1、COPYRIGHT 2008 Thomson South-Western,a part of The Thomson Corporation.Thomson,the Star logo,and South-Western are trademarks used herein under license.1Chapter 8Completing the Operating CycleAlbrecht,Stice,Stice,Swain2Employee Compensation Payroll Recognize the expense.FICA taxes and Federal income
2、 withholdings.Withholding these taxes for the government.They should not be recognized as an expense of the company.Employer payroll taxes Employers portion of FICA taxes.Federal and state unemployment taxes.Added to taxes payable to the government.3Payroll Journal EntriesSalaries Expense.2,700FICA
3、Taxes Payable,Employee.180Federal Withholding Taxes Payable.486State Withholding Taxes Payable.243Salaries Payable.1723To record employees salary.Payroll Tax Expense.278FICA Taxes Payable,Employer.180Federal Unemployment Taxes Payable.30State Unemployment Taxes Payable.68To record liabilities associ
4、ated with employees salary.4Other Employee Compensation Bonuses Recorded just like payroll.Many times they are earnings based.Good incentive for management improvement but can also provide incentives to manipulate earnings.Compensated absences Recognized as the employee earns the right to these abse
5、nces.5Other Employee Compensation Stock options Fair value of the options are recognized over the period the options are earned.Postemployment benefits Severance or other benefits.Estimated and accrued in the period the employees are terminated.6Other Compensation Journal EntriesSalaries Expense.125
6、Sick Days Payable.125To recognize accrued sick pay.Sick Days Payable.125Various Taxes Payables.35Cash.90To record payment of sick day net of FICA,federal,and state taxes.Salaries Expense.150,000Various Taxes Payables.60,000Bonus Payable.90,000To record bonus earned by employees.7Pensions Defined con
7、tribution plan Employer contributes specific amount every year to be paid to employee after retirement.Employee receives what was contributed plus the earnings.The employee bears the risk of poor returns.Defined benefit plan Employee receives amount defined in the plan.Usually based on the number of
8、 years worked.Company sets aside money to cover the obligation,but the risk of poor returns remains with the company.8Pensions Pension fund Money set aside to fulfill pension obligation.Pension benefit obligation Estimated liability of retirement payments.Pension-related interest cost The increase i
9、n the pension obligation resulting from interest on the unpaid obligation.Service Cost The increase in the pension obligation resulting from an employee working another year.Return on pension fund assets The return the company earns on its pension fund.9PensionsPension Benefit Obligation Pension Fun
10、d Assets=Net Pension LiabilityInterest Cost+Service Cost Expected Return on Fund Assets=Pension Expense10Sales TaxesCash.357Sales Revenue.340Sales Tax Payable.17From sale of sandwiches,including 5%sales tax.Example:Bondss Barbeque sold a 100 sandwiches for$340.What is the journal entry assuming the
11、state charges a 5 percent sales tax?Paid by customer,but collected by the company for the government.11Property Taxes12/31 Property Tax Expense.6,200Prepaid Property Taxes.6,200To record property tax expense by using up prepaid property taxes.Example:The City of Riverton assesses property taxes on l
12、and and buildings.Bonds Barbeque pays its property taxes on a calendar-year basis and paid Riverton$6,200 last year for the current year.Make Bonds appropriate journal entry.Assessed by county.Usually paid for a year in advance.12Income TaxesExample:Bonds Barbeques pretax income is$385,000.Its incom
13、e tax rate for the year for both federal and state is 30 percent.Prepare an adjusting entry at year-end showing the companys tax expense.12/31 Income Tax Expense.115,500 Income Tax Payable.115,500To record income tax expense and tax liability on$385,000 pretax income for year using a 30 percent effe
14、ctive tax rate.Based off income.May be different from actual taxes paid.13Deferred Taxes Occur because of timing differences in revenue and expense recognition according to GAAP rules versus IRS rules.Income Tax Expense.120,000Income Tax Payable.80,000Deferred Tax Liability.40,000To record income ta
15、x expense and deferred tax liability due to unrealized gains on mutual funds.Example:Bonds Barbeques owes$80,000 in taxes on its income.It also has gains on a mutual fund that will not be taxed until the mutual fund is sold.These taxes will be$40,000.Prepare an entry showing the companys tax expense
16、.14Contingencies Contingent Liabilities Depend on some future event to determine if a liability actually exists.Environmental Liabilities Liability definitely exists,but measurement is difficult.Minimum liability established.Extensive note disclosure.15 Probable The future event isEstimate the amoun
17、t likely to occur.of the contingency and make the appropriate journalentry;provide detailed disclosure in notes.Accounting for Contingent LiabilitiesTermDefinitionAccountingPossibleThe chance of the futureProvide detailed event occurring is moredisclosure of thethan remote but less thanpossible liab
18、ility inlikely.the notes.RemoteThe chance of the futureNo disclosure event occurring is slight.required.16Capitalize vs.Expense Research and Development Expenditures should be expensed when incurred.Uncertainty of future benefits.Advertising Expenditures should be expensed when incurred.Uncertainty
19、of future benefits.Exception for targeted marketing to previous customers.17Income Statement Revisited Gross Margin Net Sales minus Cost of Goods Sold.Other Revenues and Expenses Items earned or incurred outside of,or peripheral to,the normal operations of a firm.(i.e.dividends received from investm
20、ents)Extraordinary Items Nonoperating gains and losses Unusual in nature.Infrequent in occurrence.Material in amount.Reported net of taxes.(i.e.losses from floods,fires,earthquakes,etc.)18Review the Income Statement FormatRevenuesCost of goods sold=Gross marginSelling expensesGeneral and administrat
21、ive expenses=Operating income+/Other revenues and expenses=Income before taxesIncome tax=Income after taxes+/Extraordinary items=Net income19Earnings Per Share Net income divided by shares outstanding.Basic Earnings Per Share Based on historical information.Diluted Earnings Per Share Considers the effect on net income and shares outstanding of stock transactions that might occur in the future.Assignment Discussion questions Practice exercises:18,19,2020
