财务会计课件 from Professor Carter - Chapter11
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Ch. 11: Long-term Liabilities 1
Chapter 11
Long-term Liabilities
In this chapter you will learn how long-term liabilities affect businesses,
how they are controlled, accounted for, and reported in financial statements.
What Are Long-term Liabilities?
As discussed in Chapter 10, when companies obtain resources by borrowing
them, the resources are called assets and the sources of the resources are called
liabilities. If the dollar amount of the borrowed resources must be paid within
one year, the liabilities are considered to be current liabilities. If, on the
other hand, the resources do not have to be paid for within a year, the
liabilities are considered long-term liabilities. Repeating the Chapter 10
example, if a company borrows $100,000 from a bank on January 15, the result
could be an increase in resources (cash) and an increase in liabilities (notes
payable). If the cash must be repaid to the bank by July 15, six months after it
was borrowed, the notes payable would be considered current liabilities. If the
cash must be repaid to the bank by July 15, 18 months after it was borrowed, the
notes payable would be considered long-term liabilities.
In terms of the accounting equation, long-term liabilities are obviously
liabilities, as shown below. The numbers in parentheses refer to the chapters in
which the items are discussed.
Assets
Current Assets Cash and Cash
Equivalents (6)
Accounts Receivable
(7) Allowance for
Uncollible Accounts
(7)
Merchandise
Inventory (8)
Property, Plant, &
Equipment
Land (9)
Buildings (9)
Accumulated
Depreciation,
Buildings (9)
Equipment (9)
Accumulated
Depreciation,
Equipment (9)
Autos & Trucks (9)
Accumulated
Depreciation, Autos
& Trucks (9) = Liabilities
Current Liabilities
Notes Payable (10)
Accounts Payable (10)
Taxes Payable (10)
Current Portion of
Long-term Debt (10)
Long-term Liabilities
(11) + Stockholders' Equity
Revenues
Sales (7)
Sales Returns &
Allowances (7)
Cost of Goods Sold (8)
Operating Expenses
Uncollectible Accts.
Expense (7)
Depreciation Expense
(9)
Salary & Wages
Expense (10)
Payroll Taxes
Expense (10)
Bank Service Expense
(6)
Other Revenues &
Expenses
Interest Revenue (6)
Interest Expense (6)
Gain or Loss on
Disposal of
Property, Plant, &
Equipment (9)
Income Taxes
Expense (10)
The dollar amount of long-term liabilities differs from company to company.
For example, Caterpillar, the largest capital goods company in the United States,
reported long-term liabilities of $31 billion on December 31, 2009. This $31
billion was approximately 52% of Caterpillar’s December 31, 2009 total assets.
Mitsubishi Electric, the largest capital goods company outside of the United 2 Ch. 11: Long-term Liabilities
States, reported long-term liabilities of 979 billion yen on December 31, 2009.
The 979 billion yen was approximately 31% of Mitsubishi Electric’s December 31,
2009 total assets. One year earlier, on December 31, 2008, Caterpillar’s long-term liabilities were $35 billion or approximately 52% of Caterpillar’s total
assets.
The Nature of Long-term Liabilities
Because there are many different long-term liabilities, all of which have
the common characteristic that they will not be paid for within twelve months,
and their dollar amounts vary from company to company and year to year, it would
be difficult to examine them all, especially in one chapter. The following
sections of this chapter examine some of the more important long-term liabilities.
As you proceed through this material you should be familiar with some of it from
Chapter 10. For example, in the discussion of deferred taxes, you will recognize
much of the material from the Chapter 10 deferred taxes coverage.
Bonds Payable and Notes Payable
Bonds payable and notes payable are written promises to pay known dollar
amounts, on specific dates, to the owners of the bonds and notes. In fact, bonds
and notes can be significantly different or they can be virtually identical. In
general, however, notes have shorter lives than bonds. To simplify the
discussion and to emphasize the major issues related to long-term debt, the
following paragraphs use the term bonds to include both bonds payable and notes
payable.
In short, a bond is a contract. In return for resources, usually cash, the
company issuing the bond agrees to pay two major items: (1) the amount borrowed
(principal) and (2) interest. The principal is paid to the bond owner at the end
of the life of the bond, while interest payments are usually made every six
months over the life of the bond.
To illustrate the use of bonds to obtain resources, consider the Lowell
