REPORTING AND ANALYZING LIABILITIES Accounting, Fourth Edition 10 Explain a curr
Sato, Pablo, Host has reference to this Academic Journal, PHwiki organized this Journal REPORTING AND ANALYZING LIABILITIES Accounting, Fourth Edition 10 Explain a current liability in addition to identify the major types of current liabilities. Describe the accounting as long as notes payable. Explain the accounting as long as other current liabilities. Identify the types of bonds. Prepare the entries as long as the issuance of bonds in addition to interest expense. Describe the entries when bonds are redeemed. Identify the requirements as long as the financial statement presentation in addition to analysis of liabilities. Study Objectives
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Current Liabilities Bonds: Long-Term Liabilities Accounting as long as Bond Issues Accounting as long as Bond Retirements Financial Statement Presentation in addition to Analysis Reporting in addition to Analyzing Liabilities What is a current liability Notes payable Sales taxes payable Unearned revenues Current maturities of long-term debt Payroll in addition to payroll taxes payable Types of bonds Issuing procedures Determining the market value of bonds Issuing bonds at face value Discount or premium on bonds Issuing bonds at a discount Issuing bonds at a premium Redeeming bonds at maturity Redeeming bonds be as long as e maturity Balance sheet presentation Analysis Off-balance-sheet financing Two key features: Company expects to pay the debt from existing current assets or through the creation of other current liabilities. Company will pay the debt within one year or the operating cycle, whichever is longer. Current Liabilities SO 1 Explain a current liability in addition to identify the major types of current liabilities. Current liabilities include notes payable, accounts payable, unearned revenues, in addition to accrued liabilities such as taxes, salaries in addition to wages, in addition to interest payable. What is a Current Liability To be classified as a current liability, a debt must be expected to be paid: out of existing current assets. by creating other current liabilities. within 2 years. both (a) in addition to (b). SO 1 Explain a current liability, in addition to identify the major types of current liabilities. Current Liabilities Question
SO 2 Describe the accounting as long as notes payable. Notes Payable Written promissory note. Require the borrower to pay interest. Those due within one year of the balance sheet date are usually classified as current liabilities. Current Liabilities Illustration: First National Bank agrees to lend $100,000 on September 1, 2012, if Cole Williams Co. signs a $100,000, 12%, four-month note maturing on January 1. When a company issues an interest-bearing note, the amount of assets it receives generally equals the notes face value. Notes payable 100,000 Cash 100,000 SO 2 Describe the accounting as long as notes payable. Current Liabilities Sept. 1 Illustration: If Cole Williams Co. prepares financial statements annually, it makes an adjusting entry at December 31 to recognize interest. Interest payable 4,000 Interest expense 4,000 SO 2 Describe the accounting as long as notes payable. Current Liabilities Dec. 31 $100,000 x 12% x 4/12 = 4,000
Illustration: At maturity (January 1), Cole Williams Co. must pay the face value of the note plus interest. It records payment as follows. Interest payable 4,000 Notes payable 100,000 SO 2 Describe the accounting as long as notes payable. Current Liabilities Jan. 1 Cash 104,000 SO 3 Explain the accounting as long as other current liabilities. Sales Tax Payable Sales taxes are expressed as a stated percentage of the sales price. Retailer collects tax from the customer. Retailer remits the collections to the states department of revenue. Current Liabilities Illustration: The March 25 cash register readings as long as Cooley Grocery show sales of $10,000 in addition to sales taxes of $600 (sales tax rate of 6%), the journal entry is: SO 3 Explain the accounting as long as other current liabilities. Current Liabilities Mar. 25 Sales revenue 10,000 Cash 10,600 Sales tax payable 600
Illustration: Cooley Grocery rings up total receipts of $10,600. Because the amount received from the sale is equal to the sales price 100% plus 6% of sales, (sales tax rate of 6%), the journal entry is: SO 3 Explain the accounting as long as other current liabilities. Current Liabilities Mar. 25 Sales revenue 10,000 Cash 10,600 Sales tax payable 600 Sometimes companies do not ring up sales taxes separately on the cash register. $10,600 / 1.06 = 10,000 SO 3 Explain the accounting as long as other current liabilities. Unearned Revenue Revenues that are received be as long as e the company delivers goods or provides services. Current Liabilities Company debits Cash, in addition to credits a current liability account (unearned revenue). When the company earns the revenue, it debits the Unearned Revenue account, in addition to credits a revenue account. Illustration: Superior University sells 10,000 season football tickets at $50 each as long as its five-game home schedule. The entry as long as the sales of season tickets is: SO 3 Explain the accounting as long as other current liabilities. Unearned ticket revenue 500,000 Cash 500,000 Aug. 6 Ticket revenue 100,000 Unearned ticket revenue 100,000 Sept. 7 Current Liabilities As each game is completed, Superior records the earning of revenue.
Illustration: Wendy Construction issues a five-year, interest-bearing $25,000 note on January 1, 2011. This note specifies that each January 1, starting January 1, 2012, Wendy should pay $5,000 of the note. When the company prepares financial statements on December 31, 2011, What amount should be reported as a current liability — What amount should be reported as a long-term liability – Current Maturities of Long-Term Debt Portion of long-term debt that comes due in the current year. No adjusting entry required. SO 3 Explain the accounting as long as other current liabilities. Current Liabilities $5,000 $20,000 The term payroll pertains to both: Salaries – managerial, administrative, in addition to sales personnel (monthly or yearly rate). Wages – store clerks, factory employees, in addition to manual laborers (rate per hour). Determining the payroll involves computing three amounts: (1) gross earnings, (2) payroll deductions, in addition to (3) net pay. SO 3 Explain the accounting as long as other current liabilities. Payroll in addition to Payroll Taxes Payable Current Liabilities Illustration: Assume Cargo Corporation records its payroll as long as the week of March 7 as follows: Salaries in addition to wages expense 100,000 Federal tax payable 21,864 FICA tax payable 7,650 State tax payable 2,922 Salaries in addition to wages payable 67,564 SO 3 Cash 67,564 Salaries in addition to wages payable 67,564 Mar. 7 Record the payment of this payroll on March 7. Mar. 7 Current Liabilities
Payroll tax expense results from three taxes that governmental agencies levy on employers. These taxes are: FICA tax Federal unemployment tax State unemployment tax SO 3 Explain the accounting as long as other current liabilities. Current Liabilities Illustration: Based on Cargo Corp.s $100,000 payroll, the company would record the employers expense in addition to liability as long as these payroll taxes as follows. Payroll tax expense 13,850 State unemployment tax payable 800 FICA tax payable 7,650 Federal unemployment tax payable 5,400 SO 3 Explain the accounting as long as other current liabilities. Current Liabilities Employer payroll taxes do not include: Federal unemployment taxes. State unemployment taxes. Federal income taxes. FICA taxes. Question SO 3 Explain the accounting as long as other current liabilities. Current Liabilities
Bonds are a as long as m of interest-bearing notes payable issued by corporations, universities, in addition to governmental agencies. Sold in small denominations (usually $1,000 or multiples of $1,000). SO 4 Identify the types of bonds. Bond: Long-Term Liabilities Types of Bonds Secured Unsecured Convertible Callable SO 4 Identify the types of bonds. Bond: Long-Term Liabilities
Bond certificate Issued to the investor. Provides name of the company issuing bonds, face value, maturity date, in addition to contractual (stated) interest rate. Face value – principal due at the maturity. Maturity date – date final payment is due. Contractual interest rate rate to determine cash interest paid, generally semiannually. SO 4 Identify the types of bonds. Bond: Long-Term Liabilities Issuing Procedures Bond: Long-Term Liabilities SO 4 Illustration 10-3
Determining the Market Value of Bonds The process of finding the present value is referred to as discounting the future amounts. Bond: Long-Term Liabilities SO 4 Identify the types of bonds. Market value is a function of the three factors that determine present value: the dollar amounts to be received, the length of time until the amounts are received, in addition to the market rate of interest. Illustration: Assume that Acropolis Company on January 1, 2012, issues $100,000 of 9% bonds, due in five years, with interest payable annually at year-end. Bond: Long-Term Liabilities Illustration 10-5 Computing the market price of bonds Illustration 10-4 Time diagram depicting cash flows SO 4 Identify the types of bonds. A corporation records bond transactions when it issues or retires (buys back) bonds in addition to when bondholders convert bonds into common stock. Accounting as long as Bond Issues Bonds may be issued at face value, below face value (discount), or above face value (premium). Bond prices are quoted as a percentage of face value. SO 5 Prepare the entries as long as the issuance of bonds in addition to interest expense.
Under IFRS, a contingent liability is: disclosed in the notes if certain criteria are met. reported on the face of the financial statements if certain criteria are met. the same as a provision. not covered by IFRS. The joint projects of the FASB in addition to IASB could potentially: change the definition of liabilities. change the definition of equity. change the definition of assets. All of the above. Copyright © 2011 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request as long as further in as long as mation should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies as long as his/her own use only in addition to not as long as distribution or resale. The Publisher assumes no responsibility as long as errors, omissions, or damages, caused by the use of these programs or from the use of the in as long as mation contained herein. Copyright
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