Handout_10_(APSCW_-_F2009)

Handout_10_(APSCW_-_F2009) - FINANCIALACCOUNTING...

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BUSI W3013 Handout 10 | Page 1 F INANCIAL A CCOUNTING BUSI W3013 | F ALL 2009 H ANDOUT 10 PROFESSOR ANDREW SCHMIDT 1.0 Introduction ……………………………… 1 2.0 Current Liabilities ……………………………… 2 3.0 Long Term Liabilities ……………………………… 4 4.0 Liabilities and the Statement of Cash Flows ……………………………… 16 5.0 Financial Statement Analysis of Liabilities ……………………………… 16 6.0 Disclosure Requirements ……………………………… 18 7.0. Practice Exercises and Solutions ……………………………… 31 8.0 Problem Set 08 ……………………………… 47 9.0 Appendix: ……………………………… 55 H ANDOUT O BJECTIVES : L IABILITIES 1) Distinguish between different types of liabilities 2) Understand the effective interest rate method and apply it to debt amortization. 3) Understand the accounting for bond issues, recording interest expense, and bond retirement (both before and at maturity) 4) Identify financial statement disclosures of debt 1.0. I NTRODUCTION Liabilities are obligations to transfer assets or provide services that: Represent a probable future sacrifice of economic benefits that can be measured with reasonable precision and are a result of past transactions or events. Liabilities are either monetary or non-monetary (most liabilities are monetary). Monetary liabilities will be settled by paying a known, fixed amount of cash (e.g., debt, salaries payable, income tax payable, accounts payable). Non-monetary liabilities are all other liabilities (e.g., unearned revenue, warranty liabilities, deferred taxes, retirement benefits, environmental liabilities). On the balance sheet, liabilities are classified based on time to maturity and not based on whether they are monetary or non-monetary:
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BUSI W3013 Handout 10 | Page 2 Current (short-term) liabilities are liabilities that mature within one year or within the operating cycle (if it is longer). Long-term liabilities are all other liabilities. Long-term liabilities include: long-term debt, deferred tax liabilities, retirement and post-retirement/employment benefits, and other (e.g., restructuring liabilities, recognized contingencies, environmental liabilities). 2.0. C URRENT L IABILITIES 2.1. Current Operating Liabilities Analysis and interpretation of RNOA requires current liabilities to be separated into operating and nonoperating components. The primary current operating liabilities include accounts payable , deferred revenues , and accrued liabilities . 2.1.1. Accounts Payable Accounts payable (AP) traditionally represent credit purchases of inventory. AP normally do not bear interest, so many individuals consider AP a convenient form of interest-free financing.
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This note was uploaded on 02/27/2011 for the course BUSINESS 101 taught by Professor S during the Spring '10 term at Columbia College.

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Handout_10_(APSCW_-_F2009) - FINANCIALACCOUNTING...

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