136b_chapter13

136b_chapter13 - 07:35 13-1 Bob Anderson, UCSB 2004 CURRENT...

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Unformatted text preview: 07:35 13-1 Bob Anderson, UCSB 2004 CURRENT LIABILITIES & CONTINGENCIES Chapter 13 13-2 Bob Anderson, 2004 ECON 136A REFRESHER What is a liability? Present (not necessarily current) unavoidable obligation; Result of a past transaction; What makes a liability current? Conversion in one year or operating cycle, whichever is longer Current liabilities are not recorded at their present value as they turn soon enough that there is no material difference. 13-3 Bob Anderson, 2004 136A Concepts Purchase discounts on A/P has already been covered, refresher is in text. You can also look at: Purchase Cost $10,000 terms 2/10 net 30 Purchases 10,000 Purchases 9,800 Accounts Payable 10,000 Accounts payable 9,800 Invoices of $4,000 paid within discount period Accounts payable 4,000 Accounts payable 3,920 Purchase discount 80 Cash 3,920 Cash 3,920 Invoices of $6,000 paid after discount period Accounts payable 6,000 Accounts payable 5,880 Cash 6,000 Purchase discounts lost 120 Cash 6,000 GROSS METHOD NET METHOD 13-4 Bob Anderson, 2004 Written promises to pay a certain sum of money on a specified future date. Example -- On April 1, the corporation bought a truck for $30,000 from GM Company, paying $4,000 in cash and signing a one-year, 12% note for the balance of the purchase price. Notes Payable 07:35 13-5 Bob Anderson, 2004 April 1 Journal Entry ? Debit Credit Trucks 30,000 Cash 4,000 Notes payable 26,000 Any entry required at April 30 ? Interest expense 260 Interest payable 260 ($26,000 x 12% / 12) Notes Payable 13-6 Bob Anderson, 2004 Written promises to pay a certain sum of money on a specified future date. No such thing as 0% interest, always impute a rate if the stated rate is different than a reasonable rate. Example -- On May 1, the corporation borrowed $80,000 from Lima National Bank by signing a $90,200 non-interest bearing note due in one year. Zero Interest-bearing Note 13-7 Bob Anderson, 2004 May 1 Journal Entry ? Debit Credit Cash 80,000 Discount on N/P 10,200 Notes payable 90,200 Any entry required at May 30 ? Interest expense 850 Discount on N/P 850 ($10,200 / 12 = $850) Straight-line amortization is only acceptable if the results are not materially different from the effective interest method. Zero Interest-bearing Note 13-8 Bob Anderson, 2004 The portion of bonds, mortgage notes, and other long-term indebtedness that matures with the next fiscal year. Current Maturities of Long-term Debt 07:35 13-9 Bob Anderson, 2004 Classification of Current Obligation to be Refinanced It is possible that a current obligation may be classified as long-term IF: 1. Management intends to refinance AND 2. Management can demonstrate the ABILITY to do so Evidenced by commitment from lender or other party, OR Subsequent refinance before the financial statements are issued (like a change in estimate) 13-10 Bob Anderson, 2004 Short-Term Obligations 13-11 Bob Anderson, 2004 Short-Term Obligations Mgmt. Intends of Refinance YES...
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This note was uploaded on 12/25/2011 for the course ECON 136B taught by Professor Anderson during the Fall '08 term at UCSB.

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136b_chapter13 - 07:35 13-1 Bob Anderson, UCSB 2004 CURRENT...

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