Current Liabilities and Payroll

Chapter 10 Current Liabilities and Payroll

451 Current Portion of long-Term Debt Long-term liabilities are often paid back in periodic payments, called installments. Such installments that are due within the coming year are classified as a current liabil- ity. The installments due after the coming year are classified as a long-term liability. To illustrate, The Coca-Cola Company reported the following debt payments schedule in its December 31, 2011, annual report to shareholders in millions: Fiscal year ending 2012 2,041 2013 1,515 2014 1,690 2015 1,462 2016 1,707 Thereafter 7,282 Total principal payments 15,697 The debt of 2,041 due in 2012 would be reported as a current liability on the December 31 balance sheet for the preceding year. The remaining debt of 13,656 15,697 – 2,041 would be reported as a long-term liability on the balance sheet. Short-Term notes Payable Notes may be issued to purchase merchandise or other assets. Notes may also be issued to creditors to satisfy an account payable created earlier. 1 To illustrate, assume that Nature’s Sunshine Company issued a 90-day, 12 note for 1,000, dated August 1, 2013, to Murray Co. for a 1,000 overdue account. The entry to record the issuance of the note is as follows: Aug. 1 Accounts Payable—Murray Co. 1,000 Notes Payable 1,000 Issued a 90-day, 12 note on account. When the note matures, the entry to record the payment of 1,000 plus 30 inter- est 1,000 × 12 × 90360 is as follows: Oct. 30 Notes Payable 1,000 Interest Expense 30 Cash 1,030 Paid principal and interest due on note. Company Accounts Payable as a Percent of Total Current liabilities Alcoa Inc. 45 ATT 65 Gap Inc. 50 IBM 20 Rite Aid Corp. 54 Chevron Corp. 66 E X H I B I T 1 Accounts Payable as a Percent of Total Current liabilities 1 The accounting for notes received to satisfy an account receivable was described and illustrated in Chapter 8, Receivables. Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook andor eChapters. Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 452

Chapter 10 Current Liabilities and Payroll