Accounting Week 46: Liabilities, Owner's Equity, Bonds, Notes Payable, and Stock Transactions

Accounting 2016-2017P 6011P0148 / PE 6011P0150 Tutorials Amsterdam Business School

Where are we…? • So far: • Getting familiar with financial statements and understanding the relationship between them • Getting familiar with using accounts • Practicing economic transactions with assets • Today: • Continuing practicing with accounts and the journal entry methods • The liability and owner’s equity side of the balance sheet Accounting week 46

Contents Today • CH7 (liabilities): E7.23, P7.26, C7.34 • CH8 (owner’s equity): P8.28, P8.32 Accounting week 46

E7.23 (page 261-262) • Practicing how to register transactions related to bonds and notes payable • Practicing the accounting language related to bonds and notes payable • We use the journal entry methods (the horizontal method should be practiced at home) Accounting week 46

A. Income tax expense of $1,400 for the currrent period is accrued. Of the accrual, $400 represents deferred tax liabilities. Accounting week 46

B. Bonds payable with a face amount of $15,000 are issued at a price of 98. Accounting week 46

C. Of proceeds from the bonds in part b), $9,000 is used to purchase land for future expansion. Accounting week 46

D. Because of warranty claims, finished goods inventory costing $128 is sent to customer to replace defective products. Accounting week 46

E. A three-month, 9% note payable with a face amount of $60,000 was signed. The bank made the loan on a discount basis. • Note: here we just use a simple discounting (not with the present value formula) as shown in the lecture slides (Lecture 3, slide number 14-19). Reason: short-term (within a year) Accounting week 46

F. The next installment of a long term serial bond requiring an annual principal repayment of $70,000 will become due within the current year. Accounting week 46

Accounting week 46

P7.26 (page 263) • Practicing how to register unearned revenue • Helps practicing/understanding the accrual concept Accounting week 46

P8.28 (page 304) • Practicing how to register transactions related to owner’s equity • Understanding the types of stocks Accounting week 46

A. Sold 2,700 shares of $50 par value preferred stock at $53.50 per share. Accounting week 46

C. Issued 5,000 shares of $50 par value preferred stock in exchange for a building when the market price for the share was $53. Accounting week 46

Declared the annual cash dividend of $3.70 per share on common stock. There were 7,300 share of $1 par value common stock issued and outstanding throughout the year. Accounting week 46

D. Purchased 1,400 shares of preferred stock for the treasury at a price of $56 per share. Accounting week 46

E. Sold 500 shares of the preferred stock held in treasury (see d) at a price of $57 per share. Accounting week 46

F. Declared and issued a 15% stock dividend on the $1 par value common stock when the market price per share was $36. Accounting week 46

P8.32 (page 306-307) • Practicing working with various stock types Accounting week 46

Accounting Week 46: Liabilities, Owner's Equity, Bonds, Notes Payable, and Stock Transactions