中级财务会计英文ch08.ppt

,Liabilities,Chapter8,IntermediateAccounting12thEditionKieso,Weygandt,andWarfield,PreparedbyCobyHarmon,UniversityofCalifornia,SantaBarbara,Explainthecharacteristicsofaliability.Accountforcompensatedabsences.Understandandrecordpayrolltaxesanddeductions.Recordpropertytaxes.Accountforwarrantycosts.Explaintheterms“probable,”“reasonablypossible,”and“remote”relatedtocontingencies.Recordandreportalosscontingency.Discloseagaincontingency.,LearningObjectives,10.Explainthereasonsforissuinglong-termliabilities.11.Understandthecharacteristicsofbondspayable.12.Recordtheissuanceofbonds.13.Amortizediscountsandpremiumsunderthestraight-linemethod.14.Computethesellingpriceofbonds.15.Amortizediscountsandpremiumsundertheeffectiveinterestmethod.16.Explainextinguishmentofliabilities.17.Understandbondswithequitycharacteristics.18.Accountforlong-termnotespayable.19.Understandthedisclosureoflong-termliabilities.,LearningObjectives,DefinedbySFACNo.6as:Probablefuturesacrificesofeconomicbenefitsarisingfrompresentobligationsofaparticularentitytotransferassetsorprovideservicestootherentitiesinthefutureasaresultofpasttransactionsorevents.,Liabilities,Itinvolvesapresentdutyorresponsibilityofthecompanytooneormoreentitiesthatwillbesettledbytheprobablefuturetransferoruseofassetsataspecifiedordeterminabledate,onoccurrenceofaspecificevent,orondemand.Thedutyorresponsibilityobligatesthecompany,leavingitlittleornodiscretiontoavoidthefuturesacrifice.Thetransactionorothereventobligatingthecompanyhasalreadyhappened.,ThreeEssentialCharacteristicsofaLiability,Interestthatisnotexplicitlyspecifiedinthetermsoftheliability.Neednotberecognized.,Liabilities-ImplicitInterest,Currentliabilitiesareobligationswhoseliquidationisexpectedtorequiretheuseofexistingcurrentassetsorthecreationofothercurrentliabilitieswithinoneyearoranoperatingcycle,whicheverislonger.,CurrentLiabilities,HavingContractualAmount,TypeofCurrentLiabilities,AmountDependsonOperations,TypeofCurrentLiabilities,AmountMustBeEstimated,TypeofCurrentLiabilities,Obligationsarisingfromthecompanysongoingoperations-includestheacquisitionofinventory,supplies,materialsandservices.Commonlycalledtradepayables.Othercurrentpayablesshouldbereportedseparately.,AccountsPayable,Notesthatarisefromthesametypesoftransactionsastradepayables.Canbesecuredorunsecured.Canbeinterest-bearingornoninterest-bearing.-Interest-bearingnotescarryastatedrateofinterest.-Noninterest-bearingnotesreflectaneffectiverateofinterestorayield.,Short-TermNotesPayable,Therateofinterestisspecifiedandiscalledthestatedrate.Thedebtor(orborrower)receivescash,otherassets,orservices.Thedebtorrepaysthefaceamountofthenoteplusinterestatthestatedrate.,Short-TermNotesPayableInterest-Bearing,OnSeptember1,EagleBoatsborrows$80,000fromCookeBank.Thenoteisduein180daysandhasastatedinterestrateof9%.RecordtheborrowingonSeptember1.,Interest-BearingNotesExample,OnSeptember1,EagleBoatsborrows$80,000fromCookeBank.Thenoteisduein180daysandhasastatedinterestrateof9%.RecordtheborrowingonSeptember1.,Interest-BearingNotesExample,HowmuchinterestisduetoCookeBankatyear-end,onDecember31?a.$2,400b.$3,600c.$7,200d.$87,200,Interest-BearingNotesExample,HowmuchinterestisduetoCookeBankatyear-end,onDecember31?a.$2,400b.$3,600c.$7,200d.$87,200,Interest-BearingNotesExample,AssumeEagleBoatsfiscalyear-endisDecember31.Recordthenecessaryadjustmentatyear-end.,Interest-BearingNotesExample,AssumeEagleBoatsfiscalyear-endisDecember31.Recordthenecessaryadjustmentatyear-end.,Interest-BearingNotesExample,AssumeEagleBoatsfiscalyear-endisDecember31.RecordthenecessaryjournalentrywhenthenotematuresonFebruary28.,Interest-BearingNotesExample,AssumeEagleBoatsfiscalyear-endisDecember31.RecordthenecessaryjournalentrywhenthenotematuresonFebruary28.,Interest-BearingNotesExample,Noteswithoutastatedinterestratecarryanimplicit,oreffective,rate.Thefaceofthenoteincludestheprincipalandtheinterest.Theborrowerreceivesthedifferencebetweenthefaceamountandtheinterestonthenote.-Thecashreceivedisthediscountedpresentvalueofthefaceofthenote.,Short-TermNotesPayableNoninterest-Bearing,OnMay1,2007,Batter-Up,Inc.issuedaone-year,noninterest-bearingnotewithafaceamountof$10,000inexchangeforequipmentvaluedat$9,434.HowmuchinterestwillBatter-Uppayonthenote?,Noninterest-BearingNotesExample,OnMay1,2007,Batter-Up,Inc.issuedaone-year,noninterest-bearingnotewithafaceamountof$10,000inexchangeforequipmentvaluedat$9,434.HowmuchinterestwillBatter-Uppayonthenote?,Interest=FaceAmount-AmountReceived=$10,000-$9,434=$566,Noninterest-BearingNotesExample,OnMay1,2007,Batter-Up,Inc.issuedaone-year,noninterest-bearingnotewithafaceamountof$10,000inexchangeforequipmentvaluedat$9,434.Whatistheimplicitinterestrateonthenote?,Noninterest-BearingNotesExample,OnMay1,2007,Batter-Up,Inc.issuedaone-year,noninterest-bearingnotewithafaceamountof$10,000inexchangeforequipmentvaluedat$9,434.Whatistheimplicitinterestrateonthenote?,Noninterest-BearingNotesExample,ScripDividendsPayableAccruedLiabilitiesAdvancesandReturnableDepositsUnearnedRevenues,Short-TermLiabilities,Collectedfromcustomersonbehalfofthestateorlocalgovernmentsatthepointofsale.Requiresadebittocashandacredittosalestaxespayable.Heldinaliabilityaccountuntiltimetomakeremittancetothetaxingauthority.Requiresadebittosalestaxespayableandacredittocash.,SalesTaxes,SelleroyCompanysellsmerchandiseforcashwitharetailsalespriceof$50,000onwhichasalestaxof6%islevied.Thecompanycollects$53,000.,Cash53,000Sales50,000SalesTaxesPayable3,000,SalesTaxes,AttheendofJanuarytheSalesaccountisadjustedtorecordthetaxonallgoodssold$169,000-($169,0001.06)=$9,600.,Cash169,000Sales169,000,Ifthesalestaxisincludedinthepricechargedtothecustomer,Sales9,600SalesTaxesPayable9,600,SalesTaxes,WithholdingsfromemployeepayEmployeesportionofFICAEmployeeFederalIncomeTaxWithholdingsExpensesdeductedfromincomeEmployerportionofFICAFederalUnemploymentTax(FUTA)StateUnemploymentTax(SUTA),PayrollTaxes,Batter-Up,Inc.has5employees.Eachemployeereceivesasalaryof$1,000perweek.TheFICArateis7.65%andincometaxiswithheldattherateof20%.,PayrollTaxes-EmployeeExamplec,PreparethejournalentrytorecordthepayrollforBatter-UpfortheweekendingJune14,2007.,PayrollTaxes-EmployeeExample,PreparethejournalentrytorecordthepayrollforBatter-UpfortheweekendingJune14,2007.,PayrollTaxes-EmployeeExample,Note:Theexpensetothecompanyis$5,000whiletheactualpaymenttotheemployeesis$3,617.50.,PayrollTaxes-EmployeeExample,Note:Theemployertransfersthetaxamountstothegovernmentontheemployeesbehalf.,PayrollTaxes-EmployeeExample,Batter-Up,Inc.hasalsoincurredFUTAof$50andSUTAof$200.PrepareBatter-UpsjournalentryforalloftheirtaxesrelatedtotheJune16payroll.,PayrollTaxes-EmployerExample,PayrollTaxes-EmployerExample,Note:TheemployermatchestheFICAthatwaswithheldfromtheemployeespaychecks.Ineffect,thetotalFICAtaxrateis15.3%;halfispaidbytheemployee(7.65%)andhalfispaidbytheemployer(7.65%).,PayrollTaxes-EmployerExample,EzzellCompanyclosesitsbooksannuallyeachDecember31.ThefiscalyearforthetownandcountyinwhichthefirmislocatedendsonJune30.TheestimatedpropertytaxesfortheperiodJuly1,2007,toJune30,2008,are$7,200.ThetaxbillismailedinOctoberwitharequirementthatthetaxbepaidbeforeDecember31,2007.Thetaxbillreportedanactualtaxof$7,290,andthecorporationpaysthisamountonOctober31,2007.,PropertyTaxes,ThreeMonthlyEntriesJuly31-September30,2007,PropertyTaxExpense600PropertyTaxesPayable600,October31,2007:PaymentofPropertyTaxes,PropertyTaxPayable1,800PrepaidPropertyTaxes5,490Cash7,290,ThreeMonthlyEntries:October31-Dec.31,2007,PropertyTaxExpense610PrepaidPropertyTaxes610,PropertyTaxes,Percentageofnetincomebeforethebonus-Multiplythenetincomebeforethebonusbythebonuspercentage.Percentageofnetincomeafterthebonus-Algebraicallyexpressed:,Bonus=%(NetIncome-Bonus),BonusesBasedonIncome,LindaBall,Batter-UpsCEO,Inc.getsayear-endbonusof15%ofnetincomeafterdeductingherbonus.2007Netincomeis$250,000.ComputeLindasbonusfor2007.,BonusExample,LindaBall,Batter-UpsCEO,Inc.getsayear-endbonusof15%ofnetincomeafterdeductingherbonus.2007Netincomeis$250,000.ComputeLindasbonusfor2007.,BonusExample,Occurswhenunusedvacationtimeiscarriedovertofutureyears.Anexpense/liabilitymustbeaccruediffourcriteriaaremet:Absencerelatestoservicesalreadyperformed.Benefitsaccumulate,orvest.Paymentisprobable.Amountcanbereliablyestimated.,Compensated-AbsenceLiability,Avestedrightexistswhenanemployerhasanobligationtomakepaymentstoanemployeethatisnotcontingentontheemployeesfutureservices.,Compensated-AbsenceLiability,Accumulatedrightsarethosethatcanbecarriedforwardbytheemployeetofutureperiodsifnottakenintheperiodinwhichtheyareearned.,Compensated-AbsenceLiability,MiltonCompanyhas100employeeswhoarepaidanaverageof$200perday.Companypolicyallowseachemployee12daysofpaidvacationperyear.,Compensated-AbsenceLiability,The$200,000April30,2008,payroll,includingpaidvacationtimetakenbythesalesandofficestaff,isasfollows:,Continued,Compensated-AbsenceLiability,Compensated-AbsenceLiability,Theportionoflong-termdebtmaturingwithinthenextfiscalyearisreportedasacurrentliabilitLong-termdebtsshouldnotbereportedascurrentliabilitiesif:1.theyareretiredbyassetsnotclassifiedascurrentassets2.theyarerefinancedbynewissuesofdebt3.theyareconvertedintocapitalstock.,CurrentMaturitiesofLong-TermDebt,Obligationsthatarepayableondemandorthatwillbecomepayableondemandwithinthenextoperatingcycle.Long-termobligationsthatarecallablebythecreditorduetoaviolationofunderlyingterms.,ObligationsThatAreCallablebytheCreditor,Acurrentliabilitymaybereclassifiedtoanoncurrentstatustoimprovethecompanysworkingcapitalposition.Generally,thisisallowediftheshort-termliabilityisexpectedtoberefinancedlong-term.,Short-TermObligationsExpectedtoBeRefinanced,Theexpectedrefinancingisevidencedbyactualrefinancingbeforethestatementissuedate.ORTheexpectedrefinancingisevidencedbygoodfaithentranceintoalong-term,noncancelablerefinancingagreementwithaviablelender.,CriteriaforReclassifyingShort-TermLiabilities,SFASNo.6requires:Theagreementmustbenoncancelablebyallpartiesandmustextendbeyondoneyear.Thecompanymustnotbeinviolationoftheagreementonthebalancesheetortheissuedate.Thelendermustbefinanciallycapableofhonoringtheagreement.,RefinancingAgreementCriteria,“Anexistingcondition,situation,orsetofcircumstancesinvolvinguncertaintyastopossiblegainoralosstoanenterprisethatultimatelywillberesolvedwhenoneormorefutureeventsoccurorfailtooccur.”SFASNo.5,Contingencies,CONDITIONS:ProbableThefutureeventislikelytooccur.ReasonablyPossibleThechanceofoccurrenceofthefutureeventismorethanremote,butlessthanlikely.RemoteThechanceofoccurrenceofthefutureeventisslight.,Contingencies,LossContingenciesAccountingTreatments,Awarrantyisapromise(futurecost)madebyasellertoabuyertomakegoodonadeficiency.Underthecashbasismethod,warrantycostsarechargedtotheperiodinwhichthecostsarepaid.Undertheaccrualbasismethod:1.warrantycosts(forwarrantiessoldwiththeproduct)areestimatedandmatchedwithrevenue.2.extendedwarrantyrevenuesaredeferredandrecognizedoverthelifeofthewarrantycontract.,WarrantyObligations,CashorAccountsReceivable1,200,000Sales1,200,000,Warrantycostpermachineisestimatedat$150.,WarrantyExpense30,000EstimatedLiabilityunderWarranties30,000,ExpenseWarrantyAccrualMethod,AngleeMachineryCorporationbeginsproductiononanewmachineinApril2007andsells200ofthesemachinesat$6,000eachbyDecember31,2007.,WarrantyObligations,Thecorporationspent$5,000in2007tofulfillwarrantyagreementsforthe200machines.,EstimatedLiabilityunderWarranties5,000Cash(orotherassets)5,000,Thecorporationspent$25,150in2008tofulfillwarrantyagreementsforthe200machines.,EstimatedLiabilityunderWarranties25,000WarrantyExpense150Cash(orotherassets)25,150,WarrantyObligations,AngleeMachineryCorporationsells200machinesfor$6,000.Thisamountincludesaservicecontractsaleof$150andamachinesaleof$5,850.,CashorAccountsReceivable1,200,000Sales($5,850 x200)1,170,000UnearnedWarrantyRevenue30,000,SalesWarrantyAccrualMethod,Continued,WarrantyObligations,Recognitionofwarrantyexpenseforperiod,April-December,2007.,WarrantyExpense5,000Cash(orotherassets)5,000,Recognitionofwarrantyrevenueforperiod,April-December,2007.,UnearnedWarrantyRevenue5,000WarrantyRevenue5,000,Continued,WarrantyObligations,Recognitionofwarrantyexpenseduring2008.,WarrantyExpense25,150Cash(orotherassets)25,150,Recognitionofwarrantyrevenueduring2008.,UnearnedWarrantyRevenue25,000WarrantyRevenue25,000,WarrantyObligations,OnOctober1,2007,theAmericanMeatballCorporationbeganofferingtocustomersaservingdiskinreturnfor30meatballcanlabels.TheofferexpiresonApril1,2008.Thecostofeachpremiumservingdiskis$2.Itisestimatedthat60%ofthelabelswillberedeemed.,PremiumandCouponObligations,Continued,PremiumandCouponObligations,Estimatedlabelsthatwillberedeemed(300,000 x.60)180,000Deductlabelsredeemedduring2007(105,000)Estimatednumberoffuturelabelredemptions75,000,Premiumexpenseforestimatedfutureredemptions:(75,00030)x$2$5,000,(105,00030)x$2,PremiumandCouponObligations,Todeterminewhetheraliabilityshouldberecorded,evaluate:ThetimeperiodinwhichtheunderlyingcauseofactionoccurredTheprobabilityofanunfavorableoutcomeTheabilitytomakeareasonableestimateofloss,Litigation,ClaimsandAssessments,YousaidthatIwilloweyou$1,000,000ifImissthenextputt.SodoesthatmeanIhavetodiscloseacontingentlossonmypersonalfinancialstatement?,Obligationsthatextendbeyondoneyearortheoperatingcycle,whicheverislonger,Long-termLiabilities,Debtfinancingmaybetheonlyavailablesourceoffunds.Debtfinancingmayhavealowercost.Debtfinancingofferstheopportunityforleverage.Debtfinancingoffersanincometaxadvantage.Thevotingprivilegeisnotshared.,ReasonsforIssuanceofLong-TermLiabilities,Recordlong-termliabilitiesatthefairvalueofthegoodsorservicesreceived.Interestexpenseisbasedonthemarketinterestrateonthedateofthedebtissuanceandthebeginningbalanceoftheliability.Bookvalueisthepresentvalueofallfuturecashpayments,discountedatthemarketinterestrateatissuance.,Long-termLiabilitiesMeasurementandValuation,CompanyIssuingBonds,InvestorBuyingBonds,BondSellingPrice,BondCertificate,AtBondIssuanceDate,BondsPayableCashFlow,CompanyIssuingBonds,InvestorBuyingBonds,FaceValuePaymentatEndofBondTerm,InterestPaymentsOverBondTerm,BondsPayableCashFlow,IssuingEntity,Collateral,PurposeofIssue,PaymentofInterest,Maturity,BondsPayableClassification,IssuingEntityIndustrialBondsMunicipalBondsCollateralSecuredBondsMortgageBondsGuaranteedBondsDebentureBonds,BondsPayableClassification,PurposeofInterestPurchaseMoneyBondsRefundingBondsConsolidatedBondsPaymentofInterestOrdinaryBondsIncomeBondsRegisteredBondsBearerBonds,BondsPayableClassification,MaturityTermsBondsSerialBondsCallableBondsRedeemableBondsConvertibleBonds,BondsPayableClassification,BONDPAYABLE,FaceValue$1,000,Interest10%,6/30&12/31,MaturityDate1/1/X5,BondDate1/1/X0,1.FaceValue=MaturityorParValue2.MaturityDate3.StatedInterestRate4.InterestPaymentDates5.BondDate,BondsPayable,BONDPAYABLE,FaceValue$1,000,Interest10%,6/30&12/31,MaturityDate1/1/X5,BondDate1/1/X0,1.FaceValue=MaturityorParValue2.MaturityDate3.StatedInterestRate4.InterestPaymentDates5.BondDate,OtherFactors:6.MarketInterestRate7.IssueDate,BondsPayable,Marketrate=statedrateBondssellatfaceorparvalue.MarketratestatedrateBondssellatadiscount(belowfacevalue).MarketratestatedrateBondssellatapremium(abovefacevalue).,BondsPrices,On12/31/X0GraphicsInc.issues10bondsatfacevalue.Themarketinterestrateis10%.Thebondshavethefollowingterms:FaceValue=$1,000MaturityDate=12/31/X5(5years)StatedInterestRate=10%InterestDates=6/30&12/31BondDate=12/31/X0,BondsIssuedatFaceValueonBondDate,Preparethejournalentrytorecordtheissuanceofthebondson12/31/X0.,BondsIssuedatFaceValueonBondDate,Preparethejournalentrytorecordtheissuanceofthebondson12/31/X0.,Long-termLiability,BondsIssuedatFaceValueonBondDate,Preparethejournalentryrequiredevery6/30and12/31topayinterest.,BondsIssuedatFaceValueonBondDate,Preparethejournalentryrequiredevery6/30and12/31topayinterest.,BondsIssuedatFaceValueonBondDate,Preparethejournalentrytorecordthematurityofthebondon12/31/X5.,BondsIssuedatFaceValueonBondDate,Preparethejournalentrytorecordthematurityofthebondon12/31/X5.,BondsIssuedatFaceValueonBondDate,Whathappenswhenthemarketinterestratesaredifferentfromthebondsstatedinterestrate?Forexample,themarketisearning8%.WouldyouwanttoinvestinGraphicsInc.s10%bond?,BondsIssuedAboveFaceValueonBondDate,Whathappenswhenthemarketinterestratesaredifferentfromthebondsstatedinterestrate?Forexample,themarketisearning8%.WouldyouwanttoinvestinGraphicsInc.s10%bond?,YES!,BondsIssuedAboveFaceValueonBondDate,Ifthebondispaying10%interestandthemarketispaying8%interest,GraphicsInc.would:Sellthebondabovefacevalue-atapremiumBUTPayinterestononlythefacevalueANDRepayonlythefacevalueatmaturity.,BondsIssuedAboveFaceValueonBondDate,ThisarrangementwilldecreasetheeffectiveinterestrateofGraphicsInc.bondstothemarketrate.,BondsIssuedAboveFaceValueonBondDate,On12/31/X0GraphicsInc.sells1,000bondsat108.1105.Themarketinterestrateis8%.Thebondshavethefollowingterms:FaceValue=$1,000MaturityDate=12/31/X5(5years)StatedInterestRate=10%InterestDates=6/30&12/31BondDate=12/31/X0,BondsIssuedAboveFaceValueonBondDate,HowmuchcashisGraphicsInc.goingtoreceivefortheentirebondissue?,BondsIssuedAboveFaceValueonBondDate,HowmuchcashisGraphicsInc.goingtoreceivefortheentirebondissue?$1,000facevalue1,000sold=$1,000,000$1,000,000108.1105%=$1,081,105cash,BondsIssuedAboveFaceValueonBondDate,GraphicsInc.agreestorepaythefullfacevalueatmaturity.$1,000facevalue1,000sold=$1,000,000,BondsIssuedAboveFaceValueonBondDate,Thedifferencebetweenthefacevalueofthebondsandthecashreceivedisthepremium.$1,081,105-$1,000,000=$81,105ThepremiumisareductionintheinterestfactorforGraphicsInc.ThepremiumwillbeamortizedtoInterestExpense.,BondsIssuedAboveFaceValueonBondDate,Preparethejournalentrytorecordtheissueofthebondson12/31/X0.,BondsIssuedAboveFaceValueonBondDate,Preparethejournalentrytorecordtheissueofthebondson12/31/X0.,Adjunct-LiabilityAccount,BondsIssuedAboveFaceValueonBondDate,BookValue,MaturityValue,BondsIssuedAboveFaceValueonBondDate,Preparethejournalen