TABLE OF CONTENTS
LESSON ONE……………………………………………………………………………………………………..2
1.0 Current Liabilities And Contingencies…………………………………………………………….2
1.1 Current Liabilities………………………………………………………………………………………….2
1.1.1 Definition Of Liability………………………………………………………………………………2
1.1.2 Definition Of Current Liability…………………………………………………………………2
1.1.3 Types Of Current Liabilities……………………………………………………………………..3
1.2 Contingencies……………………………………………………………………………………………….13
1.2.1 Loss Contingencies That Should Be Accrued…………………………………………..14
1.2.2 Loss Contingencies That Should Be Disclosed But Not Accrued……………….16
1.2.3 Loss Contingencies That Are Neither Accrued Nor Disclosed…………………..17
LESSON TWO…………………………………………………………………………………………………..24
2.0 LONG-TERM LIABILITIES………………………………………………………………………..24
2.1 Introduction to Long-Term Debt…………………………………………………………………..24
2.2 Bonds Payable………………………………………………………………………………………………24
2.2.1 Types Of Bonds………………………………………………………………………………………25
2.2.2 Accounting For Bond Issues……………………………………………………………………25
LESSON THREE……………………………………………………………………………………………….41
3.0 Leases…………………………………………………………………………………………………………..41
3.1 Basics Of Leasing………………………………………………………………………………………….41
3.2 Categories Of Leases…………………………………………………………………………………….42
3.3 Accounting For Leases………………………………………………………………………………….43
3.3.1 Accounting For An Operating Lease……………………………………………………….44
3.3.2 Accounting For A Capital Lease……………………………………………………………..44
3.3.3 Recording The Lease Liability………………………………………………………………..45
3.3.4 Reporting A Long-Term Asset Liability On The Balance Sheet………………..45
3.3.5 Terminating Of Lease Agreements………………………………………………………….47
LESSON FOUR…………………………………………………………………………………………………58
4.0 Stockholders Equity………………………………………………………………………………………58
4.1 The Corporate Form…………………………………………………………………………………….58
4.1.1 Forming A Corporation………………………………………………………………………….59
4.1.2 Organizing A Corporation………………………………………………………………………60
4.1.3 Organization Costs…………………………………………………………………………………60
4.2 The Concept of Owners Equity……………………………………………………………………..61
4.2.1 Contributed Capital………………………………………………………………………………..61
4.2.2 Retained Earnings………………………………………………………………………………….63
4.2.3 Unrealized Capital………………………………………………………………………………….63
4.3 Classification Of Capital Stock………………………………………………………………………63
4.4 Accounting Treatment Of Stockholders’ Equity…………………………………………….64
4.4.1 Presentation Of Stockholders’ Equity On The Balance Sheet…………………..64
4.4.2 Accounting For Stock Issues……………………………………………………………………65
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4.4.3 Issuing No-Par Common Stock For Cash………………………………………………..66
4.4.4 Issuing Common Stock For Services Or Non-Cash Assets………………………..66
4.4.5 Capital Stock Sold On A Subscription Basis…………………………………………….67
4.4.6 Defaults On Stock Subscriptions……………………………………………………………..68
4.4.7 Lump-Sum Stock Issuance………………………………………………………………………70
4.5 Stock Issue Costs…………………………………………………………………………………………..71
4.6 Treasury Stock……………………………………………………………………………………………..71
4.6.1 Purchase Of Treasury Stock……………………………………………………………………72
4.6.2 Sale Of Treasury Stock…………………………………………………………………………..72
4.6.3 Retirement Of Treasury Stock………………………………………………………………..73
4.7 Donated Capital……………………………………………………………………………………………73
4.8 Stock Rights………………………………………………………………………………………………….73
4.9 Stock-Based Compensation……………………………………………………………………………75
LESSON FIVE…………………………………………………………………………………………………..89
5.0 Dividends, Convertibles, Warrants, And Earnings Per Share………………………..89
5.1 Dividends……………………………………………………………………………………………………..89
5.1.1 Types Of Dividends…………………………………………………………………………………90
5.1.2 Stock Dividend Entries……………………………………………………………………………93
5.2 Convertibles………………………………………………………………………………………………….95
5.2.1 Convertible Preferred Stock……………………………………………………………………95
5.2.2 Convertible Bonds………………………………………………………………………………….95
5.3 Warrants………………………………………………………………………………………………………96
5.4 Earnings Per Share
5.4.1 EPS For Companies With Simple Capital Structure
5.4.2 EPS For Companies With Complex Capital Structures
BAC 201: Accounting for Liabilities and Equities Notes
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