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Chap 11
Chapter 11-1 Chapter Chapter 11 11 Chapter Chapter 11 11 Liabilities Financial Accounting, Sixth Edition Chapter 11-2 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. Study Objectives Study Objectives Study Objectives Study Objectives Chapter 11-3 Liabilities Liabilities Liabilities Liabilities Current Current Liabilities Liabilities Current Current Liabilities Liabilities Long-Term Long-Term Liabilities Liabilities Long-Term Long-Term Liabilities Liabilities Notes payable Notes payable Sales taxes payable Sales taxes payable Payroll and payroll Payroll and payroll taxes taxes Unearned revenues Unearned revenues Current maturities of Current maturities of long-term debt long-term debt Statement Statement presentation and presentation and analysis analysis Bond basics Bond basics Accounting for bond Accounting for bond issues issues Accounting for bond Accounting for bond retirements retirements Accounting for long- Accounting for long- term notes payable term notes payable Statement Statement presentation and presentation and analysis analysis Chapter 11-4 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. What is a Current Liability What is a Current Liability What is a Current Liability What is a Current Liability SO 1 Explain a current liability, and identify SO 1 Explain a current liability, and identify the major types of current liabilities. the major types of current liabilities. Current liabilities include notes payable, accounts payable, unearned revenues, and accrued liabilities such as taxes, salaries and wages, and interest payable. Chapter 11-5 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). Question Question SO 1 Explain a current liability, and identify SO 1 Explain a current liability, and identify the major types of current liabilities. the major types of current liabilities. What is a Current Liability What is a Current Liability What is a Current Liability What is a Current Liability Chapter 11-6 SO 2 Describe the accounting for notes payable. SO 2 Describe the accounting for notes payable. Notes Payable Written promissory note. Require the borrower to pay interest. What is a Current Liability What is a Current Liability What is a Current Liability What is a Current Liability Chapter 11-7 E11-2 E11-2 On June 1, Melendez Company borrows $90,000 from First Bank on a 6-month, $90,000, 12% note. Instructions a) Prepare the entry on June 1. b) Prepare the adjusting entry on June 30. c) Prepare the entry at maturity (December 1), assuming monthly adjusting entries have been made through November 30. d) What was the total financing cost (interest expense)? SO 2 Describe the accounting for notes payable. SO 2 Describe the accounting for notes payable. What is a Current Liability What is a Current Liability What is a Current Liability What is a Current Liability Chapter 11-8 E11-2 E11-2 On June 1, Melendez Company borrows $90,000 from First Bank on a 6-month, $90,000, 12% note. a) Prepare the entry on June 1. Notes payable 90,000 Cash 90,000 Interest payable 900 Interest expense 900 $90,000 x 12% x 1/12 = $900 b) Prepare the adjusting entry on June 30. SO 2 Describe the accounting for notes payable. SO 2 Describe the accounting for notes payable. What is a Current Liability What is a Current Liability What is a Current Liability What is a Current Liability Chapter 11-9 E11-2 E11-2 On June 1, Melendez Company borrows $90,000 from First Bank on a 6-month, $90,000, 12% note. c) Prepare the entry at maturity (December 1), assuming monthly adjusting entries have been made through November 30. Interest payable 5,400 Notes payable 90,000 $5,400 Cash 95,400 d) What was the total financing cost (interest expense)? SO 2 Describe the accounting for notes payable. SO 2 Describe the accounting for notes payable. What is a Current Liability What is a Current Liability What is a Current Liability What is a Current Liability Chapter 11-10 SO 3 Explain the accounting for other current liabilities. SO 3 Explain the accounting for other current liabilities. Sales Tax Payable Sales taxes are expressed as a stated percentage of the sales price. Retailer collects tax from the customer. Retailer remits the collections to the state’s department of revenue. What is a Current Liability What is a Current Liability What is a Current Liability What is a Current Liability