Assets $ 440,000 $ 400,000
Liabilities and Equity
Current Liabilities:
Accounts payable $ 58,000 $ 50,000
Notes payable-due within one year 50,000 50,000
Accrued liabilities - -
Total Current Liabilities 108,000 100,000
Long Term Liabilities 32,000 20,000
Total Liabilities 140,000 120,000
Stockholders' Equity:
Common stock 100,000 100,000
Retained earnings 200,000 180,000
Total Stockholders' Equity 300,000 280,000
Total Liabilities and Equty $ 440,000 $ 400,000
Industry Wide
Income Statement
Years Ended December 31, 2014and 2015
Revenues $ 1,100,000 $ 1,000,000
Cost of goods sold (700,000) (650,000)
Gross margin 400,000 350,000
Operating expenses (275,000) (255,000)
Operating income 125,000 95,000
Interest expense (15,000) (15,000)
Income before taxes 110,000 80,000
Income taxes (44,000) (32,000)
Net income $ 66,000 $ 48,000

1. Calculate the current ratio and average collection period foraccounts receivable, inventory turnover, gross margin percentage,and return on equity for 2014 and 2015 for the JordanCorporation.

2. Calculate the current ratio and average collection period foraccounts receivable, inventory turnover, gross margin percentage,and return on equity for the Industry.

3. Compare the performance of the Jordan Corporation between2014 and 2015 and comment on the trend of each ratio.

4. Compare the performance of the Jordan Corporation in 2015 tothe industry averages and comment on each.

Listed below are several terms and phrases associated with current liabilities. Mach each List A to B

List A

1, Cash, current investments, and A/R all divided by current liabilities.

2, Payment is probable and can be reasonably estimated.

3, Gift cards

4, Long-term debt maturing within one year

5, Social Security and Medicare

6, Interest expense is recorded in the period interest is incurred rather than in the period interest is paid.

7, payment is reasonably possible and can be reasonably estimated.

8, Incurred on a notes payable.

9, Unsecured notes sold in minimum denominations of $25,000 with up to 270 days.

10, Classifying liabilities as either current or long-term helps inverstors and creditors assets this.

List B

a, Recoding a contingentliability

b, disclosure of a contingent liability

c, Interest expense

d, FICA

e, Commercial paper

f, The riskiness of a business's obligations

g, Current portion of Long-term debt

h, Unearned revenue

i, Acid=test ratio

j, Accual Accounting

Weller Corporation
Comparative Balance Sheet
(dollars in thousands)
This Year Last Year
Assets
Current assets:
Cash $ 1,280 $ 1,560
Accounts receivable, net 12,300 9,100
Inventory 9,700 8,200
Prepaid expenses 1,800 2,100
Total current assets 25,080 20,960
Property and equipment:
Land 6,000 6,000
Buildings and equipment,net 19,200 19,000
Total property andequipment 25,200 25,000
Total assets $ 50,280 $ 45,960
Liabilities andStockholders' Equity
Current liabilities:
Accounts payable $ 9,500 $ 8,300
Accrued liabilities 600 700
Notes payable, short term 300 300
Total current liabilities 10,400 9,300
Long-term liabilities:
Bonds payable 5,000 5,000
Total liabilities 15,400 14,300
Stockholders' equity:
Common stock 800 800
Additional paid-in capital 4,200 4,200
Total paid-in capital 5,000 5,000
Retained earnings 29,880 26,660
Total stockholders' equity 34,880 31,660
Total liabilities andstockholders' equity $ 50,280 $ 45,960
Weller Corporation
Comparative Income Statement and Reconciliation
(dollars in thousands)
This Year Last Year
Sales $ 79,000 $ 74,000
Cost of goods sold 52,000 48,000
Gross margin 27,000 26,000
Selling and administrativeexpenses:
Selling expenses 8,500 8,000
Administrative expenses 12,000 11,000
Total selling and administrativeexpenses 20,500 19,000
Net operating income 6,500 7,000
Interest expense 600 600
Net income before taxes 5,900 6,400
Income taxes 2,360 2,560
Net income 3,540 3,840
Dividends to commonstockholders 320 600
Net income added to retainedearnings 3,220 3,240
Beginning retained earnings 26,660 23,420
Ending retained earnings $ 29,880 $ 26,660

Required:

Compute the following financial data for this year:

1. Accounts receivable turnover. (Assume that all sales are onaccount.) (Round your answer to 2 decimalplaces.)

2. Average collection period. (Use 365 days in a year.Round your intermediatecalculations and final answer to 2 decimal places.)

3. Inventory turnover. (Round your answer to 2 decimalplaces.)

4. Average sale period. (Use 365 days in a year.Round your intermediatecalculations and final answer to 2 decimal places.)

5. Operating cycle. (Round your intermediatecalculations and final answer to 2 decimal places.)

6. Total asset turnover. (Round your answer to 2 decimalplaces.)