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Lecture Accounting (6th edition): Chapter 10 - Kimmel, Weygandt, Kieso

Chapter 10 - Reporting and analyzing liabilities. In this chapter students will be able to: Explain how to account for current liabilities, describe the major characteristics of bonds, explain how to account for bond transactions, discuss how liabilities are reported and analyzed. | Reporting and Analyzing Liabilities Kimmel ● Weygandt ● Kieso Accounting, Sixth Edition 10 Describe the major characteristics of bonds. CHAPTER OUTLINE Explain how to account for current liabilities. 1 2 LEARNING OBJECTIVES Explain how to account for bond transactions. 3 Discuss how liabilities are reported and analyzed. 4 A debt that a company expects to pay from existing current assets or through the creation of other current liabilities, and within one year or the operating cycle, whichever is longer. Current liabilities include notes payable, accounts payable, unearned revenues, and accrued liabilities such as taxes, salaries and wages, and interest. WHAT IS A CURRENT LIABILITY? LEARNING OBJECTIVE Explain how to account for current liabilities. 1 LO 1 Review Question To be classified as a current liability, a debt must be expected to be paid within: 1 year. the operating cycle. 2 years. (a) or (b), whichever is longer. LO 1 WHAT IS A CURRENT LIABILITY? Written promissory note. Usually require the borrower to pay interest. Frequently issued to meet short-term financing needs. Issued for varying periods of time. Those due for payment within one year of the balance sheet date are usually classified as current liabilities. NOTES PAYABLE LO 1 Illustration: First National Bank agrees to lend $100,000 on September 1, 2017, 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 note’s face value. Notes Payable 100,000 Cash 100,000 Sept. 1 NOTES PAYABLE LO 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 * Dec. 31 * $100,000 x 12% x 4/12 = $4,000 NOTES PAYABLE LO 1 Illustration: At maturity (January 1), Cole Williams Co. must pay the face value of the note plus interest. It records payment as follows. . | Reporting and Analyzing Liabilities Kimmel ● Weygandt ● Kieso Accounting, Sixth Edition 10 Describe the major characteristics of bonds. CHAPTER OUTLINE Explain how to account for current liabilities. 1 2 LEARNING OBJECTIVES Explain how to account for bond transactions. 3 Discuss how liabilities are reported and analyzed. 4 A debt that a company expects to pay from existing current assets or through the creation of other current liabilities, and within one year or the operating cycle, whichever is longer. Current liabilities include notes payable, accounts payable, unearned revenues, and accrued liabilities such as taxes, salaries and wages, and interest. WHAT IS A CURRENT LIABILITY? LEARNING OBJECTIVE Explain how to account for current liabilities. 1 LO 1 Review Question To be classified as a current liability, a debt must be expected to be paid within: 1 year. the operating cycle. 2 years. (a) or (b), whichever is longer. LO 1 WHAT IS A CURRENT LIABILITY? Written promissory note. .