Liabilities Chapter 10 Power Point Authors Susan Coomer
Liabilities Chapter 10 Power. Point Authors: Susan Coomer Galbreath, Ph. D. , CPA Charles W. Caldwell, D. B. A. , CMA Jon A. Booker, Ph. D. , CPA, CIA Cynthia J. Rooney, Ph. D. , CPA Mc. Graw-Hill/Irwin Copyright © 2012 The Mc. Graw-Hill Companies, Inc.
The Nature of Liabilities Defined as debts or obligations arising from past transactions or events. Maturity = 1 year or less Maturity > 1 year Current Liabilities Noncurrent Liabilities 10 -2
Distinction Between Debt and Equity The acquisition of assets is financed from two sources: Funds from creditors, with a definite due date, and sometimes bearing interest. Funds from owners. 10 -3
Estimated Liabilities Estimated liabilities have two basic characteristics: 1. The liability is known to exist, 2. The precise dollar amount cannot be determined until a later date. Example: An automobile warranty obligation. 10 -4
Current Liabilities: Accounts Payable Short-term obligations to suppliers for purchases of merchandise and to others for goods and services. Merchandise inventory invoices Office supplies invoices Examples Shipping charges Utility and phone bills 10 -5
Current Liabilities: Notes Payable When a company borrows money, a note payable is created. Current Portion of Notes Payable The portion of a note payable that is due within one year, or one operating cycle, whichever is longer. Total Notes Payable Current Notes Payable Noncurrent Notes Payable 10 -6
Current Liabilities: Notes Payable PROMISSORY NOTE Miami, Fl Location Six months after this date promises to pay to the order of the sum of Nov. 1, 2011 Date Porter Company Security National Bank $10, 000. 00 with interest at the rate of Signed: Title: 12. 0% per annum. John Caldwell Treasurer and Senior VP 10 -7
Accrued Liabilities Accrued liabilities arise from the recognition of expenses for which payment will be made in the future. Accrued liabilities are often referred to as accrued expenses. Examples include: 1. Interest payable, 2. Income taxes payable, and 3. Accrued payroll liabilities. 10 -8
Long-Term Liabilities Relatively small debt needs can be filled from single sources. Banks or Insurance Companies or Pension Plans 10 -9
Long-Term Liabilities Large debt needs are often filled by issuing bonds. 10 -10
Maturing Obligations Intended to be Refinanced One special type of long-term liability is an obligation that will mature in the current period but that is expected to be refinanced on a long-term basis. If management has both the intend ability to refinance soon-to-mature obligations on a long-term basis, these obligations are classified as long-term liabilities. 10 -11
Bonds Payable Bonds usually involve the borrowing of a large sum of money, called principal The principal is usually paid back as a lump sum at the end of the bond period. Individual bonds are often denominated with a par value, or face value, value of $1, 000. 10 -12
Bonds Payable Bonds usually carry a stated rate of interest, also called a contract rate Interest is normally paid semiannually. Interest is computed as: Principal × Stated Rate × Time = Interest 10 -13
Types of Bonds Mortgage Bonds Debenture Bonds Convertible Bonds Junk Bonds 10 -14
End of Chapter 10 10 -15
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