Category Archive for: Liabilities

SCUBA TECH

will make the following adjusting to amortize the bond discount: Interest Expense 500′ Discount on Bonds Payable 500 Recognized one year’s amortization of discount on 40-year bonds payable ($20,000 original discount x %0). The net liability for bonds payable 453 454 Liabilities Notice that amortization of the discount increases SCUBA TECH’s annual interest expense. It…

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Supplemental Topic B

Supplemental Topic B BONDS ISSUED AT A DISCOUNT OR A PREMIUM‘ Underwriters normally sell corporate bonds to investors either at par or at a price very close to par. Therefore, the underwriter usually purchases these bonds from the issuing corporation at a.discount-s-that is, at a price below par. The discount generally is quite small-perhaps 1% or…

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Supplemental Topic

ESTIMATED LIABILITIES, lOSS CONTINGENCIES, AND COMMITMENTS Estimated liabilities The term “estimated liabilities” refers to liabilities that appear in financial statements at estimated dollar amounts, Let us again consider the example of the automaker’s liability to honor its new car warranties. A manufacturer’s liability for warranty work is recorded by an entry debiting Warranty Expense and…

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Cash Effects

, Bear in mind that some expenses entering Into the determination of net income do not requIre immediate cash payments, Examples discussed in this chapter include deferred Income taxes and unfunded postretirement costs. The recognition of Such noncash expenses reduces net income to an amount less than the net cash flows resulting from operating activities…

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Deferred

Deferred Income Taxes We have seen. in earlier chapters that differences sometimes exist between the way certain revenues or expenses are recognized in fisaricial statements and the way these same items are reported in income tax returns. For example, a company may use the straight-LO’ 8 line method of depreciation in its financial reports but…

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Determining Pension Expense From a conceptual point of view, the pension expense

of a given Period is the present value of the future pension rights granted to employees as a result of their services during the period. The computation of annual pension expense is complex and involves many assumptions. The amount of this expense is computed- not by accountants” but rather by an actuary. The factors considered…

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Early Retirement of Bonds Payable

Bonds are sometimes retired before the maturity date. The principal reason for retiring bonds early is to relieve the issuing corporation of the obligation to make future interest payments. If interest rates decline to the point that a corporation can borrow at an interest rate below that being paid on a particular bond issue, the…

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The Concept of Present Value

The concept of present value is based on the time value of money-the idea that receiving money today is preferable to receiving money at some later date. Assume. for example, that.a bond will have a maturity value of $1,000 five years from today but will. pay no interest in the meantime. Investors would not pay…

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The Concept of Present Value

The concept of present value is based on the time value of money-the idea that receiving money today is preferable to receiving money at some later date. Assume. for example, that.a bond will have a maturity value of $1,000 five years from today but will pay no interest in the meantime. Investors would not pay $1,000…

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Tax Advantage of Bond Financing

A principal advantage of raising, money by issuing bonds instead of stock is that interest payments are deductible in determining income subject to corporate income taxes. Dividends paid to stockholders, however, are not deductible in computing taxable To illustrate, assume that a corporation pays income taxes at a rate of 30% on its taxable income.…

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