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Liabilities: Learning Objectives
Liabilities: Learning Objectives
Learning Objectives
After studying this chapter, you should be able to:
Financial Accounting
IFRS Second Edition
Weygandt Kimmel Kieso
10-2
Current Liabilities
Current liability
A debt that the company expects to pay within one
year or the operating cycle, whichever is longer.
Most companies pay current liabilities by using current
assets.
10-3
LO 1 Explain a current liability, and identify the
major types of current liabilities.
Current Liabilities
Question
The time period for classifying a liability as current is one
year or the operating cycle, whichever is:
a. longer
b. shorter
c. probable
d. possible
10-4
LO 1 Explain a current liability, and identify the
major types of current liabilities.
Current Liabilities
Notes Payable
Recorded obligation in the form of written notes.
Instructions
b) Prepare100,000
the adjusting journal entry on Dec. 31.
104,000
Cash 10,600
Sales revenue
Sales tax payable
10,000
600
Unearned Revenue
Revenues that are received before the company delivers goods
or provides services.
10-12 100,000
LO 3 Explain the accounting for other current liabilities.
Current Liabilities
Presentation
Current liabilities are presented after non-current
liabilities on the statement of financial position.
A common method of presenting current liabilities is to
list them by order of magnitude, with the largest ones
first.
Analysis
Illustration 10-4
Liquidity refers to the
ability to pay maturing
obligations and meet
unexpected needs for
cash.
Bond Basics
A form of interest-bearing notes payable.
To obtain large amounts of long-term capital.
10-17 LO 4 Explain why bonds are issued, and identify the types of bonds.
Bond Basics
10-18 LO 4 Explain why bonds are issued, and identify the types of bonds.
Bond Basics
Question
The major disadvantages resulting from the use of bonds
are:
10-19 LO 4 Explain why bonds are issued, and identify the types of bonds.
Bond Basics
Types of Bonds
10-20 LO 4
Bond Basics
Issuing Procedures
Government laws grant corporations power to issue
bonds.
Board of directors and shareholders must approve bond
issues.
Board of directors must stipulate number of bonds to be
authorized, total face value, and contractual interest rate.
Terms of the bond are set forth in a legal document
called a bond indenture.
Issuing company arranges for printing of bond
certificates.
10-21 LO 4 Explain why bonds are issued, and identify the types of bonds.
Bond Basics
Issuing Procedures
Represents a promise to pay:
10-22 LO 4 Explain why bonds are issued, and identify the types of bonds.
Bond Basics
Issuer of
Bonds Illustration 10-8
2017
Maturity
Date
Contractual
Interest
Rate
Face or
10-23 Par Value LO 4
Bond Basics
Bond Trading
Bondholders can sell their bonds, at any time, at the
current market price on national securities exchanges.
Bond prices are quoted as a percentage of the face value.
Application
$952.50 $1,018.75
10-24 LO 4 Explain why bonds are issued, and identify the types of bonds.
Bond Basics
Bond Trading
Bondholders can sell their bonds, at any time, at the
current market price on national securities exchanges.
Bond prices are quoted as a percentage of the face value.
Newspapers and the financial press publish bond prices
and trading activity daily.
Illustration 10-9
10-25 LO 4 Explain why bonds are issued, and identify the types of bonds.
Bond Basics
Bond Trading
Bondholders can sell their bonds, at any time, at the
current market price on national securities exchanges.
Bond prices are quoted as a percentage of the face value.
Newspapers and the financial press publish bond prices
and trading activity daily.
A corporation makes journal entries only when it issues
or buys back bonds, or when bondholders exchange
convertible bonds into ordinary shares.
10-26 LO 4 Explain why bonds are issued, and identify the types of bonds.
Bond Basics
1. amounts to be received,
10-27 LO 4 Explain why bonds are issued, and identify the types of bonds.
Accounting for Bond Issues
10-28 LO 5 Prepare the entries for the issuance of bonds and interest expense.
Accounting for Bond Issues
Bond
Contractual
Interest Rate
of 10%
10-29 LO 5 Prepare the entries for the issuance of bonds and interest expense.
Accounting for Bond Issues
Question
The rate of interest investors demand for loaning funds to
a corporation is the:
10-30 LO 5 Prepare the entries for the issuance of bonds and interest expense.
Accounting for Bond Issues
Question
Karson Inc. issues 10-year bonds with a maturity value of
$200,000. If the bonds are issued at a premium, this indicates
that:
a. the contractual interest rate exceeds the market interest
rate.
b. the market interest rate exceeds the contractual interest
rate.
c. the contractual interest rate and the market interest rate
are the same.
d. no relationship exists between the two rates.
10-31 LO 5 Prepare the entries for the issuance of bonds and interest expense.
Accounting for Bond Issues
10-32 LO 5 Prepare the entries for the issuance of bonds and interest expense.
Issuing Bonds at Face Value
Cash 5,000
10-33 LO 5 Prepare the entries for the issuance of bonds and interest expense.
Issuing Bonds at Face Value
10-34 LO 5 Prepare the entries for the issuance of bonds and interest expense.
Accounting for Bond Issues
10-35 LO 5 Prepare the entries for the issuance of bonds and interest expense.
Issuing Bonds at a Discount
Statement Presentation
Illustration 10-11
Carrying value or
book value
Illustration 10-12
Illustration 10-13
10-37 LO 5 Prepare the entries for the issuance of bonds and interest expense.
Accounting for Bond Issues
10-38 LO 5 Prepare the entries for the issuance of bonds and interest expense.
Issuing Bonds at a Premium
Statement Presentation
Illustration 10-14
The sale of bonds above face value causes the total cost of borrowing
to be less than the bond interest paid.
The reason: The borrower is not required to pay the bond premium at
the maturity date of the bonds. Thus, the bond premium is considered
to be a reduction in the cost of borrowing.
10-39 LO 5 Prepare the entries for the issuance of bonds and interest expense.
Issuing Bonds at a Premium
Illustration 10-16
10-40 LO 5 Prepare the entries for the issuance of bonds and interest expense.
Accounting for Bond Retirements
Cash 100,000
The carrying value of the bonds is the face value of the bonds
adjusted for the bond discount or bond premium amortized up to the
redemption date.
Question
When bonds are redeemed before maturity, the gain or
loss on redemption is the difference between the cash
paid and the:
Question
Each payment on a mortgage note payable consists of:
Presentation
Illustration 10-18
10-49
LO 8 Identify the methods for the presentation
and analysis of non-current liabilities.
Statement Presentation and Analysis
Analysis
Two ratios that provide information about debt-paying
ability and long-run solvency are:
Debt to Total Assets Ratio
10-50
LO 8 Identify the methods for the presentation
and analysis of non-current liabilities.
Statement Presentation and Analysis
Analysis
Illustration: LG’s (KOR) had total liabilities of 39,048 billion, total
assets of 64,782 billion, interest expense of 778 billion, income
taxes of 1,092 billion, and net income of 2,967 billion.
Illustration 10-19
Illustration 10A-1
1) interest rate,
PLUS
Present value of the periodic interest payments
discounted at the investor’s required rate of return
Illustration 10B-2
10-68 LO 10
Amortizing Bond Discount
Illustration 10B-4
10-72 LO 11
APPENDIX 10C STRAIGHT-LINE AMORTIZATION
10-73 LO 11
Amortizing Bond Discount
Illustration 10C-4
10-77 LO 12 Prepare entries for payroll and payroll taxes under U.S. law.
Payroll-Related Liabilities
10-79 LO 12 Prepare entries for payroll and payroll taxes under U.S. law.
Payroll-Related Liabilities
10-80 LO 12 Prepare entries for payroll and payroll taxes under U.S. law.
Payroll-Related Liabilities
Question
Employer payroll taxes do not include:
d. FICA taxes.
10-81 LO 12 Prepare entries for payroll and payroll taxes under U.S. law.