After completing this chapter you should be able to: Describe the nature, type, and valuation of current liabilities, explain the classification issues of short-term debt expected to be refinanced, identify types of employee-related liabilities, identify the criteria used to account for and disclose gain and loss contingencies...
Trang 1Chapter 13-1
Trang 4Presentation of current liabilities Presentation of contingencies Analysis of current liabilities
Current Liabilities and Contingencies
Current Liabilities and Contingencies
Trang 7The terms of the sale (e.g., 2/10, n/30) state period of extended credit.
Trang 8Chapter
13-8
Written promises to pay a certain sum of money on a specified future date.
Trang 9Chapter
13-9
Illustration (InterestBearing Note): Castle National Bank agrees to lend $100,000 on March 1, 2010, to Landscape Co. if Landscape signs a
Trang 12Chapter
13-12
Illustration (ZeroInterestBearing Note): On March 1, Landscape issues a $102,000, fourmonth, zerointerestbearing note to Castle
Trang 191 Must intend to refinance the obligation on a longterm basis.
2 Must demonstrate an ability to refinance:
Actual refinancing
Enter into a financing agreement
Trang 20Chapter
13-20
ShortTerm Obligations Expected to be Refinanced Mgmt. Intends of Refinance
Trang 212011, the proceeds from the stock sale, supplemented by an additional $300,000 cash, are used to liquidate the $1,200,000 debt. The December 31, 2010, balance sheet is issued on
February 23, 2011.
Instructions
Show how the $1,200,000 of shortterm debt should be presented on the December 31,
2010, balance sheet, including note disclosure
Trang 22Chapter
13-22
Partial Balance Sheet Current liabilities:
$1,200,000
Trang 23Dividends payable in the form of shares of stock are not recognized as a liability. Reported in equity.
LO 2 Explain the classification issues of shortterm debt expected
to be refinanced.
Trang 28Chapter
13-28
BE136: Dillons Corporation made credit sales of $30,000 which are subject to 6% sales tax. The corporation also made cash sales which totaled $20,670 including the 6% sales tax. (a) prepare the entry to record Dillons’ credit sales. (b) Prepare the
Cash 20,670
Sales tax payable 1,170 ($20,670 1.06 = $19,500)
Trang 29Differences between taxable income and accounting income sometimes occur (Chapter 19).
LO 2 Explain the classification issues of shortterm debt expected
to be refinanced.
Trang 32Chapter
13-32
Illustration: Assume a weekly payroll of $10,000 entirely subject to F.I.C.A. and Medicare (7.65%), federal (0.8%) and state (4%) unemployment taxes, with income tax withholding of $1,320 and union dues of $88 deducted. The company records
LO 3 Identify types of employeerelated liabilities.
Trang 33Chapter
13-33
Illustration: Assume a weekly payroll of $10,000 entirely subject to F.I.C.A. and Medicare (7.65%), federal (0.8%) and state (4%) unemployment taxes, with income tax withholding of $1,320 and union dues of $88 deducted. The company records
LO 3 Identify types of employeerelated liabilities.
Trang 34Payment of the compensation is probable.
The amount can be reasonably estimated.
Trang 35a current liability.
Trang 39Chapter
13-39
Accounting Probability
Accrue Footnote Ignore
Probable
Reasonably Possible Remote
Loss Contingencies
Loss Contingencies
LO 4 Identify the criteria used to account for and disclose gain
and loss contingencies.
Trang 40Chapter
13-40
BE1310: Scorcese Inc. is involved in a lawsuit at December 31, 2010. (a) Prepare the December 31 entry assuming it is probable that Scorcese will be liable for
Trang 44LO 5 Explain the accounting for different types of loss contingencies.
Trang 48Company charges the cost of premium offers to Premium Expense and credits Estimated Liability for Premiums.
LO 5 Explain the accounting for different types of loss contingencies.
Trang 49transactions journalized below. Fluffy Cakemix Company records purchase of 20,000 mixing bowls as follows.
Inventory of Premium Mixing Bowls 15,000
$20,000 x .75 = $15,000
Trang 50Inventory of Premium Mixing Bowls 4,500 Computation: (60,000 / 10) x $0.75 = $4,500
Trang 57Asset retirement obligation 1,000,000
Gain on settlement of ARO
5,000 Cash
995,000
January 10, 2015
Trang 59LO 6 Indicate how to present and analyze liabilities and contingencies.
Trang 65Current Ratio =
Cash + Marketable Securities + Net
Receivables Current Liabilities
AcidTest Ratio =
Trang 66Chapter
13-66
E1317: (Ratio Computations and Discussion) Costner Company has been operating for several years, and on December 31, 2010, presented the following balance sheet.
T otal liab ilitie s and e q uity $ 4 3 0 ,0 0 0
Compute the current ratio :
$210,000 70,000 = 3.0 to 1
Compute the acidtest ratio :
$115,000 70,000 = 1.64 to 1
LO 6 Indicate how to present and analyze liabilities and contingencies.
Trang 67Chapter
13-67
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