1. 15-1 1.Company expects to pay the debt from existing current assets … (or by creating a “new” current liabilities). 1.Company will pay the debt within one year or the operating cycle, whichever is longer. Current liabilities include notes payable, accounts payable, unearned revenues, and accrued liabilities such as taxes payable, salaries payable, and interest payable. Current Liabilities … two “key” features

2. 15-2 Notes Payable Written promissory note. Require the borrower to pay interest. Issued for varying periods. Current Liabilities include: Accounts Payable ( Often termed “Trade credit”). Expected to be paid with 30-60 days. No Interest … (typically)

3. 15-3 Notes payable100,000 Cash100,000 Current Liabilities Ex: 1 st Bank lends $100,000 on Sept 1, 2014, Williams Co. $100,000 at 12%, for 4-months. a) Prepare the Williams Co. entry establishing the note (when Williams signed the note agreeing to the terms and received the cash from the bank).

4. 15-4 Interest payable 4,000 Interest expense 4,000 Calculation: $100,000 x 12% x 4/12 = $4,000 Note that the 4/12 is the (4 out of 12 months) “term” of the note. If the “accrued interest” adjusting entry had been made every month the amount per month would have been $1,000 b)Prepare the Williams Co. adjusting entry on Dec. 31 to “accrue” the interest since Sept 1. Current Liabilities Ex: 1 st Bank lends $100,000 on Sept 1, 2014, Williams Co. $100,000 at 12%, for 4-months.

5. 15-5 Interest payable 4,000 Notes payable 100,000 Cash 104,000 Current Liabilities Ex: 1 st Bank lends $100,000 on Sept 1, 2014, Williams Co. $100,000 at 12%, for 4-months. c) Prepare the entry at maturity (Jan 1, 2015) when Williams will “honor” the note (pay it off in full with interest).

6. 15-6 Sales Tax Payable  expressed as a stated percentage of the sales price.  Retailer collects tax from the customer and sends them to the state’s department of revenue. Ex: March 25, GroceryStore cash register shows sales of $10,000 and sales taxes of $600 (sales tax rate of 6%), the journal entry is: Cash 10,600 Sales revenue 10,000 Sales tax payable 600 Once the seller collects the sales tax, it is always a current liability (payable) of the seller since the state wants their money within weeks (or sooner). FYI: when APPLE collects tax on your purchase they remit it (send it) to your state.

7. 15-7

8. 15-8 “Payroll” pertains to both S alaries (usually calculated by monthly or yearly rate) and Wages (usually calculated by hourly rate). Determining the payroll involves computing three amounts: (1) gross earnings, (2) payroll deductions, (3) net pay. Wage Expense … Payroll Tax Expense & Payroll Taxes Payable

9. 15-9 Bob earns $15 per hour. This week he worked 40 hours (Monday thru Friday) PLUS 8 hours on Saturday AND 4 hours on Sunday. Calculate his gross pay. Note: Assume “overtime” is anything after 40 hours per week and is calculated at “time-and-a-half” while work on Sundays, (holidays) is at “double-time”. 40 hrs x $15 per hr = 600 8 hrs x $20 per hr = 160 4 hrs x $30 per hr = 120 Gross Pay = 880 (before any deductions) Time and one-half are calculated as the regular hourly rate time 1.5 Double-time is calculated as the regular hourly rate times 2 Payroll (part 1) … Wage Expense

10. 15-10 Calculate Bob’s Net Pay … (after all deductions). Gross Pay ……….. 880 Fed Inc Tax ………… 200 FICA Tax (approx) ….…. 67 Health Insurance..… 150 Net Pay …………….. 463 Note: ALL employers do not offer benefits. It varies significantly by employer. Additional deductions can include dental insurance, eyeglass insurance, union dues, employee pension contributions, deductions for savings, charity contributions, disability insurance, life insurance. Payroll (part 1) … Wage Expense

11. 15-11 Prepare the journal entry to pay Bob: Gross Pay ……….. 880 Fed Inc Tax ………… 200 FICA Tax (approx).. 67 Health Insurance..… 150 Net Pay …………….. 463 Wage Expense (gross pay) 880 Fed Inc Tax Payable 200 FICA Tax Payable 67 Health Ins Payable 150 Cash (net pay) 463 Note: Instead of crediting CASH (above), you could instead credit WAGES PAYABLE if paychecks are not yet distributed. If so the entry, on the day checks are given out have a debit to WAGES PAYABLE and a credit to CASH. Payroll (part 1) … Wage Expense

12. 15-12 In ADDITION TO “Wages Expense” (payroll part 1) the Employer is also liable for PAYROLL TAX EXPENSE. This results from taxes that federal, state and local levies such as:  FICA tax … Exployer MATCHES the employees amount.  FUTA tax … Federal unemployment tax (paid to U.S. for “extended unemployment” benefits)  SUTA tax … State unemployment tax (paid to the state to fund employees potential unemployment).  Workers Comp tax … employer pays into a state-wide fund to cover workplace injuries. Payroll (part 2) … Payroll Tax Expense

13. 15-13 Ex: Assume a $100,000 payroll. The company would record PAYROLL TAX EXPENSE and liability as follows. Payroll tax expense13,850 FUTA (Fed unemploy tax) payable 800 FICA tax payable 7,650 SUTA (State unemploy tax) payable 5,400 Payroll (part 2) … Payroll Tax Expense Important … Typically it costs an employer 140% of your paycheck to keep you working. In other words, for every $100 the boss pays you, he is also paying another $40 - or more - in added taxes PLUS his share of your benefits coverage. If he “outsources” or employs you part-time, his payroll expenses drop significantly.

14. 15-14

15. 15-15 Unearned Revenue Company incurs an obligation (liability) to provide the goods or services … OR refund the cash prepayment. Ex: University sells 10,000 season football tickets at $50 each for its five-game home schedule. The entry is: Cash 500,000 Unearned revenue 500,000 As the school completes each of 5 games, it would do this entry: Unearned revenue 100,000 Ticket revenue 100,000

16. 15-16 Current Maturities of Long-Term Debt  Portion (this years) of long-term debt that comes due in the current year.  No adjusting entry required. Current Liabilities

17. 15-17 Statement Presentation and Analysis

18. 15-18

19. 15-19

20. 15-20  A form of interest-bearing notes payable.  To obtain large amounts of long-term capital. Three advantages over common stock: 1.Stockholder control is not affected. 2.Tax savings result. 3.Earnings per share may be higher. Long-Term Liabilities Bond Basics

21. 15-21 Maturity Date Maturity Date Contractual Interest Rate Contractual Interest Rate Face or Par Value Face or Par Value DUE 2017 2017 Issuer of Bonds Issuer of Bonds Bond Basics

22. 15-22  State laws grant corporations the power to issue bonds.  Board of directors / stockholders must approve bond issue.  Board of directors determines number of bonds, face value, and interest rate.  Bond contract known as a bond indenture.  Bond is a paper certificate, typically a $1,000 face value. Bond Basics Issuing Procedures

23. 15-23  Represents a promise to pay: ► sum of money at designated maturity date, plus ► periodic interest at a contractual (stated) rate on the maturity amount (face value).  Interest payments usually made semiannually.  Generally issued when the amount of capital needed is too large for one lender to supply. Bond Basics Issuing Procedures

24. 15-24 Issue at Par, Discount, or Premium? Accounting for Bond Issues Bond Contractual Interest Rate of 10%

25. 15-25 Ex: On Jan 1, 2014, Corporation issues $100,000, five-year, 10% bonds at 100 (which means at 100% of face value). The entry to record the sale is: Cash 100,000 Bonds Payable 100,000 Issuing Bonds Accounting for Bond Issues

26. 15-26 Issuing Bonds Accounting for Bond Issues If issued at a discount … at 98 (98% of face value) Cash 98,000 Discount on Bonds 2,000 Bonds Payable 100,000 If issued at a premium … at 103 (103% of face value) Cash 103,000 Bonds Payable 100,000 Premium on Bonds 3,000

27. 15-27 Ex: On Jan 1, 2014, Corporation issues $100,000, five-year, 10% bonds at 100. Assume interest is payable semiannually on Jan 1 and July 1. Prepare the entry to record the paying of interest on July 1, (assume no previous accrual). Interest expense 5,000 Cash 5,000 Issuing Bonds at Face Value

28. 15-28 May be secured by a mortgage that pledges title to specific assets as security for a loan. Typically, terms require borrower to make installment payments over the term of the loan. Each payment consists of  interest on the unpaid balance of the loan and  a reduction of loan principal. Companies initially record mortgage notes payable at face value. Accounting for Long-Term Notes Payable

29. 15-29 Statement Presentation and Analysis Presentation