estimated in the yr product is sold Matching current assets Can be classified as either trading held to maturity or available for sale depending Short Term Investments on mgmts intent ability to hold them until they mature To be listed as short term on balance sheet the invmt must be liquid readily convertible to cash the investor must intend either to convert the invmt to cash within 1 yr or to use it to pay a curent liability Long Term Investments noncurrent assets Long term investments include stocks and bond that the investor expects to hold for longer than one year Available for Sale Securities may be debt securities not held to maturity or equity stock securities other than trading securities Initially record at cost Adjusted to current fair value at balance sheet date Available for Sale Method Fair Value Adjstmt if market value is than carrying value debt allowance to adjust investment to market allowance companion account to long term invmt asset credit unrealized gain on investment If market value is carrying value debt unrealized loss on invmt credit allowance to adjust invmt to market Carrying Amount of Invmt Original cost of invmt Debit balance in Allowance to Adjust invmt to market OR credit balance in allowance to adjust invmt to market Unrealized Gains and Losses fair value declines debit unrealized loss on investments reported as element of comprehensive income Fair value increases credit unrealized gain on investments Long term available for sale on BS should report of shares X yr end fair value per share LT avail for sale on IS should report shares x dividend per share Present Value what amnt in the future is worth today often called discounting Relies on 3 factors the amnt of payment or receipt the length of time btwn invmt future receipt or payment the interest rate Single amnt or annuity Market price of bonds equals present value of principal received at maturity single amnt present value of interest pymnts annuity Principal amnt p single lump sum annuity of periods n Interest rate i Present Value of Annuity annuity invmts provide multiple receipts of an equal amnt at fixed intervals over the invmts duration Present Value of a bond its market price is the present vale of the future principal amnt at maturity plus the present value of the future stated interest pymts Present Value of a 1 single payment or cash inflow ex you will be getting 200 000 five years from now Interest rate you could earn is 6 747 X 200000 149 000 present value Present Value of Annuity two or more payments equal amounts Ex you will be getting 1 000 for each of 5 yrs Interest rate you could earn is 4 4 452 x 1000 4542 present value of annuity Current Liabilities of Known Amounts Accounts Payable amounts owed for products or services purchased on account Accounts payable turnover T O COGS Avg accts payable Days Payable outstanding 365 accts payable turnover Short term notes payable due within 1 yr used to borrow cash or purchase an asset accrue interest Sales tax payable levied on retail sales collected from customers and remitted to state Accrued Liabilities result from expenses incurred but not yet paid Salaries and wages payable interest payable income taxes payable Payroll Liabilities mjr expense of most co s diff forms salary wage commission Employee income tax payable is the employees income tax that has been withheld from paychecks FICA tax payable includes the employees social security tax and Medicare tax which also are withheld from paycheck Salary payable to employees is their net take home pay Unearned Revenues business receives cash before earning revenue results in liability Current portion of Long Term Debt long term debt often paid in installments amount of principal payable within 1 yr company reclassifies amount from long term to current Estimated Warranty Payable principle Time Value of Money amnt borrowed or invested Discounting is process of calc present val future val Contingent Liabilities potential liability that depends on the future outcome of past events Accrue loss probable Amnt estimable Disclose Loss reasonably possible When in doubt disclose when necessary accrue Bonds groups of notes payabe issued to multiple lenders called bondholders debts of issuing company bond certificate sates co name principal maturity date interest rate interest payment dates Term Bonds bonds that mature at the same time for a particular issue Serial Bonds bonds that mature in installments over a period of time Secured Bonds or mortgage bonds give bondholder the right to take specified assets of the issuer if the company defaults Unsecured bonds called debentures are backed only by the good faith of the borrower Bond Premium credit balance market price decreases towards maturity value Bond Discount par value debit balance market prices increases towards maturity value Face value market value Bonds interest rates determines prices Stated Interest Rate aka coupon rate the interest rate printed on the bond certificate Determines amnt of cash interest the borrower pays and the investor receives each year Market Interest Rate aka effective interest rate rate investors demand for loaning their money varies by the minute Issuing Bonds Payable at Par the issuance is cash is debited and bonds payable is credited Interest Expense on bonds payable When the bond is sold at a discount periodic interest payments are made but the interest expense recorded and the amount of cash paid will differ The discount must be amortized so that when the bond matures the carrying amount will equal the face value of the bond Issuing Bonds Payable at Premium Issuing the bond at a premium requires similar accounting treatment but the journal entries will differ slightly Bond retirement reasons to payoff bonds early can relieve high interest payments can borrow at a lower interest rate Callable feature issuer can pay off bonds at a prearranged price results in gain or loss Convertible Bonds and Notes bondholders can exchange bonds for stock Investors benefit form guaranteed receipt of principal and interest on bonds Potential for gains on stock Lease a rental agreement in which the tenant lessee agrees to make rent payments to the property owner lessor in exchange for the use of the asset Operating leases lessee has right to use the asset lessor retains risks and rewards of owing lessee records rent expense Sometimes short term or cancelable Capital Lease lessee has right to asset lessee assumes risks and