1. AB113 Unit 91 Welcome to AB113 Accounting For Non-Majors Unit 9 Professor David Levenstam Unit 9 Seminar

2. AB113 Unit 92 Welcome to AB113 Accounting For Non-Majors Unit 9 Professor David Levenstam Unit 9 Seminar

3. AB113 Unit 93 Reading: Survey of Accounting, Chapter 8 Author: Warren Tech Support 866-522-7747 (or free online) Contact info: –Email: DLevenstam@kaplan.edu –AIM: LFCCEconinstruct (sign up for AIM at http://www.aim.com) http://www.aim.com –Office Hours: Thursdays 7-9 PM ET When emailing, please include your full name & course number (AB113) Reading, Help & Contact

4. 4 This Week’s Assignments Discussion (Don’t forget to post your initial response by Saturday! :-)) Quiz (You can take only once.) Homework Assignment: Submit to Dropbox We have an Excel template in Doc Sharing for each homework set No Asterisks (*) this week :-(

5. AB113 Unit 95 Quiz Weeks 2-9. 8 worth 20 each for a total of 160 (16% of your grade) 10 multiple-choice questions You can take it only once You have 1 hour You can see the results 7 days after a quiz closes

6. 6 Reminder: Writing Assignment Due Next Week!! See the Assignment button on Unit 10 orange tab page worth 50 points (5% of your grade) 1. Reflect and describe which key concepts and topics in this course have made you a stronger candidate to enter the business world. 2. Discuss how this course has affected you in your professional development as a student and as a person as well as encouraging you on your academic path.

7. Please Read the Announcements! :-) Located on the Course Home page Contain important administrative and accounting material Please check the announcements and the syllabus first for administrative questions you might have AB113 Unit 97

8. Please Read My “Hi Students” Posts! :-) Typically located early on the board Occasionally come later too Could say “Hi Class” or “Warning, Warning, Danger, Will Robinson!!” :-D Please give my tired old eyes a break and LABEL your multi-part answers! :-) AB113 Unit 98

9. Jing Links and Scripts To help you with the homework the course leads have created some voice presentations called Jings. You can find all the Jings in Doc Sharing by downloading the file named AC113-AB113 Jing Links.docx. After downloading, click on the link for this week’s chapter to see and hear the presentation. You can also download a script of each week’s presentation so that you can read the spoken words from the presentation later without reviewing the whole Jing presentation. For this week you can download AC113- AB113 Jing Chapter 8 Script.docx. AB113 Unit 99

10. 10 Homework Assignment Reminder: Every Transaction MUST Be Balanced to Make the Accounting Equation Balanced!

11. Accounting For Liabilities and Stockholders’ Equity AB113 Unit 911

12. AB113 Unit 912 In Accounting II we spend 3 separate chapters on this material, and we have a whole class on payroll accounting (AB122), so our one chapter is just a brief survey

13. AB113 Unit 913 What Are Current Liabilities?

14. Liabilities that are to be paid out of current assets and are due within a short time, usually within one year, are called current liabilities.  Accounts payable  Notes payable  Current portion of long-term debt

15. AB113 Unit 915 What Are Accounts Payable?

16. Accounts Payable Accounts payable arise from purchasing goods or services for use in a company ’ s operations or for purchasing merchandise for resale.

17. AB113 Unit 917 What Are Notes Payable?

18. Notes Payable Notes payable also arise from purchasing goods or services for use in a company ’ s operations or for purchasing merchandise for resale, but often as a result of having trouble paying our accounts payable. Notes payable usually carry interest.

19. AB113 Unit 919 How Do We Calculate Interest on a Note Payable?

20. 20 How Do We Calculate Interest on a Note Payable? RTP!! :-) Rate x Time x Principal

21. We give a note payable in place of an unpaid account payable. Face: $1,000 Interest: 12% Term: 90 Days Required: (a) illustrate the impact on the financial statements of issuing the note; (b) calculate the interest in the note; and (c) illustrate the impact on the financial statements of paying the note. Example Like E8-2 (pages 275-276)

22. Required: (a) illustrate the impact on the financial statements of issuing the note: Example Like E8-2(a) (pages 275-276)

23. Required: (a) illustrate the impact on the financial statements of issuing the note: Example Like E8-2(a) (pages 275-276) a. Issuance of the note: Balance Sheet Statement ofAssets =Liabilities + Stockholders’ EquityIncome Cash Flows A/PN/P Statement ($1,000)1,000 a. Issuance of the note: Balance Sheet Statement ofAssets =Liabilities + Stockholders’ EquityIncome Cash Flows A/PN/P Statement ($1,000)1,000

24. (b) calculate the interest on the note: Interest = RTP Example Like E8-2(b) (pages 275-276)

25. (b) calculate the interest on the note: Interest = RTP Interest = 12% x 90/360 x $1,000 = $30 Example Like E8-2(b) (pages 275-276)

26. Required: (c) illustrate the impact on the financial statements of paying the note: Example Like E8-2(c) (pages 275-276)

27. Required: (c) illustrate the impact on the financial statements of paying the note: Example Like E8-2(c) (pages 275-276) c. Payment of the note, at maturity, including interest Balance Sheet Statement ofAssets =Liabilities + Stockholders’ EquityIncome Cash Flows CashNotes Payable Statement ($1,030)($1,000) ($30) Operating ($1,030) Interest Expense ($30)

28. Current Portion of Long-Term Debt Long-term liabilities are often paid back in periodic payments, called installments. Installments that are due within the coming year must be classified as a current liability.

29. AB113 Unit 929 What is a Contingent Liability?

30. AB113 Unit 930 What is a Contingent Liability? A potential liability Typical examples include: Expenses of product repair or replacement under a product warranty The outcome of a lawsuit

31. AB113 Unit 931 What two prerequisites do we need in order to record a contingent liability?

32. AB113 Unit 932 What two prerequisites do we need in order to record a contingent liability? 1.It must be probable. 2.It must be reasonably estimable. If it’s probable but not reasonably estimable, or just reasonably possible, we disclose in the notes to the financial statements but we don’t record. If the likelihood is remote, we don’t record or disclose.

33. Likelihood of Occurring Measurement Accounting Treatment Probable Estimable Record and Disclose Liability Not Estimable Disclose Liability Contingency Possible Accounting Treatment of Contingent Liabilities

34. AB113 Unit 934 Recording Warranty Liability Warranty liability = Sales x estimated percent of sales Effect on Accounting Equation: Increase Product Warranty Payable (a liability) Increase Warranty Expense (a contra owner’s equity)

35. AB113 Unit 935 Recording Warranty Repairs Reduce the liability (because we’ve performed some of the estimated liability) Reduce the inventory of parts that we use for the repairs Effect on Accounting Equation: Decrease Parts Inventory (an asset) and Decrease Product Warranty Payable (a liability)

36. Government Motors, Inc. warrants is products for 60 days. The estimated product warranty is 0.2% of sales. (That’s two-tenths of one percent—because the warranty lasts only 60 days! :-D) Assume that sales were $1 billion for August. In September, 100 customers received warranty repairs requiring $1.5 million in parts. Required: (a) Determine the warranty liability at August 31; and (b) what accounts are decreased for warranty work provided in September? Example Like E8-5

37. Required: (a) Determine the warranty liability at August 31. Warranty liability = Sales x estimated percent of sales Example Like E8-5(a)

38. Required: (a) Determine the warranty liability at August 31. $1 billion sales x 0.2% (which is 0.002) = $2,000,000. (The question doesn’t ask, but the effect on the accounting equation is an increase in Product Warranty Payable (a liability) of $2 million and an increase in Warranty Expense of $2 million.) Example Like E8-5(a)

39. Required: (b) what accounts are decreased for warranty work provided in February? Example Like E8-5(b)

40. Required: (b) what accounts are decreased for warranty work provided in February? We decrease both Parts Inventory (an asset) and Product Warranty Payable (a liability) [by the $1.5 million of actual repairs]. Example Like E8-5(b)

41. AB113 Unit 941 What is Payroll?

42. AB113 Unit 942 What is Payroll? The amount we pay employees.

43. AB113 Unit 943 What is Salary?

44. AB113 Unit 944 What is Salary? The amount we pay to managerial and administrative employees, usually expressed as a monthly or annual amount. Comes from the Latin salari(um) meaning salt money; the Roman government might have paid soldiers in salt, or given them money to buy salt

45. AB113 Unit 945 What is Salary? Comes from the Latin salari(um) meaning salt money; the Roman government might have paid soldier in salt, or given them money to buy salt. A good Roman soldier was thus considered “worth is salt.” The city of Salzburg, Austria was named after its salt mines (Salzburg means City of Salt)

46. AB113 Unit 946 What Are Wages?

47. AB113 Unit 947 What Are Wages? The amount we pay for manual labor, both skilled and unskilled, usually expressed as an hourly rate.

48. AB113 Unit 948 What is Gross Pay?

49. 49 What is Gross Pay? Total earnings, both regular and overtime, before deductions.

50. AB113 Unit 950 What Is Net Pay?

51. AB113 Unit 951 What Is Net Pay? Gross pay minus deductions. It’s what the employee catches in the net after some of the pay escapes to the deductions.

52. AB113 Unit 952 What Are Common Payroll Deductions?

53. AB113 Unit 953 What Are Common Payroll Deductions? 1. Employee’s federal income tax withheld 2. Employee’s state income tax withheld 3. Employee’s share of FICA (Federal Insurance Contribution Act) a. Social Security aka OASDI (Old-Age Survivor Death Insurance) b. Medicare 4. Voluntary deductions like health insurance, charitable contributions, retirement savings.

54. AB113 Unit 954 What Are The Real FICA Tax Rates for Employees?

55. AB113 Unit 955 What Are The Real FICA Tax Rates for Employees? 1.SS: Used to be 6.2%, but when Congress extended the Bush tax cuts in December 2010 it also cut the employee SS rate to 4.2%. Applies to the first $106,800 of earned income. 2.Medicare: Still 1.45%. Applies to all earned income with no ceiling.

56. AB113 Unit 956 What Are The Real FICA Tax Rates for Employers?

57. AB113 Unit 957 What Are The Real FICA Tax Rates for Employers? 1.SS: Still 6.2%. Also applies to the first $106,800 of earned income. 2.Medicare: Still 1.45%. Also applies to all earned income with no ceiling.

58. AB113 Unit 958 What Are The Fake FICA Tax Rates In Our Textbook (Warren) for both Employees and Employers?

59. AB113 Unit 959 What Are The Fake FICA Tax Rates In Our Textbook (Warren) for both Employees and Employers? 1.SS: 6%. (Still applies to the first $106,800 of earned income.) 2.Medicare: 1.5%. (Still applies to all earned income with no ceiling.) Apparently Warren thought you’d have an easier time using the fake rates than the real rates. The Seminar Quiz and Assignment problem E8-11 both use the fake rates.

60. AB113 Unit 960 What is Unemployment Compensation?

61. AB113 Unit 961 What is Unemployment Compensation? Government taxes employers (and sometimes employees) and pays benefits to unemployed workers.

62. AB113 Unit 962 What is Unemployment Compensation? The federal FUTA tax rate is generally 0.8%, and applies only to employers. The federal tax is supposed to go only to pay costs to administer the system. (In reality, during long recessions Congress uses general tax dollars to pay extended unemployment benefits.)

63. AB113 Unit 963 What is Unemployment Compensation? State taxes go to pay benefits to unemployed workers. Tax rates vary among the states. (The Seminar Quiz and Assignment give you a SUTA rate.) Within each state, the government charges a lower rate to an employer with lower employee turnover. Some states impose an unemployment tax on employees too.

64. Example Like Seminar Quiz and E8-11 AB113 Unit 9 The following information applies to employee William McKinley for the week ended August 15: Total hours worked: 48 Rate: $16 per hour, with double time for all hours in excess of 40 Federal income tax withheld: $200 Red Cross deduction: $50 Cumulative earnings prior to current week: $6,400 64

65. Example Like Seminar Quiz and E8-11 AB113 Unit 9 Total hours worked: 48 Rate: $16 per hour, with double time for all hours in excess of 40 1. What is William's total earnings? 65

66. Example Like Seminar Quiz and E8-11 Total hours worked: 48 Rate: $16 per hour, with double time for all hours in excess of 40 1. What is William's total earnings? 40 hours x $16 regular hourly rate = $640 8 hours x $32 double time rate = $256 Total = $896 66

67. Example Like Seminar Quiz and E8-11 Tax rates: Social security: 6% on maximum earnings of $106,800 Medicare tax: 1.5% on all earnings; on both employer and employee State unemployment: 3.4% on maximum earnings of $7,000; paid only by employer Federal unemployment: 0.8% on maximum earnings of $7,000; paid only by employer 67

68. Example Like Seminar Quiz and E8-11 Tax rates: Social security: 6% on maximum earnings of $106,800 Medicare tax: 1.5% on all earnings; on both employer and employee State unemployment: 3.4% on maximum earnings of $7,000; paid only by employer Federal unemployment: 0.8% on maximum earnings of $7,000; paid only by employer 2. What is William's total deductions? 68

69. Example Like Seminar Quiz and E8-11 2. What is William's total deductions? SS: 6% x $896 = $ 53.76 Medicare: 1.5% x $896 = $ 13.44 Federal Withholding: $200 Red Cross $ 50 Total $317.20 69

70. Example Like Seminar Quiz and E8-11 1. Total Earnings: $896 2. Total deductions: $317.20 3. What is William's net pay? 70

71. Example Like Seminar Quiz and E8-11 1. Total Earnings: $896 2. Total deductions: $317.20 3. What is William's net pay? Total Earnings $896 - Total Deductions $317.20 = Net Pay $578.80 71

72. Example Like Seminar Quiz and E8-11 1.Total Earnings: $896 4. What is the employer’s FICA based on William’s pay? 72

73. Example Like Seminar Quiz and E8-11 1.Total Earnings: $896 4. What is the employer’s FICA based on William’s pay? SS: 6% x $896 = $53.76 Medicare: 1.5% x $896 = $13.44 Total Employer’s FICA = $67.20 73

74. Example Like Seminar Quiz and E8-11 Federal unemployment maximum ceiling: $7,000 of wages William’s wages before this pay period: $6,400 5. What is the employer’s federal unemployment based on William’s pay? 74

75. Example Like Seminar Quiz and E8-11 Federal unemployment maximum ceiling: $7,000 of wages FUTA rate: 0.8% William’s wages before this pay period: $6,400 5. What is the employer’s federal unemployment based on William’s pay? Maximum additional wages subject to federal unemployment tax: $7,000 - $6,400 = $600. Since $600 is less than William’s actual wages of $896, the federal unemployment tax is limited to 0.8% of $600, which equals $4.80. 75

76. Example Like Seminar Quiz and E8-11 State unemployment maximum ceiling: $7,000 of wages SUTA rate: 3.4% William’s wages before this pay period: $6,400 6. What is the employer’s state unemployment based on William’s pay? 76

77. Example Like Seminar Quiz and E8-11 State unemployment maximum ceiling: $7,000 of wages SUTA rate: 3.4% William’s wages before this pay period: $6,400 6. What is the employer’s state unemployment based on William’s pay? Maximum additional wages subject to state unemployment tax: $7,000 - $6,400 = $600. Since $600 is less than William’s actual wages of $896, the state unemployment tax is limited to 3.4% of $600, which equals $20.40. 77

78. Example Like Seminar Quiz and E8-11 4. Employer’s FICA: $67.20 5. Employer’s federal unemployment: $4.80. 6. Employer’s state unemployment: $20.40. Total Employer Unemployment Taxes: $92.40. 7. What is the effect on the financial statements of recording the accrual of payroll taxes for William? 78

79. Example Like Seminar Quiz and E8-11 4. Employer’s FICA: $67.20 5. Employer’s federal unemployment: $4.80. 6. Employer’s state unemployment: $20.40. Total Employer Unemployment Taxes: $92.40. 7. What is the effect on the financial statements of recording the accrual of payroll taxes for William? Liabilities: FICA Payable +$67.20; FUTA Payable +$4.80; SUTA Payable +$20.40; Payroll Tax Expense + $92.40, so Retained Earnings -$92.40 and Income Statement -$92.40. 79

80. Example Like Seminar Quiz and E8-11 80 4. Employer’s FICA: $67.20 5. Employer’s federal unemployment: $4.80. 6. Employer’s state unemployment: $20.40. Total Employer Unemployment Taxes: $92.40. 7. What is the effect on the financial statements of recording the accrual of payroll taxes for William? Balance Sheet Statement ofAssets =Liabilities + Stockholders’ EquityIncome Cash Flows FICA TaxSUTAFUTARetained Statement Payable + Earnings $67.20 $4.80 $20.40 ($92.40) Payroll Tax Expense($92.40)

81. Monty Python Example Nothing Like Seminar Quiz and E8-11 81 8. What is the air-speed velocity of an un-laden swallow?

82. Monty Python Example Nothing Like Seminar Quiz and E8-11 82 8. What is the air-speed velocity of an un-laden swallow? Correct Answer: What do you mean? African or European swallow? (http://www.youtube.com/watch?v=y2R3FvS4xr4) :-Dhttp://www.youtube.com/watch?v=y2R3FvS4xr4

83. AB113 Unit 983 The Very, Very, Very Brief Summary of Stockholders’ Equity

84. AB113 Unit 984 Did I mention that it’s very brief?

85. AB113 Unit 985 Okay, it’s not that brief. :-D

86. The stockholders of a large corporation control a corporation by electing a board of directors. The board meets periodically to establish corporate policy. It also selects the chief executive officer (CEO) and other major officers.

87. The two sources of capital found in the Stockholders ’ Equity section of a balance sheet are paid-in capital or contributed capital (capital contributed to the corporation by stockholders and others) and retained earnings (net income retained in the business). Stockholders’ Equity

88. The board of directors often assigns a monetary amount to each share, called par value. Corporations may issue stock certificates to stockholders to document their ownership.

89. Stock issued without a par is called no- par stock. Some states require the board of directors to assign a stated value to no-par stock.

90. 1.The right to vote in matters concerning the corporation. 2.The right to share in distributions of earnings. 3.The right to share in assets on liquidation. Major Rights That Accompany Ownership of a Share of Stock

91. The two primary classes of paid-in capital are common stock and preferred stock. The primary attractiveness of preferred stock is that it gets paid dividends before the common stock does. If a corporation has only one class of stock, it’s common stock. Two Primary Classes of Paid-In Capital

92. AB113 Unit 992 Questions? :-)