Cookie Creations (Chapters 11 and 15)This assignment is a continuation of the Cookie Creations case study and focuses on Cookie Creations’ liabilities (current and long-term).
BBA 2201, Principles of Accounting I 1 Cou rse Learning Outcomes for Unit VII Upon completion of this unit, students should be able to: 4. Detail the classes and transactions of liabilities. 4.1 Explain how to account for the current and long -term liabilities. 4.2 Discuss how current liabilities are reported and analyzed. 4.3 Discuss how long -term liabilities are reported and analyzed. Course/Unit Learning Outcomes Learning Activity 4.1 , 4.2, 4.3 Unit Lesson Chapter 11, pp. 11 -1 to 11 -23 Chapter 15, pp. 15 -1 to 15 -23 Unit VII Case Study Required Unit Resources Chapter 11: Current Liabilities and Payroll Accounting, pp. 11 -1 to 11 -23 Chapter 15: Long -Term Liabilities, pp. 15 -1 to 15 -23 Unit Lesson Liabilities It has been previously established that the accounting equation is Assets = Liabilities + Equity. The accounting equation can also be written as Assets – Liabilities = Equity. In this equation, the liabilities of a business require the use of assets to satisfy the amount owed. There are two claims to the assets of a business; these claims are the creditors and the owners. This lesson will cover current liabilities (and payroll accounting) and long -term liabiliti es. A liability is an am ount owed to lenders, suppliers, or government agencies and requires the use of assets or future revenue to satisfy the debt. There are two categories of liabilities : current liabilities and long -term liabilities . A current liabi lity is the amount owed that must be paid within 1 year or within the company’s operating cycle — whichever is longer (Miller -Nobles et al. , 2018). The second liability is a long -term liability, which includes any liabilities that becom e due beyond a year (o r longer) . The most common current liability is accounts payable. An accounts payable is an amount due to a vendor for supplies or products and supplies or services (Miller -Nobles et al., 2018). Retail businesses will also have sales tax payable. Sales ta x payable is the amount of sales tax collected by the retailer that must be remitted UNIT VII STUDY GUIDE Current and Long -Term Liabilities BBA 2201, Principles of Accounting I 2 UNIT x STUDY GUIDE Title to the tax agencies (Miller -Nobles et al., 2018). Because the accounts payable and sales tax payable are due within 1 year (generall y, due within 30 days), they are considered a current liability. Some businesses will receive cash paym ents in advance of providing a service, which is referred to as unearned revenue (or deferred revenue). Many gyms and fitness centers will have deferred revenue. If you have ever paid for a year -long membership at the beginning of the year to receive a discount, then you were involved in a transaction with unearned revenue. The gym does not earn the revenue until it has provided you with the monthly member ship. For example , if you were to purchase a 1-year membership for $600, the gym would debit cash for $600 and credit unearned revenue for $600 (a liability). As each month passes and you do not discontinue your membership, the gym will record revenue ev ery m onth. Each month , the gym will record $50 of revenue ($600 divided by 12 months). The gym will debit unearned revenue and credit revenue for $50. Long -term liabilities are liabilities that will become due beyond 1 year or beyond the company’s operat ing cycle (Miller -Nobles et al., 2018). A mortgage payable, note payable, or bonds payable are examples of long – term liabilities. Generally, most long -term liabilities have a current portion as well. Assume that a company has a 30 -year mortgage on its of fice building. The mortgage is $500,000, and payments are due monthly with an interest rate of 4.0%. The first year’s am ortization is shown below in Figure 1.
BBA 2201, Principles of Accounting I 3 UNIT x STUDY GUIDE Title In this case, the loan was entered into on January 1, 2015, for $500,000. The company would record a current liability for $8,057.94 and a long -term liability for $491,942.06. The current liability portion is shown as a current liability on the balance sheet and listed as a current portion of long -term debt . Also, notice that with each payment being made, the paym ent am ount remains the same, but the allocation between principal and interest changes with each payment. On this particular am ortization, the total paym ents of $ 2,387.08 will be $859,348.80 over 30 years. Of this amount, $500,000 is principal, and the rem aining $359,348.80 is interest expense. Conclusion This lesson focused on current liabilities (and payroll accounting) and long -term liabilities. Businesses of any kind ( e.g., for -profit s, nonprofit s, governmental, associations) will have liabilities during the normal course of business. Those liabilities m ay be short -term (less than 12 months) or long -term (longer than 12 months) Figure 1: Amortization example based on a 30 -year m ortgage of $500,000 BBA 2201, Principles of Accounting I 4 UNIT x STUDY GUIDE Title liabilities . It is important to understand how businesses account for short – and long -term liabilities and to understand the proper presentation on financial statem ents. Reference s Miller -Nobles, T., Mattison, B., & Matsumura, E. M. (2018). Horngren’s accounting (12th ed.). Pearson. W eygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Accounting principles (13th ed.) [VitalSource Bookshelf version]. https://online.vitalsource.com/#/books/978119411017 Suggested Unit Resources In order to access the following resources, click the links below. A transcript and closed captioning are available once you access the video s. This short introductory video will discuss recording accounting transactions, debits, and credits. Acct Simplified. (2015, March 8). Intro to recording accounting transactions (DR/CR) [Video] . https://c24.page/8rye68xgemsyjgbap4457v7596 Th e following video explains bonds payable as a part of the accounting process to includ e bonds payable that are sold at a premium, a discount, and face value. Course Hero. (2019, April 5). Accounting for bon ds payable | Principles of accounting [Video] . https://c24.page/ytqd9j 2549u57hpk8qrsfahntj The video below introduces the nature of current liabilities as short -term obligations and shares examples of these, such as trade accounts payable, short -term loans and notes, and payroll liabilities. Course Hero. (2019, April 5). Current liabilities | Principles of accounting [Video] . https://c24.page/fzyed7hmaxt7nk9mb6ncx5x7b Learning Activities (Nong raded) Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit them. If you have questions, contact your instructor for further guidance and information. This is an opportunity for you to express your thoughts about the material you are studying by writing about it. Conceptual thinking is a great way to study because it gives you a chance to process what you have learned , and it increases your ability to rem ember it. In order to practice wh at you have learned in Chapter 11 , please attempt the exercises below, which can be found in your textbook. DO IT! 1 | Current Liabilities, p p. 11 -5 to 11 -6 DO IT! 2 | Reporting and Analyzing, p . 11 -9 DO IT! 3a | Payroll, p . 11 -16 DO IT! 3b | Employer’s Payroll Taxes , p . 11 -20 BBA 2201, Principles of Accounting I 5 UNIT x STUDY GUIDE Title You are also encouraged to complete the following end -of-chapter exer cises and problems for Chapter 11 , which can be found in your textbook. Practice Multiple Choice Questions and Solutions, p p. 11 -24 to 11 -26 Practice Brief Exercises, p p. 11 -26 to 11 -28 Practice Problem, p p. 11 -28 to 11 -29 In order to practice wh at you have learned in Chapter 15 , please attempt the exercises below, which can be found in your textbook. DO IT! 1 | Bond Terminology, p . 15 -6 DO IT! 2a | Bond Issuance, p . 15 -11 DO IT! 2b | Bond Redemption, p . 15 -12 DO IT! 3 | Long -Term Notes, p . 15 -13 DO IT! 4 | Lease Liability; Analysis of Long -Term Liabilities, p . 15 -17 You are also encouraged to complete the following end -of-chapter exercises and problems for Chapter 15, which can be found in your textbook. Practice Multiple Choice Questions and Solutions, p p. 15 -24 to 15 -26 Practice Brief Exercises, p p. 15 -26 to 15 -28 Practice Problem, p p. 15 -28 to 15 -29 If you have any questions or do not understand a concept, contact your professor for clarification. Completing these practice exercises and problems will give you practice, which will be helpful as you complete the assignment for this unit.