PDF_PP_Slides_10_(APSCW_-_F2009)

PDF_PP_Slides_10_(APSCW_-_F2009) - Objectives:Handout10...

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12/9/2009 1 Objectives: Handout 10 Distinguish between different types of liabilities Understand the effective interest rate method and apply it to debt amortization. Understand the accounting for bond issues, recording interest expense, and bond retirement (both before and at maturity) Identify financial statement disclosures of debt Liabilities Liabilities are obligations to transfer assets or provide services that: Handout 10, p. 1 Represent a probable future sacrifice of economic benefits that can be measured with reasonable precision and Are a result of past transactions or events Monetary : Settled by paying a known, fixed amount of cash (debt and payables) Non Monetary : all other liabilities (deferred revenue, warranties, deferred taxes, retirement benefits)
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12/9/2009 2 Liabilities Liabilities are classified on the balance sheet based on time Handout 10, pp. 1, 2 to maturity. Current Liabilities : Liabilities that mature in one year or within the operating cycle. Long term Liabilities : All other liabilities (include long term debt, deferred taxes, retirement and post retirement benefits, environmental liabilities. Current Liabilities Operating Liabilities Handout 10, pp. 2 6 Payables (AP, Salaries, Insurance, Taxes) Deferred Revenues (Customer Advances, Unearned Rent) Accrued Costs (accrued expenses, warranty liability, deferred tax liability, restructuring liabilities) Non Operating Liabilities Debt (ST Debt, Current Portion of LT Debt) Interest
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12/9/2009 3 Current Liabilities Handout 10, pp. 3 Assets Liabilities + CC + RE Warranties are often used for earnings management Assets = Liabilities + CC + D+[C–] D–[C+] D–[C+] D–[C+] Warranty Exp Warranty Pybl +$100 –$100 Warranty Pybl Inventory –$100 –$100 Underestimate ►►► Increase Income Overestimate ►►► Decrease Income and Create a Reserve Current Liabilities Handout 10, pp. 4 Warranty HP provides for the estimated cost of product warranties at the time it recognizes revenue. HP engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers; however, product warranty terms offered to customers, ongoing product failure rates, material usage and service delivery costs incurred in correcting a product failure, as well as specific product class failures outside of HP's baseline experience, affect the estimated warranty obligation. If actual product failure rates, material usage or service delivery costs differ from estimates, revisions to the estimated warranty liability would be required. Information regarding the changes in HP's aggregate product warranty liabilities is as follows at October 31: 2004 2003 In millions Product warranty liability at beginning of year $ 1,987 $ 2,157 Accruals for warranties issued 2,504 2,233 Adjustments related to pre-existing warranties (including changes in estimates) (86) (17) Settlements made (in cash or in kind) (2,365) (2,386) Product warranty liability at end of year $ 2,040 $ 1,987
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12/9/2009 4
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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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PDF_PP_Slides_10_(APSCW_-_F2009) - Objectives:Handout10...

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