Slide 10-1

Chapter

10

Liabilities
Financial Accounting, IFRS Edition Weygandt Kimmel Kieso
Slide 10-2

Study Objectives
1. 2. 3. 4. 5. 6. 7. 8.
Slide 10-3

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. Prepare the entries for the issuance of bonds and interest expense. Describe the entries when bonds are redeemed. Describe the accounting for long-term notes payable. Identify the methods for the presentation and analysis of noncurrent liabilities.

Liabilities

Current Liabilities

Non-Current Liabilities

Notes payable

Bond basics

Sales taxes payable
Unearned revenues Current maturities of longterm debt

Accounting for bond issues
Accounting for bond retirements Accounting for long-term notes payable Statement presentation and analysis

Statement presentation and analysis

Slide 10-4

Current liabilities include notes payable. Company expects to pay the debt from existing current assets or through the creation of other current liabilities. Company will pay the debt within one year or the operating cycle. 2.Section 1 Current Liabilities What is a Current Liability? Current liability is debt with two key features: 1. . Slide 10-5 SO 1 Explain a current liability. and identify the major types of current liabilities. and accrued liabilities such as taxes payable. accounts payable. and interest payable. salaries payable. whichever is longer. unearned revenues.

What is a Current Liability? Question To be classified as a current liability. out of existing current assets. b. a debt must be expected to be paid: a. d. within 2 years. by creating other current liabilities. . and identify the major types of current liabilities. c. Slide 10-6 SO 1 Explain a current liability. both (a) and (b).

Require the borrower to pay interest. Slide 10-7 SO 2 Describe the accounting for notes payable. . Issued for varying periods.What is a Current Liability? Notes Payable Written promissory note.

assuming monthly adjusting entries have not been made. b) Prepare the adjusting entry on June 30. Instructions a) Prepare the entry on March 1. Cole Williams borrows $100.000 from First National Bank on a 4-month. 12% note. Slide 10-8 SO 2 Describe the accounting for notes payable. . 2011. c) Prepare the entry at maturity (July 1).What is a Current Liability? Illustration: On March 1.

000 x 12% x 4/12 = $4. Cole Williams borrows $100.000 100.000 Interest expense Interest payable Slide 10-9 4.000 from First National Bank on a 4-month.What is a Current Liability? Illustration: On March 1.000 Notes payable b) Prepare the adjusting entry on June 30. 2011. a) Prepare the entry on March 1. . Cash 100.000 SO 2 Describe the accounting for notes payable.000 4. 12% note. $100.

Cole Williams borrows $100.000 104.000 Slide 10-10 SO 2 Describe the accounting for notes payable.000 Interest payable Cash 4. 12% note. c) Prepare the entry at maturity (July 1). 2011.000 from First National Bank on a 4-month.What is a Current Liability? Illustration: On March 1. Notes payable 100. .

Retailer collects tax from the customer. .What is a Current Liability? Sales Tax Payable Sales taxes are expressed as a stated percentage of the sales price. Retailer remits the collections to the state’s department of revenue. Slide 10-11 SO 3 Explain the accounting for other current liabilities. Either rung up separately or included in total receipts.

the journal entry is: Cash Sales Sales tax payable 10.600 10.000 600 Slide 10-12 SO 3 Explain the accounting for other current liabilities.What is a Current Liability? Illustration: The March 25 cash register reading for Cooley Grocery shows sales of $10.000 and sales taxes of $600 (sales tax rate of 6%). .

Slide 10-13 SO 3 Explain the accounting for other current liabilities. it debits the Unearned Revenue account. and credits a revenue account. When the company earns the revenue. 1. Company debits Cash.What is a Current Liability? Unearned Revenue Revenues that are received before the company delivers goods or provides services. 2. . and credits a current liability account (unearned revenue).

Sept.What is a Current Liability? Illustration: Assume that Superior University sells 10. The university makes the following entry for the sale of season tickets: Aug. it would record the revenue earned.000 season football tickets at $50 each for its five-game home schedule.000 As the school completes each of the five home games. 7 Unearned revenue Ticket revenue 100.000 100.000 Slide 10-14 SO 3 Explain the accounting for other current liabilities. 6 Cash Unearned revenue 500. .000 500.

.What is a Current Liability? Unearned Revenue Illustration 10-2 Unearned and earned revenue accounts Slide 10-15 SO 3 Explain the accounting for other current liabilities.

No adjusting entry required. .What is a Current Liability? Current Maturities of Long-Term Debt Portion of long-term debt that comes due in the current year. Slide 10-16 SO 3 Explain the accounting for other current liabilities.

Statement Presentation and Analysis Presentation Illustration 10-3 Statement of financial position presentation of current liabilities (in thousands) Slide 10-17 SO 3 Explain the accounting for other current liabilities. .

. The current ratio permits us to compare the liquidity of different-sized companies and of a single company at different times.Statement Presentation and Analysis Analysis Illustration 10-4 Liquidity refers to the ability to pay maturing obligations and meet unexpected needs for cash. Illustration 10-5 Slide 10-18 SO 3 Explain the accounting for other current liabilities.

Slide 10-19 SO 3 Explain the accounting for other current liabilities.Statement Presentation and Analysis Question Working capital is calculated as: a. total assets minus total liabilities. b. d. both (b) and (c). c. non-current liabilities minus current liabilities. current assets minus current liabilities. .

Stockholder control is not affected. Tax savings result.Section 2 Non-Current Liabilities Bond Basics Bonds are a form of interest-bearing notes payable. Three advantages over ordinary shares: 1. 3. Earnings per share may be higher. and identify the types of bonds. 2. Slide 10-20 SO 4 Explain why bonds are issued. .

.Bond Basics Effects on earnings per share—equity vs. and identify the types of bonds. Illustration 10-7 Slide 10-21 SO 4 Explain why bonds are issued. debt.

Bond Basics Question The major disadvantages resulting from the use of bonds are: a. . and identify the types of bonds. that the principal is tax deductible and interest must be paid. d. that interest must be paid and principal repaid. c. Slide 10-22 SO 4 Explain why bonds are issued. that neither interest nor principal is tax deductible. b. that interest is not tax deductible and the principal must be repaid.

Registered and Bearer (or coupon) bonds. and identify the types of bonds. Convertible and Callable bonds. Term and Serial bonds. Slide 10-23 SO 4 Explain why bonds are issued.Bond Basics Types of Bonds Secured and Unsecured (debenture) bonds. .

Bond Basics
Issuing Procedures
Bond contract known as a bond indenture.
Represents a promise to pay:
(1) sum of money at designated maturity date, plus (2) periodic interest at a contractual (stated) rate on the maturity amount (face value).

Paper certificate, typically a $1,000 face value. Interest payments usually made semiannually. Generally issued when the amount of capital needed is too large for one lender to supply.
Slide 10-24

SO 4 Explain why bonds are issued, and identify the types of bonds.

Bond Basics
Issuer of Bonds
Illustration 10-8

2013

Maturity Date

DUE 2013

DUE 2013

Contractual Interest Rate

Slide 10-25

Face or Par Value

SO 4

Bond Basics
Bond Trading
Bonds traded on national securities exchanges.
Newspapers and the financial press publish bond prices and trading activity daily.

Read as: Outstanding 5.125%, $1,000 bonds that mature in 2014. Currently yield a 5.747% return. On this day, $33,965,000 of these bonds were traded. Closing price was 96.595% of face value, or $965.95.
Slide 10-26

SO 4 Explain why bonds are issued, and identify the types of bonds.

Bond Basics
Determining the Market Value of Bonds
Market value is a function of the three factors that determine present value:
1. dollar amounts to be received,

2. length of time until the amounts are received, and
3. market rate of interest.
The features of a bond (callable, convertible, and so on) affect the market rate of the bond.

Slide 10-27

SO 4 Explain why bonds are issued, and identify the types of bonds.

and identify the types of bonds. .Slide 10-28 SO 4 Explain why bonds are issued.

Accounting for Bond Issues Question The rate of interest investors demand for loaning funds to a corporation is the: a. stated interest rate. Slide 10-29 SO 4 Explain why bonds are issued. face value rate. b. c. contractual interest rate. market interest rate. . and identify the types of bonds. d.

d. and identify the types of bonds. the market interest rate exceeds the contractual interest rate. issues 10-year bonds with a maturity value of $200.000. c. the contractual interest rate exceeds the market interest rate. Slide 10-30 SO 4 Explain why bonds are issued.Accounting for Bond Issues Question Karson Inc. . the contractual interest rate and the market interest rate are the same. b. If the bonds are issued at a premium. this indicates that: a. no relationship exists between the two rates.

Accounting for Bond Issues Issuing Bonds at Face Value Illustration: On January 1. Candlestick Corporation issues $100.000 Bonds payable 100. . 10% bonds at 100 (100% of face value). The entry to record the sale is: Jan.000. 1 Cash 100. five-year. 2011.000 Slide 10-31 SO 4 Explain why bonds are issued. and identify the types of bonds.

2011.000 5. July 1 Bond interest expense Cash 5. Candlestick Corporation issues $100.000. 2011. Prepare the entry to record the payment of interest on July 1. five-year. Assume that interest is payable semiannually on January 1 and July 1.Issuing Bonds at Face Value Illustration: On January 1. and identify the types of bonds. assume no previous accrual.000 Slide 10-32 SO 4 Explain why bonds are issued. 10% bonds at 100 (100% of face value). .

Issuing Bonds at Face Value Illustration: On January 1. Dec. Prepare the entry to record the accrual of interest on December 31. five-year. .000 5. Assume that interest is payable semiannually on January 1 and July 1. 2011.000 Slide 10-33 SO 4 Explain why bonds are issued. 10% bonds at 100 (100% of face value). 31 Bond interest expense Bond interest payable 5. assume no previous accrual.000. Candlestick Corporation issues $100. and identify the types of bonds. 2011.

.Accounting for Bond Issues Assume Contractual Rate of 8% Market Interest Bonds Sold At 6% 8% Premium Face Value Discount 10% Slide 10-34 SO 5 Prepare the entries for the issuance of bonds and interest expense.

. sells $100.Accounting for Bond Issues Issuing Bonds at a Discount Illustration: On January 1. The entry to record the issuance is: Jan. 10% bonds for $92. 2011. Inc. 1 Cash 92. Candlestick.000.639 (92.639% of face value).639 Bond payable 92. Interest is payable on July 1 and January 1.639 Slide 10-35 SO 5 Prepare the entries for the issuance of bonds and interest expense. five-year.

Issuing Bonds at a Discount Statement Presentation Illustration 10-11 Statement presentation of bonds issued at a discount Slide 10-36 SO 5 Prepare the entries for the issuance of bonds and interest expense. .

.Issuing Bonds at a Discount Total Cost of Borrowing Illustration 10-12 Illustration 10-13 Slide 10-37 SO 5 Prepare the entries for the issuance of bonds and interest expense.

b. is a contra account. Slide 10-38 SO 5 Prepare the entries for the issuance of bonds and interest expense. . d. increases over the term of the bonds. c.Issuing Bonds at a Discount Question Discount on Bonds Payable: a. has a credit balance. is added to bonds payable on the statement of financial position.

Candlestick.111% of face value). Inc.111 (108. five-year.000.Accounting for Bond Issues Issuing Bonds at a Premium Illustration: On January 1. The entry to record the issuance is: Jan.111 Bonds payable 108. 1 Cash 108. 2011.111 Slide 10-39 SO 5 Prepare the entries for the issuance of bonds and interest expense. . sells $100. 10% bonds for $108. Interest is payable on July 1 and January 1.

Slide 10-40 SO 5 Prepare the entries for the issuance of bonds and interest expense.Issuing Bonds at a Premium Statement Presentation Illustration 10-14 Statement presentation of bonds issued at a premium Issuing bonds at an amount different from face value is quite common. By the time a company prints the bond certificates and markets the bonds. . it will be a coincidence if the market rate and the contractual rate are the same.

.Issuing Bonds at a Premium Total Cost of Borrowing Illustration 10-15 Illustration 10-16 Slide 10-41 SO 5 Prepare the entries for the issuance of bonds and interest expense.

Accounting for Bond Retirements Redeeming Bonds at Maturity Assuming that the company pays and records separately the interest for the last interest period.000 100. Candlestick records the redemption of its bonds at maturity as follows: Bond payable Cash 100.000 Slide 10-42 SO 6 Describe the entries when bonds are redeemed. .

Slide 10-43 SO 6 Describe the entries when bonds are redeemed. 2. The carrying value of the bonds is the face value of the bonds less unamortized bond discount or plus unamortized bond premium at the redemption date. recognize the gain or loss on redemption.Accounting for Bond Retirements Redeeming Bonds before Maturity When retiring bonds before maturity. and 3. it is necessary to: 1. eliminate the carrying value of the bonds at the redemption date. . record the cash paid.

Slide 10-44 SO 6 Describe the entries when bonds are redeemed. original selling price of the bonds. b. maturity value of the bonds. c. the gain or loss on redemption is the difference between the cash paid and the: a. . d. carrying value of the bonds.Accounting for Bond Retirements Question When bonds are redeemed before maturity. face value of the bonds.

Inc. Candlestick makes the following entry to record the redemption at the end of the eighth interest period (January 1.623.623 1.377 103. has sold its bonds at a premium. Candlestick retires these bonds at 103 after paying the semiannual interest.000 Slide 10-45 SO 6 Describe the entries when bonds are redeemed. At the end of the eighth period.Accounting for Bond Retirements Illustration: Assume Candlestick. The carrying value of the bonds at the redemption date is $101. . 2015): Bonds payable Loss on redemption Cash 101.

terms require the borrower to make installment payments over the term of the loan. Slide 10-46 SO 7 Describe the accounting for long-term notes payable.Accounting for Long-Term Notes Payable Long-Term Notes Payable May be secured by a mortgage that pledges title to specific assets as security for a loan. Payment consists of 1. a reduction of loan principal. interest on the unpaid balance of the loan and 2. Typically. . Companies initially record mortgage notes payable at face value.

issues a $500. 20year mortgage note on December 31. 12%. The terms provide for semiannual installment payments of $33.231 (not including real estate taxes and insurance).000.Accounting for Long-Term Notes Payable Illustration: Porter Technology Inc. . Illustration 10-17 Slide 10-47 SO 7 Describe the accounting for long-term notes payable. The installment payment schedule for the first two years is as follows. 2011.

000 500.000.231 (not including real estate taxes and insurance).231 SO 7 Describe the accounting for long-term notes payable.000 30. . 20year mortgage note on December 31. 31 Cash Mortgage notes payable Jun.Accounting for Long-Term Notes Payable Illustration: Porter Technology Inc.231 33. 12%. The installment payment schedule for the first two years is as follows. Dec. 2011. issues a $500.000 3. 30 Interest expense Mortgage notes payable Cash Slide 10-48 500. The terms provide for semiannual installment payments of $33.

b. . c. d. reduction of loan principal only. interest on the original balance of the loan and reduction of loan principal. Slide 10-49 SO 7 Describe the accounting for long-term notes payable. interest on the original balance of the loan.Accounting for Long-Term Notes Payable Question Each payment on a mortgage note payable consists of: a. interest on the unpaid balance of the loan and reduction of loan principal.

Slide 10-50 .

Statement Presentation and Analysis Presentation Illustration 10-18 Slide 10-51 SO 8 Identify the methods for the presentation and analysis of non-current liabilities. .

the greater the risk that the company may be unable to meet its maturing obligations.Statement Presentation and Analysis Analysis Two ratios that provide information about debt-paying ability and long-run solvency are: 1. Debt to total assets Total debt Total assets = The higher the percentage of debt to total assets. Slide 10-52 SO 8 Identify the methods for the presentation and analysis of non-current liabilities. .

Statement Presentation and Analysis Analysis 2. Slide 10-53 SO 8 Identify the methods for the presentation and analysis of non-current liabilities. . Times Interest Earned Income before income taxes and interest expense = Interest expense Indicates the company’s ability to meet interest payments as they come due.

and net income of W2.Statement Presentation and Analysis Analysis Illustrate: LG’s (KOR) had total liabilities of W39. interest expense of W778 billion.782 billion. . total assets of W64. income taxes of W1.048 billion. Illustration 10-19 Slide 10-54 SO 8 Identify the methods for the presentation and analysis of non-current liabilities.092 billion.967 billion.

Slide 10-55 .

Under GAAP.S. these are considered recordable contingent Slide 10-56 liabilities. If only one of these criteria is met. Under GAAP. then the item is disclosed in the notes. contingent liabilities are recorded in the financial statements if they are both probable and can be reasonably estimated. . GAAP Key Differences Liabilities IFRS reserves the use of the term contingent liability to refer only to possible obligations that are not recognized in the financial statements but may be disclosed if certain criteria are met.Understanding U. IFRS uses the term provisions to refer to liabilities of uncertain timing or amount. Examples of provisions would be provisions for warranties. or anticipated losses. employee vacation pay.

S. GAAP Key Differences Liabilities Both GAAP and IFRS classify liabilities industries where a presentation based on liquidity would be considered to provide more useful information (such as financial institutions) can use that format instead. This practice is not used Slide 10-57 under GAAP. . Neither of these presentations is used under GAAP. Under IFRS. Under IFRS. companies sometimes show liabilities before assets. companies sometimes will net current liabilities against current assets to show working capital on the face of the statement of financial position. they will sometimes show non-current liabilities before current liabilities. Also.Understanding U.

Slide 10-58 .Understanding U.” with specific bright-line criteria (such as the “90% of fair value” test) to determine if a lease arrangement transfers the risks and rewards of ownership. GAAP often uses a separate Discount or Premium account to account for bonds payable. GAAP allows use of the straight-line method where the difference is not material. IFRS records discounts or premiums as direct increases or decreases to Bonds Payable. IFRS is more conceptual in its provisions. GAAP Key Differences Liabilities IFRS requires the effective-interest method for amortization of bond discounts and premiums.S. The GAAP accounting for leases is much more “rules-based.

Understanding U. The joint project will initially focus primarily on lessee accounting. The FASB and IASB have identified leasing as one of the most problematic areas of accounting. GAAP Looking to the Future Liabilities The FASB and IASB are currently involved in two projects that have implications for the accounting for liabilities. Finally.S. the two standard-setting bodies are involved in a far-reaching project to significantly change the approach used to account for pensions. Slide 10-59 . “What are the assets and liabilities to be recognized related to a lease contract?” The main issue is whether the focus should remain on the leased item or should instead focus on the right to use the leased item. One of the first areas to be studied is.

one period from now). ($1. .000 worth today? To compute the answer.10 = $909. and you can earn 10% on your money.09 (10% per period.   divide the future amount by 1 plus the interest rate ($1.000 at the end of one year. What is the $1.Present Value Concepts Related to Bond Pricing Present Value of Face Value Appendix 10A To illustrate present value concepts.90909) = $909.000/1.000 X . assume that you are willing to invest a sum of money that will yield $1. Slide 10-60 SO 9 Compute the market price of a bond.09 OR use a Present Value of 1 table.

 divide the future amount by 1 plus the interest rate ($1.09.000/1.10 = $909.Present Value Concepts Related to Bond Pricing Present Value of Face Value To compute the answer. Illustration 10A-1 Slide 10-61 SO 9 Compute the market price of a bond. .

TABLE 10A-1 Slide 10-62 SO 9 Compute the market price of a bond.000 X .Present Value Concepts Related to Bond Pricing Present Value of Face Value To compute the answer. .90909) = $909. ($1.09 (10% per period. one period from now).  use a Present Value of 1 table.

Present Value Concepts Related to Bond Pricing Present Value of Face Value The future amount ($1.000). . and the number of periods (1) are known Illustration 10A-2 Slide 10-63 SO 9 Compute the market price of a bond. the interest rate (10%).

10) 1.10].Present Value Concepts Related to Bond Pricing Present Value of Face Value If you are to receive the single future amount of $1.45 [($1. Illustration 10A-3 Slide 10-64 SO 9 Compute the market price of a bond. its present value is $826. discounted at 10%.000 in two years.000 1. .

($1.82645) = $826. .45 (10% per period.000 X . two periods from now).Present Value Concepts Related to Bond Pricing Present Value of Face Value To compute the answer using a Present Value of 1 table. TABLE 10A-1 Slide 10-65 SO 9 Compute the market price of a bond.

Present Value Concepts Related to Bond Pricing Present Value of Interest Payments (Annuities) In addition to receiving the face value of a bond at maturity. Slide 10-66 SO 9 Compute the market price of a bond. To compute the present value of an annuity. an investor also receives periodic interest payments (annuities) over the life of the bonds. we need to know: 1) interest rate. 2) number of interest periods. . and 3) amount of the periodic receipts or payments.

.000 cash annually for three years and the interest rate is 10%.Present Value Concepts Related to Bond Pricing Present Value of Interest Payments (Annuities) Assume that you will receive $1. Illustration 10A-5 Slide 10-67 SO 9 Compute the market price of a bond.

000 cash annually for three years and the interest rate is 10%. .Present Value Concepts Related to Bond Pricing Present Value of Interest Payments (Annuities) Assume that you will receive $1. Illustration 10A-6 Slide 10-68 SO 9 Compute the market price of a bond.

486.48685 = $2. .000 cash annually for three years and the interest rate is 10%.Present Value Concepts Related to Bond Pricing Present Value of Interest Payments (Annuities) Assume that you will receive $1.000 annual payment x 2. TABLE 10A-2 $1.85 Slide 10-69 SO 9 Compute the market price of a bond.

Present Value Concepts Related to Bond Pricing Computing the Present Value of a Bond The selling price of a bond is equal to the sum of: 1) The present value of the face value of the bond discounted at the investor’s required rate of return PLUS 2) The present value of the periodic interest payments discounted at the investor’s required rate of return Slide 10-70 SO 9 Compute the market price of a bond. .

Present Value Concepts Related to Bond Pricing Assume a bond issue of 10%.000 with interest payable semiannually on January 1 and July 1. Illustration 10A-8 Slide 10-71 SO 9 Compute the market price of a bond. five-year bonds with a face value of $100. .

Present Value Concepts Related to Bond Pricing Assume a bond issue of 10%.000 with interest payable semiannually on January 1 and July 1. Illustration 10A-9 Contractual Rate = Discount Rate Slide 10-72 Issued at Face Value SO 9 Compute the market price of a bond. five-year bonds with a face value of $100. .

Present Value Concepts Related to Bond Pricing Assume a bond issue of 10%. Illustration 10A-10 Contractual Rate < Discount Rate Slide 10-73 Issued at a Discount SO 9 Compute the market price of a bond. . five-year bonds with a face value of $100.000 with interest payable semiannually on January 1 and July 1.

Illustration 10A-11 Contractual Rate > Discount Rate Slide 10-74 Issued at a Premium SO 9 Compute the market price of a bond.000 with interest payable semiannually on January 1 and July 1. .Present Value Concepts Related to Bond Pricing Assume a bond issue of 10%. five-year bonds with a face value of $100.

Compute the bond interest paid or accrued. Slide 10-75 . Compute the bond interest expense. 2. Required steps: 1. Compute the amortization amount. the amortization of bond discount or bond premium results in period interest expense equal to a constant percentage of the carrying value of the bonds. SO 10 Apply the effective-interest method of amortizing bond discount and bond premium.Effective-Interest Method of Bond Amortization Appendix 10B Under the effective-interest method. 3.

2011. with interest payable each July 1 and January 1.Effective-Interest Method of Bond Amortization Amortizing Bond Discount Assume Candlestick. issues $100.639. Illustration 10B-2 Slide 10-76 SO 10 . for $92.000 of 10%. Inc. five-year bonds on January 1.

558 5. Inc. for $92. to record the interest payment and amortization of discount is as follows: July 1 Interest Expense Cash Bonds Payable 5. 2011. with interest payable each July 1 and January 1. five-year bonds on January 1. . issues $100. Journal entry on July 1.639.000 of 10%. 2011.Effective-Interest Method of Bond Amortization Amortizing Bond Discount Assume Candlestick.000 558 Slide 10-77 SO 10 Apply the effective-interest method of amortizing bond discount and bond premium.

for $108. 2011. Inc. with interest payable each July 1 and January 1. Illustration 10B-4 Slide 10-78 SO 10 .000 of 10%.Effective-Interest Method of Bond Amortization Amortizing Bond Premium Assume Candlestick. issues $100. five-year bonds on January 1.111.

000 Slide 10-79 SO 10 Apply the effective-interest method of amortizing bond discount and bond premium.Effective-Interest Method of Bond Amortization Amortizing Bond Premium Assume Candlestick. Inc.000 of 10%. 2011. to record the interest payment and amortization of premium is as follows: July 1 Interest Expense 4.111. 2011. issues $100. Journal entry on July 1. five-year bonds on January 1. for $108.324 Bonds Payable Cash 676 5. with interest payable each July 1 and January 1. .

Inc. for $92. sold $100.Straight-Line Amortization Amortizing Bond Discount Appendix 10C Candlestick.639 (discount of $7. Interest is payable on July 1 and January 1. Illustration 10C-2 Slide 10-80 SO 11 .361). five-year. 2011. 10% bonds on January 1..000.

361). sold $100. . 2011. Interest is payable on July 1 and January 1. 2011. The bond discount amortization for each interest period is $736 ($7.Straight-Line Amortization Amortizing Bond Discount Candlestick. Journal entry on July 1.639 (discount of $7.000 SO 11 Apply the straight-line method of amortizing bond discount and bond premium. to record the interest payment and amortization of discount is as follows: July 1 Interest Expense 5. 10% bonds on January 1.. Inc. for $92.361/10).000.736 Bonds Payable Cash Slide 10-81 736 5. five-year.

000. five-year. Illustration 10C-4 Slide 10-82 SO 11 . 10% bonds on January 1.111. sold $100. for $108.. Interest is payable on July 1 and January 1.Straight-Line Amortization Amortizing Bond Premium Candlestick. Inc. 2011.

.. The bond discount amortization for each interest period is $811 ($8.111/10).189 Bonds Payable Cash Slide 10-83 811 5. five-year. Journal entry on July 1. sold $100. for $108.Straight-Line Amortization Amortizing Bond Premium Candlestick. 2011.111 (premium of $8.000 SO 11 Apply the straight-line method of amortizing bond discount and bond premium. 2011.111). Inc. to record the interest payment and amortization of discount is as follows: July 1 Interest Expense 4.000. Interest is payable on July 1 and January 1. 10% bonds on January 1.

. Appendix 10D Determining the payroll involves computing three amounts: (1) gross earnings. and sales personnel (monthly or yearly rate).S. (2) payroll deductions.Payroll-Related Liabilities Payroll and Payroll Taxes Payable The term “payroll” pertains to both: Salaries . and (3) net pay. Wages . Slide 10-84 SO 12 Prepare entries for payroll and payroll taxes under U. law.store clerks. factory employees. administrative. and manual laborers (rate per hour).managerial.

864 2. law.000 7. .922 67.Payroll-Related Liabilities Illustration: Assume a corporation records its payroll for the week of March 7 as follows: Mar.650 21. Mar.564 SO 12 Prepare entries for payroll and payroll taxes under U.564 67. 7 Salaries and wages expense FICA tax payable Federal income tax payable State income tax payable Salaries and wages payable 100.S. 11 Salaries and wages payable Cash Slide 10-85 67.564 Record the payment of this payroll on March 11.

Payroll-Related Liabilities Payroll tax expense results from three taxes that governmental agencies levy on employers.S. law. These taxes are: FICA tax Federal unemployment tax State unemployment tax Slide 10-86 SO 12 Prepare entries for payroll and payroll taxes under U. .

.S.650 800 5.400 Slide 10-87 SO 12 Prepare entries for payroll and payroll taxes under U.Payroll-Related Liabilities Illustration: Based on the corporation’s $100.000 payroll. law.850 7. Payroll tax expense FICA tax payable Federal unemployment tax payable State unemployment tax payable 13. the company would record the employer’s expense and liability for these payroll taxes as follows.

law.Payroll-Related Liabilities Question Employer payroll taxes do not include: a. b. FICA taxes. Federal income taxes. Slide 10-88 SO 12 Prepare entries for payroll and payroll taxes under U. d. c. .S. State unemployment taxes. Federal unemployment taxes.

omissions. The purchaser may make back-up copies for his/her own use only and not for distribution or resale.” Slide 10-89 . Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. John Wiley & Sons. All rights reserved. Request for further information should be addressed to the Permissions Department. or damages.Copyright “Copyright © 2011 John Wiley & Sons. Inc. The Publisher assumes no responsibility for errors. Inc. caused by the use of these programs or from the use of the information contained herein.

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