Class 18 Chapter 9 Liabilities (Part II)Review: Time value of MoneyPlanBusiness BackgroundPowerPoint PresentationAccounting equationSlide 7Slide 8Liabilities Defined and ClassifiedSlide 10Slide 11Current LiabilitiesCurrent Portion of Long-Term DebtCash flows and accounts payableCash flows and accounts ReceivableSlide 16Non-current LiabilitiesNon-current liabilitiesContingent LiabilitiesWinnie The PoohPP51Class 18Chapter 9 Liabilities (Part II)Accounting 2610Xiumin Martin3/21/20132Review: Time value of MoneyTwo valuesTwo investment patternFour types of questionsFour tables3Plan Time Value of Money What are liabilities?Current LiabilitiesNon-current Liabilities4Business BackgroundThe acquisition of assets is financed from two sources:1. Debt from creditors2. Equity from ownersThe mix of debt and equity for a company is called the capital structure5Total assets6Total assetsTotal liabilitiesTotal shareholders’ equityAccounting equation7Total assetsTotal liabilitiesTotal shareholders’ equityAccounting equation8Business BackgroundDebt is considered riskier than equity.Interest is a legal obligation.Interest is a legal obligation.Creditors can force bankruptcy.Creditors can force bankruptcy.9Liabilities Defined and ClassifiedDefined as probable future sacrifices of economic benefits.Defined as probable future sacrifices of economic benefits.Maturity = 1 year or less Maturity > 1 yearCurrent LiabilitiesNoncurrent Liabilities10Liabilities Defined and Classified Liabilities are measured at their current cash equivalentcurrent cash equivalent (the amount a creditor would accept to cancel the debt) at the date of the balance sheet.11Plan What are liabilities?Current LiabilitiesAccounts payableDeferred revenues (unearned revenues)Accrued expensesCurrent portions of long-term debtsNon-current Liabilities12Current Liabilities13Current Portion of Long-Term DebtAny portion of a note payable that is due within one year.Total Notes Payable Current Notes Payable Noncurrent Notes Payable14Cash flows and accounts payable135,000Accounts payable115,000?Cash payments decrease A/P200,000Credit purchases increase A/P180,000Cash payment = AP (Begin) + Credit purchase – AP(End)Credit purchase = AP (End) + Cash payment – AP(Begin)15Cash flows and accounts Receivable135,000Accounts Receivable115,000?Credit sales increase A/R200,000Cash collection decrease A/R180,000Cash collection = AR(Begin) + Credit sales – AR(End)Credit sales = AR(End) + Cash collection – AR(Begin)16Plan What are liabilities?Current LiabilitiesNon-current LiabilitiesLong-term loansNotes and bondsDeferred taxesRetirementsContingent liabilities17Non-current LiabilitiesNoncurrent liabilities are recorded at their present value (i.e. the amount that would be paid to settle the obligation).18Non-current liabilitiesLong term loans include:NotesUsually smallSources: Banks, Insurance CompaniesPrivate debtBonds (Chapter 10)Large Sources: PublicLong-term liabilities also include:Deferred taxesPensions and retirement benefitsOff-Balance sheet liabilitiesContingent liabilities19Contingent LiabilitiesPotential liabilities that arise because of events or transactions that have already occurred.20Winnie The PoohThis is an example of a contingent liability. A lawsuit against Disney by Slesinger has been pending for 14 yearsSlesinger is claiming that Disney excluded them from various rights on Pooh merchandise including DVD’s and videos.Disney is appealing.Amount ??According to plaintiffs could reach $1 billion.According to Disney could reach $200.Disclosed in the financial statementsLawsuit dismissed in May 2004. A request for a new trial was dismissed21PP5General Motor Corp. purchased raw material in 2007 on credit in the amount of $7 Billion. The accounts payable at the end of 2006 and 2007 is $465 Million, and $500 Million respectively. How much cash did GM paid to the suppliers over
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