會(huì)計(jì)學(xué)：企業(yè)決策的基礎(chǔ)（管理會(huì)計(jì)分冊(cè)）（原書(shū)第19版）課件 -Chap010-Liabilities

Chapter10LiabilitiesIntroduction:DebtBuyingitemsoncreditisacharacteristicofmodernbusiness.Eachday,largeretailersandcreditcardcompaniesencourageconsumerstogodeeperanddeeperintodebt.Addtocreditcardandotherconsumerdebtvariouslong-termobligations—suchashomemortgagesandautomobileloans—andit’snotsurprisingthatpaymentsontotalhouseholddebtmakeupahighpercentageoftotaldisposableincomeintheUnitedStates.Largecorporationsalsoborrowlargeamountsofcapitalbyissuingdebttofinanceexpansion,makemajoracquisitions,andforawidevarietyofotherpurposes.Thetremendousdebtservicecostsassociatedwithcorporateborrowingcanrequireasignificantportionofacompany’soperatingcashflows.ConsiderthecaseofcorporategiantProcter&Gamble(P&G).Inthecompany’srecentbalancesheet,totalliabilitiesareover$65billion,whichrepresentsapproximately55percentofthecompany’sassets.Includedinthisamountislong-termdebtofalmost$21billion,including23differentissuesofbondsandotherformsofdebtinstrumentswithvaryingrepaymentdatesthatrangeasfaroutinthefutureas2047.Fromthisillustration,youcanseethatlong-termdebtfinancingisamajorsourceofcapitalforlargecompanieslikeProcter&Gamble.DebthasasignificantimpactonallofP&G’sfinancialstatements.Thisplacessignificantresponsibilityonmanagementintermsofhavingavailablethenecessarycashtoservicethedebtatspecificdatesduringtheyear,aswellasbeinginthefinancialpositionrequiredtorepaythedebtasitmatures.Debtfinancingisoneofthemajorfinancialresourcesofcompanies.Introduction:Debt(concluded)NatureofLiabilitiesLiabilitiesmaybedefinedasdebtsorobligationsarisingfrompasttransactionsoreventsthatrequiresettlementatafuturedate.Allliabilitieshavecertaincharacteristicsincommon;however,thespecifictermsofdifferentliabilitiesandtherightsofthecreditorsvarygreatly.DebtVs.EquityBusinesseshavetwobasicsourcesoffinancing:LiabilitiesOwners’equityLiabilitiesAllliabilitieseventuallymature.Theycomedueandmustbepaid.Providersofmoneyareconsideredcreditorsratherthanowners.Owners’EquityCanbeseparatedintotheoriginalinvestmentsofownersandequitythatwasearnedandretainedbythecompany.Doesnotmature.ClaimsofCreditorsTheclaimsofcreditorshavelegalpriorityovertheclaimsofowners.Ifabusinessceasesoperationsandliquidates,creditorsmustbepaidinfullbeforeanydistributionscanbemadetotheowners.Therelativesecurityofcreditors’claims,however,canvaryamongthecreditors.Liabilitiesthatarenotsecuredbyspecificassetsaretermedgeneralcreditobligations.

LiabilitiesBearingInterestManylong-termliabilities,andsomeshort-termones,requiretheborrowertopayinterest.Onlyinterestaccruedasofthebalancesheetdateappearsasaliabilityintheborrower’sbalancesheet.Theborrower’sobligationtopayinterestinfutureperiodsmaybedisclosedinthenotestothefinancialstatements,butitisnotanexistingliability.EstimatedLiabilitiesManyliabilitiesareforadefinitedollaramount,clearlystatedbycontract.Examplesinclude:NotespayableAccountspayableAccruedexpensesInterestpayableSalariespayableEstimatedLiabilities(concluded)Estimatedliabilitieshavetwobasiccharacteristics:Theliabilityisknowntoexist.Theprecisedollaramountcannotbedetermineduntilalaterdate.EXAMPLETheautomobilessoldbymostautomakersareaccompaniedbyawarrantyobligatingtheautomakertoreplacedefectivepartsforaperiodofseveralyearsand/oraspecifiednumberofmiles.Aseachcarissold,theautomakerincursaliabilitytoperformanyworkthatmayberequiredunderthewarranty.Thedollaramountofthisliability,however,canonlybeestimated.LiabilityClassificationCurrentLiabilitiesExpectedtobepaidwithinoneyearorwithintheoperatingcycle,whicheverislonger.Debtwillbepaidfromcurrentassetsorthroughtherenderingofservices.Long-termLiabilitiesAllliabilitiesnotmeetingthecriteriatobeclassifiedascurrent.CommonIndicatorsofLiquidity(abilitytopaydebtsinthenearfuture)WorkingCapital=CurrentAssets?CurrentLiabilitiesCurrentRatio=CurrentAssets

CurrentLiabilitiesExamplesofCurrentLiabilitiesAmongthemostcommonexamplesofcurrentliabilitiesare:AccountspayableShort-termnotespayableCurrentportionoflong-termdebtAccruedliabilitiesInterestpayableIncometaxespayablePayrollliabilitiesUnearnedrevenueAccountsPayableAccountspayableoftenaresubdividedintothecategoriesof:TradeaccountspayableShort-termobligationstosuppliersforpurchasesofmerchandise.OtheraccountspayableIncludeliabilitiesforanygoodsandservicesotherthanmerchandise.NotesPayableNotespayableusuallyareissuedwhenbankloansareobtained.Othertransactionsthatmaygiverisetonotespayableinclude:Purchaseofrealestateorcostlyequipment.Purchaseofmerchandise.Substitutionofanoteforapast-dueaccountpayable.KEYPOINTNotespayableusuallyrequiretheborrowertopayaninterestcharge.Normally,theinterestrateisstatedseparatelyfromtheprincipalamountofthenote.NotePayable:ExampleOnNovember1,PorterCompanyborrows$10,000fromitsbankforaperiodofsixmonthsatanannualinterestrateof6percent.SixmonthslateronMay1,PorterCompanywillhavetopaythebanktheprincipalamountof$10,000,plus$300interest($10,000×0.06×6/12).Asevidenceofthisloan,thebankwillrequirePorterCompanytoissueanotepayablesimilartotheonebelow:NotePayable:Example(cont.)ThejournalentryinPorterCompany’saccountingrecordsforthisNovember1borrowingisasfollows:Noliabilityisrecordedfortheinterestchargeswhenthenoteisissued.Atthedatethe$10,000isborrowed,theborrowerhasaliabilityonlyfortheprincipalamountoftheloan;theliabilityforinterestaccruesgraduallyoverthelifeoftheloan.AtDecember31,twomonths’interestexpensehasaccrued,andthefollowingyear-endadjustingentryismade.NotePayable:Example(concluded)Forsimplicity,weassumethatPorterCompanymakesadjustingentriesonlyatyear-end.TheentryonMay1torecordpaymentofthenotewillbeasfollows:CurrentPortionofLong-TermDebtSomelong-termdebts,suchasmortgageloans,arepayableinaseriesofmonthlyorquarterlyinstallments.Principalamountduewithinoneyear(ortheoperatingcycle)isregardedasacurrentliability.Remainderoftheobligationisclassifiedasalong-termliability.AccruedLiabilitiesAccruedliabilitiesarisefromtherecognitionofexpensesforwhichpaymentwillbemadeinafutureperiod.Forthisreason,accruedliabilitiesaresometimesreferredtoasaccruedexpenses.

Examplesofaccruedliabilitiesinclude:InterestpayableIncometaxespayablePayrollliabilitiesPayrollLiabilitiesPayrollTaxesandMandatedCostsSocialSecurityandMedicaretaxesAllemployersmustpaybasedonthewagesandsalariespaidtoeachemployee.Theportionofearningssubjecttothesetaxesvariesfromyeartoyear.FederalUnemploymentTaxesApplyonlytothefirstsetdollaramountearnedbyeachemployeeduringtheyear.StateUnemploymentTaxesVaryfromstatetostate.PayrollLiabilities(cont.)Workers’CompensationInsuranceState-mandatedprogramthatprovidesinsurancetoemployeesagainstjob-relatedinjury.Premiumsvarybystateandoccupationalclassification.OtherPayroll-RelatedCostsManyemployerspayaportionorallofthefollowingforthebenefitofemployees:HealthinsuranceLifeinsuranceEmployeepensionplansPayrollLiabilities(concluded)AmountsWithheldfromEmployees’PayFederalincometaxesStateincometaxesSocialSecuritytaxesMedicaretaxesUnearnedRevenueAliabilityforunearnedrevenueariseswhenacustomerpaysinadvance.Uponreceiptofanadvancepaymentfromacustomer,thecompanydebitsCashandcreditsaliabilityaccountsuchasUnearnedRevenueorCustomers’Deposits.Astheservicesarerenderedtothecustomer,anentryismadedebitingorreducingtheliabilityaccountandcreditingorincreasingarevenueaccount.KEYPOINTMostliabilitiesareexpectedtoberepaidwithcash.Notice,however,thataliabilityforunearnedrevenuenormallyissatisfiedbydeliveringgoodsorrenderingservicestothecreditor,ratherthanbymakingcashpayments.Long-TermLiabilitiesTransactionsinvolvinglong-termliabilitiesarerelativelyfewinnumberbutusuallyinvolvelargedollaramounts.Currentliabilitiesusuallyarisefromroutineoperatingtransactionsandoccurfrequentlyonarecurringbasis.Long-termdebtfinancingmaybecomeapermanentpartofthefinancialstructureofthebusiness.MaturingObligationstoBeRefinancedOnespecialtypeoflong-termliabilityisanobligationthatwillmatureinthecurrentperiodbutthatisexpectedtoberefinancedonalong-termbasis.Ifmanagementhasboththeintentandtheabilitytorefinancesoon-to-matureobligationsonalong-termbasis,theseobligationsareclassifiedaslong-termliabilities.InternationalCaseinPointAllocatingInstallmentPaymentsBetweenInterestandPrincipalIdentifytheunpaidprincipalbalance.InterestExpense=UnpaidPrincipal×InterestRate.ReductioninUnpaidPrincipalBalance=InstallmentPayment–InterestExpense.Computenewunpaidprincipalbalance.OnOctober15,Year1,King’sInnpurchasesfurnishingsatacostof$16,398.Theloanisan18-monthloanandhasaninterestrateof12percent.Themonthlypaymentis$1,000,beginningNovember15.Let’sprepareanamortizationtableforKing’sInn.PreparinganAmortizationTableUsingtheAmortizationTableTheinformationneededforthejournalentrycanbefoundontheamortizationtable.Thecashpaymentamount,theinterestexpense,andtheprincipalreductionamountareallinthetable.UsingtheAmortizationTable(cont.)IfDecember31,year1,istheendoftheKing’sInn’sfinancialreportingperiod,thecompanymustmakeanadjustingentrytorecordone-halfmonth’saccruedinterestonthisliability.Theamountofthisadjustingentryisbasedontheunpaidbalanceshownintheamortizationtableasofthelastpayment(December15).AtDecember31,year1,thiswouldbefor$74:$14,718×1%×1/2month.BondsPayable:IntroductionTofinanceaparticularlylargeproject,suchasdevelopinganoilfieldorpurchasingacontrollinginterestinthecapitalstockofanothercompany,acorporationmayneedmorecapitalthananysinglelendercansupply.Whenacorporationneedstoraiseparticularlylargeamountsoflong-termcapital—perhaps50,100,or500milliondollars—itgenerallysellsadditionalsharesofcapitalstockorissuesbondspayable.BondsPayable:IssuanceWhenbondsareissued,thecorporationusuallyutilizestheservicesofaninvestmentbankingfirm,calledanunderwriter.Theuseofanunderwriterassuresthecorporationthattheentirebondissuewillbesoldwithoutdelayandthattheentireamountoftheproceedswillbeavailableataspecificdate.Bondscanbesoldonorganizedsecuritiesexchanges.Bondpricesareusuallyquotedasapercentageofthefaceamount.TypesofBondsMortgagebond—securedbythepledgeofassets.Debenturebond—unsecured.Callablebond—corporationhastherighttoredeemthebondsinadvanceofthematuritydatebypayingaspecifiedcallprice.Convertiblebond—maybeexchangedattheoptionofthebondholderforaspecifiednumberofsharesofcapitalstock.Junkbond—abondissuethatinvolvesasubstantiallygreaterriskofdefaultthannormal.TaxAdvantageofBondFinancingAnimportantadvantageofraisingmoneybyissuingbondsinsteadofstockisthatinterestpaymentsaredeductibleindeterminingincomesubjecttocorporateincometaxes.Dividendspaidtostockholders,however,arenotdeductibleincomputingtaxableincome.TaxAdvantage:ExampleAssumethatacorporationpaysincometaxesatarateof30percentonitstaxableincome.Ifthiscorporationissues$10millionof6percentbondspayable,itwillincurinterestexpenseof$600,000peryear.Thisinterestexpense,however,willreducetaxableincomeby$600,000,reducingthecorporation’sannualincometaxesby$180,000.Asaresult,theafter-taxcostofborrowingthe$10millionisactuallyonly$420,000.Thiseffectivelyreducesthecostofborrowingto4.2percent($420,000/$10,000,000),considerablylowerthanthestatedrateof6percent.Ashortcutapproachtocomputingtheafter-taxcostofborrowingissimplymultiplyingtheinterestexpenseby1minusthecompany’staxrate,asfollows:$600,000×(1–

0.30)=$420,000.BondsPayable:AccountableEventsTheaccountableeventsforabondissueusuallyare:Issuanceofthebonds.Periodicinterestpayments.Accrualofinterestpayableattheendofeachaccountingperiod.Retirementofthebondsatmaturity.OnMarch1,2021,WellsCorporationissues$1,000,000of6percent,20-yearbondspayable,datedMarch1.Interestispayablesemiannually,eachMarch1andSeptember1.Assumethebondsareissuedatpar(face)value.

Recordtheissuanceofthebonds.BondsPayable:ExampleRecordthesemi-annualinterestpaymentonSeptember1,2021.BondsPayable:Example(cont.)RecordtheaccruedinterestatDecember31,2021.BondsPayable:Example(cont.2)RecordtheinterestpaymentonMarch1,2022.BondsPayable:Example(concluded)BondsIssuedBetweenInterestDatesBondsareoftenissuedbetweenthespecifiedinterestdates.Theinvestorpaystheinterestaccrueduptothedateofissuanceinadditiontothestatedpriceofthebond.Thecorporationthenpaysafullsixmonths’interestonallbondsoutstandingatthenextstatedinterestpaymentdate.Ineffect,investorspurchasetheaccruedinterestwhentheypurchasethebond,andthecorporationreturnsthatinteresttotheinvestorsonthenextinterestpaymentdate.BondsIssuedataDiscountoraPremiumTheamountthatcorporationsactuallyreceivefromthesaleofbondsisthepresentvalueoftheprincipalandinterestpaymentstheywillpayinthefuture.Underwritersusuallypurchasebondsfromtheissuingcorporationatadiscount—thatis,atapricebelowfacevalue.Whenbondsareissued,theborrowerrecordsaliabilityequaltotheamountreceived.Ifthebondsareissuedatadiscount—whichisthenormalcase—thisliabilityissmallerthanthefacevalueofthebondissue.However,atthematuritydate,theissuingcorporationmustrepaythefullfacevalueofthebonds.Asaresultofthisprocess,overthetermofthebondissue,theborrower’sliabilitygraduallyincreasesfromtheoriginalissuepricetothematurityvalue.BondsIssuedataDiscount:ExampleWellsCorporationissuesbondsonMarch1,2021. Principal=$1,000,000 Issueprice=$970,000 Statedinterestrate=6% Interestdates=9/1and3/1 Maturitydate=March1,2041(20years)BondsIssuedataDiscount:Example(cont.)Torecordthebondissue,WellsCorporationwouldmakethefollowingentryonMarch1,2021.BondsIssuedataDiscount:Example(concluded)DiscountAmortizationJournalEntryDiscountAmortizationJournalEntry(cont.)DiscountAmortizationJournalEntry(concluded)Illustration:BondsPayablewithPremiumAssumethatonMarch1,2021,WellsCorporationsells$1millionof6percent,20-yearbondspayabletoanunderwriteratapriceof103(meaningthatthebondsweresoldtotheunderwriterat103percentoftheirfacevalue).OnMarch1,2021,WellsCorporationreceives$1,030,000cashfromtheunderwriter($1,000,000×1.03)andrecordsaliabilityequaltothisamount.Whenthesebondsmaturein20years,however,Wellswilloweitsbondholdersonlythe$1millionfacevalueofthebondissue.Thecompany’sinitialliabilitymustbereducedby$30,000overthe20yearsthatthebondsareoutstanding.Thisrepresentsareductioninthetotalcostofborrowingoverthe20yearsofthebondissue.BalanceSheetatDateofIssuanceWellsCorporation’sliabilityatthedateofissuancewillappearinthebalancesheetasfollows.NotethatbecausethePremiumonBondsPayableaccounthasacreditbalance,itisshowninthebalancesheetasanincreaseinthefaceorparvalueofbondspayable.RecordingInterestExpenseEachSeptember1,thecompanyrecordsinterestexpenseof$29,250,computedasfollows.TheentrytorecordinterestexpenseonSeptember1throughoutthelifeofthebondissueisasfollows.DiscountsandPremiumsinPerspectiveFromaconceptualpointofview,investorsmightpayapremiumpricetopurchasebondsthatpayanabove-marketrateofinterest.Ifthebondspayabelow-marketrate,investorswillbuythemonlyatadiscount.Buttheseconceptsseldomcomeintoplaywhenbondsarefirstissued.Mostbondsareissuedatthemarketrateofinterest.Corporatebondsarerarelyissuedatapremium.Bondsoftenareissuedatasmalldiscountthatrepresentsonlytheunderwriter’sprofitmargin,notinvestors’responsetoabelow-marketinterestrate.Theannualeffectsofamortizingbonddiscountsorpremiumsmayberelativelysmallbecausetheseamountsareamortizedovertherelativelylonglifeofthebondissue.ConceptofPresentValueThepresentvalueofafuturecashreceiptistheamountthataknowledgeableinvestorwillpaytodayfortherighttoreceivethatfuturepayment.Theexactamountofthepresentvaluedependson:Theamountofthefuturepayment.Thelengthoftimeuntilthepaymentwillbereceived.Therateofreturnrequiredbytheinvestor.Thepresentvaluewillalwaysbelessthanthefutureamount.Thisisbecausemoneyreceivedtodaycanbeinvestedtoearninterestandgrowtoalargeramountinthefuture.RateofInterestTherateofinterestthatwillcauseagivenpresentvaluetogrowtoagivenfutureamountiscalledthediscountrateoreffectiverate.

Theeffectiveinterestraterequiredbyinvestorsatanygiventimeisregardedasthegoingmarketrateofinterest.CaseinPointYourTurn:YouasaFinancialAdvisorEarlyRetirementofBondsPayableBondsaresometimesretiredbeforethematuritydate.Theprincipalreasonforretiringbondsearlyistorelievetheissuingcorporationoftheobligationtomakefutureinterestpayments.Ifthebondscanbepurchasedbytheissuingcorporationatlessthantheircarryingvalue,againisrealizedontheretirementofthedebt.Ifthebondsarereacquiredbytheissuingcorporationatapriceinexcessoftheircarryingvalue,alossmustberecognized.EstimatedLiabilitiesDefinedThetermestimatedliabilitiesreferstoliabilitiesthatappearinfinancialstatementsatestimateddollaramounts.Bydefinition,estimatedliabilitiesinvolvesomedegreeofuncertainty.However,whenthefollowingconditionsaremet,aliabilityisrecognizedandbecomesapartofthecompany’sfinancialstatements:Theliabilitiesareknowntoexist.Theuncertaintyastodollaramountisnotsogreatastopreventthecompanyfrommakingareasonableestimateandrecordingtheliability.LossContingenciesAlosscontingencyisapossibleloss,stemmingfrompastevents,thatisexpectedtoberesolvedinthefuture.Losscontingenciesdifferfromestimatedliabilitiesintwoways.First,alosscontingencymayinvolveagreaterdegreeofuncertainty.

Oftentheuncertaintyextendstowhetheranylossorexpenseactuallyhasbeenincurred.Incontrast,thelossorexpenserelatingtoanestimatedliabilityisknowntoexist.LossContingencies(cont.)Theconceptofalosscontingencyextendsnotonlytopossibleliabilitiesbutalsotopossibleimpairmentsofassets.

EXAMPLEAcommonexampleofalosscontingencyisalawsuitpendingagainstacompany.Thelawsuitisbasedonpastevents,butuntilthesuitisresolved,uncertaintyexistsastowhetherthecompanyhassustainedalossand,ifithas,howmuchwasthatloss.LossContingencies(concluded)Losscontingenciesarerecordedintheaccountingrecordsonlywhenbothofthefollowingcriteriaaremet:Itisprobablethatalosshasbeenincurred.Theamountoflosscanbereasonablyestimated.Whenthesecriteriaarenotmet,losscontingenciesarenotformallyrecorded,butratherare

disclosedinnotestothefinancialstatementsifthereisareasonablepossibilitythatamateriallosshasbeenincurred.Example:ContingencyDisclosureNote8:Contingencies

InOctoberof2021,theCompanywasnamedasdefendantina$250millionpatentinfringementlawsuit.TheCompanydeniesallchargesandispreparingitsdefenseagainstthem.Itisnotpossibleatthistimetodeterminetheultimatelegalorfinancialresponsibilitythatmayariseasaresultofthislitigation.CommitmentsContractsforfuturetransactionsarecalledcommitments.Theyarenotliabilities,but,ifmaterial,theyaredisclosedinnotestothefinancialstatements.Examplesofcommitmentsinclude:Acorporation’slong-termemploymentcontractwithakeyofficer.Acontractforconstructionofanewplant.Acontracttobuyorsellinventoryatfuturedates.EvaluatingtheSafetyofCreditors’ClaimsEvaluatingtheSafetyofCreditors’Claims(concluded)Thisratioindicatesamarginofprotectionforcreditors.Fromthecreditor’spointofview,thehigherthisratio,thebetter.OperatingIncome

AnnualInterestExpenseInterestCoverageRatio=HowMuchDebtShouldaBusinessHave?Isitwiseforacompanytouselong-termdebttofinancegrowthandexpansion?Theanswerhingesonanotherquestion:Cantheborrowedfundsbeinvestedwithinthecompanytoearnareturnhigherthantherateofinterestpaidtocreditors?Summarizingtheeffectsofleverage:Ethics,Fraud,&GovernanceRelatedtoDebtOneofthemostinfamousfinancialfraudsinU.S.historyoccurredatEnronandwasrevealedinthefallof2001.AmajorpartoftheEnron

fraudinvolvedtheunderstatementofdebt.Enron

understateditsdebtbyatleast$550millioneachyearfrom1997to2000.WHY?Enron’smanagementwasmotivatedtounderstatedebtinordertomaintainahighcreditratingfromMoody’sandStandard&Poor’s.SpecialTypesofLiabilitiesSpecialtypesofliabilitiescommontomostlargeorganizations:Leases—contractswherethelessor(owneroftheproperty)givesthelessee(therenter)therighttouseanassetforaspecifiedperiodoftimeinexchangeforperiodicrentalpayments.Pensionsandotherpostretirementbenefits—anobligationoftheemployerforbenefitsthatemployeesearntherighttoreceivewhiletheyareworkingforthatemployer.Deferredtaxes—theportionofincometaxesexpensethatisdeferredtofuturetaxreturnsasaresultoftimingdifferencesbetweenaccountingprinciplesandtaxrules.LearningObjectiveSummaryLO10-1LO10-1:Defineliabilitiesanddistinguishbetweencurrentandlong-termliabilities.

Liabilitiesareobligationsarisingfrompasttransactionsoreventsthatrequirepayment(ortherenderingofservices)atsomefuturedate.Currentliabilitiesarethosematuringwithinoneyearorthecompany’soperatingcycle(whicheverislonger)andthatareexpectedtobepaidfromcurrentassets.Liabilitiesclassifiedaslongtermincludeobligationsmaturingmorethanoneyearinthefutureandshorter-termobligationsthatwillberefinancedorpaidfromnoncurrentassets.LearningObjectiveSummaryLO10-2LO10-2:Accountfornotespayableandinterestexpense.

Initially,aliabilityisrecordedonlyfortheprincipalamountofanote—thatis,theamountowedbeforeincludinganyinterestcharges.Interestexpenseaccruesovertime.Anyaccruedinterestexpenseisrecognizedattheendofanaccountingperiodbyanadjustingentrythatrecordsboththeexpenseandashort-termliabilityforaccruedinterestpayable.LearningObjectiveSummaryLO10-3LO10-3:Describethecostsandthebasicaccountingactivitiesrelatingtopayrolls.

Thebasiccostofpayrollsisthesalariesandwagesearnedbyemployees.However,allemployersalsoincurvariouspayrolltaxes,suchastheemployer’sshareofSocialSecurityandMedicare,workers’compensationpremiums,andunemploymentinsurance.Manyemployersalsoincurcostsforvariousemployeebenefits,suchashealthinsuranceandpostretirementbenefits.Theseadditionalpayroll-relatedcostsrepresentsignificantincreasesinthetotalcostofpayrollwhenaddedtothebasicwagesandsalariesexpense.LearningObjectiveSummaryLO10-4LO10-4:Prepareanamortizationtableallocatingpaymentsbetweeninterestandprincipal.

Atypicalamortizationtableincludesfourmoneycolumns,showing(1)theamountofeachpayment,(2)theportionofthepaymentrepresentinginterestexpense,(3)theportionofthepaymentthatreducestheprincipalamountoftheloan,and(4)theremainingunpaidbalance(orprincipalamount).Aseparatelineforeachpaymentshowshowthetotalisallocatedbetweeninterestexpenseandareductioninprincipal,aswellasindicatingthenewunpaidbalancesubsequenttothepayment.Astheprincipalamountdeclines,eachsuccessivepaymentincludesasmalleramountofinterestandalargeramountappliedtoreducingtheprincipal.LearningObjectiveSummaryLO10-5LO10-5:Describecorporatebondsandexplainthetaxadvantageofdebtfinancing.

Corporatebondsaretransferablelong-termnotespayable.Eachbondusuallyhasafacevalueof$1,000(oramultipleof$1,000),callsforinterestpaymentsatacontractualrate,andhasastatedmaturitydate.Byissuingthousandsofbondstotheinvestingpublicatonetime,thecorporationdividesaverylargeandlong-termloanintomanytransferableunits.Oneprincipaladvantageofissuingbondsinsteadofcapitalstockisthatinterestpaymentstobondholdersaredeductibleindeterminingtaxableincome,whereasdividendpaymentstostockholdersarenot.LearningObjectiveSummaryLO10-6LO10-6:Accountforbondsissuedatadiscountorpremium.

Bondsareissuedatadiscountorapremiumwhenthestatedrateonthebondsdiffersfromthemarketrateotherwiseavailabletoinvestors.Inthecaseofadiscount,theborrowermustrepaymorethantheamountoriginallyborro