chapter9notes

chapter9notes - CURRENT LIABILITIES & TIME VALUE OF MONEY...

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I. CURRENT LIABILITIES Expected to be paid: 1) within one year or operating cycle 2) using a current asset (usually cash) A. Examples of Current Liabilities: 1. Accounts Payable 2. Notes Payable (short-term) A. Interest-bearing B. Non-Interest Bearing (Interest is deducted in advance. It is “discounted”) Example: On May 1, ABC Co. borrowed On May 1, ABC Co. issued a $60,000 on a 6-mo, 10% note. 6-mo. Non-interest bearing note for $60,000 to the bank. The bank discounted the note at 10%. To Record Issuance: To Record Payment at Maturity:
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3. Accrued Expenses Payable - Wages Payable Taxes Payable Interest Payable 4. Unearned Revenue 5. Current Maturities of L-T debt B. Analysis of Liquidity 1. Working Capital 2. Current Ratio 3. Quick Ratio (Acid Test Ratio)
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Contingent Liabilities: An obligation that involves an existing condition for which the outcome is not known with certainty and depends on some event that will occur in the future. Record in the accounting records if: The event is probable and can be reasonably estimated . Ex: warranties, guarantees, lawsuits Record at end of period: Expense xx Estimated Liability xx Base estimate on past records, customer buying habits, technological changes Ex: During June a company sells a product for $60,000 on which there is a 24- month warranty for repairing defects. Past experience indicates that the average cost to repair defects is 5% of the sales price over the warranty period. Record the estimated product warranty:
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This note was uploaded on 03/27/2008 for the course ACCT 229 taught by Professor Strawser during the Fall '06 term at Texas A&M.

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chapter9notes - CURRENT LIABILITIES & TIME VALUE OF MONEY...

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