Beruflich Dokumente
Kultur Dokumente
10-1
Chapter
10
Text book pp.
424-473
McGraw-Hill/Irwin
Liabilities
Slide
10-2
The
The Nature
Nature of
of Liabilities
Liabilities
Defined
Defined as
as debts
debts or
or obligations
obligations
arising
arising from
from past
past transactions
transactions or
or
events.
events.
Maturity = 1 year or less
Current
Liabilities
Noncurrent
Liabilities
Slide
10-3
Distinction
Distinction Between
Between
Debt
Debt and
and Equity
Equity
The acquisition of assets is financed from two
sources:
DEBT
DEBT
EQUITY
EQUITY
Funds from
owners
Slide
10-4
Liabilities
Liabilities Question
Question
Devon
Devon Mfg.
Mfg. borrows
borrows $100,000
$100,000 from
from First
First
Bank.
Bank. The
The loan
loan will
will be
be repaid
repaid in
in 20
20 years
years and
and
has
has an
an annual
annual interest
interest rate
rate of
of 8%.
8%.
Is
Is this
this aa current
current liability
liability or
or aa
noncurrent
noncurrent liability?
liability?
The
The obligation
obligation will
will not
not be
be paid
paid
within
within one
one year
year or
or one
one operating
operating
cycle,
cycle, so
so itit is
is aa noncurrent
noncurrent liability.
liability.
McGraw-Hill/Irwin
Slide
10-5
Evaluating
Evaluating Liquidity
Liquidity
An
An important
important indicator
indicator of
of aa companys
companys ability
ability
to
to meet
meet its
its current
current obligations.
obligations.
Two
Two commonly
commonly used
used measures:
measures:
Working Capital = Current Assets - Current Liabilities
Current Ratio = Current Assets Current Liabilities
McGraw-Hill/Irwin
Slide
10-6
Liabilities
Liabilities Question
Question
Devon
Devon Mfg.
Mfg. has
has current
current liabilities
liabilities of
of
$230,000
$230,000 and
and current
current assets
assets of
of $322,000.
$322,000.
What
What is
is Devons
Devons current
current ratio?
ratio?
McGraw-Hill/Irwin
Slide
10-7
Current
Current Ratio
Ratio
2.23
2.04
McGraw-Hill/Irwin
1.87
1.80
1.77
1.55
1.57
1.35
1.13
1.15
Slide
10-8
Accounts
Accounts Payable
Payable
Short-term
Short-termobligations
obligationsto
tosuppliers
suppliersfor
for purchases
purchasesof
of
merchandise
merchandiseand
andto
to others
othersfor
for goods
goodsand
andservices.
services.
Office
Office
supplies
supplies
invoices
invoices
Merchandise
Merchandise
inventory
inventory
invoices
invoices
Shipping
Shipping
charges
charges
McGraw-Hill/Irwin
Utility
Utilityand
and
phone
phonebills
bills
Slide
10-9
Notes
Notes Payable
Payable
When
Whenaacompany
companyborrows
borrowsmoney,
money,aanote
notepayable
payable is
is
created.
created.
Current
Current Portion
Portion of
of Notes
Notes Payable
Payable
The
Theportion
portionof
of aanote
notepayable
payablethat
that is
isdue
duewithin
withinone
one
year,
year,or
orone
oneoperating
operatingcycle,
cycle,whichever
whicheveris
islonger.
longer.
Total Notes
Payable
McGraw-Hill/Irwin
Slide
10-10
Notes
Notes Payable
Payable
PROMISSORY NOTE
Miami, Fl
Location
Six months after this date
promises to pay to the order of
the sum of
of
12.0%
$10,000.00
Nov. 1, 2003
Date
Porter Company
Security National Bank
with interest at the rate
per annum.
signed
title
McGraw-Hill/Irwin
John Caldwell
treasurer
Slide
10-11
Notes
Notes Payable
Payable
On November 1, 2003, Porter Company
would make the following entry.
McGraw-Hill/Irwin
Slide
10-12
Interest
Interest Payable
Payable
Interest
Interest expense
expense is
is the
the
compensation
compensation to
to the
the lender
lender for
for
giving
giving up
up the
the use
use of
of money
money for
for aa
period
period of
of time.
time.
The
The liability
liability is
is called
called interest
interest
payable.
payable.
To
Tothe
the lender,
lender, interest
interest is
is aa revenue.
revenue.
To
Tothe
the borrower,
borrower, interest
interest is
is an
an
Interest
Rate
Up!
expense
expense..
McGraw-Hill/Irwin
Slide
10-13
Interest
Interest Payable
Payable
The
The interest
interest formula
formula includes
includes three
three variables
variables
that
that must
must be
be considered
considered when
when computing
computing
interest:
interest:
Interest = Principal Interest Rate Time
When
Whencomputing
computinginterest
interestfor
forone
oneyear,
year,Time
Time
equals
equals1.
1. When
Whenthe
thecomputation
computationperiod
periodis
isless
less
than
thanone
oneyear,
year,then
thenTime
Timeis
isaafraction.
fraction.
For
Forexample,
example,ififwe
weneeded
neededto
tocompute
computeinterest
interestfor
for
33months,
months,Time
Timewould
wouldbe
be3/12.
3/12.
McGraw-Hill/Irwin
Slide
10-14
Interest
Interest Payable
Payable Example
Example
What
What entry
entry would
would Porter
Porter Company
Company make
make
on
on December
December 31,
31, the
the fiscal
fiscal year-end?
year-end?
22
$10,00012%
Slide
10-15
Payroll
Payroll Liabilities
Liabilities
Gross Pay
Net Pay
Medicare
McGraw-Hill/Irwin
Income Tax
Terminal
benefits
Voluntary
Deductions
Slide
10-16
Dec
$xxxxxx
Accounting
Accounting for
foremployers
employerspayroll
payroll expenditure
expenditure
Employees income tax payable
$xxxx
$xxxx
$xxxx
$xxxx
$xxxx
$yyyyy
$yyyyy
Slide
10-17
Exhibit
Exhibitfor
forpayroll
payrollliability
liability
(extracts
(extractsfrom
fromFCCL,
FCCL,annual
annualrpt
rpt2014)
2014)
McGraw-Hill/Irwin
Slide
10-18
Accounting
Accounting for
foremployers
employerspayroll
payroll expenditure
expenditure
Slide
10-19
Unearned
Unearned Revenue
Revenue
Cash
Cash is
is sometimes
sometimes collected
collected from
from the
the
customer
customer before
before the
the revenue
revenue is
is
actually
actually earned.
earned.
As the earnings
process is
completed .
Cash is
received
in
advance.
McGraw-Hill/Irwin
Deferred
revenue is
recorded.
aaliability
liabilityaccount.
account.
.
Earned
revenue is
recorded.
Slide
10-20
Contingent
Contingent liabilities
liabilities
Slide
10-21
Three
Three categories
categories of
of contingent
contingent
liabilities
liabilities
Likelihood of an actual
expense/loss
Remote
Ignore
Reasonably possible
McGraw-Hill/Irwin
Slide
10-22
Recognition of a provision
An
McGraw-Hill/Irwin
Slide
10-23
Accounting
Accounting for
forWarranties
Warranties
Date
Date of sales
Description
Accounts Receiveable
Debit
Credit
$ xxxx
Sales revenue
$ xxxx
(Sales on account)
Date of sales
Warranty expense
$ yyy
$yyy
$zz
$zz
McGraw-Hill/Irwin
Slide
10-24
Long-Term
Long-Term Debt
Debt
Large
Large debt
debt needs
needs are
are often
often filled
filled by
by
banks
banks (notes
(notes payable)
payable) and
and issuing
issuing
bonds.
bonds.
McGraw-Hill/Irwin
Slide
10-25
Installment
Installment Notes
Notes Payable
Payable
Long-term
Long-term notes
notes that
that call
call for
for aa series
series of
of
installment
installment payments.
payments.
Each
Eachpayment
payment covers
covers
interest
interestfor
for the
theperiod
period
AND
ANDaaportion
portionof
ofthe
the
principal.
principal.
McGraw-Hill/Irwin
With
Witheach
eachpayment,
payment,the
the
interest
interest portion
portion gets
gets
smaller
smaller and
and the
theprincipal
principal
portion
portion gets
getslarger.
larger.
Slide
10-26
Exhibit
Exhibitfor
forLong-term
Long-termliabilities
liabilities
(extracts
(extractsfrom
fromFCCL,
FCCL,annual
annualrpt
rpt2014)
2014)
McGraw-Hill/Irwin
Slide
10-27
Allocating
Allocating Installment
Installment Payments
Payments
Between
Between Interest
Interest and
and Principal
Principal
Identify
Identify the
theunpaid
unpaid principal
principal
balance.
balance.
Unpaid
Unpaid Principal
Principal Interest
Interest rate
rate ==
Interest
Interest expense.
expense.
Installment
Installment payment
payment -- Interest
Interest
expense
expense == Reduction
Reduction in
in unpaid
unpaid
principal
principal balance.
balance.
Compute
Compute new
newunpaid
unpaid principal
principal
balance.
balance.
McGraw-Hill/Irwin
Slide
10-28
Allocating
Allocating Installment
Installment Payments
Payments
Between
Between Interest
Interest and
and Principal
Principal
On
On January
January 1,
1, 2003,
2003, Rocket
Rocket Corp.
Corp.
borrowed
borrowed $7,581.57
$7,581.57 from
from First
First Bank.
Bank.
The
The loan
loan was
was aa five-year
five-year loan
loan and
and had
had
an
an interest
interest rate
rate of
of 10%.
10%. The
The annual
annual
payment
payment is
is $2,000.
$2,000.
Prepare
Prepare an
an amortization
amortization table
table for
for
Rocket
Rocket Corp.s
Corp.s loan.
loan.
McGraw-Hill/Irwin
Slide
10-29
Allocating
Allocating Installment
Installment Payments
Payments
Between
Between Interest
Interest and
and Principal
Principal
Now,
Now,prepare
preparethe
theentry
entryfor
for the
thefirst
first payment
paymenton
on
December
December31,
31,2003.
2003.
McGraw-Hill/Irwin
Slide
10-30
Allocating
Allocating Installment
Installment Payments
Payments
Between
Between Interest
Interest and
and Principal
Principal
The
Theinformation
informationneeded
neededfor
for the
thejournal
journal entry
entrycan
canbe
be
found
foundon
onthe
theamortization
amortizationtable.
table. The
Thepayment
payment
amount,
amount,the
theinterest
interestexpense,
expense,and
andthe
the amount
amountto
to
credit
creditto
toprincipal
principalare
are all
allon
onthe
thetable.
table.
McGraw-Hill/Irwin
Slide
10-31
Installments Notes
Payable
Annual
payment
s are
constant.
The
The amount
amount applied
applied to
to the
the principal
principal increases
increases
each
each year.
year. The
The amount
amount of
of interest
interest decreases
decreases
each
each year.
year.
10-31 Inc.
The McGraw-Hill Companies,
McGraw-Hill/Irwin
Slide
10-32
Bond
Bond Liabilities
Liabilities
Long-term
Long-term borrowing
borrowing of
of aa large
large sum
sum
of
of money
money raised
raised from
from aa pool
pool of
of large
large
investors
investors (bondholders).
(bondholders).
Principal
Principal isis usually
usually paid
paid back
back as
as aa
lump
lump sum
sum at
at maturity.
maturity.
McGraw-Hill/Irwin
10-32 Inc.
The McGraw-Hill Companies,
Slide
10-33
Exhibit
Exhibit for
forBond
Bond liabilities
liabilities (extract
(extract from
from PIA
PIA
annual
annual report,
report, 2013)
2013)
McGraw-Hill/Irwin
Slide
10-34
Important
Important points/terms
points/terms
Principal amount: The amount the borrower must
pay back to the bondholders on the maturity date
(also called maturity value or par value)
Maturity date: the date on which the borrower
must pay the principal amount to the bondholders
Stated interest rate / coupon rate: the rate of
interest (as stated on the bond) that the borrower
pays the bondholders
McGraw-Hill/Irwin
Slide
10-35
Slide
10-36
Bond
Bond Valuation:
Valuation:
Determining
Determining Bond
Bond Prices
Prices
Slide
10-37
Accounting
Accounting for
for Bond
Bond issue
issue
Slide
10-38
AA- Bond
Bond issued
issued at
at par
par
Date
1 Jan 2010
Description
Cash
Debit ($)
Credit ($)
100,000
Bonds payable
100,000
4,500
Cash
4,500
4,500
Bonds payable
100,000
Cash
104,500
Slide
10-39
Date
1 Jan 2010
Bissued
at
discount
B- Bond
Bond
issued
at
discount
Description
Debit ($)
Cash
98,149
1,851
Bonds payable
Credit ($)
100,000
4,685
Cash
4,500
185
4,685
Bonds payable
100,000
Cash
104,500
185
Slide
10-40
Date
1 Jan 2010
Cissued
at
premium
C- Bond
Bond
issued
at
premium
Description
Debit ($)
Credit ($)
Cash
104,000
Bonds payable
100,000
4,000
4,100
400
Cash
4,500
4,100
400
Bonds payable
100,000
Cash
(paid semiannual interest, amortised
premium and retired the bond at
McGraw-Hill/Irwin maturity)
104,500
Slide
10-41
Interest
Interest rates
rates and
and bond
bond price
price
McGraw-Hill/Irwin
Market Interest
Rates
Bonds Sell
at
8%
Premium
9%
Face Value
10%
Discount
Slide
10-42
Amortizing
Amortizing the
the Bond
Bond
Discount/Premium
Discount/Premium
A premium effectively decreases the
annual interest expense for the
corporation
Slide
10-43
Test
Test yourself
yourself
Slide
10-44
Retiring
Retiring bonds
bonds payable
payable prior
prior to
to maturity
maturity
McGraw-Hill/Irwin
Slide
10-45
Maturity Value
$100,000
Less discount
(1,666)
$ 98,334
Date
30 June 2010
95,000
$
Description
Bonds payable
3,334
Debit ($)
Credit ($)
100,000
1,666
Cash
95,000
3,334
Slide
10-46
Sinking
Sinking fund
fund
Slide
10-47
Long-Term
Long-Term Debt
Debt Analysis
Analysis
Debt to Total Assets: Total debt
Total assets
Level or percentage of assets that is financed through debt
Times Interest Earned:
Income before taxes and interest (EBIT)
Interest Expense
The ratio shows the amount of resources generated
for each rupee/dollar of interest expense. In
general, a high ratio is viewed more favorable than
a low ratio.
McGraw-Hill/Irwin
Slide
10-48
End
End of
of Chapter
Chapter 10
10
Any
questions?
McGraw-Hill/Irwin