Chapter 09

Chapter 09 - Chapter 9 Cur r ent Liabilities,...

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Unformatted text preview: Chapter 9 Cur r ent Liabilities, Contingencies, and the T ime Value of M oney Accounts Payable Amounts owed for the purchase of inventory, goods, or services on creditthese are the most common liabilities Discount payment terms offered to encourage early payment 2/10, n30 Promissory Note (not as common) S.J.Devona I promise to pay $1,000 plus 12% annual interest on December 31, 2008. Date: January 1, 2008 Signed: _________ Hot Coffee I nc . Total repayment = $1,120 $1,000 + ($1,000 12%) Discounted Promissory Note (the so-called interest-free note) In exchange for $880 received today, I promise to pay $1,000 on December 31, 2008. Date: January 1, 2008 Signed: _________ Hot Coffee, I nc. Effective interest rate on note = 13.6% ($120 interest/$880 proceeds) Taxes Payable Record expense when incurred, not when paid (think about your paychecktaxes incurred every week but not really due until April 15 th ) Record 2007 tax expense Taxes Paid 12/31/07 3/15/08 Contingent Liabilities Obligation involving existing condition Outcome not known with certainty Dependent upon some future event Actual amount is estimated Accrue estimated amount if: Liability is probable Amount can be reasonably estimated Contingent Liabilities (as per SFAS #5) In year criteria are met: Expense (loss) XXX Liability XXX Warranti es Premium s Typical Contingent Liabilities Recording Contingent Liabilities Probable liability has been incurred? Amount reasonably estimable? Warranty Expense 10,000 Estimated Liability 10,000 YES YES Record in 2008: Disclosing Contingent Liabilities IF not probable but reasonably possible OR amount not estimable Disclose in Financial Statement notes Contingent Assets Contingent gains and assets are not recorded but may be disclosed in financial statement notes Conservatism principle applies Time Value of Money Prefer payment at the present time rather than in the future due to the interest factor Applicable to both personal and business decisions Simple Interest I = P R T P r i n c i p a l D...
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This note was uploaded on 04/13/2011 for the course ACCT 2101 taught by Professor Christianwurst during the Spring '08 term at Temple.

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Chapter 09 - Chapter 9 Cur r ent Liabilities,...

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