ACC301-ch10

ACC301-ch10 - chapter 10 chapter Debt Financing An...

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1 Debt Financing Debt Financing chapter chapter   10 An electronic presentation An electronic presentation by Douglas Cloud by Douglas Cloud Pepperdine University Pepperdine University
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2 Learning Objectives 1. Understand the various classification and measurement issues associated with debt. 2. Account for short-term debt obligations, including those expected to be refinanced, and describe the purpose of lines of credit. 3. Apply present value concepts to the accounting for long-term debts such as mortgages. Continued Continued
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3 Learning Objectives 4. Understand the various types of bonds, compute the price of a bond issue, and account for the issuance, interest, and redemption of bonds. 5. Explain various types of off-balance-sheet financing, and understand the reasons for this type of financing. 6. Analyze a firm’s debt position using ratios. Continued Continued
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4 Learning Objectives 7. Review the notes to financial statements, and understand the disclosure associated with debt financing. EXPANDED MATERIAL 8. Understand the conditions under which troubled debt restructuring occurs, and be able to account for troubled debt restructuring.
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5 ISSUE the debt Time Line of Business Issues Involved with Long-Term Debt Notes Payable Mortgage Payable Bond CHOOSE the method of financing Bond PAY interest +/- RETIRE the debt ACCOUNT for the specific aspects of the type of debt
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6 Definition of Liabilities The FASB has defined liabilities as “probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transaction or events.”
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7 The obligation of a particular entity to transfer assets or provide services. – Must be the result of past transactions or events. – Probable transfer of assets (or services) must be in the future. Definition of Liabilities Analysis of Definition Analysis of Definition
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8 Current Liabilities : Paid within one year or the operating cycle, whichever is longer. Noncurrent Liabilities : Not paid within one year or the operating cycle, whichever is longer. Classification of Liabilities
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9 Current Ratio The current ratio is a measure of the liquidity of a business. It is computed by dividing total current assets by total current liabilities.
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10 Liquidity Example Sporting Equipment Company has current assets of $200,000 and current liabilities of $150,000. Current assets $200,000 Current liabilities $150,000 = 1.333 Current Ratio Current Ratio
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11 Measurement of Liabilities Current Ratio Current Ratio Coca-Cola 0.85 Delta Air Lines 0.56 Dow Chemical 1.27 IBM 1.21 McDonald’s 0.81 Microsoft 3.56 Wal-Mart 1.04
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Types of Liabilities Liabilities that are Liabilities that are definite in amount. definite in amount.
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This note was uploaded on 06/11/2009 for the course ACC 301 taught by Professor Pendarvis during the Spring '09 term at St. Leo.

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ACC301-ch10 - chapter 10 chapter Debt Financing An...

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