Financial Accounting: Chapter 8 Ashton Converse Current and Long-Term Liabilities Let It SNOW!!! *******

Objectives/Schedule  Welcome: Hope you had a great weekend! Fantastic Thanksgiving, Orphanage, and more  Review  Collect Homework Feedback  Defining Different Liabilities  Ratios  Check Understanding and Application

Welcome  Thanksgiving!  Orphanage Trip!  Ohio State Football Team is Undefeated!  Watched Thor with Grace!  Relaxed for just a little  Started LISTENING TO CHRISTMAS MUSIC!

Review: Game Time!  What is Thanksgiving all about? Why do U.S. Americans celebrate Thanksgiving?  What TV show did we watch last week?  2 Weeks ago, we studied Long-Lived Assets…what are they?  What are Plant Assets?  What are Intangible Assets?

Collect Homework  Please Pass Your Homework about “The Amazing Race” forward.  Did you enjoy the TV show “The Amazing Race”?  Was this a good activity?  Are there any improvements you would have made to the activity?

Defining Different Liabilities Current Liabilities of known amounts include:  Accounts Payable, short-term notes payable, sales tax payable, current portion of long-term debt, accrued expenses payable, payroll liabilities, and unearned revenues.  What is a Short Term Note Payable? (guess) Note payable due within one year  Current installment of long-term debt The amount of the principal that is payable within one year…installments means “pay part each period”

Defining Different Liabilities  What is an Accrued Expense? (remember) An expense incurred but not yet paid in cash ○ Also called an accrued liability  What does Payroll Mean? Employee compensation for their work Major expense for most businesses  Wage: (how does this impact the statements?) Employee pay stated at an hourly rate  Salary: Employee pay stated at a yearly or monthly rate

Defining Different Liabilities What are unearned revenues? (remember) Called deferred revenues and revenues collected in advance Indicate that the business has received cash from customers before earning the revenue. Estimated Warranty Payable  What is a warranty?  Many companies will guarantee their products under a warranty  *Whatever the warranty life, the matching principle demands that the company record the warranty expense in the same period that the business records sales revenue (estimated value)

Defining Different Liabilities  Contingent Liability A potential liability that depends on a future event arising out of the past events  Guidelines: Record an actual liability if it is probable that the loss will occur and the amount can be reasonably estimated Report it in a financial statement note if is reasonably possible that a loss will occur Do not report because it is unlikely that the loss will occur

Defining Different Liabilities  Bonds Payable What is a Bond? Groups of notes payable issued to multiple lenders called bondholders  In Groups of about 4 people discuss the following topics: Why do companies and government issue Bonds? What is the difference between a bond and stock? Discuss the meanings of underwriter, term bonds, serial bonds, debentures, premium, discount, present value, stated interest rate, market interest rate, convertible bonds, earnings per share, and trading on the equity

Ratios and Liabilities  Times-interest-earned ratio: Ration of income from operations to interest expense Measures the number of times that operating income can cover interest expense  TIE = Operating Income / Interest Expense  Talk about Example in Book Home Depot came up with 110 times and Heinz came up with 5 times Heinz is more at Risk

Concluding Terms Leases and Pensions  Lease Rental agreement in which the tenant agrees to make rent payments to the property owner in exchange for the use of an asset  Lessee Tenant in a lease agreement  Lessor Property Owner in a lease agreement  Operating Lease Usually a short-term or cancelable rental agreement

Capital Lease Any Lease that meets these 4 things: 1. The lease transfers title of the leased asset to the lessee at the end of the lease term 2. The lease contains a bargain purchase option 3. The lease term is 75% or more of the estimated useful life of the leased asset 4. The present value of the lease payments is 90% or more of the market alue of the leased asset  Pension: employee compensation that will be received during retirement

Class is Finished  HAVE A GREAT WEEK and WEEKEND!  Thrilled to see what your next chapter in life includes!