Nguyên lý kế toán - Chapter 10: Reporting and interpreting liabilities

Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinChapter 10Reporting and Interpreting LiabilitiesPowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Fred Phillips, Ph.D., CAThe Role of LiabilitiesCurrent liabilities are short-term obligations that will be paid with current assets within the company’s current operating cycle or within one year of the balance sheet date, whichever is longer.Buys goods and services on creditObtains short-term loansIssues long-term debt Liabilities are created when a company:10-3The Role of LiabilitiesThe liability section of the General Mills 2007 and 2008 comparative balance sheets. 10-4Measuring LiabilitiesInitial Amount of the LiabilityCash EquivalentAdditional Liability AmountsIncrease LiabilityPayments MadeDecrease Liability10-5Current LiabilitiesAccounts PayableAccrued LiabilitiesLiabilities that have been incurred but not yet paid. Increases(Credited)Decreases(Debited)when a company receives goods or services on creditwhen a company pays on its account10-6Notes PayableFour key events occur with any note payable: establishing the note, accruing interest incurred but not paid, recording interest paid, and recording principal paid.123410-7Current Portion of Long-Term DebtLong-Term DebtCurrent Portion of Long-term DebtNoncurrent Portion of Long-term DebtBorrowers must report in Current Liabilities the portion of long-term debt that is due to be paid within one year. 10-8Additional Current LiabilitiesSales Tax PayablePayments collected from customers at time of sale create a liability that is due to the state government.Unearned RevenueCash received in advance of providing services creates a liability of services due to the customer .10-9Long-Term LiabilitiesBonds are financial instruments that outline the future payments a company promises to make in exchange for receiving a sum of money now. Common Long-Term LiabilitiesLong-term notes payable Deferred income taxesBonds payable 10-10BondsBalance Sheet Reporting of Bond LiabilityRelationships between Interest Rates and Bond Pricing10-11Contingent LiabilitiesContingent liabilities are potential liabilities that arise from past transactions or events, but their ultimate resolution depends (is contingent) on a future event. 10-12Evaluate the ResultsTwo financial ratios are commonly used to assess a company’s ability to generate resources to pay future amounts owed: Quick ratioTimes interest earned ratioQuick Ratio = (Cash + Short-term Investments + Accounts Receivable, Net)Current Liabilities10-13Cash Interest $6,000Amortization of Premium (1,815)Interest Expense $4,185Bond PremiumBond premium or discount decreases each year, until it is completely eliminated on the bond’s maturity date. This process is called amortizing the bond premium or discount. The straight-line method of amortization reduces the premium or discount by an equal amount each period.Recall our example when General Mills received $107,260 on the issue date (January 1, 2010) but repays only $100,000 at maturity (December 31, 2013). Under the straight-line method, this $7,260 is spread evenly as a reduction in interest expense over the four years ($7,260 ÷ 4 = $1,815 per year).2Record1Analyze10-14Bond PremiumAmortization Schedule of Bonds Issued at a Premium$7,260 ÷ 4 = $1,815$100,000 × 6% × 12/12 = $6,000$6,000 - $1,815 = $4,185$7,260 - $1,815 = $5,445$107,260 – $1,815 = $105,445Notice that each of these amounts would plot as a straight-line!10-15Effective Interest Amortization Interest (I) = Principal (P) × Rate (R) × Time (T)Interest Expense = Carrying Value × Market Rate × n/12$7,470 = $93,376 × 8% × 12/12 General Mills issued $100,000 face value, 6%, 4-year bonds at a market price to yield investors 8%. The bonds were issued at a discount of $6,624. Let’s determine the effective interest for the first interest payment period. Cash Interest $ 6,000Effective Interest 7,470Amortization of Discount $ 1,4702Record1Analyze10-16Effective Interest Amortization$93,376 × 8% × 12/12 = $7,470$100,000 × 6% × 12/12 = $6,000$93,376 + $1,470 = $94,846$7,470 - $6,000 = $1,470$7,470 - $1,470 = $5,154Effective Interest Amortization of Bonds Issued at a DiscountBoth Interest Expense and Discount Amortizationincrease each period. Cash interest is unchanged.10-17End of Chapter 10