Chapter10 - 1 LIABILITIES Skip payroll liabilities (pp 441...

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BUSI1002KLT, 07/08 1 LIABILITIES Chapters Skip payroll liabilities (pp 441 - 442), bond payable (pp 447 - 458), and special types of liabilities (pp464-467) STOCKHOLDERS’ EQUITY: Paid-In Capital
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BUSI1002KLT, 07/08 2 Learning Objective LO1 To define liabilities an distinguish between current and long-term liabilities.
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BUSI1002KLT, 07/08 3 I.O.U. Defined as debts or obligations arising from past transactions or events. Maturity = 1 year or less Maturity > 1 year Current Liabilities Noncurrent Liabilities The Nature of Liabilities
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BUSI1002KLT, 07/08 4 The acquisition of assets is financed from two sources: Funds from creditors, with a definite due date, and sometimes bearing interest. Funds from owners DEBT EQUITY Distinction Between Debt and Equity
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BUSI1002KLT, 07/08 5 DEBT EQUITY Liabilities mature, whereas owners’ equity does not. In the event of liquidation, the claims of creditors (liabilities) have priority over that of owners (equity). The creditors have financial claims against the business but they usually do not have the right of control. Interest paid to creditors is deductible for taxation, whereas dividends paid to stockholders are not. VS. Distinction Between Debt and Equity
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BUSI1002KLT, 07/08 6 Current Liabilities Obligations that must be paid within one Obligations that must be paid within one year or within the operating cycle, year or within the operating cycle, whichever is longer. whichever is longer.
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BUSI1002KLT, 07/08 7 Devon Mfg. borrows $100,000 from First Bank. The loan will be repaid in 20 years and has an annual interest rate of 8%. Is this a current liability or a noncurrent liability ? Liabilities – Question The obligation will not be paid within one year or one operating cycle, so it is a noncurrent liability .
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BUSI1002KLT, 07/08 8 Short-term obligations to suppliers for purchases of merchandise and to others for goods and services. Merchandise inventory invoices Shipping charges Utility and phone bills Office supplies invoices Accounts Payable
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BUSI1002KLT, 07/08 9 Learning Objective LO2 To account for notes payable and interest expense.
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BUSI1002KLT, 07/08 10 Total Notes Payable Current Notes Payable Noncurrent Notes Payable When a company borrows money, a note payable is created. Current Portion of Notes Payable The portion of a note payable that is due within one year, or one operating cycle, whichever is longer. Notes Payable
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BUSI1002KLT, 07/08 11 PROMISSORY NOTE Location Date after this date promises to pay to the order of the sum of with interest at the rate of per annum. signed title Miami, Fl Nov. 1, 2007 Six months Porter Company John Caldwell Security National Bank $10,000.00 12.0% treasurer Notes Payable
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12 On November 1, 2007, Porter Company would make the following entry. Notes Payable
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This note was uploaded on 04/20/2010 for the course BUSI BUSI1002 taught by Professor Drjasmine during the Spring '10 term at HKU.

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Chapter10 - 1 LIABILITIES Skip payroll liabilities (pp 441...

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