Professional Documents
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10-1
Reporting and
Analyzing Liabilities
Chapter
10-2 Financial Accounting, Fifth Edition
Study
Study Objectives
Objectives
1. Explain a current liability and identify the major types of current liabilities.
2. Describe the accounting for notes payable.
3. Explain the accounting for other current liabilities.
4. Identify the types of bonds.
5. Prepare the entries for the issuance of bonds and interest expense.
6. Describe the entries when bonds are redeemed.
7. Identify the requirements for the financial statement presentation and
analysis of liabilities.
8. Apply the straight-line method of amortizing bond discount and bond
premium.
9. Apply the effecive-interest method of amortizing bond discount and bond
premium.
10. Describe the accounting for long-term notes payable.
Chapter
10-3
Reporting
Reporting and
and Analyzing
Analyzing Liabilities
Liabilities
Financial
Bonds: Long- Accounting Accounting for
Current Statement
Term for Bond Bond
Liabilities Presentation
Liabilities Issues Retirements
and Analysis
Question
To be classified as a current liability, a debt must be
expected to be paid:
a. out of existing current assets.
b. by creating other current liabilities.
c. within 2 years.
d. both (a) and (b).
Notes Payable
Written promissory note.
Require the borrower to pay interest.
Those due within one year of the balance sheet
date are usually classified as current liabilities.
Chapter
10-7 SO 2 Describe the accounting for notes payable.
Current
Current Liabilities
Liabilities
100,000
Chapter
10-8 SO 2 Describe the accounting for notes payable.
Current
Current Liabilities
Liabilities
4,000
104,000
Chapter
10-10 SO 2 Describe the accounting for notes payable.
Current
Current Liabilities
Liabilities
Chapter
10-11 SO 3 Explain the accounting for other current liabilities.
Current
Current Liabilities
Liabilities
600
Chapter
10-12 SO 3 Explain the accounting for other current liabilities.
Current
Current Liabilities
Liabilities
Unearned Revenue
Revenues that are received before the company
delivers goods or provides services.
1. Company debits Cash, and
credits a current liability
account (unearned revenue).
2. When the company earns
the revenue, it debits the
Unearned Revenue account,
and credits a revenue account.
Chapter
10-14 SO 3 Explain the accounting for other current liabilities.
Current
Current Liabilities
Liabilities
Chapter
10-15
500,000
SO 3 Explain the accounting for other current liabilities.
Current
Current Liabilities
Liabilities
Chapter
10-19 SO 3 Explain the accounting for other current liabilities.
Current
Current Liabilities
Liabilities
Chapter
10-20 SO 3 Explain the accounting for other current liabilities.
Current
Current Liabilities
Liabilities
Question
Employer payroll taxes do not include:
a. Federal unemployment taxes.
b. State unemployment taxes.
c. Federal income taxes.
d. FICA taxes.
Chapter
10-21 SO 3 Explain the accounting for other current liabilities.
Bond:
Bond: Long-Term
Long-Term Liabilities
Liabilities
Chapter
10-22 SO 4 Identify the types of bonds.
Bond:
Bond: Long-Term
Long-Term Liabilities
Liabilities
Types of Bonds
Secured
Unsecured
Convertible
Callable
Chapter
10-23 SO 4 Identify the types of bonds.
Chapter
10-24
Bond:
Bond: Long-Term
Long-Term Liabilities
Liabilities
Issuing Procedures
Bond certificate
Issued to the investor.
Provides information such as the
name of the company issuing bonds,
face value,
maturity date, and
contractual interest rate (stated rate).
Face value - principal due at the maturity.
Maturity date - date final payment is due.
Contractual interest rate – rate to determine cash
interest paid, generally semiannually.
Chapter
10-25 SO 4 Identify the types of bonds.
Bond:
Bond: Long-Term
Long-Term Liabilities
Liabilities
Issuer
Issuer of
of
Bonds
Bonds
Illustration 10-3
Maturity
Maturity
Date
Date
Contractual
Contractual
Interest
Interest
Rate
Rate
Face
Face or
or
Chapter
10-26 Par
Par Value
Value SO 4 Identify the types of bonds.
Bond:
Bond: Long-Term
Long-Term Liabilities
Liabilities
Chapter
10-27 SO 4 Identify the types of bonds.
Bond:
Bond: Long-Term
Long-Term Liabilities
Liabilities
Illustration: Assume that Acropolis Company on January 1,
2010, issues $100,000 of 9% bonds, due in five years, with
interest payable annually at year-end.
Illustration 10-4
Time diagram
depicting cash
flows
Illustration 10-5
Computing the
market price of
bonds
Chapter
10-28 SO 4 Identify the types of bonds.
Accounting
Accounting for
for Bond
Bond Issues
Issues
Chapter
10-29 SO 5 Prepare the entries for the issuance of bonds and interest expense.
Accounting
Accounting for
for Bond
Bond Issues
Issues
Question
The rate of interest investors demand for loaning
funds to a corporation is the:
a. contractual interest rate.
b. face value rate.
c. market interest rate.
d. stated interest rate.
Chapter
10-30 SO 5 Prepare the entries for the issuance of bonds and interest expense.
Issuing
Issuing Bonds
Bonds at
at Face
Face Value
Value
Chapter
10-31 SO 5 Prepare the entries for the issuance of bonds and interest expense.
Issuing
Issuing Bonds
Bonds at
at Face
Face Value
Value
Cash 10,000
Chapter
10-32 SO 5 Prepare the entries for the issuance of bonds and interest expense.
Accounting
Accounting for
for Bond
Bond Issues
Issues
8% Premium
12% Discount
Chapter
10-33 SO 5 Prepare the entries for the issuance of bonds and interest expense.
Accounting
Accounting for
for Bond
Bond Issues
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.
Chapter
10-34 SO 5 Prepare the entries for the issuance of bonds and interest expense.
Issuing
Issuing Bonds
Bonds at
at aa Discount
Discount
Illustration 10-8
Computation of total cost of
borrowing—bonds issued at
discount
Chapter
10-35 SO 5 Prepare the entries for the issuance of bonds and interest expense.
Issuing
Issuing Bonds
Bonds at
at aa Discount
Discount
Statement Presentation
Illustration 10-7
Statement presentation of
discount on bonds payable
Chapter
10-36 SO 5 Prepare the entries for the issuance of bonds and interest expense.
Issuing
Issuing Bonds
Bonds at
at aa Discount
Discount
Question
Discount on Bonds Payable:
a. has a credit balance.
b. is a contra account.
c. is added to bonds payable on the balance sheet.
d. increases over the term of the bonds.
Chapter
10-37 SO 5 Prepare the entries for the issuance of bonds and interest expense.
Issuing
Issuing Bonds
Bonds at
at aa Premium
Premium
Illustration 10-12
Computation of total cost of
borrowing—bonds issued at
premium
Chapter
10-38 SO 5 Prepare the entries for the issuance of bonds and interest expense.
Issuing
Issuing Bonds
Bonds at
at aa Premium
Premium
Statement Presentation
Illustration 10-11
Statement presentation of
premium on bonds payable
Chapter
10-39 SO 5 Prepare the entries for the issuance of bonds and interest expense.
Accounting
Accounting for
for Bond
Bond Retirements
Retirements
Chapter
10-40 SO 6 Describe the entries when bonds are redeemed.
Accounting
Accounting for
for Bond
Bond Retirements
Retirements
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.
Chapter
10-41 SO 6 Describe the entries when bonds are redeemed.
Accounting
Accounting for
for Bond
Bond Retirements
Retirements
Question
When bonds are redeemed before maturity, the gain
or loss on redemption is the difference between the
cash paid and the:
a. carrying value of the bonds.
b. face value of the bonds.
c. original selling price of the bonds.
d. maturity value of the bonds.
Chapter
10-42 SO 6 Describe the entries when bonds are redeemed.
Accounting
Accounting for
for Bond
Bond Retirements
Retirements
Question
When bonds are converted into common stock:
a. a gain or loss is recognized.
b. the carrying value of the bonds is transferred
to paid-in capital accounts.
c. the market price of the stock is considered in
the entry.
d. the market price of the bonds is transferred to
paid-in capital.
Chapter
10-44 SO 6 Describe the entries when bonds are redeemed.
Financial
Financial Statement
Statement Analysis
Analysis and
and Presentation
Presentation
Balance Sheet Presentation
Illustration 10-15
Liquidity
$99,823 $91,387
= 1.0:1 = 1.07:1
$99,680 $85,373
Solvency
$175,678 = 64%
$275,941
$13,927+$418+$7,609
= 52.5
$418 times
Off-Balance-Sheet Financing
Contingencies
Leasing
Operating lease
Capital lease
10,000
Chapter SO 8 Apply the straight-line method of amortizing
10-55 bond discount and bond premium.
Straight-Line
Straight-Line Amortization
Amortization Appendix 10A
Chapter
10-57
Effective-Interest
Effective-Interest Amortization
Amortization Appendix 10B
10,000
10,000
Chapter
10-65 SO 10 Describe the accounting for long-term notes payable.
Long-Term
Long-Term Notes
Notes Payable
Payable Appendix 10C
Chapter
10-66 SO 10 Describe the accounting for long-term notes payable.
Long-Term
Long-Term Notes
Notes Payable
Payable Appendix 10C
Question
Each payment on a mortgage note payable consists
of:
a. interest on the original balance of the loan.
b. reduction of loan principal only.
c. interest on the original balance of the loan and
reduction of loan principal.
d. interest on the unpaid balance of the loan and
reduction of loan principal.
Chapter
10-67 SO 10 Describe the accounting for long-term notes payable.
Copyright
Copyright
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Chapter
10-68