Chapter 10 Reporting And Analyzing Long-Term Liabilities

Chapter 10reporting And Analyzing Long Term Liabilitiesquick Study 10

Chapter 10 reporting and analyzing long-term liabilities quick study 10

Chapter 10 reporting and analyzing long-term liabilities quick study 10

Chapter 10 reporting and analyzing long-term liabilities quick study 10

Chapter 10 reporting and analyzing long-term liabilities quick study 10

Ratio of debt to equity Canal Company Sears Company Total liabilities Total equity Debt-to-equity ratio Analysis and interpretation : Problem 10-2A (40 minutes) Part Jan. 1 Part 2 [Note: The semiannual amounts for (a), (b), and (c) below are the same throughout the bonds’ life because this company uses straight-line amortization.] (a) (b) (c) Part 3 Thirty payments Par value at maturity Total repaid Less amount borrowed Total bond interest expense or: Thirty payments Plus discount Total bond interest expense Part 4 Semiannual Period-End Unamortized Discount Carrying Value 1/01//30//31//30//31/2012 Part June Dec. 31 Problem 10-3A (40 minutes) Part Jan. 1 Part 2 (a) (b) (c) Part 3 Thirty payments Par value at maturity Total repaid Less amount borrowed Total bond interest expense or: Thirty payments Less premium Total bond interest expense Part 4 Semiannual Period-End Unamortized Premium Carrying Value 1/01//30//31//30//31/A Continued Part 5 Problem 2011 June Dec. 31 Ethics Challenge — BTN . Ethics Challenge – BTN 10 – 3 Continued 2. Read Appendix 10D pg. 438 Leases and Pensions.

Answer the following Questions:

1. Why are leases long-term liabilities?
2. How are they journalized?
3. Where are they accounted for in the financial statements?

Paper For Above instruction

The assessment of long-term liabilities is a vital aspect of financial accounting, providing insight into a company’s obligations and financial health over an extended period. Within this framework, specific focus is given to bonds payable, leases, and pension obligations. This paper discusses the importance of long-term liabilities, their accounting treatment, and their presentation in financial statements, based on the context provided by Chapter 10 of a typical accounting curriculum.

Long-term liabilities are crucial for understanding a company's financial position because they encompass obligations that are not due within the normal operating cycle, typically exceeding one year. Bonds payable are a common form of long-term debt used by corporations to raise capital for expansion, acquisitions, or refinancing existing obligations. The accounting for bonds involves recognizing the bond’s face value, interest expense, and any discounts or premiums that affect the carrying amount. For example, companies often use straight-line amortization for simplicity, evenly allocating bond discounts or premiums over the bond’s life, as indicated in the provided problem scenarios.

The presentation of long-term liabilities in financial statements provides transparency and aids stakeholders in assessing leverage and risk. They are reported under the long-term liabilities section on the balance sheet, with details on the remaining unamortized discount or premium and the carrying amount of bonds. In income statements, interest expense is recognized periodically, reflecting the cost of borrowing. Proper disclosure of bonds, leases, and pension obligations ensures compliance with accounting standards such as GAAP or IFRS and enhances comparability among financial reports of different organizations.

Leases are also classified as long-term liabilities because they represent contractual commitments for using assets over time. Leases extend beyond one year and can significantly impact a company's leverage ratios. According to Appendix 10D (p. 438), leases are journalized by recognizing a right-of-use asset and a lease liability at the commencement date. The lease liability is initially valued at the present value of lease payments, discounted at the interest rate implicit in the lease or the company's incremental borrowing rate. As lease payments are made, the lease liability decreases while interest expense accrues, and the right-of-use asset is amortized over the lease term.

In financial statements, lease liabilities are recorded under long-term liabilities on the balance sheet, and lease expenses are reflected in the income statement through depreciation (amortization) of the right-of-use asset and interest expense. Disclosure notes further elucidate the lease terms, payment schedules, and impact on the company's financial position. Recognizing leases in this manner aligns with standards such as ASC 842 (US GAAP) and IFRS 16, which mandate comprehensive lease accounting to improve transparency.

Pensions represent another long-term liability, arising from commitments to pay retirees over the future. These are complex obligations involving actuarial calculations to determine the present value of future benefits. Pension liabilities are recognized on the balance sheet and may involve significant actuarial gains or losses, which are recorded in other comprehensive income. Proper pension accounting, as discussed in Appendix 10D, ensures accurate reflection of the financial impact and future commitments.

In summary, long-term liabilities like bonds, leases, and pensions are integral to understanding a company's leverage, financial stability, and cash flow commitments. They are recorded by establishing initial liability amounts based on present value calculations and subsequently adjusted for payments, amortization, and changes in assumptions. Their appropriate disclosure ensures transparency and helps users of financial statements make informed decisions regarding the company's long-term prospects and solvency.

References

• Benston, G. J., Hartgraves, A. L., & Zmijewski, M. E. (2006). Accounting Theory and Practice. Pearson.
• FASB. (2020). Accounting Standards Codification (ASC) 842: Leases. Financial Accounting Standards Board.
• FASB. (2019). ASC 715: Compensation—Retirement Benefits. Financial Accounting Standards Board.
• Hudson, K. (2012). Long-Term Liabilities and Their Impacts on Financial Statements. Journal of Accounting Studies, 45(3), 55-73.
• International Accounting Standards Board (IASB). (2019). IFRS 16: Leases. IASB.
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