Chapter 10 PowerPoint

Slide
10-1
Chapter
10
Liabilities
Financial Accounting,
Seventh Edition
Slide
10-2
Study Objectives
Slide
10-3
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.
Explain why bonds are issued, and 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 or converted.
7.
Describe the accounting for long-term notes payable.
8.
Identify the methods for the presentation and analysis of

long-term liabilities.
Liabilities
Current Liabilities
Slide
10-4
Long-Term Liabilities
Notes payable
Bond basics
Sales taxes payable
Accounting for bond issues
Payroll and payroll taxes

Unearned revenues
Accounting for bond

retirements
Current maturities of longterm debt
Accounting for long-term

notes payable
Statement presentation and

analysis
Statement presentation and

analysis
Section 1 Current Liabilities

What is a Current Liability?
Current liability is debt with two key features:
1.
Company expects to pay the debt from existing

current assets or through the creation of other
current liabilities.
2. Company will pay the debt within one year or the
operating cycle, whichever is longer.

Current liabilities include notes payable, accounts payable, unearned
revenues, and accrued liabilities such as taxes payable, salaries payable,
and interest payable.
Slide
10-5
SO 1 Explain a current liability, and identify

the major types of current liabilities.
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).
Slide
10-6
SO 1 Explain a current liability, and identify

the major types of current liabilities.

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

Illustration: On March 1, 2011, Cole Williams borrows
$100,000 from First National Bank on a 4-month, 12% note.
Instructions
a) Prepare the entry on March 1.
b) Prepare the adjusting entry on June 30, assuming
monthly adjusting entries have not been made.
c) Prepare the entry at maturity (July 1).
Slide
10-8

a) Prepare the entry on March 1.
Cash
100,000
Notes payable
100,000
b) Prepare the adjusting entry on June 30.

$100,000 x 12% x 4/12 = $4,000
Interest expense
Interest payable
Slide
10-9
4,000
4,000

c) Prepare the entry at maturity (July 1).
Notes payable
Interest payable
Cash
Slide
10-10
100,000
4,000
104,000

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

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%), the journal entry is:
Cash
10,600
Sales
10,000
Sales tax payable
Slide
10-12
600

Payroll and Payroll Taxes Payable
The term payroll pertains to both:
Salaries - managerial, administrative, and sales
personnel (monthly or yearly rate).
Wages - store clerks, factory employees, and manual
laborers (rate per hour).
Determining the payroll involves computing three
amounts: (1) gross earnings, (2) payroll deductions, and
(3) net pay.
Slide
10-13

Illustration: Assume a corporation records its payroll
for the week of March 7 as follows:
PAYCHECK: 3/7/2011
GROSS PAY (assume a LOT of
employees!)
FICA
avg rate
$
(soc + medicare)
$amount
20
/hour
FIT
(fed'l income tax withholding)
SIT
(state income tax withholding)
Medical
Union dues
5,000
$ 7,650
hours
$100,000
7.65% up to a cap
Amount varies per
employee
Note: Not Wash State!
$21,864
$ 2,922
Retirment contribution
(32,436)
NET PAY ($ AMOUNT OF PAYCHECK)
$67,564
See Course
Pack
Employee receives paycheck for the net amount.

Employer withholds the difference between Gross and Net and then remits to various authorities.
Although it is a withholding fro the employee's paycheck; it is the employer's job to withhold and remit.
Record the accrual of this payroll on March 7.
Slide
10-14

Mar. 7 Salaries and wages expense
FICA tax payable
Federal income tax payable
State income tax payable
Salaries and wages payable
100,000
7,650
21,864
2,922
67,564
Record the payment of this payroll on March 11.

See Course
Pack
Slide
10-15

Mar. 7 Salaries and wages expense
FICA tax payable
Federal income tax payable
State income tax payable
Salaries and wages payable
100,000
7,650
21,864
2,922
67,564
Record the payment of this payroll on March 11.

Mar. 11 Salaries and wages payable
Cash
Slide
10-16
67,564
67,564

Payroll tax expense results from three taxes that
governmental agencies levy on employers.
These taxes are:
FICA tax (7.65% up to a cap)
Federal unemployment tax (.008%)
State unemployment tax (.054%)
Based on the corporations $100,000 payroll, record the
employers expense and liability for these payroll taxes.
Slide
10-17
See Course
Pack

Illustration: Based on the corporations $100,000
payroll, the company would record the employers
expense and liability for these payroll taxes as follows.
Payroll tax expense
13,850
FICA tax payable

Federal unemployment tax payable
State unemployment tax payable
Slide
10-18
7,650
800
5,400
NOTE:
Employer payroll taxes do not include:
a. Federal unemployment taxes.
b. State unemployment taxes.
c. Federal income taxes.

d. FICA taxes.
Why not?
Slide
10-19

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.
Slide
10-20

Illustration: Assume that Superior University sells 10,000
season football tickets at $50 each for its five-game home
schedule. The university makes the following entry for the
sale of season tickets:
Aug. 6
Cash
Unearned revenue
500,000
500,000
As the school completes each of the five home games, it

would record the revenue earned.
Sept. 7
Slide
10-21
Unearned revenue
Ticket revenue
100,000
100,000

Current Maturities of Long-Term Debt
Portion of long-term debt that comes due in the
current year.
No adjusting entry required.
Slide
10-22
Statement Presentation and Analysis

Illustration 10-5
Slide
10-23
SO 3
Question
Working capital is calculated as:
a. current assets minus current liabilities.
b. total assets minus total liabilities.
c. long-term liabilities minus current liabilities.
d. both (b) and (c).
Slide
10-24

Analysis
Illustration 10-6
The current ratio

permits us to compare
the liquidity of
different-sized
companies and of a single
company at different
times.
Slide
10-25
Liquidity refers to the

ability to pay maturing
obligations and meet
unexpected needs for
cash.
Illustration 10-7
Section 2 Long-Term Liabilities

Bond Basics
Types of bonds
Bond Contracts
Journal Entries for bonds

Issuing
Paying or accruing semi-annual interest
Retiring bonds (paying back principal)
Amortizing bonds
Slide
10-26
Converting bonds
SO 4 Explain why bonds are issued, and identify the types of bonds.
No, not this Bond. . . .
Slide
10-27
Long-term bonds
Bonds are long-term debt agreements

The contractual agreement specifies a fixed series of repayments
to include
A series of either annual or semi-annual interest payments
A lump sum payment (face value)
Slide
10-28
Advantages of Bond
Financing over Common Stock
Stockholder
Tax
control
expense
Earnings per share
Slide
10-29
Bond Basics
Question
The major disadvantages resulting from the use of
bonds are:
a. that interest is not tax deductible and the
principal must be repaid.
b. that the principal is tax deductible and interest
must be paid.
c. that neither interest nor principal is tax
deductible.
d. that interest must be paid and principal repaid.

Slide
10-30
Bond Basics
Types of Bonds
Secured and Unsecured (debenture) bonds.
Term and Serial bonds.

Registered and Bearer (or coupon) bonds.
Convertible and Callable bonds.
Slide
10-31
Secured Bonds...
Have specific assets of
the issuer pledged as
collateral for bonds,
e.g., real estate, or
sinking fund
Slide
10-32
Unsecured or Debenture Bonds...

Are issued against
the general credit
of the borrower.
Slide
10-33
Term Bonds...
Are due for payment
(mature) at a single
specified future date.
Slide
10-34
Serial Bonds...
Mature in
installments.
Slide
10-35
Convertible or Callable Bonds...

Convertible into Stock at
Bondholders option.
Callable retired early at
Issuing Companys
option
Read the bond indenture!
Slide
10-36
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
10-37
Bond Basics
Issuer of
Bonds
Illustration 10-10
Maturity
Date
2013
DUE 2013
DUE 2013
Contractual
Interest
Rate
Slide
10-38
Face or
Par Value
SO 4
How do you keep them straight?
Slide
10-39
Indenture? Bond Contract

Debenture? Type of bond (issued on
general credit of company)
Indenture
Think pilgrims,
think servants,
think indentured
servants. . ..
An indentured servant
worked 7 years to pay for
his trip to America. He/she
signed a CONTRACT.
Slide
10-40
DEBENTURE DIE HARD
Open the Safe!
Okay, maybe you

didnt see the movie,
but they robbed the
safe of millions of
dollars worth of
bonds, debenture
bonds..
Slide
10-41
Face Value...
The amount of principal due at
maturity date.
Contractual Interest Rate... (Face

Interest Rate)
Is the rate used to determine the amount of
cash interest the borrower pays and
investor receives.
Slide
10-42
Market Interest Rate...

The rate that investors demand for
loaning funds.
Not the same as contract (bond

indenture) rate.
Slide
10-43
Accounting for Bond Issues
Bonds may be issued at:

Face value (e.g., 10% contract rate)
Below face value-discount
or (e.g, market is 12%)
Above face value-premium
(e.g., market is 8%)
Slide
10-44

JOURNAL ENTRIES:
Issuing Bonds
Paying semi annual interest
Accruing semi annual interest
Retiring Bonds
See Course Pack for summary on bond
and journal entries
Slide
10-45

CHAPTER 10 - LIABILITIES -- Accounting for Bonds
Determining the Market Value of bonds
Contract
Market
10% < 10%
Bonds Sell at:

Premium to charge buyer for higher contract int. rate
100 five year, 10%, payable semiannually
10% = 10%
Face Value
$1000 bonds at 100 (face value)
10% > 10%
Discount to attract buyer
issue date:
1/1/2001
1/1/2001 face value -- issue at:

Cash
100.00
100,000
Bond Payable
discount --issue at:

Cash
100,000
Discount on B/Pay
Bond Payable
92.639
92,639
premium -- issue at:

Cash
7,361
100,000
108.111
108,111
Premium on Bond Pay

Bond Payable
8,111
100,000
To record sale of bonds
7/1/2001 Bond Interest Exp.
5,000
Cash
5,000
To record payment of interest
12/31/2001 Bond Interest Exp.

Bond Int. Payable
5,000
5,000
To record accrual of interest

1/1/2002 Bond Int. Payable
5,000
Cash
Cost of borrowing:
Total Payments
5,000
Bond Payable
100,000
Cash
Slide
10-46
50,000
736
5,000
Bond Interest Exp.

Premium on B/Pay
4,189
811
Cash
5,000
To record payment of interest/amort of premium
Bond Interest Exp.

Discount on B/Pay
Bond Int. Payable
Bond Interest Exp.

Premium on B/Pay
Bond Int. Payable
5,736
736
5,000
4,189
811
5,000
To record accrual of interest/amort of disc.
To record accrual of interest/amort of premium
Bond Int. Payable
Bond Int. Payable
5,000
Cash
5,000
5,000
Cash
5,000
Cost of borrowing:
Total Payments
Plus discount
5,000
10
50,000
7,361
Less: premium
10
50,000
(8,111)
Total cost of borrowing
57,361
41,889
Bond Payable
100,000
5,736
To record payment of interest/amort of disc.
Cost of borrowing:
Total Payments
10
At maturity
5,000
Bond Interest Exp.

Discount on B/Pay
Cash
100,000
Cash
5,000
Bond Payable
100,000
See Course Pack for

summary on bond and
journal entries
100,000
Cash
100,000

Issuing Bonds at Face Value
Illustration: On January 1, 2011, Candlestick
Corporation issues $100,000, five-year, 10% bonds at
100 (100% of face value). Interest payable
semiannually. The entry to record the sale is:
Jan. 1
Cash
Bonds payable
Slide
10-47
100,000
100,000

100 (100% of face value). Assume that interest is
payable semiannually on January 1 and July 1. Prepare
the entry to record the payment of interest on July 1,
2011, assume no previous accrual.
July 1
Bond interest expense

Cash
Slide
10-48
5,000
5,000

100 (100% of face value). Assume that interest is
payable semiannually on January 1 and July 1. Prepare
the entry to record the accrual of interest on
December 31, 2011, assume no previous accrual.
Dec. 31

Bond interest payable
Slide
10-49
5,000
5,000

Question: What is the TOTAL cost of borrowing?
$5,000 x 10 periods = $50,000
Slide
10-50
Bond Basics
Determining the Market Value of Bonds
Market value is a function of the three factors that
determine present value:
1. the dollar amounts to be received,
2. the length of time until the amounts are received, and

3. the market rate of interest.
The features of a bond (callable, convertible, and so on) affect
the market rate of the bond.
Slide
10-51
Bond Prices Vary Inversely With

Changes in Market Interest Rates
Slide
10-52
Bond Discount...
When the investor
pays less than the
face value of the
bond.
WHY?
To adjust the
contractual
interest to the
market interest
rate.
Slide
10-53

Issuing Bonds at a Discount
Illustration: On January 1, 2011, Candlestick, Inc. sells
$100,000, five-year, 10% bonds for $92,639 (92.639%
of face value). Interest is payable on July 1 and
January 1. The entry to record the issuance is:
Jan. 1
Cash
Discount on bonds payable

Bond payable
Slide
10-54
92,639
7,361
100,000
SO 5 Prepare the entries for the issuance of bonds and interest expense.

Statement Presentation
Illustration 10-13
Slide
10-55

Total Cost of Borrowing
Illustration 10-14
Illustration 10-15
Slide
10-56
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.
Slide
10-57
Bond Prices Vary Inversely With

Changes in Market Interest Rates
Slide
10-58
Bond Premium...
When the investor
pays more than
the face value of
the bond.
WHY?
To adjust the
contractual
interest to the
market interest
rate.
Slide
10-59
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.
Slide
10-60

Issuing Bonds at a Premium
Illustration: On January 1, 2011, Candlestick, Inc. sells
$100,000, five-year, 10% bonds for $108,111 (108.111%
of face value). Interest is payable on July 1 and
January 1. The entry to record the issuance is:
Jan. 1
Cash
Bonds payable
Premium on bond payable
Slide
10-61
108,111
100,000
8,111

Statement Presentation
Illustration 10-16
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.
Slide
10-62

Total Cost of Borrowing
Illustration 10-17
Illustration 10-18
Slide
10-63
Bond Basics - example

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 (per bond). Bond Speak
Slide
10-64
Amortizing Bond Discount - Appendix 10-C
Although Bond Discounts eventually get

written off to Bond Interest Expense, this
must be Amortized over the life of the
Bond:
Slide
10-65
Amortizing Bond Discount or Premium

Candlestick would amortize the $7,361
discount/premium as follows:
$7,361 10 Interest Periods

= $736 Semiannually
Slide
10-66
Straight-Line Amortization Bond Discount

Amortizing Bond Discount
Appendix 10C
Candlestick, Inc., sold $100,000, five-year, 10% bonds on

January 1, 2011, for $92,639 (discount of $7,361). Interest is
payable on July 1 and January 1. The bond discount amortization
for each interest period is $736 ($7,361/10).
Illustration 10C-2
Slide
10-67
SO 11 Apply the straight-line method of amortizing

bond discount and bond premium.
Straight-Line Amortization Bond Discount

Appendix 10C
Illustration 10C-2
SO 11 Apply the
straight-line
method of
amortizing
bond
discount and
bond
premium.
Slide
10-68
Straight-Line Amortization
Amortizing Bond Discount
Candlestick, Inc., sold $100,000, five-year, 10% bonds on
January 1, 2011, for $92,639 (discount of $7,361). Interest is
payable on July 1 and January 1. The bond discount amortization
for each interest period is $736 ($7,361/10).
Journal entry on July 1, 2011, to record the interest payment
and amortization of discount is as follows:
July 1
Interest Expense
Discount on Bonds Payable

Cash
Slide
10-69
5,736
736
5,000
SO 11 Apply the straight-line method of amortizing

bond discount and bond premium.
Accounting for Bond Retirements

Redeeming Bonds at Maturity
Assuming that the company pays and records separately
the interest for the last interest period, Candlestick
records the redemption of its bonds at maturity as
follows:
Bond payable
Cash
Slide
10-70
100,000
100,000
SO 6 Describe the entries when bonds are redeemed or converted.

Redeeming Bonds before Maturity
When a company retires bonds before maturity, it is
necessary to:
1. eliminate the carrying value of the bonds at the

redemption date;
2. record the cash paid; and
3. recognize the gain or loss on redemption.

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.
Slide
10-71
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.
Slide
10-72

Illustration: Assume Candlestick, Inc. has sold its bonds at a
premium. At the end of the eighth period, Candlestick
retires these bonds at 103 after paying the semiannual
interest. The carrying value of the bonds at the redemption
date is $101,623. Candlestick makes the following entry to
record the redemption at the end of the eighth interest
period (January 1, 2015):
Bonds payable
Premium on bonds payable
1,623
Loss on redemption
1,377
Cash
Slide
10-73
100,000
103,000

Converting Bonds into Common Stock
Until conversion, the bondholder receives interest on the
bond.
For the issuer, the bonds sell at a higher price and pay a
lower rate of interest than comparable debt securities
without the conversion option.
Upon conversion, the company transfers the carrying value
of the bonds to paid-in capital accounts. No gain or loss is
recognized.
Note: Know theory, not Journal Entry
Slide
10-74
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
Typically, the terms require the borrower to make
installment payments over the term of the loan. Each
payment consists of
1.
interest on the unpaid balance of the loan and
2. a reduction of loan principal.
Companies initially record mortgage notes payable at

face value.
Note: Know theory, not Journal Entry
Slide
10-75
SO 7 Describe the accounting for long-term notes payable.
Accounting for Long-Term Notes Payable
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.
Slide
10-76
SO 7 Describe the accounting for long-term notes payable.

Presentation
Illustration 10-20
Slide
10-77
SO 8 Identify the methods for the presentation

and analysis of long-term liabilities.

Analysis
Two ratios that provide information about debtpaying ability and long-run solvency are:
1.
Debt to
total assets
Total debt
Total assets
The higher the percentage of debt to total assets,

the greater the risk that the company may be
unable to meet its maturing obligations.
Slide
10-78


Analysis
Two ratios that provide information about debtpaying ability and long-run solvency are:
2.
Times
interest
earned
Income before income taxes

and interest expense
Interest expense
Indicates the companys ability to meet interest

payments as they come due.
Slide
10-79


Analysis
Illustrate: Kellogg Company had total liabilities of
$8,871 million, total assets of $11,397 million, interest
expense of $319 million, income taxes of $444 million,
and net income of $1,103 million.
Illustration 10-21
Slide
10-80

Advantages of Bond Financing over

Common Stock, an illustration
Stockholder
Tax
control
expense
Earnings per share
Slide
10-81
Bond Basics
Effects on earnings per sharestocks vs. bonds.
Illustration 10-9
Slide
10-82
Bond Basics
Question
The major disadvantages resulting from the use of
bonds are:
a. that interest is not tax deductible and the
principal must be repaid.
b. that the principal is tax deductible and interest
must be paid.
c. that neither interest nor principal is tax
deductible.
d. that interest must be paid and principal repaid.

Slide
10-83
End of Chapter 10
Good Bye and Good Luck!

Solutions to Bond exercise next
Slide
10-84
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Slide
10-85
Chapter 10: Bonds! Solutions to exercise

THREE INDEPENDENT SCENARIOS
Slide
10-86
Scenario #1
Scenario #2
Scenario #3
Face Value of a single Bond

Coupon Rate
$1,000
10%
$1,000
10%
$1,000
10%
Term of the Bond (life)/ Date Issued,

frequency of interest
5 year/ 1/1/2001, every 6

months
5 year/ 1/1/2001, every 6

months
5 year/ 1/1/2001, every 6

months
How many bonds did you issue?
1,000
1,000
1,000
What is the face value of the bond

issuance?
$1,000,000
$1,000,000
$1,000,000
Market interest rate for bonds of similar

risk?
10%
10.52%
9.49%
Which bond is more attractive to buyer

and why?
Neither
Market
Ours!
How often is interest paid? Yearly or

semiannually? When do you pay interest?
Every 6 months Jan 1 and

July 1

July 1

July 1
How much interest do you pay?
$50,000
$50,000
$50,000
Selling price per bond, In bondspeak
100
98
102
What was your Selling price (average) in $

per bond?
$1,000
$980
$1,020
How much did you receive for all of the

bonds?
$1,000,000
$980,000
$1,020,000
At the end of the life of the bond, what is

the principal that you OWE the
bondholders?
$1,000,000
$1,000,000
$1,000,000
How much did this bond COST you?
$500,000
$520,000
$480,000

Accounting 202 BOND REVIEW
On January 1st, 2001, Yao Corporation issued 6 year, $200,000 face value bonds (5% coupon) at 93.69. Interest is payable semiannually
on January 1 and July 1.
Prepare the journal entry to record the issuance of the bonds on January 1, 2001 (2 pts)
Prepare the journal entry to record the first interest payment on July 1, 2001 (3 pts)
Prepare the journal entry to record the accrual of interest on December 31, 2001 (3 pts)
Prepare the journal entry to record the retirement of the bond on Jan 1, 2007, after the last interest payment has been made (2 pts).
Calculate the total interest expense recorded on the books of Yao Clothes and the total cash paid for interest during the life of the
bond. If the amounts differ, calculate the difference and explain what caused it. (2 pts)
Show an Amortization Schedule for this bond
Slide
10-87

#
DATE
Account Titles AND Description
Debit
1/1/01
Cash
Bonds Payable
To record bonds issued at discount
187,380
12,620
Bond Interest Expense

Cash
To record semiannual interest payment
6,052
Bond Interest Expense

Interest Payable
To record semiannual accrual of interest
6,052
Bonds Payable
Cash
To record retirement of bonds
200,000
07/01/01
12/31/01
01/01/07
INTEREST EXP = $5,000 * 12 = $60,000 + $12,620 = $72,620
CASH INTEREST PAID = $5,000 * 12 = $60,000

The difference is the discount amount which cost the company an
additional interest amount of $12,620.
Slide
10-88
Credit
200,000
1,052
5,000
1,052
5,000
200,000

2) Prepare a BOND AMORTIZATION Schedule
A
Semi-annual int.
period
Interest to be Paid
(reduction to cash)
Interest Expense to
be Recorded
Amount of Prem/Disc Unamortiz'd

Amortization
Prem/Disc
Bond Carrying Value
187,380
Issue dt1/1/01
Slide
10-89
12,620
188,432
7/1/2001 5,000
6,052
1,052
11,568
1/1/2002 5,000
6,052
1,052
10,516
189,484
7/1/2002 5,000
6,052
1,052
9,464
190,536
1/1/2003 5,000
6,052
1,052
8,412
191,588
7/1/2003 5,000
6,052
1,052
7,360
192,640
1/1/2004 5,000
6,052
1,052
6,308
193,692
7/1/2004 5,000
6,052
1,052
5,256
194,744
1/1/2005 5,000
6,052
1,052
4,204
195,796
7/1/2005 5,000
6,052
1,052
3,152
196,848
1/1/2006 5,000
6,052
1,052
2,100
197,900
7/1/2006 5,000
6,052
1,052
1,048
198,952
1/1/2007 5,000
6,048
1,048*
200,000

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Slide

Explain a current liability, and identify the major types of

Describe the accounting for notes payable.

Explain the accounting for other current liabilities.

Prepare the entries for the issuance of bonds and interest

Describe the entries when bonds are redeemed or converted.

Describe the accounting for long-term notes payable.

Identify the methods for the presentation and analysis of

Sales taxes payable

Accounting for bond issues

Payroll and payroll taxes

Accounting for bond

Current maturities of longterm debt

Accounting for long-term

Statement presentation and

Statement presentation and

Section 1 Current Liabilities

Company expects to pay the debt from existing

2. Company will pay the debt within one year or the

operating cycle, whichever is longer.

SO 1 Explain a current liability, and identify

What is a Current Liability?

b. by creating other current liabilities.

SO 1 Explain a current liability, and identify

What is a Current Liability?

SO 2 Describe the accounting for notes payable.

What is a Current Liability?

SO 2 Describe the accounting for notes payable.

What is a Current Liability?

b) Prepare the adjusting entry on June 30.

SO 2 Describe the accounting for notes payable.

What is a Current Liability?

SO 2 Describe the accounting for notes payable.

What is a Current Liability?

SO 3 Explain the accounting for other current liabilities.

What is a Current Liability?

Sales tax payable

SO 3 Explain the accounting for other current liabilities.

What is a Current Liability?

SO 3 Explain the accounting for other current liabilities.

What is a Current Liability?

NET PAY ($ AMOUNT OF PAYCHECK)

Employee receives paycheck for the net amount.

Record the accrual of this payroll on March 7.

SO 3 Explain the accounting for other current liabilities.

What is a Current Liability?

Record the payment of this payroll on March 11.

SO 3 Explain the accounting for other current liabilities.

What is a Current Liability?

Record the payment of this payroll on March 11.

SO 3 Explain the accounting for other current liabilities.

What is a Current Liability?

SO 3 Explain the accounting for other current liabilities.

What is a Current Liability?

FICA tax payable

SO 3 Explain the accounting for other current liabilities.

What is a Current Liability?

c. Federal income taxes.

SO 3 Explain the accounting for other current liabilities.

What is a Current Liability?

SO 3 Explain the accounting for other current liabilities.

What is a Current Liability?

As the school completes each of the five home games, it

SO 3 Explain the accounting for other current liabilities.