© 2014 Cengage Learning. All Rights Reserved. Chart of Accounts Page 549 SLIDE 1

© 2014 Cengage Learning. All Rights Reserved. SLIDE 2 Capital Stock: main equity account, total value of all stock (permanent) Retained Earnings: Net Income kept in the corporation (permanent) Dividends: Money paid out to owners (temporary) Income Summary: Temporary equity account used for adjusting and closing entries

© 2014 Cengage Learning. All Rights Reserved. When a business expands it needs more capital and more assets to continue to be profitable. How will that capital/assets be obtained?

© 2014 Cengage Learning. All Rights Reserved. Obtaining Capital ●Loan from a bank ●Bond ●Issuing more stock ●Borrowing from other sources SLIDE 4

© 2014 Cengage Learning. All Rights Reserved. Applying for a Business Loan ●Capital: financial resources available to business (assets, money) ●Capital Expenditures: Purchases of plant assets used in business operations (equipment, warehouse, vehicles) ●Collateral: Assets pledged to a creditor to guarantee repayment of a loan SLIDE 5 Lesson 18-2

© 2014 Cengage Learning. All Rights Reserved. Loan Application ●TD Bank small business loan application form ● business-loan-application-over pdf SLIDE 6

© 2014 Cengage Learning. All Rights Reserved. What will a bank look at when determining loan (text p. 559): Section TitleQuestions of Interest to Bank Officers Use of fundsWhat portion of the funds will be used for revenue expenditures and capital expenditures? Business experience What experience do the primary owners and managers have in the industry? Do the decision makers understand how to operate the business? Can they anticipate problems and react to ensure success? Market demand Is there a proven consumer demand for the product or service? What competition does the business face? Financial projections When will the project become profitable? What assumptions is the business using to make its projections? CollateralWhat assets will be offered as collateral that could be claimed if the business is unable to pay the loan? How easy will it be to resell those assets? Capital profile What is the business risking in the project? Does the business have an adequate stake in the project to ensure management is motivated to succeed? SLIDE 7

© 2014 Cengage Learning. All Rights Reserved. Signing a Long-Term Note Payable SLIDE 8 April 1. Signed a 5-year, 8.0% note for $120, Receipt No Lesson , Cash 120, Long-term Notes Payable 1 1 Account Title 2 2 Amount Borrowed 3 3 Cash Received

© 2014 Cengage Learning. All Rights Reserved. Making a Monthly Payment on a Long-Term Note Payable (Amortization Chart) SLIDE 9 Lesson 18-2 Amount Borrowed Term of Note (Months) Annual Interest Rate Monthly Payment $120, % $2, Payment Number Payable 1st day of Beginning BalanceInterestPrincipal Ending Balance 1May$120,000.00$800.00$1,633.17$118, June$118,366.83$789.11$1,644.06$116, July$116,722.77$778.15$1,655.02$115, August$115,067.75$767.12$1,666.05$113, September$113,401.70$756.01$1,677.16$111, October$111,724.54$744.83$1,688.34$110, November$110,036.20$733.57$1,699.60$108, December$108,336.60$722.24$1,710.93$106, August$115,067.75$767.12$1,666.05$113,401.70

© 2014 Cengage Learning. All Rights Reserved. Calculators SLIDE 10 Bankrate.com calculators Amortization calculator.net/amortization- calculator.html

© 2014 Cengage Learning. All Rights Reserved. Making a Monthly Payment on a Long-Term Note Payable SLIDE 11 August 1. Paid cash for monthly loan payment, $1,666.05, interest, $767.12; total, $2, Check No LO4 Lesson , Long-term Notes Payable Interest Expense Cash 2, Account Title Principal Amount 5 5 Cash Paid 4 4 Interest Amount

© 2014 Cengage Learning. All Rights Reserved. Issuing Bonds ●Bond: long term loan usually for a large amount with interest paid at least annually ●bond issue All bonds representing the total amount of a loan ●face value the amount to be repaid at the end of the bond term ●stated interest rate The interest rate used to calculate periodic interest payments on a bond is called the. SLIDE 12 Lesson 18-2

© 2014 Cengage Learning. All Rights Reserved. Issuing Bonds SLIDE 13 July 1. Issued 20-year, 6.5%, $5, bonds, $180, Receipt No LO4 Lesson , Cash 180, Bond Payable 1 1 Account Title 2 2 Amount Borrowed 3 3 Cash Received

© 2014 Cengage Learning. All Rights Reserved. Paying Interest on Bonds SLIDE 14 December 31. Paid cash for semiannual interest on bonds, $5, Check No LO4 Lesson , Interest Expense 5, Cash 1 1 Account Title 2 2 Interest Amount 3 3 Cash Payment Face Value× Stated Interest Rate × Time as Fraction of a Year = Interest Payment $180,000.00×6.50%×180/360=$5,850.00