Chapter 10 Liabilities Section 1 Current Liabilities I Current Liabilities is debt with 2 key features 1 the company reasonably expects to pay the debt from existing current assets or through the creation of other current liabilities 2 The company will pay the debt within one yuear or the operating cycle A Notes Payable used instead of accounts payable because they give the lender formal proof of the obligations in case legal remedies are needed to pay interest 1 Interest face favlue Annual rate time in 1 year B Sales Tax Payable sales tax owed to the states collecting agency 1 not an expense the company simply holds the money then pays the state at the end of the month C Payroll and Payroll taxes payable 1 Waged Salaries Payable 2 Witholding Taxes employees D Unearned Revenue E Current Maturities of Long Term Debt due within the year II Statement Presentatioin and Analysis A listed in order of magnitude B Analysis wages and salaries owed to employees amount required by law to be withheld by revenue received the company delivers the good or service when a portion of long term debt is a Working Capital Current Assets Current Liabilities Working Capital excess of current assets over current liabilities b Current Ratio companies and of a single company at different times permits uis to compare liquidity of different sized Current Assets Current Liabilities Current Ratio Section 2 Long Term Liabilities Long Term Liabilities are obligations that are expected to be due after one year I Bonds are a form of interest baring notes payable to obtain large amounts of long term capital A Pros 1 Stockholder Control is not effected 2 Tax Savings results 3 Earnigs per share may be higher F Types of Bonds 1 Secured Bonds for the bonds 2 Unsecured Bonds credit of the borrower 3 Term 4 Serial Bonds 5 Regestered Bonds 6 Bearer Bonds have a specific asset of the issuer pledges as collateral debenture bonds are issued against the general bonds that mature at a future date bonds that mature in installments issued in the name of the owner bonds not registered and owners must mail in coupons 7 Convertible Bonds 8 Callable Bonds G Issuing Procedures bonds converted into common stock bonds can be called or paid back at any time 1 Board of directors stipultes of bonds to be authorized total face face is the amount of principal the issuing company must pay at 3 Contractural interest Rate value and contractrual interest rate 2 Face Value maturity date applied to the face value of the bond funds when the same as contractural bonds sell at face value 4 Market Interest Rate 5 Bond Indenture shows the term of the bond by a financial company is the interest rate investors demand for loaning annual interst rate often paid semiannually 1 Bond prices are quoted at percentage of their face value which is H Bond Trading I Determining Market Value of Bonds usually 1000 1 Present value i Dollar amount to be received ii Length of time until the amount are received iii Market rate of interest rate investors demand for loaning funds III Accounting for Bond issues pages 458 462 when a bond at 10 when other bonds with similar risks A Selling at a Discount r selling at 12 The bond will sell for a cheaper price require more funds from investor B Selling at a premium Contractural interest rate Market rate the issuer will IV Analysis creditors A Debt to Assets Ratio measures the percentage of total assets provided by Total Debit Total Assets Debt to Total Assets B Times Interest Earned Ratio payments as they come due Indicates the companies to meet interest Income b f Income taxes interest Expense Interest Expense Times Interest Earned Chapter 11 Corporations Organizations Stocks Dividends Retained Earnings I Corporate Organizations and Stock Transactions Corporations is an entity separate and distinct from its owners A Classifications of a Corporations 1 Separate Legal Existence an entity separate from its owners acts under its own name of its stockholders 2 Limited Liability of a Stockholder only limited to how much is put in 3 Transferable Ownership Rights 4 Ability to acquire Capital 5 Continous Life 6 Corporations Management 7 Government Regulation i Pay double taxes at Corporate Level individual Level an approved copy of the application form or it may be a 8 Additional Taxes B Forming A Corporation 1 Charter separate document conting some basic data organization of business laws that govern an organization 2 ByLaws 3 Organization Costs C Stock Issuance Considerations fees lawyers promotional expenses in volved in 1 Authorized Stock need tfor current and subsequent capital needs Issuance of Stock 2 the number of shares the company anticipates it will 3 Price i Direct to buyers smalle company ii Underwritten through Investment Bank they take a fee 3 1 i Company s anticipated future earnings ii Its expected dividends rate per share iii Current financial position iv Current state of economy v Current state of securities market 4 Market Value of Stock i Traded on exchanges ii Have no effect on a corporations shareholder equity is capital Stock to which the charter has assigned a is capital stock which charter has not assigned a 5 Par Value Stocks value per share value 6 Non Par Value Stocks 7 Corporate Capital Shareholder Equity i Paid In Capital is the total amount of cash and other assets paid in to the corporation by stockholders in exchange for capital stock common stock Credit normal balance future use Credit Normal Balance is the net income that a Corp retains for ii Retained Earnings II Accounting For Common Stock Issues SEE PAGES 517 520 III Accounting for Treasury Stock A Treasury Stock B Reasons for Issuing reacquired from shareholders but not retired is a corporations own stock that it has issued and subsequently a Reissue shares to officeres and employees as bonuses b Signal to market and investors that management believes that the price c Additional shares available for use in the acquisition of other is under priced companies d Reduce shares outstanding and increase earnings per share e Rid company of disgruntled investors to prevent hostile takeover C Outstanding Stock of shares of stock that are being held by shareholders A Preferred Stock has provisions that give it some privilages over common IV Preferred Stock stock a Distributions of earnings dividends b Assets in the event of liquidation c Usually no voting rights B Dividend preference a Right to receive dividends before common stock holders b Cumulative
View Full Document
Unlocking...