MGMT 20000 Lecture Notes - Lecture 23: Contingent Liability, Promissory Note, Interest Expense
14 Nov 2018
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Promise to repay the borrowed amount plus interest at maturity date. Interest=face value x annual interest rate x fraction of the year. Assume a company borrows ,000 from a bank on sept. 1, 2017, signing a 6%, six-month note. Loans require payment in monthly or quarterly installments rather than by a single amount at maturity. Environmental: manufacturing companies have oil that spills and contaminates the ground water. Tax matters: whether or not they owe more or not. Antitrust: unfair competition, government checks to see if receivables are collectible and other things if you sell a division of a big company collectible and other things if you sell a division of a big company. The likelihood of payment is i. ii. iii. Reasonably possible: haven"t agreed to anything but negotiating. Remote: the chance is slight (organizations that file lawsuits constantly) We record interest expense in the period in which we incur it.
