Corporation comprehensive problem recording the journal entry for receiving cash on account. We will record the journal entry to the general journal, post it to the general ledger, and create the trial balance from the general ledger. We will debit cash and credit accounts payable .
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Present value calculations using bond price will use present value tables to calculate the market value of bond price. Present value calculations can be done multiple ways either with tables, with algebra, with Excel, or with financial calculators. Each format for calculating present value has its pros and cons. It is helpful to know that each form of calculating present value is designed to get at the same thing so that we can recognize present value calculations when we see them. Calculating bond prices is a perfect example for present value calculations because it include two present value streams, a present value of one, and present value of an annuity.
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Use Excel to calculate present value PV using bond price as an example. There are many ways to calculate the present value. We can use present value tables, a financial calculator, math and formulas, or Excel. Each method has its pros and cons but it is important to know that are all doing much the same thing, leading to the same outcome. Excel has many advantages including formatting the present value calculations in different ways to pull more information. Calculating the bond price is a common example for present value calculations because bond prices have two separate cash flows, one being the present value of one and the other being an annuity. The two present value requirements of bonds are perfect for thinking about the main two present value types of calculations.
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We will calculate the amortization of a bond premium using the effective method the preferred method under GAAP. The effective method can be compared to the straight line method. Under the straight line method we divide the premium by the number of payments and reduce it by an even amount each period. Under the effective method we calculate the amount allocated to interest each period using the carrying value and the market interest rate..
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Financial statement, balance sheet, liabilities section needs to be broken out between current liabilities and non current liabilities. The concepts is simple; the practice less simple. In concepts, current liabilities are those that will be due within a year. Given this definition we should be able to go through are liabilities, determine which are due in a year, and put them in the current liabilities section. The problem is that some liabilities have a current and long term component. Notes payable or loans payable set up as installment notes often have a current and long term component. We will need to use amortization table do break out the current and long term portion of these notes. We will also discuss different options for reporting installments notes.
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comprehensive problem purchase of insurance where we will enter the journal entry related to the purchase of insurance. We will journalize the journal entry to the general journal, post the accounting transaction to the general ledger, and create the trial balance from the general ledger. The journal entry will debit prepaid insurance, an asset, and credit cash. We do not debit insurance expense because we have not yet consumed the insurance and therefore should not record an expense according to the matching principle, one of the core accrual principles related to when to record expenses. We will record insurance expense at the end of the period with the use of adjusting entries, debiting insurance expense and crediting prepaid insurance, increasing the expense and decreasing the asset.
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Adjusting journal entry for notes payable will discuss options for setting up a system for recording notes payable in an accounting system. Adjusting entries are entries made at the end of an accounting period, at the end of a month or year. Adjusting entries are planned entries. When entering payments for an installment not we have some options to make the system easier. To keep the loan balance correct at all times we should record interest and principal portions of each payment, but this requires a different journal entry each payment. If we want to standardize the payment we could allow the accounting department to credit cash and debit the loan payable, the result being that we allocate too much to loan payable and do not record interest expense at the time of payment. The adjusting entry can then be used to adjust the loan and the interest expense to the proper amount.
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Comprehensive partnership problem recording journal entry related to unearned revenue. The journal entry will be journalized in the general journal, posted to the general ledger and be used to create the trial balance. Unearned revenue is a result of receiving cash that has not yet been earned. In other words, cash is received before work is done. We will enter the journal entry with a debit to cash and a credit to unearned revenue. Unearned revenue is a liability account representing they owing of work in the future.
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Putting together a notes payable amortization schedule so that we can break out loan payments between interest and principle. Many loans we are familiar with are installment loans which have equal payments to repay the loan. To make the loan payments equal the interest and principal reduction will differ from payment to payment, which can be confusing. In other words, each payment will have an interest expense component and a principal reduction component but the allocation between the two will change with each payment. The interest portion will go down with each payment and the principal portion will increase. We will start with a 100,000 loan 9% interest with 36 even monthly payments. It is common for a loan to include these terms but not provide an amortization schedule. Using this loan information we will create the amortization schedule. Whether we do the amortization calculation in Excel or by hand, setting up the column is often the most difficult part. We will include the columns of Payment, Interest, Principal Reduction, and Principal. The payment will be the same each period. Interest is calculated as principle times the interest rate divided by 12. The principal reduction is the payment less the interest portion and the remaining principal is the prior period principal less the current period deduction.
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