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1、 Chapter10 Liabilities TheNatureofLiabilities I O U Definedasdebtsorobligationsarisingfrompasttransactionsorevents Maturity 1yearorless Maturity 1year DistinctionBetweenDebtandEquity Theacquisitionofassetsisfinancedfromtwosources Fundsfromcreditors withadefiniteduedate andsometimesbearinginterest Fu
2、ndsfromowners DEBT EQUITY LiabilitiesQuestion DevonMfg borrows 100 000fromFirstBank Theloanwillberepaidin20yearsandhasanannualinterestrateof8 Isthisacurrentliabilityoranoncurrentliability LiabilitiesQuestion Theobligationwillnotbepaidwithinoneyearoroneoperatingcycle soitisanoncurrentliability DevonM
3、fg borrows 100 000fromFirstBank Theloanwillberepaidin20yearsandhasanannualinterestrateof8 Isthisacurrentliabilityoranoncurrentliability EvaluatingLiquidity CurrentRatio CurrentAssets CurrentLiabilities WorkingCapital CurrentAssets CurrentLiabilities Animportantindicatorofacompany抯abilitytomeetitscur
4、rentobligations Twocommonlyusedmeasures LiabilitiesQuestion DevonMfg hascurrentliabilitiesof 230 000andcurrentassetsof 322 000 WhatisDevon scurrentratio LiabilitiesQuestion DevonMfg hascurrentliabilitiesof 230 000andcurrentassetsof 322 000 WhatisDevon scurrentratio AccountsPayable Short termobligati
5、onstosuppliersforpurchasesofmerchandiseandtoothersforgoodsandservices MerchandiseInventoryinvoices Shippingcharges Utilityandphonebills Officesuppliesinvoices NotesPayable CurrentNotesPayable NoncurrentNotesPayable TotalNotesPayable Whenacompanyborrowsmoney anotepayableiscreated CurrentPortionofNote
6、sPayableTheportionofanotepayablethatisduewithinoneyear oroneoperatingcycle whicheverislonger NotesPayable PROMISSORYNOTELocationDateafterthisdatepromisestopaytotheorderofthesumofwithinterestattherateofperannum signedtitle Miami Fl Nov 1 1999 Sixmonths PorterCompany JohnCaldwell SecurityNationalBank
7、10 000 00 12 0 treasurer NotesPayable OnNovember1 1999 PorterCompanywouldmakethefollowingentry Interestexpenseisthecompensationtothelenderforgivinguptheuseofmoneyforaperiodoftime Theliabilityiscalledinterestpayable Tothelender interestisarevenue Totheborrower interestisanexpense InterestRateUp Inter
8、estPayable Theinterestformulaincludesthreevariablesthatmustbeconsideredwhencomputinginterest Interest Principal InterestRate Time Whencomputinginterestforoneyear time equals1 Whenthecomputationperiodislessthanoneyear thentime isafraction InterestPayable Forexample ifweneededtocomputeinterestfor3mont
9、hs time wouldbe3 12 WhatentrywouldPorterCompanymakeonDecember31 thefiscalyear end InterestPayableExample InterestPayableExample OnDecember31 PorterCompanywouldrecordinterestpayablewiththefollowingentry 10 000 12 2 12 200 PayrollLiabilities Employersincurseveralexpensesandliabilitiesfromhavingemploye
10、es FICATaxes MedicareTaxes FederalIncomeTax StateandLocalIncomeTaxes VoluntaryDeductions NetPay GrossPay PayrollLiabilities Deferredrevenueisrecorded Deferredrevenueisaliabilityaccount Cashisreceivedinadvance Cashissometimescollectedfromthecustomerbeforetherevenueisactuallyearned UnearnedRevenue Ear
11、nedrevenueisrecorded Astheearningsprocessiscompleted Deferredrevenueisrecorded Cashisreceivedinadvance UnearnedRevenue Cashissometimescollectedfromthecustomerbeforetherevenueisactuallyearned Relativelysmalldebtneedscanbefilledfromsinglesources Banks InsuranceCompanies PensionPlans or or Long TermDeb
12、t Largedebtneedsareoftenfilledbyissuingbonds Long TermDebt InstallmentNotesPayable Long termnotesthatcallforaseriesofinstallmentpayments EachpaymentcoversinterestfortheperiodANDaportionoftheprincipal Witheachpayment theinterestportiongetssmallerandtheprincipalportiongetslarger AllocatingInstallmentP
13、aymentsBetweenInterestandPrincipal Identifytheunpaidprincipalbalance UnpaidPrincipal Interestrate Interestexpense Installmentpayment Interestexpense Reductioninunpaidprincipalbalance Computenewunpaidprincipalbalance AllocatingInstallmentPaymentsBetweenInterestandPrincipal OnJanuary1 1999 RocketCorp
14、borrowed 7 851 57fromFirstBankofRiverCity Theloanwasafive yearloanandhadaninterestrateof10 Theannualpaymentis 2 000 PrepareanamortizationtableforRocketCorp sloan AllocatingInstallmentPaymentsBetweenInterestandPrincipal Now preparetheentryforthefirstpaymentonJanuary1 2000 AllocatingInstallmentPayment
15、sBetweenInterestandPrincipal Theinformationneededforthejournalentrycanbefoundontheamortizationtable Thepaymentamount theinterestexpense andtheamounttocredittoprincipalareallonthetable BondsPayable Bondsusuallyinvolvetheborrowingofalargesumofmoney calledprincipal Theprincipalisusuallypaidbackasalumps
16、umattheendofthebondperiod Individualbondsareoftendenominatedwithaparvalue orfacevalue of 1 000 BondsPayable Bondsusuallycarryastatedrateofinterest alsocalledacontractrate Interestisnormallypaidsemiannually Interestiscomputedas Interest Principal StatedRate Time BondsPayable Bondsareissuedthroughanintermediarycalledanunderwriter Bondscanbesoldonorganizedsecuritiesexchanges Bondpricesareusuallyquotedasapercentageofthefaceamount Forexample a 1 000bondpricedat102wouldsellfor 1 020 TypesofBonds Mortg
