LIABILITIES

Chapter 11

© 2009 The McGraw-Hill Companies, Inc.,

All Rights Reserved
 DEFINING LIABILITIES

The
Because of a company . . . For future
past event . . . has a sacrifices
present
obligation

Past Present Future

McGraw-Hill/Irwin Slide 2
 CLASSIFYING LIABILITIES

Current Long-Term
Liabilities Liabilities

Expected to be Expected not to be

paid within one paid within one
year or the year or the
company’s company’s
operating cycle, operating cycle,
whichever is whichever is
longer. longer.
McGraw-Hill/Irwin Slide 3
 LIABILITIES

Accounts Payable

Taxes Payable

Unearned Revenues

Short-Term Notes Payable

Payroll Liabilities

Long term Liabilities

McGraw-Hill/Irwin Slide 4
 UNEARNED REVENUES

On May 1, 2009, A-1 Catering received

$3,000 in advance for catering a wedding
party to take place on July 12, 2009.
DR CR
May 1 Cash 3,000
Unearned Revenue - Catering 3,000
To record advance payment.

DR CR
Jul 12 Unearned Revenue - Catering 3,000
Revenue - Catering 3,000
To recognize revenue earned.
McGraw-Hill/Irwin Slide 5
 SHORT-TERM NOTES PAYABLE

A written promise to pay a specified

amount on a definite future date within one
year or the company’s operating cycle,
whichever is longer.

McGraw-Hill/Irwin Slide 6
 NOTE GIVEN TO EXTEND
CREDIT PERIOD
On August 1, 2009, Matrix, Inc. asked Carter, Co.
to accept a 90-day, 12% note to replace its
existing $5,000 account payable to Carter. Matrix
would make the following entry:
DR CR
Aug 1 Accounts Payable - Carter 5,000
Notes Payable - Carter 5,000
To replace customer account with note.

McGraw-Hill/Irwin Slide 7
 NOTE GIVEN TO EXTEND
CREDIT PERIOD

On October 30, 2009, Matrix, Inc. pays

the note plus interest to Carter.

Interest expense = $5,000 × 12% × (90 ÷ 360) = $150

Oct 30 Notes payable - Carter 5,000

Interest expense 150
Cash 5,150
To record payment of note and
interest

McGraw-Hill/Irwin Slide 8
 NOTE GIVEN TO BORROW FROM
BANK

PROMISSORY NOTE
$20,000 Sept. 1, 2009
Face Value Date
Ninety days after date I promise to pay to the order of
American Bank
Nashville, TN
Twenty thousand and no/100 - - - - - - - - - - - - - - - - Dollars
-
plus interest at the annual rate of 6% .

Jackson Smith
McGraw-Hill/Irwin Slide 9
 FACE VALUE EQUALS AMOUNT
BORROWED
On September 1, 2009, Jackson Smith borrows
$20,000 from American Bank. The note bears
interest at 6% per year. Principal and interest
are due in 90 days (November 30, 2009).

DR CR
Sep 1 Cash 20,000
Notes payable 20,000
To record note to American Bank.

McGraw-Hill/Irwin Slide 10
 FACE VALUE EQUALS AMOUNT
BORROWED
On November 30, 2009, Smith would
make the following entry:

$20,000 × 6% × (90 ÷ 360) = $300

DR CR
Notes payable 20,000
Interest expense 300
Cash 20,300
To record payment of note and interest

McGraw-Hill/Irwin Slide 11
 END-OF-PERIOD ADJUSTMENT
TO NOTES

Note End of Maturity

Date Period Date

An adjusting entry
is required to
record Interest
Expense incurred
to date.
McGraw-Hill/Irwin Slide 12
 END-OF-PERIOD ADJUSTMENT
TO NOTES

Dec. 31,
Dec. 16, 2009 Feb. 14,
2009 2010

Note End of Maturity

Date Period Date

James Burrows borrowed $8,000 on Dec. 16,

2009, by signing a 12%, 60-day note payable.

McGraw-Hill/Irwin Slide 13
 END-OF-PERIOD ADJUSTMENT
TO NOTES
On December 16, 2009, James Burrows
would make the following entry:
Dec 16 Cash 8,000
Notes payable 8,000
To record amount borrowed
from bank

On December 31, 2009, the adjustment is:

DR CR
Dec 31 Interest expense 40
Interest payable 40
To accrue interest on note

$8,000 × 12% × (15 ÷ 360) = $40

McGraw-Hill/Irwin Slide 14
 END-OF-PERIOD ADJUSTMENT
TO NOTES
On February 14, 2010, James Burrows
would make the following entry.
DR CR
Feb 14 Notes payable 8,000
Interest payable 40
Interest expense 120
Cash 8,160
To record payment of note

$8,000 × 12% × (45 ÷ 360) = $120

McGraw-Hill/Irwin Slide 15
 PAYROLL LIABILITIES

Employers incur
expenses and
liabilities from
having employees.

McGraw-Hill/Irwin Slide 16
 EMPLOYEE PAYROLL DEDUCTIONS
CÁC KHOẢN TRÍCH THEO LƯƠNG

Gross Pay

Social insurance Medicare Personal Income

Insurance Tax  tax rate
7% gross pay
1.5% Gross
pay

Net Pay
McGraw-Hill/Irwin Slide 17
 EMPLOYEE PAYROLL DEDUCTIONS
CÁC KHOẢN TRÍCH THEO LƯƠNG

McGraw-Hill/Irwin Slide 18
 RECORDING EMPLOYEE PAYROLL
DEDUCTIONS
The entry to record payroll expenses and
deductions for an employee might look like this.

Jan. 31 Salaries Expense 4000

Medical insurance payable 40
Social insurance payable 200
Personal Income tax payable 400
Accrued salaries payable 3360

McGraw-Hill/Irwin Slide 19
 WARRANTY LIABILITIES
BẢO HÀNH

Seller’s obligation to replace or correct a product (or

service) that fails to perform as expected within a
specified period. To conform with the matching
principle, the seller reports expected warranty expense
in the period when revenue from the sale is reported.
A dealer sells a car for $32,000, on December 1, 2009, with
a warranty for parts and labor for 12 months, or 12,000
miles. The dealership experiences an average warranty
cost of 3% of the selling price of each car.

McGraw-Hill/Irwin Slide 20
 WARRANTY LIABILITIES
A dealer sells a car for $32,000, on December 1, 2009, with
a warranty for parts and labor for 12 months, or 12,000
miles. The dealership experiences an average warranty
cost of 3% of the selling price of each car.
DR CR
Dec. 1 Warranty Expense 960
Estimated Warranty Liability 960
To accrue estimated warranty expense

On February 15, 2010, parts of $200 and labor

of $250 covered under warranty were incurred.
DR CR
Feb. 15 Estimated Warranty Liability 450
Auto Parts Inventory 200
Salaries Payable 250
To record warranty costs
McGraw-Hill/Irwin Slide 21
 LONG - TERM LIABILITIES

 Bonds

 Long - term loans

 Mortgage payable

 Leases
 Capitalleases
 Operating leases

McGraw-Hill/Irwin Slide 22
 INSTALLMENT LOANS WITH EQUAL
PAYMENTS
Many long –term loans or mortgages require equal instalment payments.
Thus, an accountant needs to prepare a table of payment plan
Amortization Schedule
(A = 8% * D) (B = C - A) C (D = Previous -B)
Interest Note
Loan Note
Loan
Date Expense Amortization* Payment Balance
Beginning Balance $ 60,000
12/31/2009 $ 4,800 $ 8,179 $ 12,979 51,821
12/31/2010 4,146 8,833 12,979 42,988
12/31/2011 3,439 9,540 12,979 33,448
12/31/2012 2,676 10,303 12,979 23,145
12/13/2013 1,852 11,127 12,979 12,017
12/31/2014 961 12,017 12,979 0
$ 17,873 $ 60,000 $ 77,874
* Rounded.
McGraw-Hill/Irwin Slide 23
 RECORD INSTALLMENT LOAN WITH
EQUAL PAYMENTS
 Each period, when the payment is made, the
following entry will be recorded
 31/12/2009
Dec. 31 Interest Expense 4,800
Long-term loan 8,179
Cash 12,979

 31/12/2010
Dec. 31 Interest Expense 4,146
Long-term loan 8,833
Cash 12,979

McGraw-Hill/Irwin Slide 24
 PRACTICE
The following transactions and events took place at Kern Company during its recent calendar-
year reporting period (Kern does not use reversing entries).
a. In September 2011, Kern sold $140,000 of merchandise covered by a 180-day warranty. Prior
experience shows that costs of the warranty equal 5% of sales. Compute September’s warranty
expense and prepare the adjusting journal entry for the warranty liability as recorded at
September 30. Also prepare the journal entry on October 8 to record a $300 cash expenditure to
provide warranty service on an item sold in September.
b. On October 12, 2011, Kern arranged with a supplier to replace Kern’s overdue $10,000
account payable by paying $2,500 cash and signing a note for the remainder. The note matures in
90 days and has a 12% interest rate. Prepare the entries recorded on October 12, December 31,
and January 10, 2012, related to this transaction.
c. In late December, Kern learns it is facing a product liability suit filed by an unhappy customer.
Kern’s lawyer advises that although it will probably suffer a loss from the lawsuit, it is not
possible to estimate the amount of damages at this time.
d. Sally Bline works for Kern. For the pay period ended November 30, her gross earnings are
$3,000. Bline has $800 deducted for federal income taxes and $200 for state income taxes from
each paycheck. Additionally, a $35 premium for her health care insurance and a $10 donation for
the United Way are deducted. Bline pays FICA Social Security taxes at a rate of 6.2% and FICA
Medicare taxes at a rate of 1.45%. She has not earned enough this year to be exempt from any
FICA taxes. Journalize the accrual of salaries expense of Bline’s wages by Kern.

McGraw-Hill/Irwin Slide 28
 PRACTICE
The following transactions and events took place at Kern Company during its
recent calendar-year reporting period (Kern does not use reversing entries).

e. On November 1, Kern borrows $5,000 cash from a bank in return for a 60-day,
12%, $5,000 note. Record the note’s issuance on November 1 and its repayment
with interest on December 31.
f.B Kern has estimated and recorded its quarterly income tax payments. In
reviewing its year-end tax adjustments, it identifies an additional $5,000 of
income tax expense that should be recorded. A portion of this additional expense,
$1,000, is deferrable to future years. Record this year-end income taxes expense
adjusting entry.
g. For this calendar-year, Kern’s net income is $1,000,000, its interest expense is
$275,000, and its income taxes expense is $225,000. Calculate Kern’s times
interest earned ratio.

McGraw-Hill/Irwin Slide 29
McGraw-Hill/Irwin Slide 30
McGraw-Hill/Irwin Slide 31
 END OF CHAPTER 11

McGraw-Hill/Irwin Slide 32
Chapter 14

LONG-TERM LIABILITIES

NỢ DÀI HẠN

© 2009 The McGraw-Hill Companies, Inc.,

All Rights Reserved
 BOND FINANCING
HUY ĐỘNG VỐN BẰNG PHÁT HÀNH TRÁI PHIẾU

Advantages
Bonds do not affect
stockholder control.
Interest on bonds is tax
deductible.
Bonds can increase
return on equity.
Disadvantages
Requires payment of
both periodic interest
and par value at
maturity.
Can decrease return on
equity when the
company pays more in
interest than it earns on
the borrowed funds.

McGraw-Hill/Irwin Slide 34
 BOND ISSUING PROCEDURES
QUY TRÌNH PHÁT HÀNH TRÁI PHIẾU

. . .an investment firm

A company sells the called an underwriter.
bonds to. . . The underwriter sells
the bonds to. . .

A trustee
monitors
the bond
. . . investors issue.
McGraw-Hill/Irwin Slide 35
 BASICS OF BONDS

Corporation Investors
Bond Selling Price

Bond Certificate
at Par Value

McGraw-Hill/Irwin Slide 36
 BASICS OF BONDS

Bond Interest Payments

Corporation Investors
Bond Interest Payments

Bond Issue Interest Payment =

Date Bond Par Value × Stated Interest Rate
McGraw-Hill/Irwin Slide 37
 ISSUING BONDS AT PAR
PHÁT HÀNH TRÁI PHIẾU BẰNG MỆNH GIÁ

A company is authorized to issue the following bonds on

January 1, 2009:
Par Value = $800,000
Stated Interest Rate = 9%
Interest Dates = 6/30 and 12/31
Bond Date = Jan. 1, 2009
Maturity Date = Dec. 31, 2028 (20 years)

DR CR
Jan 1 Cash 800,000
Bonds Payable 800,000
Sold bonds at par.

McGraw-Hill/Irwin Slide 38
 ISSUING BONDS AT PAR

On June 30, 2009, to record the first semiannual interest

payment is . . .

DR CR
Jun 30 Bond Interest Expense 36,000
Cash 36,000
Paid semiannual interest on bonds

$800,000 × 9% × ½ year = $36,000

This entry is made every six months until the
bonds mature.

McGraw-Hill/Irwin Slide 39
 BOND DISCOUNT OR PREMIUM
TRÁI PHIẾU CHIẾT KHẤU HOẶC TRÁI PHIẾU CÓ PHỤ TRỘI

Bond Sets Market Sets

Contract Market
Contract rate > Market rate Bonds sell at Premium
Rate Rate

Contract rate = Market rate Bonds sell at Par

Contract rate < Market rate Bonds sell at Discount

McGraw-Hill/Irwin Slide 40
 ISSUING BONDS AT A DISCOUNT

Fila announces an offer to issue bonds with the

following provisions:
Par Value = $100,000
Issue Price = 96.454% of par value
Stated Interest Rate = 8%
Market Interest Rate = 10% }
Bond will sell at a discount.

Interest Dates = 6/30 and 12/31

Bond Date = Jan. 1, 2009
Maturity Date = Dec. 31, 2010 (2 years)

McGraw-Hill/Irwin Slide 41
 ISSUING BONDS AT A DISCOUNT

On Jan. 1, 2009, Fila will record the bond issue as:

Par value $ 100,000  
Cash proceeds 96,454 *
Discount $ 3,546  
*$100,000 x 96.454%  

DR CR
Jan 1 Cash 96,454
Discount on Bonds Payable 3,546
Bonds Payable 100,000
Sold bonds at a discount on issue date

Contra-Liability
Account
McGraw-Hill/Irwin Slide 42
 ISSUING BONDS AT A DISCOUNT
Partial Balance Sheet as of Jan. 1, 2009
Long-term Liabilities:
Bonds Payable 100,000
Less: Discount on Bonds Payable 3,546 96,454

Maturity Value
Carrying Value

Amortizing a Bond Discount

Using the straight-line method, the discount amortization will
be $887(rounded) every six months.
$3,546 ÷ 4 periods = $887(rounded)
McGraw-Hill/Irwin Slide 43
 AMORTIZING A BOND DISCOUNT
Fila will make the following entry every six
months to record the cash interest payment and
the amortization of the discount.
DR CR
Jun 30 Bond Interest Expense 4,887
Discount on Bonds Payable 887
Cash 4,000
To record interest payment and amortization

$3,546 ÷ 4 periods = $887 (rounded)

$100,000 × 8% × ½ = $4,000

McGraw-Hill/Irwin Slide 44
 AMORTIZING A BOND DISCOUNT
Straight-Line Amortization Table
Interest Interest Discount Unamortized Carrying
Date Payment Expense Amortization* Discount Value
1/1/2009 $ 3,546 $ 96,454
6/30/2009 $ 4,000 $ 4,887 $ 887 2,659 97,341
12/31/2009 4,000 4,887 887 1,772 98,228
6/30/2010 4,000 4,887 887 885 99,115
12/31/2010 4,000 4,885 885 - 100,000
$ 16,000 $ 19,546 $ 3,546
* Rounded.

McGraw-Hill/Irwin Slide 45
 ISSUING BONDS AT A PREMIUM

Adidas issues bonds with the following features on

January 1, 2009:
Par Value = $100,000
Issue Price = 103.546% of par value
}
Stated Interest Rate = 12% Bond will sell at a premium.
Market Interest Rate = 10%
Interest Dates = 6/30 and 12/31
Bond Date = Jan. 1, 2009
Maturity Date = Dec. 31, 2010 (2 years)

McGraw-Hill/Irwin Slide 46
 ISSUING BONDS AT A PREMIUM
On Jan. 1, 2009, Adidas will record the bond issue as:

Par value $ 100,000  

Cash proceeds 103,546 *
Premium $ 3,546  
*$100,000 x 103.546%  

DR CR
Jan 1 Cash 103,546
Premium on Bonds Payable 3,546
Bonds Payable 100,000
Sold bonds at a premium on issue date

Adjunct-Liability
Account
McGraw-Hill/Irwin Slide 47
 ISSUING BONDS AT A PREMIUM
Partial Balance Sheet as of Jan. 1, 2009
Long-term Liabilities:
Bonds Payable 100,000
Plus: Premum on Bonds Payable 3,546 103,546

Maturity Value
Carrying Value

Amortizing a Bond Premium

Using the straight-line method, the premium amortization will
be $887(rounded) every six months.
$3,546 ÷ 4 periods = $887(rounded)
McGraw-Hill/Irwin Slide 48
 AMORTIZING A BOND PREMIUM
Adidas will make the following entry every six
months to record the cash interest payment and
the amortization of the discount.
DR CR
Jun 30 Bond Interest Expense 5,113
Premium on Bonds Payable 887
Cash 6,000
To record interest payment and amortization

$3,546 ÷ 4 periods = $887 (rounded)

$100,000 × 12% × ½ = $6,000

McGraw-Hill/Irwin Slide 49
 AMORTIZING A BOND PREMIUM
Straight-Line Amortization Table
Interest Interest Premium Unamortized Carrying
Date Payment Expense Amortization* Premium Value
1/1/2009 $ 3,546 $ 103,546
6/30/2009 $ 6,000 $ 5,113 $ 887 2,659 102,659
12/31/2009 6,000 5,113 887 1,772 101,772
6/30/2010 6,000 5,113 887 885 100,885
12/31/2010 6,000 5,115 885 - 100,000
$ 24,000 $ 20,454 $ 3,546
* Rounded.

McGraw-Hill/Irwin Slide 50
 PRESENT VALUE OF A DISCOUNT BOND

Here are the Fila bonds we worked with earlier:

Par Value = $100,000
Issue Price = ?
Stated Interest Rate = 8%
Market Interest Rate = 10%
Interest Dates = 6/30 and 12/31
Bond Date = Jan. 1, 2009
Maturity Date = Dec. 31, 2010 (2 years)

McGraw-Hill/Irwin Slide 51
 PRESENT VALUE OF A DISCOUNT
BOND
Table Present
Cash Flow Table Value Amount Value
Par value of the bond PV of $1 (B.1) 0.8227 $ 100,000 $ 82,270

Interest (annuity) PV of Annuity

of $1 (B.3) 3.5460 4,000 14,184
Price of bond $ 96,454

1. Semiannual rate = 5% (Market rate 10% ÷ 2)

2. Semiannual periods = 4 (Bond life 2 years × 2)

$100,000 × 8% × ½ = $4,000

McGraw-Hill/Irwin Slide 52
 BOND RETIREMENT
THU HỒI TRÁI PHIẾU

At Maturity – Khi đáo hạn

Let’s retire the Fila bonds at maturity for
$100,000 cash.

DR CR
Dec 31 Bonds Payable 100,000
Cash 100,000
Retirement of bonds at maturity

Because any discount or premium will be fully amortized at

maturity, the carrying value of the bonds will be equal to
par value.

McGraw-Hill/Irwin Slide 53
 BOND RETIREMENT

Before Maturity – trước khi đáo hạn

• Carrying Value > Retirement Price = Gain
• Carrying Value < Retirement Price = Loss
Let’s retire the Adidas bonds on June 30, 2009, after the first
interest payment. The bond carrying value is $102,659, and
the unamortized bond premium is $2,659. Because the
bonds are retired early, a call premium of $3,000 must be
paid to the bondholders.
DR CR
Jun 30 Bonds Payable 100,000
Premium on Bonds Payable 2,659
Loss on Bond Retirement 341
Cash 103,000
To record bond retirement before maturity
McGraw-Hill/Irwin Slide 54
 BOND RETIREMENT
By Conversion – bằng cách chuyển đổi
On January 1, $100,000 par value bonds of Converse, with a
carrying value of $100,000, are converted to 15,000 shares
of $2 par value common stock.
DR CR
Jan 1 Bonds Payable 100,000
Common Stock 30,000
Paid-in Capital in Excess of Par 70,000
To record conversion of bonds into common stock

15,000 shares × $2 par value per share

McGraw-Hill/Irwin Slide 55
 LONG-TERM NOTES PAYABLE

Cash

Company Note Payable Lender

When is the repayment of the principal

and interest going to be made?

Note Date Note Maturity

Date
McGraw-Hill/Irwin Slide 56
 LONG-TERM NOTES PAYABLE

Single Payment of
Principal plus Interest

Company Lender
Single Payment of
Principal plus
Interest

Note Date Note Maturity

Date
McGraw-Hill/Irwin Slide 57
 LONG-TERM NOTES PAYABLE

Regular Payments of
Principal plus Interest

Company Lender
Regular Payments of Principal plus Interest

Payments can either be equal

Note Date principal payments plus interest Note Maturity
or equal payments. Date
McGraw-Hill/Irwin Slide 58
 INSTALLMENT NOTES WITH EQUAL
PAYMENTS
On January 1, 2009, Foghog borrows $60,000 from a bank to
purchase equipment. It signs an 8% installment note requiring 6
annual payments of principal plus interest.

DR CR
Jan 1 Cash 60,000
Notes Payable 60,000
Borrowed $60,000 b y signing an 8% note

Compute the periodic payment by dividing the face amount

of the note by the present value factor.
Table Present
Computation Table
PV of Value Value Payment
Principal divided Annuity of
by PV factor $1 (B.3) 4.6229 60,000 12,979
McGraw-Hill/Irwin Slide 59
 INSTALLMENT NOTES WITH EQUAL
PAYMENTS
Amortization Schedule
(A = 8% * D) (B = C - A) C (D = Previous -B)
Interest Note Note
Date Expense Amortization* Payment Balance
Beginning Balance $ 60,000
12/31/2009 $ 4,800 $ 8,179 $ 12,979 51,821
12/31/2010 4,146 8,833 12,979 42,988
12/31/2011 3,439 9,540 12,979 33,448
12/31/2012 2,676 10,303 12,979 23,145
12/13/2013 1,852 11,127 12,979 12,017
12/31/2014 961 12,017 12,979 0
$ 17,873 $ 60,000 $ 77,874
* Rounded.

McGraw-Hill/Irwin Slide 60
 INSTALLMENT NOTES WITH EQUAL
PAYMENTS
Let’s record the first payment made on December 31, 2009
by Foghog to the bank.

DR CR
Dec 31 Notes Payable 8,179
Interest Expense 4,800
Cash 12,979
To record payment on note payab le

Refer back to the amortization schedule and see if you can

make the entry for the second payment on the note.

DR CR
Dec 31 Notes Payable 8,833
Interest Expense 4,146
Cash 12,979
To record payment on note payable
McGraw-Hill/Irwin Slide 61
 MORTGAGE NOTES AND
BONDS

A legal agreement that helps protect the lender if

the borrower fails to make the required payments.
Gives the lender the right to be paid out of the
cash proceeds from the sale of the borrower’s
assets specifically identified in the mortgage
contract.

McGraw-Hill/Irwin Slide 62
 14A – PRESENT VALUES OF BONDS
AND NOTES
Present Value of $1
  Rate
Periods 3% 4% 5% Let’s calculate the present value of a
1 0.9709 0.9615 0.9524 debt instrument that has a face amount
2 0.9426 0.9246 0.9070
3 0.9151 0.8890 0.8638
of $100,000, contract rate of 8%, market
4 0.8885 0.8548 0.8227 rate of 10% with interest paid
5 0.8626 0.8219 0.7835 semiannually. First, we calculate the
6 0.8375 0.7903 0.7462 present value of the principal repayment
7 0.8131 0.7599 0.7107
8 0.7894 0.7307 0.6768
in 4 periods (2 years × 2 payments per
9 0.7664 0.7026 0.6446 year, using 5% market rate (10% annual
10 0.7441 0.6756 0.6139 rate ÷ 2 payments per year).

$100,000 × 0.8227 = $82,270

McGraw-Hill/Irwin Slide 63
 14A – PRESENT VALUES OF BONDS
AND NOTES
Present Value of Annuity of $1
  Rate
Periods 3% 4% 5%
1 0.9709 0.9615 0.9524
Interest Annuity 2 1.9135 1.8861 1.8594
3 2.8286 2.7751 2.7232
$100,000 × 8% × ½ = $4,000 4 3.7171 3.6299 3.5460
5 4.5797 4.4518 4.3295
6 5.4172 5.2421 5.0757
7 6.2303 6.0021 5.7864
$4,000 × 3.5460 = $14,184 8
9
7.0197
7.7861
6.7327
7.4353
6.4632
7.1078
10 8.5302 8.1109 7.7217

      Present
  Amount PV Factor Value
Principal $ 100,000 0.8227 $ 82,270
Interest 8,000 3.5460 14,184
Issue price of debt   $ 96,454
       
McGraw-Hill/Irwin Slide 64
 14B – EFFECTIVE INTEREST
AMORTIZATION
Effective Interest Amortization Schedule
Interest Interest Discount Unamortized Carrying
Date Payment Expense Amortization* Discount Value
1/1/2009 $ 3,546 $ 96,454
6/30/2009 $ 4,000 $ 4,823 $ 823 2,723 97,277
12/31/2009 4,000 4,864 864 1,859 98,141
6/30/2010 4,000 4,907 907 952 99,048
12/31/2010 4,000 4,952 952 0 100,000
$ 16,000 $ 19,546 $ 3,546
* Rounded.

$96,454 × 5% = $4,823 $100,000 - $2,723 = $97,277

McGraw-Hill/Irwin Slide 65
 14C - ISSUING BONDS BETWEEN
INTEREST DATES
Avia sells $100,000 of its 9% bonds at par on March 1, 2009, 60
days after the stated issue date. The interest on Avia bonds is
payable semiannual on each June 30 and December 31.
Stated Issue First Interest
date 1/1 Date of sale 3/1 date 6/30
$1,500 accrued $3,000 earned
Bondholder pays Issuer pays $4,500 to
$1,500 to issuer bondholder
DR CR
Mar 1 Cash 101,500
Interest Payable 1,500
Bonds Payable 100,000
To record sale of bonds on 3/1
DR CR
Jun 30 Bond Interest Expense 3,000
Interest Payable 1,500
Cash 4,500
McGraw-Hill/Irwin To record first interest payment Slide 66
 14D – LEASES – THUÊ TÀI SẢN

A lease is a contractual agreement between the lessor (asset owner)

and the lessee (asset renter or tenant) that grants the lessee the right to
use the asset for a period of time in return for cash (rent) payments.

Operating Leases – THUÊ HoẠT ĐỘNG

Operating leases are short-term (or cancelable) leases in which the lessor retains the risks
and rewards of ownership. Examples include most car and apartment rental agreements.

Capital Leases – THUÊ TÀI CHÍNH

Capital leases are long-term (or non-cancelable) leases by which the lessor transfers
substantially all risks and rewards of ownership to the lessee. Examples include leases of
airplanes and department store buildings.

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 END OF CHAPTER 14

McGraw-Hill/Irwin Slide 68