Chapter 11_Lecture_Summer_2010

Chapter 11_Lecture_Summer_2010 - Chapter 11 Study...

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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. Explain why bonds are issued, and 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 or converted. 7. Describe the accounting for long-term notes payable. 8. Identify the methods for the presentation and analysis of long-term liabilities. Chapter 11 Study Objectives Chapter 11 Study Objectives
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Liabilities Current Liabilities Long-Term Liabilities Notes payable Sales taxes payable Payroll and payroll taxes Unearned revenues Current maturities of long-term debt Statement presentation and analysis Bond basics Accounting for bond issues Accounting for bond retirements Accounting for long- term notes payable Statement presentation and analysis
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Current liability is debt with two key features: 1. Company expects to pay thedebt fromexisting current assets or through the creation of other current liabilities . 2. Company will pay the debt within oneyear or the operating cycle, whichever is longer. What is a Current Liability What is a Current Liability Current liabilities include notes payable , accounts payable , unearned revenues , and accrued liabilities such as taxes , salaries and wages , and interest payable .
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To beclassified as a current liability, a debt must beexpected to be paid: a. out of existing current assets. b. by creating other current liabilities. c. within 2 years. d. both (a) and (b). Question What is a Current Liability What is a Current Liability
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Notes Payable Written promissory note. Requiretheborrower to pay interest. What is a Current Liability What is a Current Liability
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E11-2 E11-2 On June1, Melendez Company borrows $90,000 fromFirst Bank on a 6-month, $90,000, 12% note. Instructions a) Preparetheentry on June1. b) Preparetheadjusting entry on June30. c) Preparetheentry at maturity (December 1), assuming monthly adjusting entries havebeen madethrough November 30. d) What was thetotal financing cost (interest expense)? What is a Current Liability What is a Current Liability
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E11-2 E11-2 On June1, Melendez Company borrows $90,000 fromFirst Bank on a 6-month, $90,000, 12% note. a) Preparetheentry on June1. Notes payable 90,000 Cash 90,000 Interest payable 900 Interest expense 900 $90,000 x 12% x 1/12 = $900 b) Preparetheadjusting entry on June30. What is a Current Liability What is a Current Liability
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E11-2 E11-2 On June1, Melendez Company borrows $90,000 fromFirst Bank on a 6-month, $90,000, 12% note. c) Preparetheentry at maturity (December 1), assuming monthly adjusting entries havebeen madethrough November 30.
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