会计英语课件：Liabilities

LiabilitiesAims:1.Toexplainwhatliabilityis.2.Todiscussaccountspayableandnotespayable.3.Tointroducewhatalong-termnotepayableisandhowacompanyaccountsforthistypeofdebt.4.Todiscusswhatrisksareassociatedwithlong-termdebt.5.Tointroducebondspayable,andtostudyhowacompanyrecordsandreportsthetransactionsassociatedwithbonds.5.1

DefinitionofLiabilitiesLiabilitiesmaybedefinedastheprobablefuturesacrificeofeconomicbenefitsarisingfrompresentobligationsofaparticularentitytotransferassetsorprovideservicestootherentitiesinthefutureasaresultofpasttransactionsorevents.Liabilitiescanbedividedintotwoparts:currentliabilitiesandlong-termliabilities.5.2

CurrentLiabilitiesCurrentliabilitiesareobligationsthatmustbepaidwithinoneyearorwithintheoperatingcycle,whicheverislonger.5.3

Long-termLiabilitiesAmountsowedtosomeoneelsewhicharepayableafteroneyear.Examplesinclude:(1)Longtermloans;(2)Debentures,whicharelongtermloanssecuredonthebusinessassets.Thismeansifthebusinessfailstorepaybacktheloanontimethebusinessassetsareatrisk.5.4

TheKindsofCurrentLiabilitiesAmongthemostcommonexamplesofcurrentliabilitiesareaccountspayable,short-termnotespayable,thecurrentportionoflong-termdebt,accruedliabilities,andunearnedrevenue.5.5

AccountsPayableAccountspayableoftenaresubdividedintothecategoriesoftradeaccountspayableandotheraccountspayable.Tradeaccountspayableareshort-termobligationstosuppliersforpurchasesormerchandise.Otheraccountspayableincludeliabilitiesforanygoodsandservicesotherthanmerchandise.5.6

NotesPayableNotespayableareissuedwheneverbankloansareobtained.Othereventswhichmaygiverisetonotespayableincludethepurchaseofrealestateorcostlyequipment,thepurchaseofmerchandise,andthesubstitutionofanoteforapast-dueaccountpayable.5.7

TheDiscountNotediscountnoteshavetheinterestincludedinitsfacevalue.Forexample,a$6000facevaluediscountnoteisrepaidwith$6000cashwhichcontainsboththefacevalueandtheaccruedinterest.5.8

AnIllustrationoftheDiscountNote

CaseCompanyissueda$10000facevaluediscountnotetotheCompaniesBankonMay1st,2018.Thenotecarried7%discountrateanda1-yeartermtomaturity.thediscountis$10000×7%×1period(year)=$700.theprincipalis$10000-$700.`AtthetimeofissuingthenoteonMay1st,2018,thejournalentryisCash 9300DiscountonNotesPayable 700

NotesPayable 100005.9

DiscountonNotesPayable

TheamountofdiscountisrecordedinaseparatecontraliabilityaccountcalledDiscountonNotesPayable.ThebalanceofthisaccountissubtractedfromtheNotesPayableaccounttoarriveatthebookvalueofNotesPayable.Liabilities

NotesPayable$10000Less:DiscountonNotesPayable(700)CarryingValueofLiability$93005.10

RecognizingtheInterestExpenseAttheendofaccountingperiodCaseCompanymustrecordinterestaccruedfor8months(fromMaytoDecember)in2018.Amonthlyinterestiscalculatedbydividingthetotalamountofdiscount($700)by12months:$700/12=$58.33.Accordingly,theamountfor8monthsis$466.7(i.e.,$58.33×8).Theadjustingentryshouldbemadeasfollows:InterestExpense 466.7

DiscountonNotesPayable 466.75.11

AmortizationofDiscountonNotesPayableEventNo.Assets=Liabilities+EquityRev.-Exp.=NetInc.CashFlow2n/a=466.7+(466.7)n/a-466.7=(466.7)n/a

Assets=Liabilities+EquityCash

NotesPayable

InterestExpense(1)9300

(1)10000(2)466.7Bal.9300

Bal.10000Bal.466.7

DiscountonNotes

Payable

(1)700(2)466.7

Bal.233.3

AtthetimeofrepaymentofthefacevalueofnotetothelenderonMay1st,2019.Thejournalentryis:NotesPayable 10000

Cash 10000Finally,thenotepayablematuresonMay1st,2019.CaseCompanyshouldchargetheremainingbalanceofdiscountonnotespayabletoexpense.InterestExpense 233.3

DiscountonNotesPayable 233.35.12

TheCurrentPortionofLong-termDebtSomelong-termdebts,suchasmortgageloans,arepayableinaseriesofmonthlyorquarterlyinstallments.Inthesecases,theprincipalamountduewithinoneyear(ortheoperatingcycle)isregardedasacurrentliability,andtheremainderoftheobligationisclassifiedasalong-termliability.5.13

AccruedLiabilitiesAccruedliabilitiesarisefromtherecognitionofexpensesforwhichpaymentwillbemadeinafutureperiodExamplesofaccruedliabilitiesincludeinterestpayable,incometaxespayable,andamountsrelatedtopayrolls.5.14

InterestPayableInterest—thecostofborrowing—accrueswiththepassageoftime.

Whencompaniesenterintolong-termfinancingagreements,theymaybecomecommittedtopayinglargeamountsofinterestformanyyearstocome.Atanybalancesheetdate,however,onlyasmallportionofthistotalinterestobligationrepresentsa“liability”.assumethatKFCCompanyborrows$1000000fromitsbankforaperiodoffiveyearsataninterestrateof12%.Althoughtheprincipalamountofthisloanwillnotbedueforfiveyears,interestistobepaidmonthly—onthefirstdayofeachmonth.Theinterestexpenseonthisloanamountsto$10000permonth.Attheendofeachmonth,however,KFCCompanywillhavealiabilityforonlyonemonth’sinterestThus,KFCCompany’sbalancesheetsnormallywillshowaccruedinterestpayableofonly$10000.5.15

IncomeTaxesPayableTheincometaxesexpenseaccruesasprofitsareearned.Attheendofeachaccountingperiod,theamountofaccruedincometaxesisestimatedandrecordedinanadjustingentry.Incometaxexpense10,000Incometaxpayable10,0005.16

PayrollLiabilitiesEverybusinessincursanumberofaccruedliabilitiesrelatingtoitspayroll.ThelargestoftheseliabilitiesistheobligationtopayemployeesforservicesrenderedduringthePeriod.5.17

UnearnedRevenueAliabilityforunearnedrevenueariseswhenacustomerpaysinadvance.Uponreceiptofanadvancepaymentfromacustomer,thecompanydebitsCashandcreditsaliabilityaccountsuchasUnearnedRevenue.5.18

EstimatedLiabilitiesThetermestimatedliabilitiesrefertoliabilities,whichappearonfinancialstatementsatestimateddollaramounts.Letusconsidertheexampleoftheautomaker’sliabilitytohonorits“newcarwarranties”.Amanufacturer’sliabilityforwarrantyworkisrecordedbyanentryDR:WarrantyExpenseCR:warrantyClaims.5.19

ContingentLiabilityContingentliabilityisapotentialliability,whicheitherwilldevelopintoafull-fledgedliabilityorwillbeeliminatedentirelybyafutureevent.Forexample,whenabusinessendorsesanoteandturnsitovertoabankforcash,thebusiness(asendorser)iscontingentlyliabletothebank.Ifthemakerofthenotepaysonthematuritydate,thecontingentliabilityoftheendorseristherebyended.Ifthemakerdefaults,theendorsermustpayinhisorherinstead.5.20

TheCategoryofLong-termLiabilitiesLong-termliabilitiesaretheobligationanenterprisethatisnotduewithinthenext12monthsortheoperatingcycle(iflongerthanayear).suchasBondsPayable,MortgagesPayable,Long-termNotesPayableandLeases.5.21

BondsPayableTheissuanceofbondspayableisatechniqueofsplittingalargeloanintoagreatmanyunits,calledbonds.Asaninterest-bearing(ordiscounted)certificateofdebtissuedbyagovernmentorcorporationinordertoraisemoney,eachbondisalong-terminterest-bearingnotepayable,usuallyinthefaceamountof$1000.5.22

BondsIssuedataPremiumonJanuary1,ABCCompanyissued$1000000inbondswithacouponrate5%andatermoftenyears.Thesebondswerewellreceivedbythemarket,sellingat102,whichis102%ofparvalue.InterestpaymentsoccureachDecember31.(1)Thejournalentrytorecordtheissuingofthebondsatapremiumwouldbe:Cash 1020000

PremiumonBondsPayable 20000

BondsPayable 1000000(2)Usingthestraightlinemethod,ABCCompanywouldamortizethepremiumoveraperiodoftenyears.OneachDecember31,thejournalentryforthistransactionisasfollows:PremiumonBondsPayable 2000

InterestExpense 2000WhenthebondinterestispaidoneachDecember31,thejournalentrywillbeasfollows:InterestExpense 50000

Cash 50000(3)Whenthebondsmature10yearslater,theoriginal$20000premiumwillbefullyamortized.Thus,thecarryingvalueisequaltothefacevalueofthebondsatthematuritydate.Atmaturitydate,thejournalentrywillbeasfollows:BondsPayable 1000000

Cash 1000000ThecarryingvalueofabondpremiumisillustratedinFigure5-1.5.23

BondsIssuedataDiscountAssumethatacorporationplanstoissue$2000000facevalueof9%,10-yearbonds.AttheissuancedateofJanuary1,thegoingmarketrateofinterestisslightlyabove9%andthebondssellatapriceofonly98($980foreach$1000bond).Theissuanceofthebondswillberecordedbythefollowingentry:(1)Theissuanceofthebondswillberecordedbythefollowingentry:Cash

1960000DiscountonBondsPayable

40000

BondsPayable

2000000(2)Thesimplestmethodofamortizingbonddiscountisthestraight-linemethod,whichallocatesanequalportionofthediscounttoBondInterestExpenseineachperiod.AssumingthattheinterestpaymentdatesareJune30andDecember31,theentriestobemadeeachsixmonthstorecordbondinterestexpenseareasfollows:BondInterestExpense

90000

Cash

90000BondInterestExpense

2000

DiscountonBondsPayable

2000Amortizeddiscountforsixmonthson10-yearbondissue($40000discount×1/20).Thetwoentriesshownabovetorecordthecash