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Lecture Introduction to financial accounting - Chapter 10: Reporting and analyzing liabilities

Chapter 10 - Reporting and analyzing liabilities. After completing this unit, you should be able to: Explain a current liability and identify the major types of current liabilities, describe the accounting for notes payable, explain the accounting for other current liabilities, explain why bonds are issued and identify the types of bonds. | 201Lec10.PPTX REPORTING AND ANALYZING LIABILITIES Claims on total assets - obligations to employees (current and retired), governments, suppliers, banks and financiers, law suit settlements, customers, etc “Current” if due within 1 year 1 10 Similar calculations to notes receivable. Record principle. Interest only as incurred Sometimes, notes are paid off over several years. If so, balance shows split as follows: Current Liabilities: Current Maturity of Long-Term Debt $ xxxxx Long-term Liabilities: Long-term Debt $ xxxxx 2 Notes Payable Also called Installment notes. - Make periodic payments over the life of note. Installment payment schedule 3 Mortgage Notes Payable EXAMPLE: On January 1, 2015 Konk borrowed $20,000 at an annual interest rate of 10%. The loan requires 6 annual payments of $4,592.15. Prepare an installment payment schedule. Payment Amount Interest** Principal Balance (Balance)(10%) (Amount-Interest) 4 ** Use 5% if semi-annual payments, use 2.5% if quarterly payments! 1-1-15 20000.00 1-1-16 4592.15 2000.00 2592.15 17407.85 1-1-17 4592.15 1740.78 2851.37 14556.48 1-1-18 4592.15 1455.65 3136.50 11419.98 1-1-19 4592.15 1142.00 3450.15 7969.83 1-1-20 4592.15 796.98 3795.17 4174.66 1-1-21 4592.12 417.46 4174.66 0 Balance sheet at 12/31/15 Current liabilities: Interest payable (recorded by AJE on 12/31/15) >>>>>> $ 2,000.00 Current portion of long-term debt 2,592.15 Long term liabilities: – Notes payable $17,407.85 Assessed on buyer but collected by seller. - Seller is liable for determining when sales tax applies and how much to charge. Generally on tangible goods, not services. States have varying rules and exceptions. - Required for sales to an in-state buyer. Once collected, sales tax payable is a liability of seller. If seller isn’t liable, states assess a “use” tax payable by the buyer. 5 Current Liabilities – Sales Tax Payable EMPLOYEE’S TAXES WITHHELD: FICA (or OASDI) is made up of two components: - Social Security (up to a maximum) - Medicare (on | 201Lec10.PPTX REPORTING AND ANALYZING LIABILITIES Claims on total assets - obligations to employees (current and retired), governments, suppliers, banks and financiers, law suit settlements, customers, etc “Current” if due within 1 year 1 10 Similar calculations to notes receivable. Record principle. Interest only as incurred Sometimes, notes are paid off over several years. If so, balance shows split as follows: Current Liabilities: Current Maturity of Long-Term Debt $ xxxxx Long-term Liabilities: Long-term Debt $ xxxxx 2 Notes Payable Also called Installment notes. - Make periodic payments over the life of note. Installment payment schedule 3 Mortgage Notes Payable EXAMPLE: On January 1, 2015 Konk borrowed $20,000 at an annual interest rate of 10%. The loan requires 6 annual payments of $4,592.15. Prepare an installment payment schedule. Payment Amount Interest** Principal Balance (Balance)(10%) (Amount-Interest) 4 ** Use 5% if semi-annual payments, use 2.5% if quarterly payments! .