ch10_notes+blank - CHAPTER 10 Fall 2011 Reporting and...

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CHAPTER 10 Fall 2011 Reporting and Analyzing Liabilities Please note for Bonds – straightline – Appendix 10 A 1. (Appendix 10A) Apply the straight-line method of amortizing bond discount and bond premium. Chapter Highlights Liabilities are defined as “creditors' claims on total assets” and as “existing debts and obligations.” These claims, debts, and obligations must be settled or paid at some time in the future by the transfer of assets or services. A current liability is a debt that can reasonably be expected to be paid (1) from existing current assets or through the creation of other current liabilities, and (2) within one year or the operating cycle, whichever is longer. Debts that do not meet both of these criteria are classified as long-term liabilities . The different types of current liabilities include notes payable, accounts payable, unearned revenues, and accrued liabilities such as taxes, salaries and wages, and interest. Obligations in the form of written notes are recorded as notes payable. Notes payable are often used instead of accounts payable because they give the lender written documentation of the obligation in case legal remedies are needed to collect the debt. usually require the borrower to pay interest and frequently are issued to meet short-term financing needs. are issued for varying periods of time. Notes due for payment within one year of the balance sheet date are generally classified as current liabilities. Cole Williams Co. borrows $100,000 from the First National Bank on September 1, 2012. The note earns interest at a rate of 10% and matures in six months. Journal Entry on September 1 10-1
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Journal Entry to Accrue Interest on December 31 Journal Entry for payment of the note at maturity Accounting for Other Current Liabilities Sales taxes payable - Sales taxes are expressed as a percentage of the sales price. The seller collects the sales tax from the customer when the sale occurs and remits the tax collected to the state's department of revenue periodically (usually monthly). Most states require that the sales tax collected be rung up separately on the cash register. (Gasoline sales are a major exception.) Rayland Grocery Store for the June 27 cash register reading showing sales of $10,000 and sales taxes of $500. Journal Entry. When sales taxes are not rung up separately on the cash register, total receipts are divided by 100% plus the sales tax percentage to determine sales . Rayland is responsible for collecting 5% on all taxable sales. Rayland did not ring the sales tax up separately and total receipts of $10,500 have been rung up. Rayland must now find the amount of sales and sales taxes collected. Rayland would divide the $10,500 by 105% (100% + 5%). Thus, sales are determined to be $10,000 and the remainder of $500 is the amount of the sales tax. This can be checked by multiplying $10,000 by 5% which results in the $500 determined by the differential method.
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