ch10 - CHAPTER 10 Reporting and Analyzing Liabilities Study...

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CHAPTER 10 Reporting and Analyzing Liabilities Study Objectives 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. 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. 7. Identify the requirements for the financial statement presentation and analysis of liabilities. 8. (Appendix 10A) Apply the straight-line method of amortizing bond discount and bond premium. 9. (Appendix 10B) Apply the effective-interest method of amortizing bond discount and bond premium. 10. (Appendix 10C) Describe the accounting for long-term notes payable. Study Objective 1 - Explain a Current Liability and Identify the Major Types of Current Liabilities Liabilities are defined as “creditors' claims on total assets” and as “existing debts and obligations.” These claims, debts, and obligations must be settled or paid at some time in the future by the transfer of assets or services. A current liability is a debt that can reasonably be expected to be paid (1) from existing current assets or through the creation of other current liabilities, and (2) within one year or the operating cycle, whichever is longer. Debts that do not meet both of these criteria are classified as long-term liabilities . 10-1
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The different types of current liabilities include notes payable, accounts payable, unearned revenues, and accrued liabilities such as taxes, salaries and wages, and interest. Study Objective 2 - Describe the Accounting for Notes Payable Obligations in the form of written notes are recorded as notes payable. Notes payable are often used instead of accounts payable because they give the lender written documentation of the obligation in case legal remedies are needed to collect the debt. usually require the borrower to pay interest and frequently are issued to meet short-term financing needs. are issued for varying periods of time. Notes due for payment within one year of the balance sheet date are generally classified as current liabilities. A discussion of accounting for long-term installment notes payable is presented in Appendix 10C at the end of the chapter. Study Objective 3 - Explain the Accounting for Other Current Liabilities Sales taxes payable - Sales taxes are expressed as a percentage of the sales price. The seller collects the sales tax from the customer when the sale occurs and remits the tax collected to the state's department of revenue periodically (usually monthly). Most states require that the sales tax collected be rung up separately on the cash register. (Gasoline sales are a major exception.) When sales taxes are not rung up separately on the cash register, total receipts are divided by 100% plus the sales tax percentage to determine sales .
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