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Chapter_10_student - 10 REPORTING AND ANALYZING LIABILITIES...

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10-1 REPORTING AND ANALYZING LIABILITIES Financial Accounting, Sixth Edition 10
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10-2 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. Identify the types of bonds. 5. Prepare the entries for the issuance of bonds and interest expense when bonds are issued at par. Study Objectives
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10-3 Two key features : 1. Company expects to pay the debt from existing current assets or through the creation of other current liabilities . 2. Company will pay the debt within one year or the operating cycle , whichever is longer. Current Liabilities SO 1 Explain a current liability and identify the major types of current liabilities. Current liabilities include notes payable , accounts payable , unearned revenues , and accrued liabilities such as taxes , salaries and wages , and interest payable . What is a Current Liability?
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10-4 SO 2 Describe the accounting for notes payable. Notes Payable u Written promissory note. u Require the borrower to pay interest. u Those due within one year of the balance sheet date are usually classified as current liabilities. Current Liabilities
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10-5 Illustration: First National Bank agrees to lend $100,000 on September 1, 2012, if Cole Williams Co. signs a $100,000, 12%, four-month note maturing on January 1. When a company issues an interest-bearing note, the amount of assets it receives generally equals the note’s face value. Notes payable 100,000 Cash 100,000 SO 2 Describe the accounting for notes payable. Current Liabilities Sept. 1
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10-6 Illustration: If Cole Williams Co. prepares financial statements annually, it makes an adjusting entry at December 31 to recognize interest. Interest payable 4,000 Interest expense 4,000 * SO 2 Describe the accounting for notes payable. Current Liabilities Dec. 31 * $100,000 x 12% x 4/12 = 4,000
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Illustration: At maturity (January 1), Cole Williams Co. must pay the face value of the note plus interest. It records payment as follows. Interest payable
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This note was uploaded on 10/27/2011 for the course ACCT 2000 taught by Professor Holmes during the Spring '08 term at LSU.

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Chapter_10_student - 10 REPORTING AND ANALYZING LIABILITIES...

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