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Chapter12Slides

Chapter12Slides - Chapter 12 Debt Financing Chapter 19...

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Click to edit Master subtitle style 4/7/11 ACCT 4050 Professor Dennis Chambers ACCT 4050 Chapter 12 – Debt Financing & Chapter 19 - Contingencies
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4/7/11 ACCT 4050 Definition of Liabilities The FASB defined liabilities as “probable future sacrifices of economic benefits arising from present obligations to a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.” “…probable future sacrifices…” “…from present obligations…” “…as a result of past transactions or events.” 2 2
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4/7/11 ACCT 4050 Classification of Liabilities By Liquidity Current operating liabilities – if liability will be satisfied by current assets within one year or one operating cycle, whichever is longer Current non-operating liabilities – satisfied with current assets within one year (no operating cycle alternative) Non-current liabilities – Those that do not fit the definition of current 3 3
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4/7/11 ACCT 4050 Measurement of Liabilities Non-current liabilities reported at their present value Take into account all interest and principal payments Three categories for measurement Definite amount liabilities – amount of the obligation is specified by contract, agreement, or general business practice Estimate liabilities – obligations where the amount of the future sacrifice of resources is not definitely known; such as a warranty 4 4
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4/7/11 ACCT 4050 Accounting for Contingencies Contingent losses- Circumstances involving potential losses that will not be resolved until some future event occurs. Contingent gains- Circumstances involving potential gains that will not be resolved until some future event occurs. 5 5
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4/7/11 ACCT 4050 Recall our definition of Liabilities: Liabilities are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events Contingency is not a true liability A possible obligation The triggering event or transaction has not yet occurred 6 6
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4/7/11 ACCT 4050 Accounting for Contingencies Likelihood Accounting Action Probable Recognize a probable liability if the amount can be reasonably estimated. If not estimable, disclose facts in a note.
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